ABSORPTIVE CAPACITY, INTERNATIONAL BUSINESS KNOWLEDGE TRANSFER, AND LOCAL ADAPTATION: ESTABLISHING DISCOUNT DEPARTMENT STORES IN AUSTRALIA 1 BY MATTHEW BAILEY Macquarie University (matthew.bailey@mq.edu.au) This article examines the ways that Australia’s largest retail firms accessed and adapted external knowledge flows, largely from the USA, to develop discount department store chains from the late-1960s onwards. In doing so, it extends work on retail internationalisation by focusing on the importation, rather than the exportation of business models. The three firms – Coles, Myer, and Woolworths – exhibited differing degrees of absorptive capacity in identifying and commercialising knowledge flows. This was reflected in fluctuating levels of success, the scope of store networks and relative positioning in the Australian market. Further, the role played by informal associations between managers in non-competing firms in different markets during the development of discount department stores in Australia advances the case for socialising analyses of business knowledge transfer more broadly. JEL categories: D83, L14, L81, O34 Keywords: Kmart, Walmart, international retailing, knowledge transfer, absorptive capacity, discounting INTRODUCTION This article examines the ways in which Australia’s three largest retail firms accessed and adapted external knowledge flows to develop national discount department store (DDS) chains from the late-1960s onwards. In the 1950s and early-1960s, DDSs had revolutionised retailing in the United States, adapting supermarket methods of retailing to sell department store-type merchandise. Observing their success, executives in Australia’s Myer department store chain and in G.J. Coles and Coy Limited, a national supermarket and variety store operation, determined 1 My thanks to the two anonymous reviewers for their very helpful comments, as well as to Andrew Scott (Director of Strategy and Property, Coles Myer, 1991–97), who provided detailed feedback on a draft of this article. Australian Economic History Review, Vol. ••, No. •• 2016 ISSN 0004-8992 doi: 10.1111/aehr.12107 © 2016 Economic History Society of Australia and New Zealand and John Wiley & Sons Australia, Ltd 1