patent premium我的资源Patent Premium 20191211

Patent Premium of Foreign Firms Innovating in Weak IPR Emerging MarketsAbstractThe weak intellectual property rights (IPR) protection in emerging markets poses a critical challenge for foreign firms attempting to appropriate returns from innovation in these markets. This study investigates to what extent, if at all, foreign firms in emerging markets obtain patent premium, defined as incremental productivity gains from a firms patents compared with its productivity had the firm not owned any patents. Drawing on theoretical insights from the institutional theory and liability of foreignness (LOF) logic, and using a panel data set of 32,901 firms in Chinas high-tech industries, we find that foreign firms do obtain patent premium despite the weak IPR protection in the country. However, the level of patent premium is significantly lower for foreign firms than for domestic firms, consistent with the LOF logic. We also find that foreign firms patent premium increases substantially with institutional development, and more so among wholly owned foreign subsidiaries (WOSs) vis-vis international joint ventures (IJVs). This offers further support for the LOF logic as institutional development lowers LOF for foreign firms, particularly for WOSs. These findings provide implications to foreign firms regarding their innovation strategies in weak IPR emerging markets and to host country governments in making their innovation policies. Keywords: Patent premium, IPR, innovation, institutions, emerging economyINTRODUCTIONIt has been a big paradoxical question to both scholars and executives alike for some time: Can innovation and patents pay off for foreign firms competing in large emerging markets where market opportunities are enormous yet intellectual property rights (IPR) protection is rather limited? The last decade has witnessed a surge of innovation activities of multinational enterprises (MNEs) competing in foreign emerging markets (Qu, Huang, Zhang, & Zhao, 2013, Thursby & Thursby, 2006, Zhao, 2006). Patent statistics reveal that the number of invention patent applications received by the National Intellectual Property Administration of China (CNIPA), for instance, increased from 63,000 in 2001 to 1.54 million in 2018, representing a staggering 24-fold growth. China surpassed the US since 2011 becoming the worlds biggest country in receiving patent applications.This phenomenon is striking considering the weak institutional environment and IPR protection in these economies (Brander, Cui, & Vertinsky, 2017, Peng, Ahlstrom, Carraher, & Shi, 2017). Patenting as a formal appropriation mechanism may not be viable in the emerging economies where law enforcement for IPR is weak (Al-Aali & Teece, 2013), because the effectiveness of patenting primarily depends on the quality of national law system and institutional environment in which firms operate (Athreye, Batsakis, & Singh, 2016, Santangelo, Meyer, & Jindra, 2016, Schankerman, 1998, Somaya, 2012). In such cases, innovators may count on other informal appropriation mechanisms, such as secrecy, control of complementary resources, or taking advantage of lead time (“first to market”) to capture value from innovations (Al-Aali & Teece, 2013, Hall, Helmers, Rogers, & Sena, 2014). The weak IPR protection leads to weak incentives to patent and therefore poses a critical challenge for MNEs attempting to appropriate returns from patenting in emerging economies (Zhao, 2006).This paradox has prompted researchers to investigate the conditions that are motivating the rapid growth of patenting in these countries (Hu, 2010, Hu & Jefferson, 2009, Keupp, Friesike, & von Zedtwitz, 2012, Li, 2012). It has been recognized that market size and economic advancement may offset some disincentives of patenting activities caused by weak IPR protection (Ginarte & Park, 1997, Huang & Jacob, 2014), and governmental support for innovation (e.g., favorable tax treatment and R&D subsidy) may incentivize firm-level patenting activities despite the existence of patent infringement (Dang & Motohashi, 2015, Li, 2012). Others also suggest that improved physical infrastructure and geographic clusters for innovation are conduits of patenting undertaking (Hu & Mathews, 2005, Porter & Stern, 2001). Despite these scholarly efforts, it remains unanswered to what extent, if at all, patenting is valuable for foreign firms investing in large emerging markets characterized by weak IPR protection. Combining insights from the institutional theory and liability of foreignness logic (LOF), we aim to assess how valuable patenting is for foreign firms in these economies. We denote the value of patenting by patent premium, generally referring to increment to the value of technological innovations realized by patenting them (Arora, Ceccagnoli, & Cohen, 2008)Arora, 2008, R&D and the Patent Premium;Arora, 2008, R&D and the Patent PremiumArora, 2008, R&D and the Patent Premium;Jensen, 2011, Estimating the patent premium: Evidence from the Australian Inventor Survey, and specifically in this study connoting incremental productivity gains from a firms patents compared with its productivity had the firm not owned any patents. The ideal method to estimate patent premium is to compare the productivity of a patent-owning firm with its productivity had the firm not owned any patents, but the productivity of a patent-owing firm had it not owned any patents is hard to observe. In order to provide robust evidence, we employ a matching and difference-in-difference method on a large dataset of high-technology (high-tech) companies competing in China, the largest emerging market that features well with market opportunities and weak IPR protection in most sectors. We construct the dataset by matching the data from Chinas National Bureau of Statistics Annual Survey of Industrial Enterprises with the patent data from the National Intellectual Property Administration of China (CNIPA). The dataset covers 32,901 firms in Chinas high-tech industries (in which foreign firms actively operate) during a ten-year period of 1998-2007.Our longitudinal analysis offers some interesting and important insights. First, we find a significantly positive patent premium among foreign firms despite the weak IPR system in China, validating the extensive patenting activities of foreign firms in the country. Second, foreign firms obtain lower patent premium than domestic firms, informing the presence of LOF and disadvantage of foreign firms vis-vis their domestic peers in appropriating returns from patents and transforming technological innovation to productivity gains in emerging markets. Third, institutional development can effectively reduce LOF of foreign firms, hence foreign firms patent premium increases substantially with institutional development, and more so among wholly owned foreign subsidiaries (WOSs) vis-vis international joint ventures (IJVs). This offers further support for the LOF logic as institutional development lowers LOF for foreign firms, particularly for WOSs. Surprisingly, we find that patent premium of domestic firms decreases with institutional development, indicating that domestic firms may encounter a deterioration in their advantage of localness with institutional development. This study makes important contributions to the literature. First, why a firm with a given innovation would prefer formal over informal IPR or vice versa is an important question related to the firms strategy of profiting from innovation. Most of the previous studies (Arundel & Kabla, 1998, Cohen, Nelson, & Walsh, 2000, Graham & Sichelman, 2008, Levin, Cohen, & Mowery, 1985) provided evidence in the context of developed economies, where the institution is mature and robust. However, this important question in the setting of emerging economies where the IPR systems are weak remains under-studied. To our best knowledge, this study is the first to empirically assess patent premium in an emerging economy. By presenting a significantly positive patent premium among foreign firms operating in a large emerging economy, our findings reveal that foreign firms can gain higher productivity with patenting vis-vis without patenting. Thus patenting can be a viable appropriation mechanism for foreign firms to profit from innovation, even in large emerging markets with weak IPR systems. As such, our study addresses the paradox between the facts of rapidly growing patenting activity and weak IP protection in a large emerging economy, that is China.Second, the concept of LOF describes that multinational corporations incur additional cost in comparison to domestic competitors when operating in foreign markets (Kostova, Roth, & Dacin, 2008, Kostova & Zaheer, 1999, Zaheer, 1995). One of the sources of LOF is foreign firms inadequate knowledge of the host countrys culture, norms, values and business practices, which is referred to as “unfamiliarity hazards” (Eden & Miller, 2001, Zaheer, 1995). Along with culture, norms, values, and practices, unfamiliarity with formal institutions such as laws, regulations, constitutions, contracts, property rights in host countries may also lead to LOF. Our study contributes to this stream of literature by arguing foreign firms inferior capabilities, in comparison to domestic firms, in leveraging competitive opportunities associated with owning patents and using relationship-based strategies to overcome institutional hazards in the emerging market make it more difficult to appropriate returns from an innovation by means of patent protection. Further, we demonstrate that because IJVs are more capable of dealing with the challenge of institutional voids and suffer less from LOF in comparison to WOSs (Li, Yang, & Yue, 2007, Meyer, 2001), when institution develops and the LOF is reduced, WOSs are thus able to reap more benefit than IJVs. Third, the institutional theory (DiMaggio & Powell, 1983, Scott, 1987) and the literature of institution-based view of strategy (Oliver, 1991, Oliver, 1997) argue that organizations are influenced by institution, even more so during institutional change (Meyer, Mudambi, & Narula, 2011, Peng, 2003, Peng & Zhou, 2005). However, the impact from institution is not equal on every organization in an institutional setting given that the extents to which an organization relies on external institutions (Pfeffer & Salancik, 1978), its strategic intent to exploit opportunities during institutional change (Hitt, Ahlstrom, Dacin, Levitas, & Svobodina, 2004), and its capability of coping with institutional dynamics vary (Hillman & Keim, 1995). This study extends this line of research by showing that foreign firms patent premium is more disposed to the improvement of IPR institution than that of local firms. We exhibit strong evidence on institutional complexity in general and institutional incompatibility in particular, suggesting that subnational variance in institutional conditions exerts an important impact on patenting activities and rewards. An understanding of institutional logic is fuller if we unite the institutional void logic (weak IPR protection) and the institutional complexity logic (institutional fragility and incompatibility across different locations with a country) in analyzing both foreign and local firms. THEORETICAL DEVELOPMENTPatenting under Weak IPR ProtectionPatenting has long been recognized as a differentiating mechanism, providing owners with the right to exclude others from using the invention without their permission for a limited period (Mansfield, 1986, Ziedonis, 2004). The exclusionary power of patent rights can bring market power (Bessen, 2009) and allow firms to pursue additional profit opportunities and competitive advantage (Gambardella, 2013, Somaya, 2012). While this logic generally applies to firms in every country, actual returns or benefits of patenting will significantly vary depending on institutional