J Technol Transf

DOI 10.1007/s10961-016-9513-4

The antecedents and innovation outcomes of firms’

absorptive capacity in global buyer–supplier
relationships

Lei Wang1 • Jun Li2,3,4

 Springer Science+Business Media New York 2016

Abstract This article seeks to address two fundamental questions: (1) Does social capital
(SC) embedded in global buyer–supplier (GBS) relationships enhance local firms’ potential
absorptive capacity (PAC) and realized absorptive capacity (RAC)? And (2) What are the
effects of local firms’ PAC and RAC on their innovation outcomes? Based on survey data
collected from 297 Chinese firms engaged in GBS cooperation in China’s Yangtze River
Delta region, we test our research hypotheses with the structural equation modelling
approach. The empirical findings indicate that both structural and relational SC are important
antecedents of PAC and RAC in global buyer–supplier relationships. More specifically, RAC
not only improves local suppliers’ new product performance, but also fully mediates the
relationship between PAC and new product performance. Our results have two major
implications for practicing managers. First, local suppliers in emerging economies need to
pay more attention to SC embedded in GBS relationships for it is an important means for them
to overcome resource constraints and therefore to improve their new product performance.
Second, it is important for managers in local firms to continuously improve their PAC to better
assess and assimilate external knowledge, and extend their RAC to upgrade their interpre-
tation and comprehension of commercialization possibilities, which allows for generating
synergy of knowledge recombination with existing core competencies.

& Jun Li
jun.li@curtin.edu.au
Lei Wang
wanglei7296@dhu.edu.cn
1
School of Business and Management, Donghua University, 1882 Yan’an Road West,
Changning 200051, Shanghai, China
2
College of Forestry and Landscape Architecture, South China Agricultural University, Guangzhou,
China
3
Key Laboratory of Energy Plants Resource and Utilization, Ministry of Agriculture, Key
Laboratory of Biomass Energy of Guangdong Regular Higher Education Institutions, Institute of
New Energy and New Materials, South China Agricultural University, Guangzhou, China
4
CGSB, Curtin University, Perth, Australia

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Keywords Social capital
Network
Global buyer–supplier relationship
Potential

absorptive capacity
Realized absorptive capacity
New product performance

JEL Classification F23
L14
L67
O32

1 Introduction

The global buyer–supplier (GBS) relationship has long been recognized as one of the key
channels for local firms in developing and emerging countries to obtain advanced
knowledge and technologies for enhanced learning and innovation (Pérez-Luño et al.
2011). For example, most of the local suppliers in developing countries such as China,
which lack advanced knowledge and technologies to innovate, are keen to get advanced
knowledge from global buyers (Li et al. 2010). While local firms may depend on external
knowledge derived from GBS relationships to promote innovation, they must also possess
the ability to ‘‘recognize the value of new, external information, assimilate it, and apply it
to commercial ends’’ (Cohen and Levinthal 1990). Innovation performance, in this view,
demands not merely access to external knowledge but also certain societal and institutional
competencies that have been termed ‘‘absorptive capacity’’.
There are two broad categories of absorptive capacity: (1) potential absorptive capacity
(PAC), which captures capacities of knowledge identification and acquisition, and (2) real-
ized absorptive capacity (RAC), which stresses capacities of knowledge transformation and
exploitation. Zahra and George (2002) view exploration to be an external function that is
linked to PAC and exploitation to be an internal function connected to RAC (Denford 2013).
Recent literature has increasingly recognized that two crucial questions in absorptive
capacity research need to be addressed: (1) What are the antecedents of PAC and RAC? (2)
What are the outcomes of PAC and RAC in explaining firms’ new product performance?
To address the first question, the existing literature has generally adopted social capital
(SC) theory as its underlying paradigm (Adler and Kwon 2002). This is mainly because SC
focuses on the informal relationship among social networks, which is crucial for knowl-
edge sharing between business partners (Tsai 2000). Researchers in this stream assume that
SC is the fundamental driver for firms to identify, acquire, transform and exploit desired
knowledge among network relationships, and thus it may have a significant influence on
firms’ PAC and RAC (Jansen et al. 2005). However, previous research of the impact of SC
on absorptive capacity either focused on SC embedded in inter-firm relationships while
neglecting its international settings (Björkman et al. 2007; Tsai et al. 2013), or included the
international settings but focused only on the internal parent-subsidiary relationships
(Kostova and Roth 2003; Gooderham et al. 2011). While the questions of how local firms
build SC into localized network to enhance knowledge transfer and how multinational
companies manage SC in parent-subsidiary relationships to enhance the formation of
organizational advantage have been extensively explored, little is known about SC
embedded in GBS relationships and its impact on local firms’ knowledge acquisition (i.e.
PAC) and knowledge exploitation (i.e. RAC). Therefore, identifying how SC influences
PAC and RAC in GBS relationships represents an important research agenda.
With respect to the second question, many scholars consider absorptive capacity as an
important enabler for new product performance (Ahuja and Katila 2001; Aribi and Dupouët
2015; Cohen and Levinthal 1990; Flatten et al. 2011; Murovec and Prodan 2009; Tseng et al.
2011). However, prior works almost exclusively view new product performance as a direct

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consequence of overall absorptive capacity, ignoring the two distinct dimensions of

absorptive capacity (Lin et al. 2012; Zahra and George 2002). One exception is the study of
Leal-Rodrı́guez et al. (2014) who examine how PAC and RAC affect innovation perfor-
mance. While their study focused on manufacturing firms in a developed country (Spain),
testing the validity of the theoretical models on manufacturing firms operating in developing
countries is more intriguing, since market institutions differ significantly between developed
and developing countries (Grimpe and Sofka 2009).
The main purpose of this study is to investigate two important but previously unex-
plored questions: (1) Does SC embedded in GBS relationships boost local firms’ PAC and
RAC? (2) What are the outcomes of PAC and RAC in explaining local firms’ new product
performance? By addressing these two questions, we seek to make two key contributions.
First, this study invokes SC theory to examine the impact of SC embedded in GBS
relationships on local suppliers’ PAC and PAC from and the international perspective.
With the rapidly advancing technologies and accelerating globalization, successful inno-
vation requires the acquisition and reorganization of knowledge resources from the global
innovation networks (Asheim and Isaksen 2002). Therefore, the results of this study
contribute to literature on SC and its impact on PAC and RAC. Second, we contribute to
the debate on the relationship between PAC and RAC and new product performance
(Wales et al. 2013). Although a few studies have investigated how PAC and RAC influence
innovation outcomes (e.g. Leal-Rodrı́guez et al. 2014), no effort has been made to examine
the impact of PAC and RAC on new product performance in an emerging economy in the
context of international settings. In this regard, our study contributes to the literature on
new product performance and absorptive capacity in international settings.

