Among small firms in developing countries, innovation is often sorely needed. However, localised interactive learning tends to be poorly developed in these countries meaning that the inflow of new knowledge depends on interaction with global customers. Small firms may however be captured in unfavourable subcontracting relations and a low absorption capacity. This paper takes the furniture cluster of Jepara (Java, Indonesia) as an example, using a detailed fieldwork. The results picture a dominant learning-by-doing and interaction with buyers, and a low level of innovativeness, but also the presence of some highly innovative firms indicating a perspective for improvement.