How Absorptive Capacity is Formed? : Not Explicit but Tacit Knowledge Matters

Atlanta Conference on Science and Innovation Policy 2011This material is presented to ensure timely dissemination of scholarly and technical work. Copyright and all rights therein are retained by authors or by other copyright holders. All persons copying this information are expected to adhere to the terms and constraints invoked by each author's copyright. In most cases, these works may not be reposted without the explicit permission of the copyright holder. ©2011 IEEE. Personal use of this material is permitted. However, permission to reprint/republish this material for advertising or promotional purposes or for creating new collective works for resale or redistribution to servers or lists, or to reuse any copyrighted component of this work in other works must be obtained from the IEEE.While the literature tend to use in-house R&D as a proxy for absorption capacity and be silent about where this ability of doing R&D has come from, this paper has tried to dig out the origin of absorption capacity after defining it first as being able to conduct one s own in-house R&D and second as being thereby able to generate innovation outcomes. This paper distinguish three forms of foreign technology acquisitions based on the unique archive data from Korea, such as know-how only licensing, know-how plus patent licensing, and patent only licensing. This data show that the majority of the Korean firms started with know-how only licensing, while licensing involving patents came later. Then, an econometric analysis finds that know-how licensing associated with imported capital facility has led to firms to start their own in-house R&D, whereas licensing involving patents only tend not to be significantly related to conducting R&D, which suggests possibly substituting effect between foreign patent introduction and doing own R&D. A similar econometric exercise shows that conducting own in-house R&D as well as licensing of know-how has led the firms to be able to generate innovations or patent applications at later stages. This study shows that before firms being able to do in-house R&D and innovations, there waslearning process involving foreign technology, especially tacit knowledge in the form of know-how, which is the origin of the absorptive capacit