2 Concepts, hypotheses and theoretical framework

2.1 Social capital in global buyer–supplier relationships

In this paper, we use SC theory to discuss knowledge acquisition and exploitation in

international context, aiming to verify whether or not GBS-SC may be considered as a
critical antecedent of local suppliers’ PAC and RAC. We analyze SC embedded in vertical
relationships between local suppliers and their large foreign customers—global buyers—
that account for the highest proportion of sales revenue realized abroad. By applying social
capital theory in the context of internationalization of firm (Lindstrand et al. 2011; Presutti
et al. 2007; Park and Rhee 2012), we define three dimensions of SC embedded in GBS
relationships: (1) structural SC, which refers to the social interactions between the local
supplier and its main global buyers (Chen 2009; Tsai and Ghoshal 1998); (2) Relational
SC, which is viewed as the emotional and affective bonds between the local supplier and
its main global buyers, including mutual trust, respect, reciprocity, and relationship
closeness (Tsai and Ghoshal 1998; Yli-Renko et al. 2001); (3) Cognitive SC defined as
common goals, norms and reciprocal expectations concerning the goodwill trustworthiness
between the local supplier and its main global buyers (Nahapiet and Ghoshal 1998).

2.2 Dimensions of absorptive capacity

Scholars characterise absorptive capacity as a crucial dynamic capacity pertaining to

knowledge creation and utilization in knowledge based competition (Malhotra et al. 2005).

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By effectively redefining and deploying the firm’s knowledge-based assets, the firm with
high absorptive capacity would be amenable to change, thus reshaping its operational
capabilities to improve performance (Cepeda-Carrión et al. 2012). The aforementioned two
categories of absorptive capacities (PAC vs. RAC) should be explicitly separated because
they depend on processes of different nature within the organization and are part of
different components (Zahra and George 2002). In this sense, PAC and RAC encompass
different capabilities. PAC, which includes knowledge acquisition and assimilation, cap-
tures efforts expended in identifying and acquiring new external knowledge and in
assimilating knowledge obtained from external sources (Zahra and George 2002). RAC,
which includes knowledge transformation and exploitation, encompasses deriving new
insights and consequences from the combination of existing and newly acquired knowl-
edge and incorporating transformed knowledge into operations (Zahra and George 2002).

2.3 Linking global buyer–supplier SC to absorptive capacity

In accordance with SC theory, three dimensions of SC represent different aspects of SC

and have different effects on network-based relationships and subsequently the knowledge
sharing among network actors (Atuahene-Gima and Murray 2007). In emerging economies
such as China, informal relationships such as social interaction may play a more important
role to solve problems in inter-firm cooperation because of the high levels of uncertainty
(Fu et al. 2013). Thus, we posit that the structural, relational and cognitive dimensions of
SC may positively influence local suppliers’ PAC and RAC.

2.3.1 The effect of structural SC on PAC and RAC

Structural SC can be deployed in the GBS cooperation to boost knowledge sharing between
partners (Park and Rhee 2012). In order to increase supply quality and efficiency, global
buyers will send their own employees to the suppliers’ plants to redesign work stations,
modify equipment and establish problem-solving groups (Gentile-Ludecke and Giroud
2012). Global buyers can also help local suppliers train managers and technical staff to
improve their abilities to disseminate knowledge about production tools, methods and
practices (Chen 2009; Minbaeva et al. 2014).
In these cases, social interactions in GBS relationships not only ensure a tendency for
local suppliers’ better understanding and identification of external knowledge, but also
improve their capacities to do so. Previous studies showed that local suppliers learned
various competences through working with global buyers (Guerrieri and Pietrobelli 2006;
Ivarsson and Alvstam 2011; Liu and Zhang 2014). Thus, we posit that social interaction
(structural SC) with global buyers is likely to increase local firms’ PAC.
On the other hand, structural SC also helps local firms enhance their awareness of the
knowledge about their global buyers (Cohen and Levinthal 1990) and integrate diverse
knowledge components, resulting in a desirable amount of redundancy among partners by
supporting local suppliers in recognising the systematic nature of existing products and
services and revisiting the ways in which components are integrated (McFadyen and
Cennalla 2004; Eisenhardt and Martin 2000; Swift and Hwang 2013). Accordingly,
structural SC enables local firms to combine sets of existing and newly acquired knowl-
edge, thus providing an effective way of generating commitment and facilitating the
implementation of external knowledge which underlies local firms’ RAC (Jansen et al.
2005; Pérez-Luño et al. 2011). Thus structural SC increases transformation and

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exploitation of the new external knowledge underlying a unit’s RAC. Hence, we

hypothesize the following:
Hypothesis 1a Structural SC has a positive effect on local firms’ PAC.
Hypothesis 1b Structural SC has a positive effect on local firms’ RAC.

2.3.2 The effect of relational SC on PAC and RAC

In GBS relationships, relational SC functions as an ongoing social control mechanism and

risk reduction device which is critical to overcoming obstacles for inter-firm knowledge
sharing (Park and Luo 2001; Wang et al. 2012). Relational SC in GBS relationships improves
mutual interaction among partners to form closer and trustful relationships which are con-
ductive to transferring and integrating complex and tacit knowledge (Zander and Kogut 1995;
Saleh et al. 2014). In the context of a transition economy like China, trust and reciprocity
generated by relational SC can also act as an informal safeguard of dyadic exchange, sup-
plementing weak formal governance mechanisms between partners (Powell 1990). Thus,
relational SC in GSB relationships reduces the need for formal monitoring, allowing local
firms to invest more effort into knowledge detection and assimilation (Nielsen 2012).
Meanwhile, relational SC in GBS relationships enhances the likelihood that the assimi-
lated knowledge will be incorporated into local suppliers’ knowledge base, since it engenders
common understandings over time (Tsai and Ghoshal 1998; Wu 2008; Swift and Hwang
2013) and provides feedback loops that help local suppliers to better understand the received
knowledge, and thus effectively transform and exploit it. It also ensures a high level of both
reliability and quality of the novel knowledge for the greater good when it is provided by a
trusted partner (Ebers and Maurerb 2014; Bresciani and Ferraris 2016). In sum, relational SC
between a local supplier and its key international buyer should be positively associated with
knowledge exploitation (i.e. RAC) because it increases common understanding, enhances
reliability of the novel knowledge and encourages experiment in knowledge exploitation.
Based on the discussions above, we thus hypothesize the following:
Hypothesis 2a Relational SC has a positive effect on local firms’ PAC.
Hypothesis 2b Relational SC has a positive effect on local firms’ RAC.

