Offshoring innovation to emerging countries: the effects of ip protection and cultural differences on firms' decision to augment versus exploit home-base-knowledge
Developed-country multinationals (DMNEs) have increasingly engaged in the practice of ofshoring innovation to emerging countries. In this article, we leverage and
extend the institution-based view to further our understanding of this phenomenon.
Specifcally, we examine the diferential efects of formal and informal institutions
on DMNEs’ strategic decision to ofshore innovation activities aimed at augmenting (versus exploiting) home-base-knowledge to emerging countries. Concerning
formal institutions, we argue that the stronger the emerging host country’s IP protection, the higher the likelihood that a DMNE ofshores innovation activities aimed
at augmenting home-base-knowledge. Regarding informal institutions, we argue
that the greater the cultural diferences between the developed home country and
the emerging host country, the higher the likelihood that a DMNE ofshores innovation activities aimed at augmenting home-base-knowledge. Additionally, we propose a key contingency that attenuates the relationship involving IP protection while
strengthening the one involving cultural diferences: the DMNE’s experience with
ofshoring innovation. Analysis of 128 ofshoring innovation implementations by 78
DMNEs in ten emerging countries provides support for all our hypotheses except for
the one focused on the moderation efect of experience on the relationship involving
cultural diferences