Innovation and regional absorptive capacity:the labour market dimension

In 2003, Eurostat published an 'experimental' dataset on regional innovation levels derived from the Second Community Innovation Survey. This dataset, part of the European Innovation Scoreboard, also contains a range of regional labour market indicators. In this paper, we report an exploratory analysis of this data, focussing on how the labour market characteristics of regions shape regions' absorptive capacity (RACAP) and their ability to assimilate knowledge from public and externally conducted R&D. In particular, we aim to establish whether labour market aspects of RACAP are more important for innovation in prosperous or lagging regions of the European Union (EU). © Springer-Verlag 2006.

Alliance behaviour, absorptive capacity and competitive advantage: a comparative study of biopharmaceutical firms in Europe and the US

In this thesis, we explore the relationship between absorptive capacity and alliances, and their influence on firms’ competitive advantage in the US and European biopharmaceutical sectors. The study undertaken in this thesis is based on data from a large-scale international survey of over 2,500 biopharmaceutical firms in the US, the UK, Germany, France and Ireland. The thesis advanced a conceptual framework, which integrated the multi-dimensions of absorptive capacity, exploration-exploitation alliances, and competitive advantage, into a biopharmaceutical firm’s new product development process. The proposed framework is then tested in the empirical analysis, using truncated models to estimate firms’ sales growth, with zero-inflated negative binominal models capturing the number of alliances in which firms engage, and aspects of realised absorptive capacity analysed by ordinal probit models. The empirical results suggest that both skill-based and exploitation-based absorptive capacity play crucial roles in shaping firms’ competitive advantage, while neither exploratory nor exploitation alliances contribute to the improvement in firms’ competitive position. In terms of the interaction between firms’ absorptive capacity and alliance behaviour, the results suggest that engagement with exploratory alliances depends more strongly on firms’ assimilation capability (skills levels and continuity of R&D activities), while participation in exploitation alliances is more conditional on firms’ relevant knowledge monitoring capability. The results highlight the major differences between the determinants of firms’ alliance behaviour, and competitive advantage in the US and Europe – in the US firms’ skill levels prove more significant in determining firms’ engagement with exploratory alliances, whereas in Europe continuity of R&D proves more important. Correspondingly, while US firms’ engagement with exploitation alliances depends on market monitoring capability, that in Europe is more strongly linked to exploitation-based absorptive capacity. In respect of the determinants of firms’ competitive advantage – in Europe, market monitoring capability, engagement with exploitation alliances, and continuous R&D activities, prove more important, while in the US, it is firms’ market characteristics that matter most.

Absorptive capacity and the benefits from global reservoirs of knowledge:evidence from a linked China-OECD dataset

This paper investigates the role of absorptive capacity in the diffusion of global technology with sector and firm heterogeneity. We construct the FDI-intensity weighted global R&D stock for each industry and link it to Chinese firm-level panel data relating to 53,981 firms over the period 2001-2005. Non-parametric frontier analysis is employed to explore how absorptive capacity affects technical change and catch-up in the presence of global knowledge spillovers. We find that R&D activities and training at individual firms serve as an effective source of absorptive capability. The contribution of absorptive capacity varies according to the type of FDI and the extent of openness.

FDI, linkages and the efficiency of state-owned enterprises in China

As China seeks to consolidate its position as an emerging global economic power, reforming the largely inefficient state-owned enterprises (SOEs) presents a major challenge. Using a comprehensive micro data set, we investigate whether SOEs in China have benefited from the managerial, technical and organisational skills possessed by multinational firms operating in the economy, and conclude that the evidence in favour of positive spillovers is not overwhelming. Limited regional linkages and low level of absorptive capacity are found to be the main reasons for this disappointing performance. Policy makers involved in the reform of SOEs should ensure that managers have the right incentives to make long-term investment in absorptive capacity development.

Impact of the length of relationships upon the use of research institutes by SMEs

Recent studies of US industrial modernisation programmes argue that difficulties of establishing long-term relationships with users prevent them from facilitating development of innovation capabilities. The paper supports this argument through a survey of Japanese research institutes the US programmes were modelled on. In view of information asymmetries in their use, it tests the hypothesis that small and medium-sized firms start using the research institutes with ‘low information gap’ services and gradually move on to ‘high information gap’ services that often require more absorptive capacity. This is demonstrated both under one-to-one relationships and between groups of firms and a research institute.

The effects of external linkages on new product innovativeness:an examination of moderating and mediating influences

Our study of 116 new product development projects in Taiwanese Information Technology (IT) firms show that horizontal linkages more strongly impact on new product innovativeness than vertical linkages. The firm's learning ability or absorptive capacity increases new product innovativeness. It also moderates the impacts of corporate and research institute linkages on new product innovativeness. Moreover, we confirm that knowledge gains mediate the positive impacts of absorptive capacity and external linkages on new product innovativeness.

