Absorptive capacity and social network: internal ability and external opportunity for product innovation

A firm's innovative success is substantially influenced by how quickly and how effectively it obtains and internalizes new knowledge from related scientific and technological fields. The amount of absorptive capacity a firm has and its position and connections in social networks have been associated with its internal ability and external opportunity to access and utilize new knowledge. Absorptive capacity determines a firm's ability to recognize, assimilate, and exploit novel information, and social networks affect the quantity and quality of information and knowledge a firm is exposed to. While these resources influence a firm's innovation output through distinct mechanisms, we propose that the contribution that each makes to a firm's innovative success is contingent on the level of the other factor that a firm possesses. We develop a simulation model to analyze the random information access and acquisition process of firms in social network contexts. The results demonstrate that in addition to the main effects of absorptive capacity and social network position on a firm's innovative output, there is a significant interaction effect. Still more the interaction effect might play a more important role and thus make the simple main effects less significant.