patent premium我的资源Patent Premium 20191222

The Patent Premium for Foreign Firms Innovating in Emerging Markets with Weak Intellectual Property Rights ProtectionsAbstractWeak intellectual property rights (IPR) protections in emerging markets pose a critical challenge to foreign firms attempting to appropriate returns from innovations in these markets. This study investigates the extent to which foreign firms in emerging markets, if they do so at all, obtain a patent premium, defined as an incremental productivity gain from a firms patents that it would not obtain had it not owned any patents. Drawing on theoretical insights from institutional theory and the liability of foreignness (LOF) logic, and using a panel dataset representing the performance of 32,901 firms in Chinas high-tech industries, we find that foreign firms do obtain a patent premium despite the countrys weak IPR protection. The level of the patent premium is, however, significantly lower for foreign firms than for domestic firms, consistent with the LOF logic. We also find that a foreign firms patent premium increases substantially with institutional development, and to an even greater extent among wholly owned foreign subsidiaries (WOSs) than among international joint ventures (IJVs). This finding offers further support for the LOF logic insofar as institutional development lowers the LOF for foreign firms, particularly for WOSs. These findings provide implications for foreign firms regarding their innovation strategies in emerging markets with weak IPR protections and for host-country governments when formulating their innovation policies.Keywords: Patent premium, IPR, innovation, institutions, emerging economyINTRODUCTIONScholars and executives alike have puzzled over a paradoxical question 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 undertaken by multinational enterprises (MNEs) competing in foreign emerging markets (Sartor & Beamish, 2014; Zhang, Li, Hitt, & Cui, 2007; 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 rate. China surpassed the US in 2011, becoming the worlds largest receiver of patent applications.This phenomenon is striking considering the weak institutional environment and IPR protection that characterizes most emerging economies (Brander, Cui, & Vertinsky, 2017; Peng, Ahlstrom, Carraher, & Shi, 2017). Patenting as a formal appropriation mechanism may not be viable in emerging economies where law enforcement related to IPR is weak because the effectiveness of patenting depends primarily on the quality of a national legal system and the 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, and taking advantage of lead time (“first to market”) to capture value from innovations (Hall, Helmers, Rogers, & Sena, 2014; Teece, 1986). Weak IPR protection weakens incentives to patent and therefore poses a critical challenge to MNEs attempting to appropriate returns from patenting in emerging economies (Zhao, 2006).This paradox has prompted researchers to investigate the conditions that have been motivating the rapid growth of patenting in these countries (Hu & Jefferson, 2009; Huang & Li, 2019; Keupp, Friesike, & von Zedtwitz, 2012). It has been recognized that market size and economic development may offset some disincentives for patenting activities caused by weak IPR protection (Ginarte & Park, 1997; Luo, 2003), and governmental support for innovation (e.g. favorable tax treatment and a research-and-development subsidy) may incentivize firm-level patenting activities despite the threat of patent infringement (Dang & Motohashi, 2015; Li, 2012). Others also suggest that improved physical infrastructure and geographic clusters for innovation are conduits for patenting (Hu & Mathews, 2005; Porter & Stern, 2001).Despite these scholarly efforts, much remains to be learned about the extent to which, if it is true at all, patenting pays off for foreign firms investing in large emerging markets characterized by weak IPR protection. Combining insights from institutional theory and the liability of foreignness (LOF) logic, we assess how valuable patenting is for foreign firms in these economies. We denote the value of patenting by reference to a patent premium, generally denoting incremental gains in the value of technological innovations that are 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 derived from a firms patents that it would not have realized had it not owned any patents.The ideal method for estimating the patent premium is to compare the productivity of a patent-owning firm with its productivity had it not owned any patents, but the productivity of a patent-owing firm had it not owned any patents is hard to observe. To provide robust evidence that might settle this question, we employ a matching and difference-in-differences method with a large dataset of high-technology (high-tech) companies competing in China, the largest emerging market that features abundant market opportunities but weak IPR protection in most sectors. We construct the dataset by matching data from Chinas National Bureau of Statistics Annual Survey of Industrial Enterprises with patent data from the CNIPA. The dataset