The cluster impact on innovation and performance of SMEs has attracted considerable attention in the literature. However, there are still several knowledge gaps in this area and further research is required to fill those gaps. We constructed a multi dimensional theoretical model which involves different factors of cluster characteristics, firm’s inner capabilities, third parties role, and external relationships. We tested the theoretical model empirically by collecting a sample from technology SMEs belonging to clusters within the European Union. The data were analyzed using SmartPLS software. The study tends to support the importance of social networking and learning orientation for firm’s innovativeness. Furthermore, our study highlights a positive effect of geographical proximity between firms for SMEs’ performance.