2.1. Absorptive Capacity
Referring to the seminal work of Cohen and Levinthal [12
], the term, “Absorptive capacity” (ACAP), can be defined as a firm’s ability to value, assimilate, and apply new knowledge. Further, [24
] it is the firm’s capacity to learn and resolve difficulties. A later study, developed by [13
], supposed an important reconceptualization of absorptive capacity. In this study, we will focus on the theory proposed by [14
] that distinguish between two dimensions of ACAP–PACAP and RACAP. These authors also suggested distinguishing among four subsets that compose a firm’s ACAP: (i) acquisition; (ii) assimilation; (iii) transformation and (iv) exploitation. A definition of these four capabilities is offered in the following paragraphs.
(i) Acquisition capacity: this term refers to the company’s identification and acquisition of valuable external knowledge. This is consistent with the view of the process of identification and evaluation of external knowledge in [12
] (p. 128). They theorized this to be the ability to evaluate and utilize previous knowledge, to identify, assimilate and apply new information value.
(ii) Assimilation capacity: this concept has come to be used to refer to a firm’s habits, methods, processes and routines that lead them to effective assessment, processing and understanding of the information captured from external sources [24
]. This capability is deeply rooted in the individual’s understanding and knowledge interpretation. In this way, knowledge assimilation is based on a firm’s ability to grasp new external knowledge and make sense of it.
(iii) Transformation capacity: this term refers to the combination of the newly acquired external knowledge and the firm’s prior related knowledge. Concretely, [14
] (p. 190) suggest that this dimension “denotes a firm’s capability to develop and refine the routines that facilitate combining existing knowledge and the newly acquired and assimilated knowledge”. This phase is considered to be the most relevant. This is achieved by adding or deleting knowledge, or by the simple interpretation of knowledge in a different way.
(iv) Exploitation capacity: this concept is defined “as an organizational capability that is based on the routines that allow firms to refine, extend, and leverage existing competencies or to create new ones by incorporating acquired and transformed knowledge into its operations” [14
] (p. 190). Reference [11
] uses the term, “exploitation”, to refer to the application of new external knowledge for commercial ends. Therefore, if all the other phases do not lead to knowledge exploitation, they will not have been proven to be very useful.
]’s model of absorptive capacity, potential (i.e., acquisition and assimilation capabilities) absorptive capacity and realized absorptive capacity (i.e., transformation and exploitation capabilities) are modeled as complementary subsets of absorptive capacity that drive performance indicators, such as competitive advantage, strategic flexibility or innovation (see Figure 1
2.2. Green Innovation Performance
The term, “green”, is usually applied in a switchable manner with other related terms, such as “eco” or “pro-environmental”, and it is largely intended to indicate concern about the physical environment. Along this line, when stakeholders proactively engage in this kind of behaviour, they can be labelled as “green stakeholders”. In the case of customers (i.e., “green customers”), their purchasing behaviour is incrementally becoming more predisposed by issues such as environmental concern, sustainability, pollution reduction, energy saving or recycling [4
But then, what should we understand by green innovation? This concept is gradually attaining plenty of attention, not only from scholars devoted to the study of business management and economic policy, but also from practitioners aimed at greening their firms’ strategies and operations. However, green innovation is a relatively novel phenomenon, which may hence be regarded as intricate, diffuse and prone to different interpretations. Thus, the existence of some confusion regarding the diverse notions and terms employed to describe innovations aimed at reducing the negative impacts of humans and business on the environment must be recognized [26
]. Reference [27
] were pioneers in the introduction of the term “eco-innovation”, in their book ‘Driving Eco-innovation: A Breakthrough Discipline for Innovation and Sustainability’. These authors coined this term to refer to innovations in the form of new products and processes that lead to superior customer and business value, while substantially reducing environmental impact [4
]. From this moment, the term “eco-innovation”—also named “environmental innovation”, “green innovation” or “sustainable innovation”—has usually been employed to categorize innovations that contribute to the preservation of a sustainable environment through the development of ecological enhancement [28
At this point, it must be underlined that green innovation entails several characteristics that make it inherently different, although related, to general innovation. The etymological foundation of the term innovation roots in the Latin term “innovare
”, which involves a certain degree of transformation of something, through the introduction of some novelty. Reference [29
] posits that innovating involves developing new products, services or processes. In addition, reference [30
] argues that innovation comprises a new way of doing what is currently being commercialized. Therefore, innovation encompasses both invention and commercialization stages. The main feature that characterizes green innovation and consequently, differentiates it from general innovation lies in the environmental benefit derived from the previous. In this vein, the OECD/Eurostat Oslo Manual [31
] conceives green innovation as the implementation of novel, or substantially enhanced products, processes, marketing methods, organizational structures and institutional arrangements which, both deliberately or unintentionally, lead to environmental improvements compared to relevant alternatives. Likewise, reference [32
] considers that green innovations should not be limited to products or services launched for purely environmental reasons. According to these authors, green innovations cover a broader spectrum that embraces all innovations that lead to sustainability outcomes or environmental benefit, whether intentional or accidental.
