Purpose - Despite the growing interest in innovation of low-tech herbal manufacturing industry from strategic and policy standpoints, little empirical research exists on their innovation capability. The purpose of this study is to explore innovation capability and its effect on product innovation performance of small low-tech herbal manufacturing firms.

Design/methodology/approach - Innovation capability has been important to large firms in general and to some small firms in particular in order to address the issue of survival and profitability. A case study method is adopted to explore the process of innovation capability of low-tech manufacturing firms.

Findings - Analysis of the two case studies reveals that collaborating with institutional actors, customers, suppliers and other competitors in interactive learning, coupled with idea management and idea implementation, has been factors that has influenced innovation capability and the case firms’ product innovation performance (i.e. profitability, market share, sales, return on assets, and return on investment).

Research limitations/implications - First, in this study, we analysed two homogenous companies from the same geographical context. It could be fruitful to extend the scope to include firms in other geographical contexts and different industries, where the theoretical arguments advanced in this study can be tested further.

Originality/Value - Although the research field of innovation capability is growing lately; few attempts have been made to explore innovation capability and its effect on product innovation performance of small low-tech herbal manufacturing firms.