Technology flows, outsourcing and productivity:an analysis of UK trade and FDI

By engaging in trade and foreign direct investment (FDI) with foreign partners, a country can access the R&D and related knowledge stocks of other countries (by accident or by design) and so benefit from those stocks of knowledge at a cost lower than that which would be incurred by developing the knowledge internally. This should lead to beneficial ‘spillover’ effects on the productivity of domestic firms. However, the literature on technology spillovers from trade and FDI is ambiguous in its findings. This may in part be because of the assumption in much of the work that trade and FDI flows are homogeneous in their determinants and thus in their effects. We develop a taxonomy of trade and FDI determinants based on R&D intensity and unit labour cost differentials, and test for the presence of spillovers from inward investment and imports on an extensive sample of UK manufacturing plants. We find that both trade and FDI have measurable spillover effects, but the size of these effects varies depending on the technological and labour cost differentials between the UK and its trading partners. There is therefore an identifiable link between the determinants and effects of trade and FDI which the previous literature has not explored. We also find that absorptive capacity matters for spillovers from FDI, but not from trade. Overall, these findings suggest that the productivity effects of FDI are largely restricted to plants with high absorptive capacity, while the productivity effects of imports occur largely among higher-technology plants regardless of their absorptive capacity.

Determinants and impacts of inward FDI in Japan

The research consists of three empirical studies. The first examines how source country characteristics affect the aggregate FDI inflows in the Japanese economy during the period of 1989-2002. Our results demonstrate that the stable investment climate of the home country is an essential factor indicating FDI inflows to Japan. By contrast, the export performance of the source country is negatively correlated with FDI inflows, indicating that international trade and FDI are substitutes. The second study identifies the determinants of foreign penetration across Japanese manufacturing sectors at the three-digit level during the period of 1997-2003. More importantly, this study examines the moderating effects of keiretsu affiliations on the relationship between various sectoral characteristics and foreign participation. The evidence of both horizontal and vertical keiretsu impacts on foreign penetration depends on not only different proxy measures used for inward FDI, but also on the level of technological sophistication in given sectors. In general, our results demonstrate that horizontally linked keiretsu are positively associated with foreign productions in knowledge-intensive sectors. By contrast, this effect becomes a significant entry barrier to foreign employment in low-tech sectors. The final study evaluates the impacts of a foreign presence on the productivity of Japanese manufacturing firms over the period of 1997-2003. Our results suggest that spillover effects largely differ according to the level of absorptive capacity of indigenous firms.

Challenging the production function approach to assess the developmental effects of FDI

From a theoretical point of view, it is traditionally assumed that foreign firms possess a centrally accumulated firm-specific technological advantage over domestic firms (see, for example, Findlay, 1978; Dunning, 1979). Given a sufficient level of absorptive capacity and human capital, domestic firms in host economies are able to benefit from various externalities stimulated by the presence of foreign firms.

Internationalization of small and medium sized UK manufacturing enterprises:technology and knowledge transfer perspective

This dissertation examines internationalisation of small and medium sized enterprises. There has been a journey to achieve this. The research has started as an action research as Teaching Company Scheme Associate. This has been done in two research cycles, which investigated factors for successful internationalisation of a small and medium sized UK manufacturing enterprise. This has revealed that successful internationalisation requires good technology and knowledge transfer to the new operations. The action research is followed by a survey that has been conducted within UK manufacturing companies. The data collected was analysed under three models: entry mode selection, role of factory and level of internationalisation. The first two models explain two major aspects of internationalisation decision. The last is showing what makes successful internationalising small and medium sized companies. These models provided several important results. The small and medium sized enterprise internationalisation is harder to achieve because most of these organisations do not have experience in technology and knowledge transfer. The success of internationalisation depends on the success of the transfer. This is achieved through employee ownership of the new knowledge. There are many factors affecting this result such as the network relationships such as trust, control and commitment and cognitive distance between two organisations. The last is a product of the difference between prior knowledge and the required level of knowledge. The entry mode and role of factory are decided through these factors while the level of internationalisation can only be explained by absorptive capacity of the recipient organisation and the technology transfer ability of the host organisation.

State fragility and international development co-operation

Over the past few years addressing state fragility in the third world has become an important priority in international development cooperation. However, it seems that the international donor community has so far not been able to develop adequate instruments for dealing with the problems posed by state failure. We see two reasons for this: (i) there is growing recognition within the donor community that the lack of absorptive capacity, or bad economic policies in the partner country can actually make aid counterproductive, even harmful; and (ii) it is very difficult to manage effective development cooperation with weak governments. Channelling aid through NGOs, or giving limited aid in the form of capacity-building is clearly not sufficient to solve the problems fragile states face.