In this study we explored the relationship between absorptive capacity, knowledge sourcing strategy, alliance forms, and firm performance. Based on the literature and case study, we proposed the concept of knowledge sourcing strategy in alliance contexts, which can be categorized into two types¡Xknowledge internalization strategy and knowledge access strategy. From organizational learning perspective, we argue that a firm¡¦s absorptive capacity has a positive influence on knowledge internalization strategy, and accordingly a firm¡¦s governance choices of alliances are also influenced. Firm¡¦s R&D performance are also included in theoretical model in order to generate further managerial implications. Instead of using conventional regression method, we adopt Structural Equation Modeling (SEM) to conduct path-analysis, in that SEM is well suited to verifying causal models. We argue that firms should seek a better alignment between absorptive capacity, knowledge sourcing strategy, alliance forms, and firm performance. Our arguments are supported by empirical analysis of a sample of 148 R&D alliances involving computer, telecommunication, LCD/LED, semiconductor, and electronic machinery industry.