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Recently, there has been increasing interest in the principle of open innovation and its relevance to our understanding of innovation in modern industry. This article relates these ideas to the specific, yet important, case of innovation in high-technology small firms (HTSFs). HTSFs are of interest since they have produced a significant number of the most important innovations in the high-technology sectors over the past 30 years. Certainly as far as HTSFs are concerned, it is argued that the ideas behind greater openness during innovation are not well suited to the way in which this type of firm innovates. Moreover, it is argued more generally that the work of Chesbrough can be criticised for overstating the potential for greater openness in terms of industrial research and development, since a degree of openness has always existed, while simultaneously understating the merits of closed innovation systems.

Much of the policy assistance for high‐technology small firms (HTSFs) over recent years has been directed at encouraging their research and development (R&D) collaboration through local networking and technology transfer. Following a consideration of why HTSFs are formed, and how they perform R&D in order to cope with the competitive environment, this paper explores the value of external collaborative R&D to internal R&D management, inside geographically concentrated incubators, science parks or clusters. It is concluded that, although R&D collaboration with external partners occurs in limited instances, much HTSF R&D is highly confidential, competitive and wholly internalised. This tendency, as far as it relates to R&D management, is significant in that it minimises the likelihood that local management collaboration between co‐located firms will improve the performance of R&D projects.

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