Analyzing the Process of Absorptive Capacity: A Case Study of Garment SMEs in Yogyakarta

Abstract: Absorptive capacity is defined as the company's ability to identify, explore, and apply knowledge gained from the external environment into the form of services. Previous studies examined this generally put forward the role of R&D and leadership authority to neglect the natural process of absorptive capacity. As a knowledge process, its natural process unseparated from the involvement of all parties in the company (including employees). This study aims to analyze the absorptive capacity process in Gramen SMEs located in Yogyakarta with its characteristics that still prioritize business practices based on traditional approaches and local wisdom. By adopting a qualitative based on case studies, it found that the process of absorbing information generally carried out through informal interactions with customers and various communities. It is also confirmed that each stage of absorptive capacity does not always flow linearly, and the intensity of the absorption holds by companies determined by innovations required and the characteristics of the company. Keywords: Absorptive capacity; exploration; transformation; exploitation; innovation capability.