Globalizing domestic absorptive capacities.
| Verfasser | Sofka, Wolfgang |
| Posten | RESEARCH ARTICLE |
Abstract and Key Results
* Promising innovation impulses originate increasingly from customers, suppliers or competitors outside of a firm's traditional home market. We investigate how firms can adjust their absorptive capacities to benefit from these new opportunities.
* We suggest that these capabilities depend upon the investments in absorptive capacity development, international experience as well as the munificence of the home market environment. We test these hypotheses empirically based on a survey of more than 2,200 German firms.
* We find that the globalization of absorptive capacities is a combination of refining their development (most importantly through ambitious incentive systems), export experience and shortcomings of the domestic innovation environment. The importance of each individual factor varies with regards to the source of the impulse, i.e. whether it stems from foreign customers, suppliers or competitors.
Keywords: Absorptive Capacity * Globalization * Global Sensing" International Innovation Impulses * Innovation Management * Trivariate Probit Estimation
Introduction
Establishing "pipelines" to valuable technological expertise and market intelligence around the world has become a major theme of modern innovation management (Malmberg/Maskell 2005). Political and economic changes in large, unexplored markets combined with technological breakthroughs (internet, telecommunications) in easy, affordable communication provide exciting opportunities. Important research has been conducted into multinational firms and how they tap into international knowledge pools through subsidiaries and foreign direct investments (see for example Anand/Kogut 1997, Kuemmerle 1999, Von Zedtwitz/Gassmann/Boutellier 2004) or based on patent statistics (see for example Almeida/Phene 2004, Jaffe/Trajtenberg/Henderson 1993). We extend this line of research by focusing on the transfer of impulses across national borders that may trigger domestic innovation activities.
To do so, we draw arguments from the literature on firms' absorptive capacity, i.e. their ability to identify, assimilate and exploit knowledge from their environment (Cohen/Levinthal 1989, 1990). More precisely, we explore the specific challenges in an international environment stemming from national and cultural borders. We ask: What factors lead firms to source innovation impulses abroad so that they can globalize their absorptive capacities? We develop these factors conceptually and derive distinctions between the specifics of different knowledge sources (foreign customers, suppliers and competitors). We test these hypotheses empirically using a survey of more than 2,200 German firms and their innovation activities.
Our analysis is structured as follows: The following section provides a theoretical background followed by the development of hypotheses. The subsequent sections provide an overview of the empirical study (data, methods, measures) and its results. We conclude with a discussion of these.
Theory Section
Several studies have outlined the rationale (competitive pressure, shorter product lifecycles, high investments, available external expertise) for companies to leverage external sources of innovation (Chatterji 1996, Chesbrough 2003, Kleinschmidt/Cooper 1988). These sources need to be identified, activated and managed for success (Gottfredson/Puryear/Phillips 2005, Stock/Tatikonda 2004). The capability to achieve this has been conceptualized as a firm's absorptive capacity (Cohen/Levinthal 1989, 1990). It has three major components: The identification of valuable knowledge in the environment, its assimilation with existing knowledge stocks and finally its exploitation for successful innovation. Absorptive capacities, their roots, mechanisms and consequences have been major issues of recent scientific discussion (Lane/Koka/Pathak 2006 count 289 papers in their excellent review). Absorptive capacities link a company's innovation system with its environment. Hence, they cannot remain static as the environment changes (Szulanski 1996, Van den Bosch/Volberda/de Boer 1999). They allow firms to reinforce, complement or refocus their knowledge base (Lane/Koka/Pathak 2006). Zahra/George (2002) introduce the distinction between potential and realized absorptive capacity. Put simply, they envision absorptive capacity as a funnel with a large opening for taking in a broad variety of diverse ideas with potential value. These have to be narrowed down, prioritized and codified to facilitate efficient assimilation and exploitation processes (Jansen/Van den Bosch/Volberda 2005). We build upon this concept by introducing the effects of globalization to this basic notion of "valuable knowledge from the environment" and how firms readjust their absorptive capacities to deal with a much larger pool of potential ideas which are also more diverse. We define the globalization of absorptive capacities as a set of organizational processes that enable domestic companies to use international innovation impulses in their domestic innovation processes.
