The role of absorptive capacity, technological capability, and firm performance in Indonesia’s high-tech industry

Abstract

The aim of this research is to examine the role of Absorptive capacity as an important ability to absorb technology and as a key to the firm's innovation capabilities. Technological capability is an important resource that companies must own to increase competitiveness because with these core resources and technology competencies, the firm can create values. Technological capabilities can be developed from internal or external sources. This study focuses on the external source in the form of royalty expense by presenting foreign experts/technology/copyrighted works/trademark/formulas to obtain technology and knowledge transfer. The research uses Large and Medium-scale Manufacturing Survey data that is taken from the Indonesian Central Bureau of Statistics (CBS). This is descriptive research that aims to produce an accurate mechanism of process relationship among variables. The results show that royalty expenses have a different relationship with firm performance. Some industries like electrical equipment and motor vehicles, as well as trailers and semi-trailers, have a very high royalty expense accompanied by the firm’s performance which is also the highest among all industries in the high-tech industry. This proves that several firms in the high-tech industry in Indonesia have a high absorptive capacity. However, different findings are seen in the chemicals and pharmaceutical industry. Firms do not spend above the industry’s average on royalty expenses, but their performance remains above the average performance of the high-tech industry in Indonesia.