Internal capabilities and external knowledge sources: complements or substitutes for innovative performance?

This paper attempts to investigate the extent to which the existing internal capabilities of firms and their interaction with external sources of knowledge affect their level of innovativeness. Part of these capabilities result from a prolonged process of investment and knowledge accumulation within firms and form what has been addressed as the "absorptive capacity" of firms (Cohen & Levinthal, Admin, Sci Q., 35 (1990) 128). There are however other efforts that enhance the "original" definition of absorptive capacity and these relate to the way firms interact with their environment. Empirical data from an extensive survey that was carried out in seven European countries, namely Greece, Italy, Denmark, UK, France, Germany and the Netherlands, provides evidence for studying the relative effectiveness of specific mechanisms of knowledge creation and knowledge transfer. The results show that both internal capabilities and openness towards knowledge sharing are important for upgrading innovative performance. (C) 2002 Elsevier Ltd. All rights reserved.