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Helen Reijonen, Jani Saastamoinen and Timo Tammi

The merits of public procurement of innovations (PPI) as a demand-side innovation policy instrument have been identified in both political and academic discussion. In particular, the involvement of small and medium-sized enterprises (SMEs) in PPI could be a valuable tool in promoting SME innovations. As such, PPI could play an important role in the entrepreneurial ecosystem in which interdependent actors collaborate. However, the impact of collaboration among entrepreneurial ecosystem actors in the context of PPI on SMEs’ competitiveness lacks empirical assessment. This chapter addresses this gap in the literature with a survey of Finnish SMEs. We propose a construct for SMEs’ improved competitiveness which can be attributed to involvement in public procurement. A statistical analysis applying a path model suggests that after controlling for firm size and age, innovativeness and industry, collaborating with the public sector customer in developing new products/services, improving production processes and making improvements to existing products/services in response to the public sector customer’s demand is associated with improved competitiveness. As a managerial implication, the results suggest that PPI has merits in promoting the competitiveness of SMEs through innovations.