2.3.3 The effect of cognitive SC on PAC and RAC

Cognitive SC provides a shared vision that embodies the collective goals and aspirations (Tsai
and Ghoshal 1998). The diffusion of knowledge in GBS relationships, though premised on
diverse contributions of opinion and experience, often requires a shared context to frame such
contributions and effective communication of a strong sense of values and mission between
partners which in turn ask for similar values, mode, and cultures, especially in the cooperation
process between global buyers in developed countries and local suppliers in emerging
economies endowed with different language, culture, experience and abilities (Chiu et al.
2006; Li et al. 2010; Gooderham et al. 2011; Pietrobelli and Rabellotti 2011). Furthermore,
the common goals or interests shared with global buyers and local suppliers help them share
the potential value of their resource exchange and combination. As a result, global buyers will
be more likely to exchange their resources with their local partners. Thus, we posit that
common goals, norms and reciprocal expectations ensure a tendency for better understanding
and greater interactions between global buyers and local suppliers which enhance PAC.

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Parties who aim to enhance their competitiveness in the long terms should thus commit
to developing some similarities in organizational cultures, which is helpful for local firms
to better and deeply understand external novel knowledge and improve their abilities to
transform and exploit it (Villena et al. 2011). Cognitive SC enhances resource exchange
and recombination between global buyers and local suppliers, thus allowing local firms to
integrate external novel knowledge with its knowledge base effectively. This process
enhances efficiency of transformation and exploitation of assimilated knowledge (Tsai and
Ghoshal 1998). On the basis of this discussion, we posit that cognitive SC enhances
resource exchange and recombination, ensures a tendency for better and deeper under-
standing of existing external novel knowledge, thus enhancing local suppliers’ knowledge
transformation and exploitation. Hence, we hypothesize the following:
Hypothesis 3a Cognitive SC has a positive effect on local firms’ PAC.
Hypothesis 3b Cognitive SC has a positive effect on local firms’ RAC.

2.4 The relationships between absorptive capacity and new product

performance

In GBS relationships, when local suppliers seek to learn and acquire external resources
from global buyers that are valuable, the absorptive capacity can help them identify and
assimilate the valuable knowledge effectively. This enables the local suppliers to improve
new product performance by building on and replicating both the firms’ prior technological
knowledge and knowledge acquiring from global buyers (Laursen and Salter 2006; Park
and Rhee 2012). It also provides local firms with greater opportunities for new patterns of
resource and capability combinations from which new insights may emerge (Patel et al.
2014, 2015). PAC can also help local suppliers establish better communications with
global buyers using an enriched knowledge base, thus increasing the speed and diversity of
knowledge transfer in GBS relationships (Cassiman and Veugelers 2006). In turn the
enriched knowledge base helps the local suppliers understand global buyers’ opinions and
values, thereby enhancing shared values across the GBS relationships to ensure the transfer
of tacit and core knowledge (Tu et al. 2006). These discussions allow us to proceed to the
following hypothesis:
Hypothesis 4a PAC has a positive effect on local firms’ new product performance.
On the other hand, as RAC can be considered as a process for transforming and
exploiting the valuable knowledge (Lichtenthaler 2013), for local firms to catch up in GBS
cooperation, they also need to possess a considerable level of RAC to capitalise on
knowledge acquisition from external sources to facilitate innovation for three reasons.
First, RAC involves a collection of routines which enables local firms to transform and
exploit the external knowledge for profit generation based on prior knowledge base, and
local firms with high RAC would be more amenable to reshape their operational capa-
bilities to improve performance (Zahra and George 2002; Teece 2007). Second, through
the transformation and exploitation components of RAC, local firms are able to enhance
their ability to select knowledge recombination and capitalize on innovation opportunities
that are potentially more successful for commercializing feasible innovations from a broad
range of potential innovation alternatives (Mueller et al. 2012; Foss et al. 2013). Finally,
RAC helps local firms avoid maturity traps by challenging reliable and pre-
dictable knowledge conversion, and minimize propinquity traps by limiting the disposition

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to exploit known knowledge domains (Ebers and Maurerb 2014). We thus hypothesize the
following:
Hypothesis 4b RAC has a positive effect on local firms’ new product performance.
To increase firm performance in GBS relationships, firms must have the capabilities to
transform new knowledge and combine it with existing resources and competencies. RAC
involves transforming and exploiting the assimilated knowledge by incorporating it into
the firm’s operations, thereby improving its performance (Zahra and George 2002; Patel
et al. 2014, 2015). It also helps store and capitalize newly-generated knowledge maintained
within the organization, thus facilitating its future exploitation (Cepeda-Carrión et al.
2012). The consideration of all the statements exposed above suggests that local suppliers,
in order to improve their new product performance by knowledge acquired from global
buyers, will depend not only on PAC to capture new knowledge, but also on RAC to
integrate external knowledge with their existing knowledge base for the exploitation and
application. Thus, we hypothesize the following:
Hypothesis 4c RAC partially mediates the relationship between PAC and new product
performance.
Based on the above discussions, our conceptual framework is represented in Fig. 1.

