value insights

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).


Leave a Reply

Your email address will not be published. Required fields are marked *