The knowledge capital of SMEs: The French paradox

This paper focuses on the innovation activities of French SMEs. We put forward a ?French paradox?, expressed by a quite important effort in terms of R&D investments and poor results in terms of innovation as measured by traditional indicators. To explain this paradox, we study their strategy of knowledge capital building and valorization. To do this, we build a theoretical scheme by combining two key concepts related to the knowledge capital development ? absorptive capacity and open innovation ? to assess the innovation activities of firms. A review of literature is achieved to apply this scheme to SMEs and reveal their main characteristics. A single case study methodology is used to study the behaviors of French SMEs. The article shows the interest of linking the two concepts of absorptive capacity and open innovation in the analysis of knowledge capital building and valorization. The results of the case study reveal that apart from the structural characteristics of SMEs, one important reason to the French paradox lies in the integration of SMEs into innovation networks. The valorization of SMEs? knowledge capital is thus not always achieved by the SMEs themselves but by other companies, notably larger ones, enriched by the specific knowledge of these SMEs. JEL Codes: O32, O34, L22, L25