Breakthroughs in information and telecommunications technology as well as the opening of large, dynamic markets, most notably in China and India, are amplifying the scope of promising ideas and impulses (Govindarajan/Gupta 2001, Gupta/Westney 2003). The benefits of internationalizing innovation activities are well documented: responsiveness to foreign market conditions (e.g., tastes, regulations) (Craig/Douglas 2000), learning from localized, country-specific expertise (Kuemmerle 1999, Rugman/Verbeke 2003, Mu/Gnyawali/Hatfield 2007) and increasing efficiency by leveraging comparative cost advantages abroad (e.g., large supply of scientific personnel, 24/7 lab activities) (Von Zedtwitz 2004). Conversely, the risks from missing important technological or market trends (Rugman/Verbeke 2004) as well as resource commitments for the wrong ones are increasing, as pockets of valuable expertise are becoming more globally diverse and dispersed (Doz/Santos/Williamson 2001). Competitive advantage can be achieved if companies have the competencies and processes in place to identify market and technology opportunities that are unarticulated, overlooked or underestimated (Von Zedtwitz/Gassmann 2002a). The challenge for any innovation management system is to absorb and prioritize prospective innovation signals (Lloyd 1995). This is especially difficult as the information that has to be transferred is often subtle, complex and difficult to transfer (Doz/Santos/Williamson 2001). Moreover, transnational knowledge flows represent a challenge because a significant border effect exists (Branstetter 2001, Jaffe/Trajtenberg 1999, Jaffe/Trajtenberg/Henderson 1993, Peri 2005, Porter/Stern 2000).
Hypotheses Development
Szulanski (1996, 2000) provides a process perspective on knowledge transfers. We utilize this framework and envision the sourcing of innovation impulses as a form of knowledge transfer. The knowledge transfer model has four distinctive stages. It starts with an initiation stage which largely consists in identifying and evaluating relevant knowledge and its sources, followed by the implementation stage, in which the knowledge should be captured as completely as possible and transferred from its source to the recipient. The transfer concludes with an initial "ramp up" stage for the recipient including trial and test activities. The final stage is one of integration into the recipient's knowledge base. The recipient's absorptive capacities are an important factor for the success of this multistage knowledge transfer (Szulanski 2000). We argue that knowledge sourcing in a globalized environment adds new challenges to this process at the early stages, i.e. initiation and implementation, when the potential knowledge sources have to be identified and their knowledge captured and codified comprehensively. Doz/Santos/Williamson (200l) conceptualize these early stages as "sensing" for new competencies, innovative technologies and lead market knowledge. This is seen as the basic layer of internationalizing innovation activities; the mobilization of resources and their execution follow.
Searching for valuable innovation impulses around the globe adds the additional dimension of cultural and social borders. Knowledge cannot be separated from the commitments and belief patterns of its holders (Nonaka 1994). Frictional losses in cross-border situations have been summarized as liabilities of foreignness (Zaheer 1995). Language barriers and differences in communication patterns are an important element of these cultural obstacles (West/Graham 2004). They are typically related back to institution theory. Environmental pressure and opportunities in the domestic market shape the skills, structures, practices and routines of companies and their staff over time. A firm's constant exposure to its environment and the interaction between the two leads to an organizational entity that reflects its domestic social, cultural, economic and legal environment. Many of the rules in the environment are causally ambiguous or unwritten (Jensen/Szulanski 2004) which makes them difficult to codify and transfer. We argue that a firm's ability to absorb foreign knowledge impulses will depend upon investments in absorptive capacities, the exposure it has to international markets and the relevance that international knowledge has compared to the domestic environment.
Investments in Absorptive Capacities
Foreign knowledge is embedded in an unfamiliar cultural context. Transferring and absorbing tacit and complex knowledge is difficult (Garud/Nayyar 1994, Szulanski 1996). The ambiguity induced by tacitness makes the process less effective, while the additional knowledge needed to understand complex items makes it less efficient. As firms move away from the certainties of their home market environment into the uncertainties of international markets, they are...
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