With the increase in environmental concerns expressed by customers, manufacturers and product designers create designs that are less polluting or harmful for the environment. Therefore, green innovation consists of all type of innovations that donate to the generation of products, services or processes to decrease the damage, effect and decline of the environment, and at the same time, enhance the use of natural resources.
Authors, like [33
], suggest that green innovation may possibly raise companies’ productivity and maximize their use of resources, becoming consequently more competitive from the improvement and sustainment of competitive advantages rooted in the corporate image improvement and the development of new markets, while gratifying the requirement of environmental protection [7
Recently, reference [36
] defined green innovation is “a strategic need for firms and it offers a great opportunity for meeting buyers’ wishes without harming the environment” (p. 448). Hence, the conceptualization of green innovation has been stimulated from more resource-oriented descriptions to a more comprehensive framework that incorporates the firm’s compliance with the stakeholders’ green requirements and demands.
Numerous authors, such as [8
], among others, have distinguished between several typologies of green innovation: products, processes, technological and managerial. However, our study focuses on green product innovation and green process innovation. References [8
] difference green innovation into green product innovation and green process innovation.
These authors clarify the process of innovation as a process that adapts the design of an existing product that reduces the harmful impact on the environment. This requires adaption of the production process of the company throughout the whole process of acquisition, production and distribution of the products. Product innovation is defined as the introduction of novel products and services that do not produce any contamination or have minimal negative consequences, using products and biodegradable materials, and are efficient in the use of energy, water or any other natural resource.
2.3. The Effects of Absorptive Capacity on the Firm’s Green Product and Process Innovation Performance
Chen et al. [8
] define green innovation as the sort of innovation that is aimed at the enhancement of a firm’s environmental management performance to satisfy the requirement of environmental protection, and, in this way, enables a business to increase resource productivity through green innovation to make up for environmental costs. The same authors explain that green innovation performance might consist of either green products or the carrying out of green processes.
Therefore, green innovation performance can create or enhance value for the firm through the development of more environmentally innovative products or processes. Green innovation, which might commonly be divided into two subsets (i.e., green product innovation and green process innovation), denotes the activities and policies concerning the development of innovative products and processes aimed at substantially minimizing environmental impacts [8
According to [40
], the prior accumulation of knowledge fosters a firm’s potential to produce innovation outcomes. The process of applying new knowledge to obtain new products, services or processes usually generates innovation outcomes, such as green innovation performance.
] introduced the concept of absorptive capacity (ACAP) to describe a firm’s ability to value, assimilate, and apply new knowledge. Though there exists extensive literature about ACAP, this topic only stimulates significant interest within the academic community in light of [14
]’s reconceptualization. The roots of this reconceptualization can be found in the abstract distinction between potential absorptive capacities (PACAP) and realized absorptive capacity (RACAP). Our study is consistent with [14
]’s view, which suggests that ACAP comprehends four different but complementary capabilities, namely acquisition, assimilation, transformation, and exploitation. In accordance with their view, PACAP and RACAP involve different capabilities. On one hand, PACAP involves knowledge acquisition and assimilation capabilities, which make a firm open to acquiring and assimilating new externally rooted knowledge [41
]. Conversely, RACAP deals with a firm’s knowledge transforming and exploiting capabilities. Along this vein, according to [42
], PACAP and RACAP are essentially distinct concepts, and consequently, may draw on different objectives, structures and strategies. These diverse capabilities are considered to help the organization to attain a competitive advantage that may lead to superior performance [43
Following the reasoning in [12
] (p. 128)—“the ability to evaluate and utilize outside knowledge is largely a function of the level of prior related knowledge. […] Prior knowledge confers an ability to recognize the value of new information, to assimilate it, and to apply it to commercial ends”—we posit that green knowledge acquisition deals with a company’s capability of identifying and acquiring external environmental knowledge that is critical to its green practices.
