Absorptive Capacity and Development Capacity- Valutrics
The innovation capacity of places combines two broad sets of capacities: their absorptive and development capacity. The absorptive capacity of places to identify, value, and assimilate potentially profitable external knowledge and the development capacity of places to develop and exploit such knowledge.
The traditional focus on domestic innovation capacity has assumed that most of the knowledge needed for local innovation will be found locally. Government has therefore sought to increase knowledge transfer between local players. However, these new insights show the importance of harnessing external knowledge to improve local innovation capacity.
External knowledge that flows into a region translates into one or more outputs: (1) the creation of new innovation; (2) the creation of new knowledge; or (3) new economic and social value. Thus new value can be a direct or indirect outcome.
The ability to ensure that external knowledge adds economic value depends on a region’s absorptive capacity channels. In such a process, external knowledge flows into a city or a region through one or more of the following three channels: (1) business, academic, and social networks; (2) established (anchored) firms and organisations in the region; and (3) through active and passive learning and take-up (diffusion).
Knowledge creation and exploitation are often understood as start and finish points for innovation, with knowledge being created in a university or company research department and then applied by a different department or firm. Policymakers often assume they must take place within a specific geographic political context to be successful.
However, knowledge creation and knowledge exploitation often happen in different places, particularly where regions and smaller countries are concerned.
The absorptive capacity to ‘create knowledge’ is the ability of a place to generate new ideas, discoveries, designs and inventions. This capacity is often expressed in the production of scientific papers, patents, registered designs and graduates. This capacity can extend horizontally across a broad range of fields and sectors and vertically through specialization and concentration in specific knowledge domains. A horizontally broad knowledge creation capacity facilitates knowledge absorption from wider fields of knowledge, while a vertically specialized knowledge development capacity gives a region a stronger absorptive capacity in complex domains of knowledge. This capacity, though classified as a ‘development capacity’, is nevertheless critical to a place’s absorptive capacity.
The development capacity to ‘diffuse knowledge’ is the collective ability of a place to adapt and assimilate new innovations, practices and technologies and spread them in the economy. Diffusion can happen through either ‘active’ or ‘passive’ emulation. The former takes place through activities such as purchases and imports of new patents, technologies or systems. The latter happens through applied learning, reverse engineering or efforts to catch up with the competition. In 1968, an OECD report Gaps in Technolog stated that: “the performance of a country in technological innovation has been defined as the rate at which new and better products and production processes have been introduced and diffused throughout its economy”. Diffusion is a critical capacity for innovation performance. Accordingly, the OECD proposed measuring two aspects of innovation performance: being first to commercialize new products and processes (performance in originating innovations); and the level and rate of increase in the use of new products and processes (performance in diffusing innovations).