3 Methods

3.1 Sample and data collection

The sample comes from a population of Chinese firms in the manufacturing sector engaged
in GBS relationships with foreign firms of North American, European and East Asian
origins. A random sample of local suppliers was drawn from four manufacturing industry
clusters in the Yangtze River Delta, namely Shanghai Information Communication
Technology cluster, Suzhou lap-top computer cluster, Shaoxing textile industry cluster,
and Pinghu clothing industry cluster. These manufacturing clusters were chosen because

H1a
Structural SC Potential
Absorptive
Capacity H4a
H1b

H2a
New product
Relational SC H4c performance

H2b

H3a
H4b
Realized
Cognitive SC Absorptive
Capacity
H3b

Fig. 1 Conceptual framework

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 L. Wang, J. Li

they represent different characteristics of the traditional and high-tech industries (Li et al.
2010), which is consistent with the principle of the diversity of industry selection. We drew
our sample from the Economic Commerce Committee (ECC) of these four cities. Firms
from the lists were then selected on the following criteria: (1) it should have no less than
one year of experience in GBS cooperation; (2) it must be a firm operating in the manu-
facturing sector because buyer–supplier relationship in the manufacturing sector is the
most common form of cooperation of foreign firms in China (Xie et al. 2010). Based on the
criteria, 803 firms were short-listed.
All survey items were adapted from published literature. Since the survey was con-
ducted in China, all items were translated into Chinese by two bilinguals and pre-tested on
30 firms in Shanghai (excluded from the final sample) before the survey. During the
process, respondents were asked not only to answer all the questionnaire items but also to
provide feedback about their design and wording. The questionnaire was further refined
based on the feedback and was again translated into English and back-translated into
Chinese. At last, the final version was again checked with the original to ensure the original
intention was not lost. Because top administrators can provide reliable information
regarding the basic environmental and organizational characteristics of their firms, senior
managers or firm presidents represent the most appropriate sources of information for this
study. The respondents were assured of the anonymity and confidentiality of their
responses, and were advised that there were no right or wrong answers and that they should
answer as honestly as possible.
A total of 803 questionnaires were delivered through postal mail or online, of which 309
were completed and returned after telephone follow-ups over a period of three months in
late 2011. A screening of the returned questionnaires found that 297 were usable, con-
stituting a response rate of 37 %. To check for non-response bias, the responding and non-
responding firms were compared along firm attributes such as firm size, alliance age and
ownership status by t-tests. All t-statistics were insignificant, suggesting that non-response
bias was not a concern. The profile of the sampled firms is provided in Table 1.

3.2 Measures

The present study primarily used measures that were adapted from prior studies, which
have been validated in the Chinese transitional context. Most of the key study variables
(i.e. the three dimensions of GBS-SC, PAC and RAC) were measured on five-point Likert
scales (with ‘1’ indicating fully disagree and ‘5’ indicating fully agree). The only exception
is the new product performance that was measured using a five-point scale in which ‘‘1’’
represented ‘‘very low’’ and ‘‘5’’ represented ‘‘very high’’. The relevant items are
reported in Tables 2, 3 and 4.
Following international business research (Chen 2009) and SC capital theory (Tsai and
Ghoshal 1998), Structural SC was measured by asking the respondents to indicate their
perceived level of social interactions and cooperation in the GBS relationships. Based on
the research of Tsai and Ghoshal (1998); and Yli-Renko et al. (2001), the relational SC
scale comprised four items to measure the degree of trust and support between global
buyers and local suppliers. Four items were used to measure cognitive SC by asking the
respondents to indicate their perceived level of the clarity of shared goals and codes
between global buyers and local suppliers (Tsai and Ghoshal 1998; Nahapiet and Ghoshal
1998).
The measures of PAC and RAC were adapted from Zahra and George (2002), Jansen
et al. (2005), and Flatten et al. (2011). The measures for PAC capture the cluster firms’

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 Table 1 Characteristics of the sample (N = 297)
Characteristic Item description Number Proportion (%) Characteristic Item description Number Proportion (%)

Age of alliance 1–3 years 78 26.3 Respondent position Management 104 35.0
4–6 years 121 40.7 Market 45 15.2
7–10 years 71 23.9 Technology 122 41.1
Over 10 years 27 9.0 Other 26 8.8
Number of employees Under 100 116 39.1 Respondent tenure Under 3 years 36 16.9
The antecedents and innovation outcomes of firms’…

100–500 110 37.0 3–5 years 96 27.9

501–1000 40 13.5 6–10 years 102 31.6
Over 1000 31 10.1 Over 10 years 63 23.4
Industry type Textile 93 31.3 Firm ownership structure State-owned 104 35.0
Clothing 47 15.7 Joint venture 45 15.2
Notebook PC 69 23.4 Private firm 148 49.8
ICT 88 29.7

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Table 2 Variable indicators and sources

Constructs Variable indicators Variable sources

State to what degree you agree or disagree with the following statements relating to the relationship with
global buyers
Global buyer– SSC1: We have developed a stable cooperative Chen (2009), Tsai and
supplier SC relationship with our global buyers Ghoshal (1998)
structure SSC2: We often exchange opinions and ideas with our Chen (2009), Nahapiet and
global buyers during decision making in production Ghoshal (1998)
design, quality control and delivery time
SSC3: We often exchange information with our global Chen (2009), Nahapiet and
buyers, including market, pricing and rules Ghoshal (1998)
SSC4: We discuss with our global buyers in a Tsai and Ghoshal (1998)
constructive way when things go wrong
SSC5: Our relationship with global buyers goes Tsai and Ghoshal (1998)
beyond business and often involves social activities
together
Global buyer– RSC1: Global buyers fully trust our production ability Tsai and Ghoshal (1998)
supplier SC RSC2: Global buyers and our company feel indebted Yli-renko et al. (2001)
relational to our collaborating
RSC3: Global buyers and our company expect to
cooperate far into the future
RSC4: Our relationship with global buyers can be Tsai and Ghoshal (1998)
defined as ‘‘mutually gratifying’’
Global buyer– CSC1: We use a similar language as global buyers and Tsai and Ghoshal (1998)
supplier SC understand each other easily
cognitive CSC2: We share similar culture background and firm Nahapiet and Ghoshal (1998)
culture with global buyers
CSC3: We share the similar business codes and rules Nahapiet and Ghoshal (1998)
with global buyers
CSC4: We can easily obtain a consensus with global Nahapiet and Ghoshal (1998)
buyers after discussion

ability to identify, acquire, assimilate and apply the external new knowledge, while the
measures for RAC reflect the cluster firms’ ability to develop new products, new patents
and to find new technology and market opportunities. Questionnaire items were measured
using a five-point scale in which ‘‘1’’ represented ‘‘strongly disagree’’ and ‘‘5’’ repre-
sented ‘‘strongly agree’’ (see Table 3).
Hsu and Fang (2009) the synthesized criteria for the development of new product
performance constructs from previous empirical studies on innovation. Further to our
previous discussion on the justification of the hypotheses, we used three items from the
Hsu and Fang (2009) criteria that are considered to be closely aligned with the product
innovation construct. We were also guided by Alegre and Chiva (2008), who proposed and
tested a measurement scale for product innovation performance with two different
dimensions of construct based on previous research (OECD 1997). We adapted one item
from the Alegre and Chiva (2008)’s constructs to our study.
We controlled three variables in our analysis. First, given the differences in learning
intent and absorptive capability (Brouthers 2002) between high-tech industries and low-
tech industries, we controlled industry effects by using a dummy variable, with the high-

