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Open innovation is a phenomenon that has gained vast attention since its introduction in 2003. It has been identified that organizations are experiencing a shift from the innovation process towards an open innovation approach. However, research on open innovation in small and medium-sized enterprises (SMEs) has shown to require more attention in the literature. This study investigated the effect of resources and capabilities in Swedish SMEs to address the challenges of liability of smallness. The purpose of this research is to investigate the challenges that Swedish SMEs in the high-tech industry face while opting for an open innovation approach. For that, the following research question was answered: How do resources and capabilities affect Swedish SMEs in engaging in open innovation to overcome the liability of smallness? 

A resource-based theory has been implied in this study which examines from five distinct perspectives namely, strategy, process, corporate structure, cross-company network, and culture.  This thesis paper is a qualitative study that has been conducted by semi-structured interviews with five Swedish SMEs. The empirical data was then thematically analyzed and seven themes have been developed from the data analysis.

The findings reveal that firstly, Swedish SMEs in the high-tech industry are open to external collaboration and accepting innovative ideas coming from both internal and external sources. Therefore, empirical evidence shows that Swedish SMEs are not always reluctant to make a shift towards open innovation. Rather it has been found that SMEs are open to opportunities to tackle the obstacle of smallness. Secondly, resources and capabilities have a positive effect on the performance of the SMEs. Allocation of resources both financial and human resources results in the successful commercialization of a project, thus by gaining a competitive advantage the performance of the firm improves significantly. Thirdly, whilst the liability of smallness has shown to have an impact on Swedish SMEs in the high-tech industry, it has also been identified how smallness also can be viewed as an asset. Smallness as an asset has been found to make an impact on Swedish SMEs in the high-tech industry and the unique opportunities that they possess. Leveraging open innovation and capitalizing on flexibility, linear corporate structure, inclusive culture, and leveraging formal and informal networks to engage in external collaboration has been shown to have an effect on SMEs and contribute to smallness as an asset. Therefore, a comprehensive conceptual framework has been developed in this study that integrates insights gained from the research.