Abstract
This study aimed to identify sources of external knowledge in small- and medium-sized enterprises (SMEs). Additionally, it aimed to determine how external knowledge flow affects the different types of SMEs' innovation capabilities (product, process, organizational, and marketing innovation capability). A quantitative approach was adopted to achieve the objectives. A questionnaire survey was used to collect study data from 83 random SME managers/owners in Saudi Arabia. The data were analyzed using regression analysis and descriptive statistics. The findings of the study showed that customers were the main source of external knowledge in SMEs. The results of the regression analysis also demonstrated that external knowledge flow has a significant effect on SMEs' innovation capabilities. External knowledge explains the changes in SMEs' products and their process innovation capability. Additionally, external knowledge flow was a significant predictor of SMEs' organizational innovation capability. The findings of the study provide policymakers and managers with many suggestions for developing innovations in SMEs. Additionally, this study provides a basis for researchers to conduct more future studies related to innovation and knowledge flow in SMEs.