What kind of knowledge can a firm absorb?

Abstract

Economists emphasise the crucial role of absorptive capacity with regard to external knowledge. In this respect, the firm's knowledge base determines its ability to recognise, assimilate and exploit externalities. Assuming that a firm's absorptive capacity also depends upon the characteristics of external knowledge, this paper analyses the relationship between three basic concepts empirically defined: the fundamental or applied nature of knowledge, the tacit or codified form of knowledge and the absorptive capacity of the firm. Based on an empirical analysis of R&D contracts between France's largest research institute and industrial firms, we show that a low absorptive capacity inhibits cooperation in R&D. The collaboration concerns mostly applied fields and needs informal interactions to support transfers (such as telephone calls, informal interviews and meetings). A high absorptive capacity extends the assimilation to all kinds of knowledge (applied, fundamental) through all types of vehicles (PhD students, scientific staff, technical devices). Altogether, absorption mechanisms seem to diversify as the firm's absorption capacity increases.

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