Abstract
The quantity of a company’s patents has long been seen as a reliable indicator of its innovative capability, which to a large extent determines its success in the market. Firms often (through direct merger and acquisitions) purchase patents from other firms in the hope of achieving greater innovation. However, the experience of China’s electric vehicle firm Evergrande Electric Vehicle Company may provide us more insights into the dynamics between number of patents and innovation. Through a thorough analysis of why Evergrande EV failed to transform purchased patents into innovative capacities, this article proposes that the Absorptive Capacity, defined by Cohen and Levinthal (1989, 1990) as a firm’s ability to value, assimilate, and utilize new external knowledge, is a more accurate gauge of a firm’s innovativeness than merely the number of purchased patents. The case study of Evergrande EV also echoes previous studies that prior knowledge in a given filed is crucial to a firm’s ability to absorb and profitably exploit purchased patents. In addition, a strong technological leadership team is also important, according to exclusive interview of a former Vice President of Evergrande EV.
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