Knowledge assimilation is composed of the firm’s routines and processes that allow it to analyze processes, interpret, and understand the information obtained from external sources [24
]. This second dimension of ACAP consists of the interpretation and understanding of individuals’ knowledge. This stage of ACAP approaches the individual level more than the collective one. Specially, knowledge assimilation describes the capacity of understanding new external knowledge and linking it with the prior environmental knowledge base.
] (p. 190) explains that transformation capacity is “a firm’s capability to develop and refine the routines that facilitate combining existing knowledge and the newly acquired and assimilated knowledge”. In this case, transformation stands as the internalization of new external knowledge about environmental practices in existing firms’ products and processes.
The last phase has been traditionally considered to be the most important one, since exploitation comprises an organization’s capability to refine, extend or leverage its existing competencies, or to create new ones by incorporating acquired and transformed knowledge into its operations and procedures [14
PACAP includes acquisition and assimilation capabilities for obtaining external environment knowledge. However, obtaining this knowledge does not guarantee the operation of the same. In a second stage, the phases of transformation and exploitation that shape the RACAP dimension serve to reflect the environmental knowledge previously acquired. Therefore, PACAP and RACAP are different concepts that involve very different strategies and structures. While PACAP requires change, flexibility and creativity, RACAP requires control and stability.
] suggests that the novelty creation process is composed of two stages, called “invention” and “innovation”. On one hand, invention is associated with the creation of a conceptual novelty (i.e., the creation of new ideas or concepts to be applied in a specific business context). This conceptual novelty is essentially rooted in the individuals’ tacit knowledge [45
]. On the other hand, the innovation phase incorporates the creation of an instrumental originality. This is the process of using the newly-created knowledge and representing it in various forms. The success of this phase depends on a firm’s capacity to absorb environmental knowledge and combine it with its own knowledge base.
Several studies posit that the ability to exploit external knowledge effectively constitutes a critical factor for companies with an interest in enhancing innovation outcomes and firm performance ([12
]). In addition, the study developed by [42
] brings empirical evidence to show that PACAP constitutes an antecedent of RACAP and that the latter drives innovation. Concretely, these authors found that “organizational mechanisms associated with PACAP had a significant positive effect on RACAP. Therefore, if the PACAP-enhancing activities provide access to more knowledge, and a greater knowledge base enables the company to search for […] innovativeness solutions more effectively, then these activities should improve the efficiency of RACAP for new innovation” (p. 1609). However, only a few works have studied the relationship between absorptive capacity and green innovation ([5
]). However, there is, in particular, a lack of empirical research specifically considering the links between these constructs’ dimensions.
On one hand, it is very important that the companies absorb external knowledge about environmental issues, which might serve to reduce or mitigate pollution in their processes of innovation. For example, multiple companies may require absorption knowledge about the measures and international standards set out in the Kyoto Protocol or the norms that they must meet in order to obtain ISO 14001. This new knowledge acquired, in combination with their knowledge base, will allow companies to include innovations into their processes and strategies.
On the other hand, green product innovation performance consists of product improvements related to environmental innovation, and green process innovation performance involves process improvements related to waste and oil recycling, prevention of pollution, etc. [39
]. Thus, green products are designed to provide a reliable solution for environmentally-conscious consumers seeking affordable and high quality eco-friendly products [50
]. For this reason, companies should absorb external environmental knowledge in order to satisfy environmental protection requirements and to design new, greener products or improve existing ones.
