ROLE OF INNOVATION SOURCES FOR EXTERNAL KNOWLEDGE ABSORPTION READINESS FOR LATVIAN ENTERPRISES

This paper investigates the role of different sources of innovation for the Latvian enterprises hindering innovation, analysing the influence of internal knowledge capabilities of the firms’ readiness and the ability to absorb external knowledge sources. Despite ongoing efforts to foster innovation, Latvian firms face significant structural challenges, which limit their ability to keep pace with regional competitors. The study addresses two key hypotheses: (1) internal knowledge and competencies are critical for driving innovation, and (2) firms with well-developed internal R&D and personnel development activities are more successful in integrating external knowledge from universities and other partners. The research involves a comparative analysis using the Eurostat innovation survey data on the Baltic states, and Finland and, and available literature. The findings highlight that Latvian firms, like government, compared to their Baltic counterparts, invest less in R&D and rely more on incremental innovations driven by external equipment suppliers, rather than on internally developed technological solutions. The analysis suggests that firms with stronger internal capabilities are better positioned to benefit from external collaborations and achieve higher innovation outcomes. The paper concludes with policy recommendations aimed at strengthening the co-networking and co-innovation interactions within the national innovation ecosystem through a systemic approach. This includes fostering firm-level new knowledge absorption readiness and performance both in-house and external, promoting in a long-term firms’ innovation culture and competitiveness via investment in R&D, and deeper collaboration between enterprises and external knowledge providers. Without a coordinated and sufficiently resourced knowledge-based policy framework, the existing innovation gap between Latvia and its regional neighbours is likely to widen further, slowing down economic growth.