After World War II, the market for vacuum tubes was threatened by the development, first, of transistors and, later, integrated circuits. It was essential for European electronic companies, including the Dutch company Philips Electronics, to adopt American technology to gain a position in the semiconductor market. Philips was a lamp manufacturer that during the 1920s started to expand its activities to semiconductors. Successful international knowledge transfer depends on the active role of firms, in particular their ability to recognize the value of new, external information and to assimilate and apply it to commercial ends; this ability is called the absorptive capacity. The Philips case underscores the findings in most studies in this field that a solid knowledge-base is essential for absorptive capacity because it enables a company to scan the environment for external knowledge and then to assimilate that acquired knowledge. There is a continuous interaction between internal knowledge-building and external knowledge-acquisition. But whereas during the late 1940s and early 1950s external knowledge was indispensable to commence the production of transistors, from the mid-1950s onward in-house research and development (R&D) became more important and Philips became less receptive to knowledge from outside its own organization. Although Philips's internal knowledge-base in semiconductors was enhanced due to the acquisition of capabilities as well as investments in R&D, its absorptive capacity decreased because the company felt more confident in its own judgments.