The influence of IPR on the offshoring of innovation activities : governance choices, and location strategies adopted by MNCs in China

Since offshoring of labour-intensive manufacturing activities started in 1960s, there have been significant transformations in these activities: more advanced activities are offshored, resource seeking has become an important driving force, and emerging economies have become increasingly popular as destinations. Several studies have analysed the factors behind offshoring decisions, however, few studies have comprehensively researched the effect of Intellectual Property Rights (IPR) on offshoring decisions. In particular, as a very popular offshoring destination, China attracts billions of investments every year, but existing literature on offshoring in China offers limited insight regarding the country's Intellectual Property (IP) protection and its effect on multinational corporations' (MNCs) offshoring decisions in China. This PhD thesis addresses the role that institutional factors (especially IPR) play when MNCs offshore their innovation activities to China focusing on three specific elements: the evolution of IPR in China, institutional factors affecting governance choices of offshoring innovation activities, and the evolution of offshoring strategies by foreign pharmaceutical and ICT companies in China. First, we analyse in depth the development of the IP system in China and its effect on IP behaviour. Our analysis shows that the quality of IP laws is greatly improved, and compliance with the minimum requirements of TRIPS have brought the most radical improvement to the Chinese IP laws around year 2000. The IP activities share a similar development pattern to the IP system development in China, which indicates a coevolution of innovation activities and IP development. Second, we investigate the governance of offshoring decisions of MNCs in China, seeking to understand the role of institutional framework conditions, in particular the IPR system, on governance decisions. The regression results show that rule of law in host countries has a positive effect on the probability of choosing captive mode, while the IPR protection is negatively related to such choice. We further find that institutions (rule of law and IPR) affect the achievement of certain offshore outcomes (e.g., focus on core competencies, improve organisational flexibility). Third, we analyse whether the location strategies MNCs adopted in China evolve while the IPR protection is developing, and whether the IPR protection affects MNC's choice of location strategies. We find that locating R&D activities to China is motivated by exploring the technology areas where China has an advantage, while the importance of market seeking and technology increases overtime. The regression results show that institutional factors (rule of law, IPR) affect MNC's choice of location strategy, in particular, the IPRs protection strength of China is positively related to the share of strategies in which China has no relative technological specialisation. The overall contribution of this research is to enhance the knowledge of the evolution of IPR (legislation and enforcement) in China, and the importance of institutional factors (especially IPR) in offshoring innovation decisions. It provides guidance for MNC when making decisions on offshoring R&D activities - their governance and location strategies of FDIs in China, thus offering fresh insights to managers and policy makers to better understand how institutional framework conditions and their enforcements affect the inward investment of R&D and the way it is governed and embedded in the system.