Recent studies about clusters claim that firm-specific characteristics should be considered as central to the explanation of innovation This article contributes to this literature and explores the role of combinations of internal and relational resources to the explanation of innovation in clusters The results from 48 small and medium size enterprises (SMEs) located in one of the leading European ceramic tile clusters stress that a firm's strategy—understood as a combination of both internal and relational resources—is important, influences innovation and partially shapes the dynamics of clusters. The results highlight the role of a firm's internal resources as crucially important in the access to external knowledge, i.e. to absorption capacity. As such, the external resources in clusters are exploited and combined in different ways according to a firm's internal resources. In addition, evidence is presented of a synergistic effect from the interaction between a firm's internal and relational resources. These results support the idea that absorptive capacity is crucial to the effective exploitation of external know-how and to obtaining benefit from complementarities between internal and external resources. Neither distance nor embeddedness is sufficient to explain innovation in environments in which firms maintain frequent and multiple relationships.

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