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esses, with the systematic use of external knowledge as a primary input for the general
production of new knowledge. No i rm, in fact, can innovate in isolation. External
knowledge is an essential input into the generation of new knowledge. External knowl-
edge can substitute internal sources of knowledge only to a limited extent: full-l edged
substitutability between internal and external knowledge cannot apply. Unconstrained
complementarity however also appears inappropriate. Building on the large empirical
evidence about the role of external knowledge, the hypothesis of a constrained multi-
plicative relationship can be articulated. External and internal knowledge, both in their
tacit and codii ed form, are complementary inputs where none is disposable. The ratio
of internal to external knowledge however seems relevant. Neither can i rms generate
new knowledge relying only on external or internal knowledge as the single input. With
an appropriate ratio of internal to external knowledge instead, internal knowledge and
external knowledge inputs enter into a constrained multiplicative production function.
Both below and above the threshold of the appropriate combination of the complemen-
tary inputs the i rm cannot achieve the maximum output (Patrucco, 2009).
Because of the intrinsic indivisibility of technological knowledge, the successful
generation of new knowledge depends on the access to external knowledge. External
knowledge is only potentially useful: systematic ef orts have to be made in order to take
advantage of such possibilities. To do so, i rms rely on knowledge exploration strategies
to identify the sources of knowledge, to assess whether and how to rely on external or
internal knowledge in the production of new knowledge. Only when a i rm is able to
fully coordinate learning and research activities conducted within its boundaries with
the relevant sources of external knowledge, both tacit and codii ed, can new knowledge
be successfully generated. Knowledge procurement is as relevant as intramural research
activities in the generation of new knowledge. The purchase of patents and licenses in
knowledge markets by means of knowledge transactions, however, is by no means the
single source of external knowledge. External knowledge can be accessed also by means
of a variety of other tools, including the hiring of qualii ed personnel embodying the
competence acquired by means of learning in other companies and an array of interac-
tion modes with public research centers, customers, suppliers and competitors.
The acquisition of external knowledge is expensive both in terms of actual purchasing
costs and in terms of knowledge governance costs. Knowledge governance costs include
all knowledge transaction, communication and networking costs. Knowledge transac-
tion costs are the costs associated with the exploration activities in the markets for dis-
embodied knowledge such as search, screening, processing, and contracting. As it is well
known the assessment of the actual quality of knowledge can be dii cult when the vendor
bears the risks of opportunistic behavior and dangerous disclosure.
The acquisition of external knowledge requires qualii ed interactions with other
agents: dedicated ef orts are necessary to create the institutional context into which
external knowledge can be acquired. The capability of agents to access external tech-
nological knowledge depends on the fabric of institutional relations and shared codes
of understanding that help to reduce information asymmetries, reducing the scope for
opportunistic behavior and building a context into which reciprocity, constructed trust
and generative relationship can be implemented (Cohen and Levinthal, 1989 and 1990;
Grii th et al., 2003).
Knowledge communication is necessary when knowledge is dispersed and fragmented,
