The Role of Absorptive Capacity between External Knowledge Search and Firm's Product Innovation Performance

Abstract

External knowledge search is crucial for firm's product innovation performance (PIP). However, it is still not clear, what dimensions of firms' external knowledge search strategy are crucial in determining their product innovation success, and how firms are exploiting the external knowledge from their external knowledge search activities. This study examines the effect of two different external knowledge search strategies-collaboration breadth and collaboration depth on PIP by proposing multidimensional absorptive capacity as the mediating variable in between these relationship. Empirical result in a sample of 137 Malaysian manufacturing firms found that absorptive capacity is partially mediated between collaboration depth and PIP. The findings provide insight that absorptive capacity could explain interfirm differences in benefiting from external knowledge search. This study advances extant literature by explaining the way of a firm in attaining superior PIP from external search strategies and absorptive capacity and provide insights for managers in developing suitable strategies to gain and sustain competitive advantages. As firms improve in its PIP, it could move up the value chain of a country, and encourage better economic development of the nation.