Transformations  in
Business & Economics

INTERNAL OR EXTERNAL ABSORBING CAPABILITY-WHICH IS IMPORTANT FOR INNOVATION: INSIGHTS FROM CHINESE HIGH-TECH ENTERPRISES
Chunhua Chen, Xielin Liu, Julia Li Zhu, Christian Binz, Taishan Gao

ABSTRACT. This study aims at improving our understanding of absorptive capacity and the influence of absorptive capacity on technology innovation. We propose using alliance-based network to explore external absorptive capacity and fill the gap of quantitative analysis of the internal and external absorptive capacity together by using social network analysis. In the meanwhile we combine learning effects and absorptive capacity together, to explain how internal absorptive capacity and alliance-based networks cause learning effect, which promotes firms to generate more technological innovation in their home countries and abroad. Using panel data from 306 Chinese firms in high-tech industries during 2001-2010, we find evidence that internal absorptive capacity and external collaborations in alliance-based networks do induce higher technology innovation output, which implies that learning effect depend on the combination of firm-internal and external knowledge. The absorptive capacities, whether internal or external, has positive impact on innovation. Such evidence of absorptive capacity effect has nothing to do with the market position in the process of learning, they are shared among domestic and overseas market. Further, in terms of external absorptive capacity, higher network density and degree centrality in the firm's alliance-based network strengthen latecomers' innovation capacity.

KEYWORDS: absorptive capacity, external alliance-based network, technology innovation.

JEL classification: O23.