Absorptive Capacity, Cluster Level Interactions, Innovation and Performance of Firms in the High-tech Manufacturing Cluster of Bengaluru

Abstract

Researchers have identified absorptive capacity, which is a measure of dynamic capability of a firm, as one of the critical factors that drives interactions of a firm with other firms and associated institutions within and outside a cluster, and thereby enhance the innovation performance of a firm. To meet this end, this study quantified absorptive capacity of a firm through the development of index numbers of both internal and external factors of absorptive capacity. Further, it extended the conceptualization of degree of cluster linkages (comprising the degree of intra-cluster linkages and the degree of extra-cluster linkages) to include a gamut of interactions between a firm and other stakeholders within and outside a cluster. The study based on primary data from 101 firms belonging to electronics, electrical, machine tools and pharmaceutical industries, was carried out in the context of Bengaluru high-tech manufacturing cluster. Firstly, it examined the influence of absorptive capacity on the degree of cluster linkages, and in turn, on innovation performance of a firm. It was ascertained that while the internal factors of absorptive capacity drive both the degrees of intra-cluster and extra-cluster linkages, external factors of absorptive capacity drive only the degree of intra-cluster linkages but not the degree of extra-cluster linkages. But, both the degrees of intra-cluster and extra-cluster linkages contributed positively to firm-level innovation. In addition, the study probed the influence of factors of degree of cluster linkages on innovation performance of a firm at a micro-level. It was discovered that the ability of a firm to integrate global value chain both vertically and horizontally through extra-cluster linkages determined the innovation performance of a firm in a cluster. The study explored the factors that determine the propensity of a firm in a cluster to obtain patents. It was found that both the absorptive and invention capacities had a significant positive influence on the propensity of a firm to patent. In addition, while the traditional motivators, had a significant positive influence on the propensity of a firm to patent, de-motivator factors constituting time, market and cost constraints, and procedural issues had a significant negative influence on the propensity of a firm to patent. Further, prior to the analysis of role of patenting in enhancing firm level innovation and firm performance, the study examined the relationship between firm-level innovation and firm performance considering the interaction effect of various firm-specific factors. It was found that the firm performance was jointly determined by the innovation performance of a firm and certain firm-specific factors. Finally, the study probed the effect of patenting on innovation and firm performance. It was brought out that although patenting had a significant influence on the innovation performance of a firm, it had no significant influence on firm performance. Based on the comprehensive research findings, appropriate policy implications have been derived.