Assessment Of Absorptive Capacity And Innovation Performance Of Manufacturing Firms In Nigeria

The dynamic change in business environment resulting from innovation activities has made knowledge become significant for SMEs sustainable growth and survival. Economies now are becoming increasingly knowledge-driven, the acquisition, utilization and transformation of knowledge by firms to innovate and improve their competitiveness has remained indispensable (Higgins and Aspinall, 2011). Businesses failures today have been ascribed to firm‟s inability to absorb and transform knowledge from within and outside the business environment. Most essential changes in the organization of the innovation process within firms in the last two decades have been the increasing recognition of the importance of knowledge flows. Knowledge has remained the basic component for innovation in firms and the ability needed to absorb knowledge from outside and within the organization has become essential for building sustainable competitive advantage (Teece, 1998). The ability required to acquire, assimilate and transform knowledge into innovations and consequently improve firms‟ performance is known as absorptive capacity (AC). Over the past two and half decades, there has been a growing interest of scholars in the concept of AC and its importance for organizations (Daghfous, 2004; Lane et al., 2006). Many researchers and practitioners have persistently cited AC as a major factor in determining whether an organization is able to acquire and make use of external knowledge profitably (Lenox and, King 2004; Harrington and Guimaraes, 2005; Bergh and Lim 2008). Absorptive capacity refers to a set of organizational routines and processes, through which firms recognize, acquire, assimilate, transform, and exploit knowledge to produce a dynamic organizational capacity (Zahra & George, 2002). These routines and processes are essential for firms‟ recognition, acquisition, assimilation, transformation, and exploitation of knowledge for innovation. Absorptive capacity is the most important ability required by firms to effectively acquire and exploit new knowledge to increase its innovation performance. It therefore becomes necessary for firms to boost their AC level in order to Abstract: Firms’ innovation performance is mostly influenced by internal capabilities available within a firm. This paper empirically assesses the impact of absorptive capacitive (AC) on innovation performance of manufacturing firms in Nigeria thus enhance our understanding on the mechanism between AC and innovation performance. A total of 305 SMEs were sampled from subsectors such as; textile/leather/apparel and footwear subsector; wood/furniture and woodworks subsector; and domestic/industrial plastic and rubber subsector in Southwestern Nigeria. Data collected was analyzed using Structural Equation Modeling (SEM). Findings revealed that AC had high positive impact on innovation performance of the manufacturing firms. Particularly AC dimensions such as ‘transformation’ and ‘exploitation’ dimensions of AC are the best indicators of innovation performance within the manufacturing SMEs. Also, AC accounts for about 79% of variation in the innovation performance of the manufacturing firms. The study concludes that AC, particularly its transformation and exploitation dimensions are critical elements for the enhancing the innovation performance of the manufacturing firms in Nigeria.