Dual drivers of innovation in China: how external and internal factors shape knowledge management to reinvent business models in the Hangzhou model

Business model innovation serves as an important strategic choice for organizations adapting to complex environments. Grounded in institutional theory and the knowledge-based view, we analyse 305 questionnaires collected from incubators and high-tech parks in Hangzhou, China. Through statistical analysis with Mplus, we investigate the mechanisms through which internal and external factors influence organizational business model innovation. Results show that under the Hangzhou Model, both external institutional factors and internal organizational factors positively impact business model innovation, with knowledge management processes playing a mediating role in this relationship. These insights advance theory and offer practical guidance for replicating the model’s success.