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Table 3 Variable indicators and sources

Constructs Variable indicators Variable sources

When responding to the following items, please evaluate your company‘s absorptive capacity for each item
in relation to the average for direct competitors on a scale of 1–5
PAC PAC 1: Capacity to develop knowledge management programs, Flatten et al. (2011)
guaranteeing the firm’s capacity for understanding and carefully
analyzing knowledge and technology from other organizations
PAC 2: Capacity to locate, identify, value and acquire external Zahra and George (2002)
knowledge that is critical to its operations.
PAC 3: Capacity to capture relevant, continuous and up-to-date Jansen et al. (2005)
information and knowledge on current and potential competitors
PAC 4: Capacity to assimilate new technologies and innovations Jansen et al. (2005)
that are useful or have proven potential
RAC RAC 1: Capacity to cooperate with R&D organizations Jansen et al. (2005)
(universities, business schools, technological institutes, etc.)to
create new product and knowledge
RAC 2: Capacity to put technological knowledge into product and Flatten et al. (2011)
process patents
RAC 3: Capacity to use employees’ level of knowledge, Flatten et al. (2011)
experience and competencies to discover new technology
opputunities
RAC 4: Capacity to use and exploit new knowledge in the Flatten et al. (2011)
workplace to respond quickly to market changes

Table 4 Variable indicators and sources

Constructs Variable indicators Variable sources

Please indicate your company’s current performance level for EACH of the listed attribute
New product NPP 1: new product development generates a high Hsu and Fang (2009)
performance investment return
NPP 2: new product development contributes Hsu and Fang (2009)
significantly to market leadership
NPP 3: new product development generates high Hsu and Fang (2009)
customer acceptance
NPP 4: Patent growth rate in the last three years Alegre and Chiva (2008)
NPP 5: New product growth rate in the last three years Alegre and Chiva (2008)

tech industries (Information Communication Technology, lap-top computer) coded as ‘0’

and the low-tech industries (textile and clothing)coded as ‘1’. Second, because firm size
can influence both internal capabilities and overall innovativeness (Li et al. 2010), we used
the number of employees (four categories) as the measure of firm size. Third, cooperating
age can also affect the learning process (Fryxell et al. 2002). We used the number of years
since the formation of the cooperation between global buyers and local suppliers (four
categories) as the measure of cooperating age (Table 5).

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4 Data analysis and results

4.1 Scale reliability and measurement validity

Reliability can be examined by observing the constructs’ alpha and the composite relia-
bilities (CRs). As shown in Table 6, all factor constructs’ alpha and the composite relia-
bilities (CRs) are being higher than the recommended 0.7 (Hulland 1999). Therefore,
individual item reliability is ensured in this study.
Convergent validity refers to the extent to which the items on a variable measure the
theoretical construct. A loading of 0.7 or more is the suggested level for item loadings on
established scales (Fornell and Larcker 1981). Nunnally (1975) documented that permis-
sible loading can be slightly lower ([0.60) for new scales. As shown in Table 6, out of the
26 items, 23 have values over 0.7 and three are below 0.7 but over 0.6. Because the three

Table 5 Exploratory factor analysis

Variables Measurement Factor1 Factor2 Factor3 Factor4 Factor5 Factor6 Factor7
items

Global buyer– SSC1 0.839

supplier SC SSC2 0.757
structure
SSC3 0.831
SSC4 0.824
SSC5 0.829
Global buyer– RSC1 0.847
supplier SC RSC2 0.861
relational
RSC3 0.752
RSC4 0.845
Global buyer– CSC1 0.755
supplier SC CSC2 0.823
cognitive
CSC3 0.841
CSC4 0.791
PAC PAC1 0.812
PAC2 0.848
PAC3 0.832
PAC4 0.836
RAC RAC1 0.787
RAC2 0.835
RAC3 0.856
RAC4 0.828
New product NPP 1 0.761
performance NPP 2 0.791
NPP 3 0.736
NPP 4 0.786
NPP 5 0.826
The KMO value is 0.843, significant at the 0.001 level, and the total variance explained amounted to
69.344 %

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Table 6 Reliability and validity of the measures

Variables Measurement items loading Cronbach’s a CR AVE

Global buyer–supplier SC structural SSC1 0.693*** 0.874 0.88 0.59

SSC2 0.720***
SSC3 0.801***
SSC4 0.868***
SSC5 0.734***
Global buyer–supplier SC relational RSC1 0.791*** 0.844 0.86 0.58
RSC2 0.798***
RSC3 0.664***
RSC4 0.782***
Global buyer–supplier SC cognitive CSC1 0.725*** 0.837 0.84 0.57
CSC2 0.786***
CSC3 0.678***
CSC4 0.812***
PAC PAC 1 0.784*** 0.887 0.890 0.670
PAC 2 0.845***
PAC 3 0.813***
PAC 4 0.819***
RAC RAC 1 0.760*** 0.850 0.85 0.59
RAC 2 0.781***
RAC 3 0.716***
RAC 4 0.808***
New product performance NPP1 0.787*** 0.874 0.88 0.58
NPP2 0.765***
NPP3 0.737***
NPP4 0.745***
NPP5 0.784***

* p \ 0.05; ** p \ 0.01; *** p \ 0.001

dimensions of GBS-SC are new constructs used in the Chinese context, our results
demonstrate the statistical significance of the relationships between the items and con-
structs and the reliability of individual items.
To examine the discriminant validity of the latent variables, we first run an exploratory
factor analysis using principal component analysis with Varimax rotation (refer to Table 5)
for the three dimensions of GBS-SC, PAC and RAC, and new product performance. The
analysis generate six factors, as expected, and the eigenvalue for each factor is larger than
one. All the items exhibit high loadings on their constructs (all of them above 0.7, see
Table 5), as theoretically predicted, and there are no substantial cross-loadings (all below
0.5, see Table 7). The results support the distinction of these constructs. Then, we perform
pair-wise Chi-square difference tests for all constructs using both a constrained and an
unconstrained model. In each test, the constrained model fit is systematically worse (sta-
tistically significant) than that of the unconstrained model, which supports discriminant
validity (Anderson and Gerbing 1988). Moreover, the AVE of each construct exceeds the

