Absorptive Capacity, Operational Capabilities and Firm performance: Evidence from China

In today’s dynamic and turbulent business environment, it is becoming increasingly untenable for a single firm to sustain its competitiveness by merely relying on its own firm-specific resources, routines and processes. Absorptive capacity, defined as the ability to utilize external knowledge through three sequential processes of exploratory, transformative, and exploitative learning, is regarded as one of the most important constructs in organizational research; and its impact on firm performance has been one of the central research themes (Cohen and Levinthal, 1990; Zahra and George, 2002; Lane et al., 2006; Lichtenthaler, 2009). However, in a recent review, it is argued that we still do not fully understand this absorptive capacity-performance relationship (Volberda et al., 2010). For example, the empirical findings of the absorptive capacity-performance link remain largely inconclusive and divergent, ranging from a positive relationship (Lichtenthaler, 2009) to a negative relationship (Jansen et al. 2005). Therefore, the proposed study seeks to address the following two critical questions: 1. Does absorptive capacity have a direct impact on firm performance? 2. If not, do marketing and managerial capabilities mediate the relationship between absorptive capacity and firm performance?

This study contributes to the existing literature in four substantive ways. First, as an alternative explanation to the inconclusive and divergent findings on the absorptive capacity-performance link, this study, using a dynamic capabilities perspective, advances the research by demonstrating that absorptive capacity is a necessary but insufficient condition for firm performance. Second, the proposed study will empirically investigate the mediating roles of two key operational capabilities: marketing capabilities and managerial capabilities, in the relationship between absorptive capacity and firm performance. It is expected that the findings will provide support to the theoretical prediction that the performance impact of absorptive capacity has to be realized via operational capabilities. Third, this study contributes to the existing literature by investigating whether market and technological turbulence may enhance the effect of absorptive capacity on operational capabilities and moderate the effects of operational capabilities on firm performance. Finally, this study contributes to the research by using a sample of manufacturing SMEs in a non-R&D context in an emerging economy, China. Lane et al. (2006) urged that future research should empirically investigate absorptive capacity in non-R&D contexts in a multi-dimensional approach with a focus on small firms. China, the largest emerging economy, offers an appropriate research venue for such a study since fast-changing environments are typical of an emerging economy.