The Impact of Institutional Support, Cluster Involvement, and Absorptive Capacity on Innovation and Market Performance in Industry Clusters in the UAE

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The British University in Dubai (BUiD)
While industry clusters can enhance a firm’s resources and improve performance, judging the role such clusters play in developing countries, such as the UAE, without assessing the pertinent institutional factors surrounding these firms and their capabilities provides an imperfect portrayal of such clusters. The existing literature regarding industry clusters often overlooks the role of the cluster facilitators in supporting firms through the institutions they create and the knowledge they enrich for their members and further neglects the concept that firms within clusters are heterogeneous in terms of their capabilities; hence, they do not capitalise on the benefits equally. This research explores the effect of institutional support and cluster involvement on the innovation performance of the firms within industry clusters in the UAE while considering a firm’s absorptive capacity as a mediator. This research relied on the institution-based view (IBV), the resource-based view (RBV), and dynamic capabilities theories to develop the conceptual framework and adopts a quantitative approach. Data was collected from 225 companies within various industry clusters in the UAE and analysed using Structured Equation Modelling (SEM). Unexpected findings revealed that the institutional support and cluster involvement are insufficient to improve innovation performance directly. Industry clusters may improve a firm’s innovation performance through the mediation effect of the absorption capacity of firms which partially mediates the relationship between cluster involvement and innovation performance and fully mediates the same relationship with institutional support. This research is among the first attempts to integrate the IBV, RBV, and dynamic capabilities theories to explain how industry clusters can improve clustered firms’ innovation performance. On a practical note, the findings highlight the importance of cluster involvement and the progressive development of organisational learning systems to exploit the benefits of being located in an industry cluster.
industry clusters, institutional support, cluster involvement, absorptive capacity, innovation performance, market performance