and market environments. Perhaps, there is no country that brings in such complexity and paradox for firms to deal with patenting activities as large emerging economies like China and India. Markets are huge yet IPR protection remains weak. Albeit some of these governments have been making efforts in protecting patent rights, especially after joining the World Trade Organization (WTO), legal enforcement of IPR protection is impeded by a plentitude of perilous issues such as public empathy of copycatting (Luo, Sun, & Wang, 2011), weak judiciary and administrative systems in IPR (Bosworth & Yang, 2000, Wang, 2004), business and public sector corruption (Kshetri, 2009, Liu, 2006), and political and institutional instability (Lieberthal & Lieberthal, 2003). Such institutional voids or hardships relating to patenting activities are further exacerbated by lack of institutional transparency and limited and often selective enforcement of IPR law (Khanna & Palepu, 2013, Ostergard, 2000, Oxley, 1999). This makes it difficult to appropriate returns from innovation through patent protection, so it remains unknown whether and when patents are valuable for firms operating in large emerging markets characterized with weak IPR protection (Al-Aali & Teece, 2013, Schankerman, 1998, Teece, 1986). Conceptually, we examine patent premium from the institutional logic, complemented with the liability of foreignness logic. The institutional logic we develop originates from works that integrate institutional theory (DiMaggio & Powell, 1983, Scott, 1987) and strategic choice that hinges in part on a firms dependence on external institutions that control critical resources (Oliver, 1991, Peng, 2003, Tolbert, 1985). This institution-based view of strategy, and Olivers strategic response logic to institutional processes in particular (Oliver, 1991, Oliver, 1997), hold that institutional forces enact a strong effect on organizations, even more so during institutional change (Peng, 2003, Peng & Zhou, 2005) but this effect is not equal to every organization in the said institutional setting due to three idiosyncrasies - one in varying dependence on external institutions that maintain power stemming from resource control (Pfeffer & Salancik, 1978), second in varying strategic intent to exploit opportunities during institutional change (Hitt, Ahlstrom, Dacin, Levitas, & Svobodina, 2004), and third in varying policy treatments or capabilities in dealing with institutional dynamics (Hillman & Keim, 1995).Grounding on such logics, we argue that institutional hazards, such as weak IPR protection, may limit the returns from patenting activities, but the competitive opportunities associated with patenting in a large emerging economy, characterized with sheer market size, fast economic growth and various government innovation subsidies, can offset this hindering effect (Luo, 2006, Zhang, Li, & Schoonhoven, 2009). In addition, companies in emerging markets have learned to employ various relationship-based strategies to circumvent the challenges of institutional voids (Keupp, Beckenbauer, & Gassmann, 2009, Luo, 2001, Peng, 2003, Peng & Heath, 1996, Somaya, 2012), which help protect against patent infringement and secure productivity gains from patents. Together, we expect that firms in large emerging markets are likely to benefit from patenting despite enormous institutional challenges. Regarding the competitive opportunities associated with patenting, for instance, governments in large emerging economies such as China commonly promote high-tech innovation through providing incentives and subsidies to high-tech companies, which include tax subsidies (e.g., 15% tax rate for high-tech companies versus the standard 25% tax rate), preferential loans, grants, human resources support, and favorable input prices and distribution channels (Capital Trade Incorporated, 2009, Dang & Motohashi, 2015, Hao, Ou, Du, Wang, & Ouyang, 2014). For a company to be qualified for the subsidies, it would need to obtain high-tech-enterprise status which is determined by whether the company owns local IPR such as patents (Ministry of Science and Technology, 2016). These subsidies can directly cut costs hence contribute to productivity gains of qualified companies. The high-tech company status also provides these companies the access to government procurement contracts and other privileged market opportunities. Thus patenting, as a pre-requisite for the high-tech company status and governments subsidies, can be highly valuable for companies, both foreign and domestic alike, in these large emerging markets. As to the relationship-based strategies, managers interpersonal ties and firms interorganizational relationships with government agencies and legal professionals can help protect against patent infringement and secure productivity gains from patents (Keupp, Beckenbauer, & Gassmann, 2009, Luo, 2001, Peng, 2003, Peng & Heath, 1996, Somaya, 2012). For instance, by hosting professional workshops and seminars open to local government officials, firms may gain better recognition and are more likely to be regarded as deserving IPR protection in case of patent infringements (Keupp, Beckenbauer, & Gassmann, 2009). In patent litigations, firms can engage in strategies and tactics to gain the favor of government agencies or courts in terms of patent enforcement (Somaya, 2012). Similarly, close ties with legal experts provide firms with reliable access to important legal, political or locality-specific knowledge and resources in patent litigations. Firms can target at specific tribunals or courts for patent enforcement if the firms are aware of any perceived policy bias or specialization in patent law at these tribunals or courts (Moore, 2002, Somaya & McDaniel, 2012). Because transaction costs in dealing with infringement and litigation are higher in emerging economies (Meyer, Estrin, Bhaumik, & Peng, 2009), these strategies are important for fir