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Table 7 Means, standard deviations, and correlations of variables

Variables Mean SD 1 2 3 4 5 6

1. SSC 2.62 0.607 0.768

2. RSC 2.27 0.537 0.12** 0.761
3. CSC 1.95 0.487 0.13** 0.29*** 0.755
4. PAC 2.80 0.676 0.24*** 0.28*** 0.16*** 0.819
5. RAC 2.30 0.403 0.14** 0.35*** 0.04 0.40*** 0.768
6.NPP 2.72 0.596 0.05 0.12** 0.08 0.18*** 0.29*** 0.761

The data on the diagonal (in bold font) is the square root of AVE of the construct
* p \ 0.05; ** p \ 0.01; *** p \ 0.001

squared correlations between the latent variable and every other variable (See Table 7),
providing further support for discriminant validity (Fornell and Larcker 1981).

4.2 Common method variance

First, we conducted an EFA with Varimax rotation. The results showed five factors with
Eigenvalues greater than one (see Table 5). All items loaded as expected. Second, we used the
Harman’s (1967) one-factor test for all variables to check for common method bias. The
results indicate that there is no such general factor which can account for most of the variance.
Third, we put all the variables in a single factor CFA model, and the fit was poor (v2/
df = 12.131, NFI = 0.435, CFI = 0.453, IFI = 0.465, RFI = 0.375, GFI = 0.544,RM-
SEA = 0.173), which also suggests no single factor can explain the majority of the variance
(Podsakoff et al. 2003). Based on these results, we can reasonably conclude that CMV does
not significantly affect the results in the analysis.

4.3 Empirical results

Hypotheses were tested with the use of path analysis, a subset of structural equation
modeling (SEM) in which only single indicators (i.e. observed variables) are employed,
with maximum likelihood robust estimates in AMOS6.0 Structural Equations Program.
The indices of goodness of model fit of the overall model are shown in Fig. 2, namely
goodness of fit index (GFI), comparative fit index (CFI), normed fit index (NFI), and
incremental fit index (IFI). The measure of the discrepancy (v2/df = 1.333) suggests that
the theoretical model is a satisfactory fit, and the RMSEA (root mean-square error of
approximation) is within the acceptable range (RMSEA = 0.045) according to Bagozzi
and Yi (1988). Furthermore, GFI, NFI, CFI and IFI are all greater than 0.9 and within the
acceptable range (Bagozzi and Yi 1988). The overall results showed a good fit between the
model and the dataset.
Path estimates in Fig. 2 and Table 8 provide support for H1a, as structural SC is
significantly positively correlated to PAC (b = 0.346***, p \ 0.001), while the path
coefficient of structural SC on RAC is insignificant (b = 0.049, p [ 0.1), hence, there is
lack of evidence to validate H1b. The results also provide support for H2a and H2b, as
relational SC is positively correlated to PAC (b = 0.322***, p \ 0.01) and RAC
(b = 0.229***, p \ 0.01), whereas the hypothesized relationships between cognitive SC

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β=0.346*** Potential
Structural SC
Absorptive
Capacity
β=0.049
β=0.033

β=0.322***

β=0.213** New product

Relational SC performance

β=0.229***

β=0.378***

β=0.108
Realized
Cognitive SC Absorptive
β=-0.075 Capacity

Fig. 2 Path analysis results. *p \ 0.05; **p \ 0.01; ***p \ 0.001. Note CMIN/DF = 1.333;
RMSEA = 0.045; GFI = 0.911; NFI = 0.902; IFI = 0.974; CFI = 0.973; TLI = 0.970

Table 8 Statistics and standardized path coefficients of structural models

Description of path Hypothesis Coefficient Outcomes

Structural SC ? Potential absorptive capability H1a 0.346*** Supported

Structural SC ? Realized absorptive capability H1b 0.049 Non-supported
Relational SC ? Potential absorptive capability H2a 0.322*** Supported
Relational SC ? Realized absorptive capability H2b 0.229*** Supported
Cognitive SC ? Potential absorptive capability H3a 0.108 Non-supported
Cognitive SC ? Realized absorptive capability H3b 0.075 Non-supported
Potential capability ? New product performance H4a 0.033 Non-supported
Realized capability ? New product performance H4b 0.378*** Supported
Control varibles
Cooperating age ? Potential absorptive capability 0.206*** Supported
Cooperating age ? Realized absorptive capability 0.177*** Supported
Cooperating age ? New product performance 0.031 Non-supported
Firm size ? Potential absorptive capability 0.027 Non-supported
Firm size ? Realized absorptive capability 0.072 Non-supported
Firm size ? New product performance 0.101 Non-supported
Industry type ? Potential absorptive capability 0.068 Non-supported
Industry type ? Realized absorptive capability 0.037 Non-supported
Industry type ? New product performance 0.061 Non-supported

* p \ 0.05; ** p \ 0.01; *** p \ 0.001

and PAC and RAC are insignificant. Thus the model lacks evidence to accept H3a and
H3b. Furthermore, RAC exerts positive effects on new product performance, in support of
H4b (b = 0.378***, p \ 0.001). The hypothesized relationship between PAC and new
product performance is insignificant (b = 0.033, p [ 0.1). Thus, H4a cannot be
substantiated.

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Table 9 Statistics and standardized path coefficients of structural models

Measure Direct Indirect Saturated

v2 40.768 91.718 97.497

df 57 26 63 62
RMSEA: Root Mean Square Error of Approximation (\ 0.08) 0.044 0.039 0.040
GFI goodness of fit index ([ 0.90) 0.969 0.952 0.952
CFI: Comparative Fit Index ([ 0.90) 0.989 0.985 0.984
NFI: Normed Fit Index ([ 0.90) 0.970 0.954 0.954
Potential absorptive capability ? New product performance 0.133** 0.030
Potential absorptive capability ? Realized absorptive capability 0.269*** 0.268***
Realized absorptive capability ? New product performance 0.410*** 0.387***

* p \ 0.05; ** p \ 0.01; *** p \ 0.001

H4c posits that RAC mediates the effects of PAC on new product performance. To
provide empirical evidence for mediation, this study examines direct, indirect, and satu-
rated models in terms of their fit indices and path coefficients (Gregory et al. 2009). As
shown in Table 8, the Chi-square difference between the direct and saturated models is
56.729 with 26 df, which is significant (p \ 0.05). This significant difference indicates that
RAC mediates the influences of PAC on new product performance. In addition, the non-
significant Chi-square difference of 5.779 with 1 df between the indirect and saturated
models suggests that the more complicated saturated model could not improve the fit over
the indirect model. All paths in the indirect models are significant. In the saturated model,
the direct path from PAC to new product performance is insignificant, although its links
with RAC remained significant (p \ 0.01). These results indicate that the relationship
between PAC and new product performance is fully mediated by RAC. Thus, H4c is
confirmed (Table 9).