Precisely, in the seminal study developed by [14
], the complementarity of both subsets of absorptive capacity (i.e., PACAP and RACAP) in yielding superior performance (i.e., innovation performance, competitive advantage, etc.) is stated. Along this vein, [14
] discerned that after an exhaustive revision of prior related research, most empirical studies show significant relationships between a firm’s absorptive capacity, its innovative output and other outcomes related to the creation and fulfilment of competitive advantages. As [14
] posited, despite the importance of PACAP, RACAP is the primary source of performance improvements. Thus, these outcomes primarily reflect a firm’s RACAP efforts. However, as we argue in this paper, the complementarity existing between both subsets of absorptive capacity may lead us to contemplate the degree of influence that PACAP has on a firm’s green innovation performance. This is consistent with previous literature assessing the links between both dimensions of absorptive capacity and innovation outcomes (i.e., [51
]). This decision is consistent with the conceptualization of absorptive capacity in [14
] (p. 191): “distinguishing between PACAP and RACAP provides a basis for observing and examining the fluid and nonlinear paths that organizations may follow in developing their core competencies. Making the distinction between PACAP and RACAP can allow researchers to study why some firms fail because of changes in the external environments, such as technological lockout or industry shocks [54
], while others thrive under the same conditions”.
Hence, this study asserts that PACAP is an antecedent of RACAP, which subsequently exerts a positive influence on green product and process innovation performance and posits the following hypotheses (Figure 2
Potential absorptive capacity (PACAP) is positively related to realized absorptive capacity (RACAP).
Realized absorptive capacity (RACAP) is positively related to a firm’s green product innovation performance (GIPr).
Realized absorptive capacity (RACAP) is positively related to a firm’s green process innovation performance (GIPc).
2.4. The Mediating Role of Realized in the Potential Absorptive Capacity-Green Innovation Performance Link
The four capabilities identified by [14
] are distributed between the two constructs or subsections of ACAP. While potential absorptive capacity (PACAP) centers on knowledge acquisition and assimilation, realized capacity (RACAP) focuses on knowledge transformation and exploitation. Knowledge acquisition and assimilation (i.e., PACAP) shapes a firm’s capability to value and capture external knowledge, but does not guarantee itself the exploitation of this knowledge. On the other hand, knowledge transformation and exploitation (i.e., RACAP) reflects the firm’s capability to leverage the recently absorbed knowledge [55
The reason for splitting ACAP into its dimensions—potential and realized—roots in the underlying principle that capabilities might be conceived as potentials that are more significant once they are realized [14
]. Hence, possessing a capability as a potential is a needed precondition, but not a sole cause for realizing that potential to meet goals. Bearing this in mind, PACAP and RACAP stand as complementary, yet distinct, dimensions of ACAP.
According to [56
] (p. 124), “Knowledge alone is not enough. A firm needs to have tools to exploit and appropriate this knowledge embedded in new organizational innovations”. This means that knowledge acquisition and assimilation can occur, but this does not guarantee that it will be efficiently transformed and exploited by the firm.
To sum up, the main idea of Zahra and George’s thinking is that PACAP and RACAP concepts are complementary—in other words, PACAP and RACAP are both necessary for the effective absorption of external knowledge. According to these authors, a firm may have the capability to acquire external knowledge, but this does not guarantee the exploitation of this knowledge.
On the other hand, a firm may have the capacity to influence and exploit knowledge, but is not able to effectively acquire it. Hence, PACAP and RACAP have different roles, yet their impact is not isolated, but rather, matching. Both subsets of absorptive capacity coexist and participate in the improvement of firm performance. This reasoning led them to rethink the concept of ACAP.
A firm’s competence in acquiring and exploiting external knowledge is crucial for the effective development, deployment, and utilization of several innovative capabilities [12
]. According to [57
], PACAP and RACAP represent fundamental underlying mechanisms for organizational learning, which might ultimately lead to firm innovativeness. Particularly, PACAP might enable innovativeness by sensing and seizing relevant and creative external knowledge. Likewise, RACAP might help in the processing and digestion of external knowledge and turn it into direct inputs for product, service, process, and management innovations. Although these capabilities are complementary, acquisition, and assimilation of external knowledge do not guarantee its effective leverage for innovativeness, and firms can be exceptional in transformation and exploitation, while being ordinary in acquisition and assimilation [48
Considering and integrating all the arguments stated above, we propose the following hypotheses (Figure 2
Realized absorptive capacity (RACAP) mediates the link between potential absorptive capacity (PACAP) and green product innovation performance (GIPr).
Realized absorptive capacity (RACAP) mediates the link between potential absorptive capacity (PACAP) and green process innovation performance (GIPc).