Management Papers

Document Type

Journal Article

Date of this Version

8-2006

Publication Source

Management Science

Volume

52

Issue

8

Start Page

1185

Last Page

1199

DOI

10.1287/mnsc.1060.0516

Abstract

Multinational enterprises (MNEs) are increasingly conducting research and development (R&D) in countries such as China and India, where intellectual property rights (IPR) protection is still far from adequate. This paper examines this seemingly puzzling situation. I argue that weak IPR leads to low returns to innovation and underutilization of innovative talents; MNEs that possess alternative mechanisms for protecting their intellectual properties will therefore find it attractive to conduct R&D at those locations. A theoretical framework is developed to capture the interaction between firm strategy and the institutional environment. The empirical analysis on a sample of 1,567 U.S.-headquartered innovating firms finds results consistent with the hypotheses that (i) technologies developed in countries with weak IPR protection are used more internally, and (ii) technologies developed by firms with R&D in weak IPR countries show stronger internal linkages. The results suggest that firms may use internal organizations to substitute for inadequate external institutions. By doing so, they are able to take advantage of the arbitrage opportunities presented by the institutional gap across countries.

Copyright/Permission Statement

The original, published version of the articles is available at: https://doi.org/10.1287/mnsc.1060.0516

Keywords

R&D, intellectual propert rights, MNEs, arbitrage

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Date Posted: 19 February 2018

This document has been peer reviewed.