Innovation and absorptive capacity : an empirical study of manufacturing SMEs in the Western province of Sri Lanka

Abstract

This research paper investigates the absorptive capacity of the manufacturing SMEs in the Western province of Sri Lanka. The ability to absorb knowledge created by external organizations, which is affected by several factors, is considered as absorptive capacity. Past research indicates that the structures of communication between the external environment and the organization as well as accumulated knowledge of the firm are two of the most important factors. This study attempts to understand application of these external linkages and information sources in the process of innovation by selected organizations. A sample of 280 firms selected using stratified random sampling from the data base of Enterprise Survey 2003, maintained by the Department of Census and Statistics was used. Survey based data collection method was used with the semi structured questionnaire developed following standard innovation survey instruments. The survey was followed with a focus group discussion for the purpose of in depth understanding of the reality. Data was analyzed qualitatively employing descriptive and interpretive tools to draw the conclusion that the Manufacturing SMEs in the Western province of Sri Lanka do not use external information sources and do not have sufficient links with other firms for bringing new knowledge into their innovation activities. As a result, they show weak innovative outcomes in the production, improvement or introduction of new products and processes, penetration of new markets, introduction of new strategies and management/operational practices. Further, they have achieved very poor intermediate innovation outcomes as intellectual property rights in the form of patents, copy rights, and industrial designs. Some policy and strategic initiatives needed to promote this absorptive capacity of firms and promoting them for innovation are provided. The paper also recommends a more systematic and formalized national innovation system connecting three main actors; government, representative institutions, universities, other tertiary education institutes and the firms.