2.4 External Knowledge

2.4 External Knowledge

                In today’s world, it is important to understand that organizations can hardly learn and innovate in isolation (Pavitt, 1998).The new competitive environment puts pressure on organizations not only to streamline their internal business process, but also to be able to incorporate relevant knowledge from the environment so that they are capable of offering to potential clients whatever becomes ‘standard’ in the marketplace. He further suggests that organizations need to access such knowledge that allow it to ‘do’ something that, although also done by competitors, is demanded and valued in the market. This kind of knowledge is known as ‘external knowledge’.

            One important characteristic of external knowledge is that it has a market value approximately equal to its value within the organization. It can even be traded in the labour market, and in general it tends to be rather technical and explicit, which makes it relatively easy to acquire, be it through internal training or simply by ‘hiring’ it in the market (Andreu & Sieber, 2001).

            While in large organizations information and knowledge are still mainly transferred through functional interaction among research and development, production, marketing, and organization departments and functional teams (Capello, 1999), small and medium-sized organizations increasingly need to rely on external knowledge sources. These external knowledge sources can be divided into local, national, and international sources, depending on where the source of knowledge is located (Belussi, McDonald, & Borrás, 2002).

            Among external sources of knowledge, inter-firm collaboration has received a widespread attention. It is widely recognized that the innovative process often involves interaction between the manufacturer and users of products. Such interaction between producers and end users involves not only an exchange of technical knowledge but also important information about market requirements and trends. Similarly, suppliers of equipment and material (Geenhuizen, 1997) can bring important insight into the organization of production, logistics and other functions.

            Svetina &  Prodan (2008) have mentioned that Knowledge exchange not only appears within organizations but can often be found between organization. Universities, research institutes, science parks, incubators, and other knowledge institutions are actively involved in a set of relationships occurring in the business environment (Gunasekara 2006) and are particularly seen as lead players in the innovative activity of firms providing scientific research inputs for innovating firms (Keeble, & Wilkinson,1999; Keeble &Wilkinson 2000).

            Inter-organization collaboration, as well as partnerships with institutions, were long believed to be mainly limited to the local level and were studied within the context of clusters. However, with globalization and advances in information and communication technology, the geographic scope of this interaction is widening and often spreads across national borders. The use of geographically close sources has several benefits that stem from constant face-to-face interactions, knowledge spillovers, and the transmission of tacit knowledge (Keeble, 2000; Capello and Faggian, 2005). However, this does not imply that the mere use of local knowledge sources is sufficient in terms of knowledge creation and innovation. Research shows that limiting knowledge acquisition to the local level can lead to a lock-in effect (Grabher, 1993; Keeble and Wilkinson 1999; 2000). In order to maintain a constant inflow of new knowledge, organizations need to nurture links inside as well as outside (Svetina &  Prodan, 2008).