Innovation, cooperation and business performance

Purpose - The purpose of this paper is threefold: to understand the cooperation activities of small and medium enterprises (SMEs) in food processing industry clusters; to understand the role of cooperation in improving innovation; and to understand the relationship between cooperation, innovation, and business performance of SMEs in food processing industry clusters in rural areas of Indonesia. Design/methodology/approach - An empirical survey was conducted on SMEs in food processing industry clusters. Primary data collected in five SMEs clusters were analyzed by regression and correlation analyses using the path‐analytic approach. In this study, the following two hypotheses were examined: cooperation is positively related to innovation; and innovation of SMEs is positively related to business performance. Findings - Using the path analytical method, this paper provides evidence that cooperation is significantly related to innovation of SMEs in food processing industry clusters. Moreover, business performance is a function of innovation, in which research results show that innovation significantly affects the business performance of SMEs. Originality/value - This paper contributes to the extant literature by providing empirical evidence that the cooperation of SMEs with universities and other firms, which are activities more likely to occur within clusters, is positively associated with innovation. Such a contribution is very important for completing the explanation of innovation phenomena that exists in the clusters, since empirical research exploring the role of cooperation in the innovation of SMEs in food processing industry clusters is still rare.