5 Discussion, contributions and implications

5.1 Discussion

The previous section empirically examined the antecedents and innovation outcomes of
PAC and RAC in global buyer–supplier relationships by testing the hypotheses developed
in Sect. 2. Overall, we found supportive evidence for five out of nine hypotheses in our
model.
The tests of H1a and H1b suggest that the influence of structural SC in GBS rela-
tionships on PAC is significantly positive, but fail to verify the expected positive corre-
lation with RAC. Prior studies on the impact of SC on absorptive capacity generally
confirm the positive impact of social interaction (e.g. structural SC) on both knowledge
acquisition (PAC) and knowledge exploitation (RAC), see for example Jansen et al. (2005)
and Montazemi et al. (2012). However, some recent studies have argued that social
interaction with partners may help firms acquire and assimilate external knowledge but
might not improve their capabilities to transform and exploit it (Kotabe et al. 2011).
Because knowledge exploitation process is characterized by a high level of similar prior

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experience and organizational culture (Easterby-smith et al. 2008), a higher level of

structural SC does not necessarily imply enhanced RAC. By focusing on the SC embedded
in GBS relationships, our empirical results echo more the latter views that the social
interaction with global buyers enables local suppliers to search and acquire potential
knowledge from global buyers but to a lesser degree with regard to knowledge transfor-
mation and exploitation.
Our results also support H2a and H2b, which suggest that the influence of relational SC
on PAC and RAC is significantly positive in GBS relationships. Specifically, we find that
stronger and more trustful relations with global buyers not only provide local firms with
more opportunities to access and acquire external knowledge, but also allow them to
develop a greater ability to transform and exploit external knowledge. This result points to
the importance of mutual trust between the global buyers and local suppliers, which is
considered a key factor that shapes local firms’ learning and innovation capability in an
international context as documented in recent SC research literature (e.g. Zahra and George
2002; Yli-Renko et al. 2001; Kostopoulos et al. 2011). Our findings reveal that developing
a strong, cohesive and trustful tie with global buyers allows local firms to simultaneously
develop two critical learning capacities: searching and assimilating a diverse array of
external novel knowledge (i.e. PAC) and applying various inputs with existing knowledge
bases (i.e. RAC).
Nonetheless, H3a and H3b which suggest the positive influence of cognitive SC on PAC
and RAC cannot be verified. A possible explanation is that our data has been drawn only
from China, which is noted for a short period of time during which the country transitioned
from a centrally planned economy to a free-market system (Bernardi and Miani 2014).
Although many formal institutions such as laws, regulations and organizations (e.g. trade
unions, research institutes, patent offices, etc.) have already been established in recent
years, their enforcement is still problematic (Kang and Jiang. 2012). In contrast, the
institutional environment in developed countries consists of well-developed and relatively
stable political, social, and economic systems. Thus the differences in common goals,
organizational culture and institutional environment between local suppliers and global
buyers hinder the development of cognitive SC which, in turn, attenuates the influence of
cognitive SC on PAC and RAC.
The tests of H4a, H4b and H4c show that RAC is positively related to innovation
performance while fully mediating the relationship between PAC and innovation perfor-
mance, whereas the influence of PAC on new product innovation performance turns out to
be insignificant. Traditionally, scholars believe that knowledge acquirement (PAC) and
exploitation (RAC) are conductive to improving firms’ innovation performance (Tsai 2001;
Ahuja and Katila 2001; Caloghirou et al. 2004). But some scholars argue that a higher level
of PAC does not necessarily imply more innovative organizations, unless this PAC posi-
tively influences RAC (Patel et al. 2014, 2015).
Our findings go a step even further compared with previous literature by showing that
RAC not only improves innovation performance directly, but also fully mediates the
relationship between PAC and new product performance in GBS relationships. In other
words, in order for local suppliers to improve new product performance, new knowledge
must be transformed and combined with firms’ existing resources. RAC is therefore
necessary for local firms to ultimately guarantee the innovation benefits by renewing their
comprehension of commercialization possibilities.
Another important observation is a possible reverse path from RAC to PAC. For
example, Zahra and George (2002) document that a firm’s PAC and RAC have separate but
complementary roles, and PAC and RAC can reinforce each other and their

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 L. Wang, J. Li

β=0.283*** Potential
Structural SC
Absorptive
Capacity
β=0.119
β=0.033

β=0.298***
New product
Relational SC β=0.153**
performance

β=0.166**
β=0.378***
β=0.136
Realized
Cognitive SC Absorptive
β=-0.082 Capacity

*p<.05, **p<.01, ***p<.001.

Fig. 3 The reverse path from RAC to PAC. Note CMIN/DF = 1.333; RMSEA = 0.045; GFI = 0.911;
NFI = 0.902; IFI = 0.974; CFI = 0.973; TLI = 0.970

complementarity has a positive association with firm’ innovation performance (Cassiman

and Veugelers 2006). Accordingly, one would expect that the capability of acquiring and
assimilating external knowledge (i.e. PAC) may facilitate firm’s capability in knowledge
transformation and exploitation. The reason is that firms with stronger PAC will be able to
better transform the acquired knowledge and will exploit more this transformed knowledge
to its product development (Cepeda-Carrión et al. 2012). Conversely, it seems equally
plausible to expect the reverse path from RAC to PAC. Because firms prefer to search for
the external knowledge which are susceptible to be transformed and incorporated into its
operations (Camisón and Forés 2010; Patel et al. 2014, 2015). In other words, the greater
the firm is good at transforming and exploiting a particular knowledge, likely the more the
firm prefers to search, acquire and assimilate the knowledge, such that the RAC may
consolidate PAC.
As a consequence, we take an additional step to explore the reverse path from RAC to
PAC. An alternative model examining the effect of RAC on PAC is then tested. This
hypothesis is supported by the RAC ? PAC statistical significance with almost identical
fit indices as the original model (c.f. Figs. 2, 3). RAC is moderately positively related to
PAC (b = 0.153, p \ 0.05, Fig. 3).Our Chinese data sample seems to imply that the causal
relationship between PAC and RAC may well be bi-directional and reciprocal in nature.1
In summary, while greater PAC turns out to lead to higher level of RAC (Fig. 2), the
reverse path running from RAC to PAC holds true as well, though to a less extent (Fig. 3).