covers 32,901 firms in Chinas high-tech industries (in which foreign firms actively operate) during a ten-year period running from 1998 through 2007.Our longitudinal analysis offers some interesting and important insights. First, we find a significantly positive patent premium for foreign firms despite Chinas weak IPR system, validating the extensive patenting activities of foreign firms in the country. Second, foreign firms obtain a lower patent premium than domestic firms, confirming the presence of the LOF and the disadvantage that foreign firms face against their domestic peers in appropriating returns from patents and transforming technological innovation into productivity gains in emerging markets. Third, institutional development can effectively reduce the LOF that foreign firms experience, so the patent premium for foreign firms increases substantially with institutional development, all the more so among wholly owned foreign subsidiaries (WOSs) when compared with international joint ventures (IJVs). This finding offers further support for the LOF logic, as institutional development lowers the LOF for foreign firms, particularly for WOSs. Surprisingly, we find that the patent premium for domestic firms decreases with institutional development, indicating that institutional development may undermine the advantage of localness that domestic firms would seem to enjoy.This study makes important contributions to the literature. First, we address the question why a firm with a given innovation would prefer formal over informal IPR, an important question related to corporate strategy for profiting from innovation. Most previous studies (Arundel & Kabla, 1998; Cohen, Nelson, & Walsh, 2000; Graham & Sichelman, 2008; Levin, Cohen, & Mowery, 1985) have provided evidence in the context of developed economies, where the institutional environment is mature and robust. Yet this important question remains under-studied in the emerging-economy setting where IPR systems are weak. To the best of our knowledge, this study is the first to empirically assess the patent premium in an emerging economy. By confirming the presence of a significantly positive patent premium among foreign firms operating in a large emerging economy, our findings reveal that foreign firms can achieve higher productivity by patenting innovations than by not patenting them. Thus, patenting can be a viable appropriation mechanism for foreign firms seeking to profit from innovation, even in large emerging markets with weak IPR systems. As such, our study addresses the paradox that rapidly growing patenting activity is found in a large emerging economy with weak IPR protections, namely China.Second, the LOF concept implies that multinational corporations operating in foreign markets incur additional costs that domestic competitors avoid (Kostova, Roth, & Dacin, 2008; Kostova & Zaheer, 1999; Zaheer, 1995). Among the sources of the LOF is foreign firms inadequate knowledge of a host countrys culture, norms, values, and business practices, known collectively as “unfamiliarity hazards” (Eden & Miller, 2001; Zaheer, 1995). Unfamiliarity with formal institutions such as laws, regulations, constitutions, contracts, and property rights in host countries may also subject firms to the LOF. Our study contributes to this stream of literature by arguing that foreign firms relatively poorer ability to leverage competitive opportunities associated with owning patents and using relationship-based strategies to overcome institutional hazards in emerging markets 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 overcoming the challenge of institutional voids and suffer less severely from the LOF than WOSs do (Li, Yang, & Yue, 2007; Meyer, 2001), when institutions develop and the LOF is reduced, WOSs are able to reap greater benefits from patenting than IJVs.Third, institutional theory (DiMaggio & Powell, 1983; Scott, 1987) and the literature on the institution-based view of strategy (Oliver, 1991; Oliver, 1997) argue that organizations are influenced by institutions to an even greater extent during periods marked by significant institutional change (Meyer, Mudambi, & Narula, 2011; Peng & Zhou, 2005). The impact of institutional development is not, however, the same on every organization in an institutional setting given the varying extent to which organizations rely on external institutions (Pfeffer & Salancik, 1978), the strategic intent to exploit opportunities made available by institutional change (Hitt, Ahlstrom, Dacin, Levitas, & Svobodina, 2004), and the capacity to cope with institutional dynamics (Hillman & Keim, 1995). This study extends this line of research by showing that foreign firms patent premium responds more favorably to improvements in IPR institutions than does that of local firms. We exhibit strong evidence pertaining to 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. We can achieve a fuller understanding of this institutional logic if we unite the institutional void logic (weak IPR protection) with the institutional complexity logic (institutional fragility and incompatibility across locations within a country) in