Internal Capabilities and External Knowledge Sources: Complements or Substitutes for Innovative Performance?

Internal Capabilities and External Knowledge Sources: Complements or Substitutes for Innovative Performance?

The aim of this paper is to understand the relation between different internal capabilities of firms and their external knowledge sources in which both affect innovative performance. The topic is to understand innovations and the relationship with the firm performance. This research will examine the existing internal capabilities of firms and their interaction with external sources of knowledge which affects their level of innovativeness. Internal capabilities includes; R&D, manufacturing, and marketing capabilities. Whereas External knowledge sources are value chain partners, horizontal connections, universities, and technology-related organizations. Additionally, External network refers to the capability to obtain information and resources by identifying value and opportunities that external networks provide, and also by developing, maintaining and using network relationships. The knowledge flows in knowledge communities which influence the outcomes, interaction and innovation.

In addition, having a strong knowledge base, including R&D capacity and a well-trained labor force, is a key to successful innovation. Empirical tests confirm and support that higher level of R&D efforts improves a firm’s ability to exploit sources of technical knowledge outside its boundaries. Although existing and recently hired R&D human resources have a positive individual effect on innovation, their interaction has a negative effect on the firm's product innovations. However, the greatest chances of achieving product innovations with a higher degree of novelty occurs when the firm has a solid internal base of R&D human resources added by the hiring of R&D personnel. Not to forget the employees’ skills which is another pointer of the firm’s capabilities to develop and exploit the knowledge. Further, the empirical analysis is based on a survey that went through seven...