EFFECT OF KNOWLEDGE MANAGEMENT and OPEN INNOVATION on SMEs' FIRM PERFORMANCE

Abstract

The goal of the study is to examine the effects of Knowledge Management and Open Innovation on the performance of SMEs in the context of Greater Jakarta, where conventional large-firm advice has dubious value due to complex financing frictions, informal competition, and repeated external shocks. The survey results (258 respondents from SMEs) analyzed using the SEM-PLS model show that KM and OI both positively affect firm performance, but the differences are substantial (KM β = 0.167; OI β = 0.027). It not only calls into question the seemingly uncritical celebration of openness as an intrinsic performance lever for SMEs, but also implies that effective collaboration outside the SMEs needs to precede the development of internal knowledge capabilities. Its novelty lies in the one-of-a-kind institutional context of Greater Jakarta Jabodetabek, which embodies a quest for performance that addresses four dimensions and targets for goal attainment across profitability, growth, operational efficiency, and crisis resilience. Put simply, results inform policymakers and SME managers about the importance of establishing codification and sharing practices rather than focusing on open innovation platforms. This result runs counter to the prevailing discourse on digital connectivity. On the theory, it supports the contingent RBV by showing that when absorptive capacity is underdeveloped, openness yields diminishing returns.