analyzing the innovation success of both foreign and local firms in an emerging market.THEORETICAL DEVELOPMENTPatenting under Weak IPR ProtectionPatenting has long been recognized as a differentiating mechanism, providing owners with the right to exclude others from using an invention without their permission for a limited period of time (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 gain competitive advantage (Gambardella, 2013; Somaya, 2012). While this logic generally applies to firms in every country, the actual returns on or benefits of patenting vary significantly with institutional and market environments. Firms seeking to carry out patenting activities abroad will perhaps encounter greater complexity and paradox in large emerging economies like China and India than in smaller emerging markets. Chinas and Indias markets are huge, yet IPR protection remains weak. Although some of these governments have been making efforts to protect patent rights more effectively, especially those that have joined the World Trade Organization (WTO), legal enforcement of IPR protection is impeded by a plentitude of perilous issues such as public empathy with copycatting (Luo, Sun, & Wang, 2011), weak judiciary and administrative systems related to 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 a 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 to firms operating in large emerging markets characterized by weak IPR protection (Al-Aali & Teece, 2013; Schankerman, 1998; Teece, 1986).Conceptually, we examine the patent premium from the perspective of institutional logic, complemented by the LOF logic. The institutional logic we develop originates from studies that apply institutional theory (DiMaggio & Powell, 1983; Scott, 1987) to firm strategy, which 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 in particular the strategic-response logic in the context of institutional pressure (Oliver, 1991; Oliver, 1997), holds that institutional forces exert a strong effect on organizations, even more so during periods of institutional change (Peng & Zhou, 2005). Yet this effect is not equal in every organization in a given institutional setting because of three idiosyncrasiesone is varying dependence among firms on external institutions that maintain power by controlling resources (Pfeffer & Salancik, 1978), a second is variations in the strategic intent to exploit opportunities during periods of institutional change (Hitt, Ahlstrom, Dacin, Levitas, & Svobodina, 2004), and a third is variations in policy treatments or the capacity to manage institutional dynamics effectively (Hillman & Keim, 1995).Grounding our analysis on such logics, we argue that institutional hazards, such as weak IPR protection, may limit returns on patenting activities, but the competitive opportunities associated with patenting in a large emerging economy, characterized by sheer market size, rapid economic growth, and government innovation subsidies, can offset this constraining effect (Luo, 2006; Zhang, Li, & Schoonhoven, 2009). In addition, companies in emerging markets have learned to employ a range of relationship-based strategies to circumvent the challenges of institutional voids (Keupp, Beckenbauer, & Gassmann, 2009; Luo, 2001; Peng, 2003; Somaya, 2012), which helps to protect them against patent infringement and to secure productivity gains from patents. Together, we expect that firms in large emerging markets are likely to benefit from patenting despite the enormous institutional challenges.Regarding the competitive opportunities associated with patenting, governments in large emerging economies such as China commonly promote high-tech innovation by providing incentives and subsidies to high-tech companies. These benefits include tax subsidies (e.g. a 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). To qualify for such subsidies, a firm must 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 cut costs directly and thereby contribute to productivity gains. Earning high-tech company status also provides these companies with access to government procurement contracts and other privileged market opportunities. Thus patenting, as a pre-requisite for high-tech company status and government subsidies, can be highly valuable for companies, both foreign and domestic, in these large emerging markets.Managers who adopt relationship-based strategies leverage interpersonal ties and interorganizational relationships with government agencies and legal professionals to help protect their firms against patent infringement and to secure productivity gains from patents (Keupp, Beckenbauer, & Gassmann, 2009; Luo, 2001; Peng, 2003; Somaya, 2012). For instance, by hosting professional workshops and seminars that are open to local government officials, firms may enhance their recognition and are more likely to be regarded as deserving of IPR protection in patent infringement cases (Keupp, Beckenbauer, & Gassmann, 2009). In patent litigation, firms seeking patent enforcement can engage in such strategies and tactics to gain the favor of government agencies or courts (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-l