Technology is becoming increasingly very important to the success of all business firms, and to the national economic growth. The process of globalization is driven by technology development and the ability of corporations to uplift the use of technology effectively and rapidly. The technological gap between developed countries and emerging nations has narrowed but still remains huge.
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The first step to narrowing the gap is for emerging nations to absorb technology successfully. The rapid economic growth achieved by the newly industrialized economies has generated a vast amount of research on the mechanism behind the economic take off. According to F. Montes-Negret (2008), progress in developing countries reflects the absorption of pre-existing technologies not at the frontier inventions. In general terms, catch up refers to the ability of a country to reduce the gap in productivity and income with respect to the leading international countries (Fagerberg-Godinho,2005). Perez (1988) views catching up as a question of relative speed in a race along a fixed track, according to him, technology is understood to be a unidirectional process. Furthermore, he observes that every country is a beginner in terms of the newly emerging techno-economic paradigm, which implies the possibility of being a latecomer. Research has shown that in the catching-up process, the late-comer does not simply follow the path of a technological development of the advanced countries. Instead, they would rather skip some stages or even create their own individual ways which are different from the developed countries. By doing this, it may result in the developing countries becoming latecomers in technology advancing. For the country to have growth in economy and industrial development, it needs to have an absorptive capacity and ability to tap in the world’s technology pool. Cohen and Levinthal (2000) explains absorptive capacity as the ability to assess the value of external knowledge and technology and to make necessary investments and changes to absorb and apply these changes in a productive manner. The development of new-to-the world knowledge can be considered to be innovative which can be a costly learning activity that a country can employ in order to catch up with others through technology absorption. Innovation and technology absorption are two distinct processes, that is, innovation promotes absorptive capacity because the generation of human capital and new ideas, and the associated knowledge spillover effects, help build absorptive capacity. R&D is a key input into innovation and is also an input into absorption capacity. Absorption of technology is considered a necessary step to promote the development of human capital and the productive base, paving the way for innovations at the global knowledge frontier. Research and development (R&D), patents, trade, and foreign direct investment are major channels of technological absorption, allowing diffusion of new ideas and manufacturing best practices among countries and firms.
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