5.2 Contributions

Our study is believed to contribute to the literature from two perspectives. First, regarding
absorptive capacity research, our findings cast light on the external antecedents of PAC and
RAC in GBS relationships and addressed the knowledge gap in this research field in
general (Zahra and George 2002), and we investigated the antecedents in international
settings in particular (Enkel and heil 2014). Following Presutti et al. (2007), Park and Rhee

1
We are grateful to an anonymous referee for pointing out this important issue.

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The antecedents and innovation outcomes of firms’…

(2012), we invoked SC theory to build a model to investigate the impact of SC embedded

in GBS relationships on local suppliers’ PAC and RAC with an international setting. By
conducting an empirical study in China, we found that structural SC facilitates PAC, and
relational SC exerts positive influences on PAC and RAC in GBS relationships. The results
highlight the importance of SC embedded in GBS relationships in ameliorating local
suppliers’ PAC and RAC. Additionally, we extended SC theory by integrating the notion of
global network ties. This work may thus be considered a starting point for future SC-based
research on global innovation networks.
Second, we contribute to the debate on the relationship between PAC and RAC and new
product performance (e.g. Cohen and Levinthal 1990; Ahuja and Katila 2001; Laursen and
Salter 2006).This is one of sparse empirical undertakings to test the direct effect of PAC
and RAC on new product performance in an emerging economy in international settings,
whereas previous work mainly focused on certain determinants of absorptive capacity and
took firms in developed countries as their research subject (Murovec and Prodan 2009).
With our sample being drawn from the largest emerging economy (China), we are apt to
document that the influences of PAC and RAC on new product performance differ sig-
nificantly in GBS relationships. While RAC positively influences new product performance
and fully mediates the relationship between PAC and new product performance, the impact
of PAC on new product performance turns out to be insignificant.
This finding extends previous research (Patel et al. 2014, 2015) to international envi-
ronment and provides empirical support to one of the key theoretical assumptions in
absorptive capacity theory: local firms to are to derive innovation benefits from external
network ties only if they can recognize the value of this knowledge, transform and exploit
it (Zahra and George 2002; Kostopoulos et al. 2011). Otherwise, they may fall into
familiarity traps leading them to lose sight of the opportunities that new external knowl-
edge offers (Ahuja and Katila 2001).

5.3 Implications

Our results have several implications for practicing managers. First, managers of local
suppliers in emerging economies need to pay more attention to SC embedded in GBS
relationships since it is an important way for them to overcome resource restraints and
therefore to improve their new product performance. In this regard, local suppliers are
encouraged to improve social interactions with global buyers in order to obtain more
opportunities to access advanced knowledge, and to build trustful relationship between
them to accelerate the transfer of tacit knowledge. Second, as the results indicate, firms are
expected to derive innovation benefits from knowledge transfer in GBS relationships only
if they recognize the value of this knowledge, internalize and exploit it. In order to improve
new product performance, managers in local firms are required to continuously improve
their PAC to better assess and assimilate external knowledge, and extend their RAC to
renew their interpretation and comprehension of commercialization possibilities allowing
for synergy of knowledge recombination with existing core competencies.

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 L. Wang, J. Li

6 Concluding remarks

This study addressed two fundamental questions, (1) Does social capital (SC) embedded in
GBS relationships boost local firms’ PAC and RAC? (2) What are the local firms’ inno-
vation outcomes resulting from their PAC and RAC? Our findings show that SC is an
important antecedent of absorptive capacity in GBS relationships. However, the structural,
relational and cognitive SC exert different influences on PAC and RAC. While structural
SC is found to enhance PAC, and relational SC facilitates both PAC and RAC, the impact
of cognitive SC on PAC and RAC appears to be insignificant. In addition, the effects of
PAC and RAC on new product performance also differ. The results show that RAC is
positively correlated with new product performance and fully mediates the influence of
PAC on new product performance, whereas the effect of PAC on new product performance
is found insignificant. In conclusion, in GBS relationships, not only the antecedents such as
structural and relational SC have differentiated impacts on PAC and RAC, but the influ-
ences of PAC and RAC on new product performance also differ substantially.
Besides its major contributions, this study also has some limitations. Theoretically, we
have emphasized the SC in GBS relationships to complement the wealth of research on the
antecedents of absorptive capacity. According to Tsai and Ghoshal (1998), there exist
complex relationships among structural, relational and cognitive dimensions of SC. Thus it
may be useful for future research to examine the relationships among the three dimensional
SC in GBS relationships and their interaction effects on local firms’ PAC and RAC and
new product performance. Further, given the transition characteristics of the Chinese
economy, our reliance on cross-sectional data only captures a snapshot in the evolution of
SC in global buyer–supplier relationships in China, which cannot allow us to theorize and
test the change of SC and its impact on local firms’ absorptive capacity and new product
performance. Future research may benefit from the use of longitudinal data.
Methodologically, our study proceeded primarily from the perspective of local firms in
GBS relationships, rather than fully integrating the perspectives of both parties. Future
research expects to compare the perspectives of both global buyers and local suppliers, and
examine the cross-country cooperation in the case of asymmetrical relationship between
advanced global buyers in developed countries and under-privileged local suppliers in
emerging economies. Furthermore, as in many other large-sample surveys on global
buyer–supplier relationships, we only had one-sided responses due to limited resources.
Ideally, it would be more beneficial to obtain the assessment of both parties in each
relationship. Last, as our study was focused on a particular geographical context in China,
the generalizability of the results is limited. We call for further efforts to examine SC
embedded in cross-country cooperation relationships in multiple national sites with dif-
ferent profiles of resource endowment and institutional context in the next step.

Acknowledgments We acknowledge the funding support by National Natural Science Foundation of China
(No. 71572032), Shanghai Planning Office of Philosophy and Social Sciences (2014S5D202), Shanghai
Pujiang Program (No. 16PJC003).

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