The Origin of Absorptive Capacity in Korea

Abstract

Abstract Absorptive capacity (AC), defined by Cohen and Levinthal (1989, 1990) as a firm’s ability to identify, value, assimilate, and exploit knowledge from the environment, is a binding constraint for latecomer economies. Its origin is particularly relevant for latecomer countries where firms rely on imported technology. This chapter investigates how latecomer firms in Korea built absorptive capacity before being able to conduct in-house R&D, and generate innovation outcomes. Three forms of foreign technology acquisition are distinguished: know-how-only licensing, know-how-and-patent licensing, and patent-only licensing. Korean firms tend to use know-how licensing before starting in-house R&D, whereas patent licensing is not significantly linked to R&D. It seems that that the origin of AC in Korea is the learning process that follows licenced import of foreign technology, especially tacit knowledge in the form of know-how. A specific policy implication is that technology licensing contracts for a latecomer firm should include know-how transfer, and the potential substituting effect of foreign patent licensing must be considered because it may interfere with formation of in-house AC.