| Summary: | The video game industry in Sweden has experienced tremendous growth since 2009 with its revenue generation being compared to iron ore, an important revenue generator for the country. The ability of these firms to record recurrent increases in revenue is due to the innovativeness of the industry. External sources of knowledge affect firms’ innovative performance. However, the complexity of the knowledge acquired is influenced by the strength of ties between the firm and its counterparts. This study investigates how Swedish video game firms develop new products to stay competitive through their relationship with their strong ties counterparts, level of cooperation and firms’ absorptive capacity. We model strong ties relationship with latent constructs including closeness, commitment and trust. A nationally representative survey was conducted among selected video game firms across Sweden. Structural equation modelling was then utilized to assess the effect of strong ties on new product innovativeness. The results show that strong ties with external counterparts have a positive and statistically significant effect on new product innovation through the mediating channel of cooperation and absorptive capacity. Closeness, commitment and trust show a direct effect on cooperation, cooperation on absorptive capacity and absorptive capacity on new product innovativeness. The implications of these findings have been discussed.
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