Absorptive capacity in low-tech industry: Case Study of Indonesian Manufacturing Companies

Research Center for Science and Technology Development, Indonesian Institute of Sciences  

Abstract

Innovation has widely recognized as an important factor for driving competitiveness of many firms. In order to generate innovative performances, firms need to improve their capabilities in absorbing knowledge and technology from external sources, which is so called absorptive capacity. This paper will analyze what kind of sources of innovation in manufacturing sectors especially for low tech industries. Focusing on innovation activities, this paper aims to identify what kind of determinants in influencing the difference of absorptive capacity in low tech industries. The source of data is derived from Innovation Survey 2011 held by Center for Science and Technology Development Studies. The survey conducted for 1360 firms in manufacturing sector, in which most of the distribution is mainly consisted of low technology sectors. Instead of quantitative approach, the result is also supported by in depth interview from selected firms observed in 2013. This paper addresses multiple case studies as the qualitative approach, including firms in food and beverages, and jewelry art and design. According to the results, most of low tech companies searched their external sources of knowledge from their market, and customers were the main driver for their innovation output. In respond to this situation, this paper proposes an idea of open innovation for enhancing industrial competitiveness. As policy insights, the sources of competitive advantage in an open innovation setting will encourage the firm to the internal organizational processes that allow a firm to recognize, assimilate and exploit knowledge.