|
The creation of R&D centers by American companies in the BRIC economies and other areas is accompanied by concerns for protecting valuable IP assets. Organizationally, companies can modularize IP sensitive R&D between different facilities, thereby limiting the amount of valuable information mis-appropriable in any one facility. They can invest little and limit the scope of R&D in the foreign country. Or, firms can work with the host government for gradual changes in local laws. Another approach studied by several European scholars Alireza Naghavi and Dermot Leahy, is to shape the way in which American companies, and multinationals from other countries, choose to serve a market. IPRs and Entry into a Foreign Market: FDI vs. Joint Ventures (June 2006). FEEM Working Paper No. 97.06. Firm… assets may be knowledge based and can be protected by a patent. The patent …creates incentives for it to move to a foreign market. 2.
When an enforcement mechanism to protect patents is absent in the target country, the firm’s desire to protect its knowledge based assets can influence how (if at all) it chooses to enter that foreign market. 2.
The goal of the paper is to test what kinds of economic participation, whether joint ventures or foreign direct investment, is most optimal for host countries, whether they seek, in the near term, to benefit from technology transfer or foreign capital. Why capital is important stands as obvious. Technology transfer is less obvious, as is its relation to IPRs. … transfer only occurs when firms see enough commitment to IPRs in the host country so that excessive leakage of its know-how outside the JV can be prevented. It will be seen that this form of technology transfer can be accelerated by an improvement in the level of IPR protection... (countries) can induce … firm(s) to undertake voluntary technology transfer when it sees JVs as the socially preferable form of inward investment. 4. The two major ways in which multinational companies enter foreign countries is through joint venture or licensing deals with local firms (“which allows R&D spillovers under imperfect IPRs”) or through foreign direct investment (“to avoid the exposure of … technology”). Foreign investment … can take several forms: one option is to directly set up a wholly owned subsidiary in order to have more control over and closer monitoring of its operations abroad; another is to enter an agreement such as licensing, acquisition, or a joint venture (JV) with an already existing foreign firm to serve a foreign market…1
FDI depends relatively little on IPRs and more on input costs and market opportunities. 2.
… when a JV is viable, the sum of … local firms profits under a JV always exceed the corresponding levels under direct FDI. 32.
The type of industry, or specific goods at hand, plays a part in a company’s decision making. For instance, IBM may undertake R&D in India, but given India’s lack of policies supporting software patents, this will affect what kinds of work IBM performs in its Indian labs. If knowledge is valuable but can be copied, a (firm) may not wish to reveal its technology …. This leads firms to seek a safer alternative and engage in … foreign direct investment in countries with weaker IPRs and contract enforcement mechanisms. 2.
… as IPR protection in a nation becomes stronger, firms would not need to rely as much on the direct form of FDI and tend to choose more licensing and JV agreements. 2.
The paper calls out the relation between R&D intensity of an industry and how that affects their decision on the form in which to pursue business in a country. For example, with “low tech goods or those too costly to imitate, “FDI depends relatively little on IPRs and more on input costs and market opportunities.” 3.… in industries with valuable, but easily copied technologies such as the … software industry where concern over the ability of local IPRs to deter imitation arises when making foreign investment decisions. 3.
… JVs or licensing …is seen as riskier than FDI with a wholly owned subsidiary when IPRs are weak. This concern was higher for more R&D intensive sectors… the risk at stake is much higher when technologies require higher amounts of R&D investment... 3
… strengthening the IPR regime instead serves as a priority to induce a JV and with it technology transfer… policies on the extent of foreign ownership in a JV only become important as a complementary policy to full IPR protection for sectors with high R&D intensity. 7.
Why and when firms benefit from forming JVs or entering licensing agreements in foreign countries: As the IPR regime in a developing country improves, i.e. it adopts TRIPS, we expect to see licensing and JVs displace FDI. 3.
… JVs are most likely when R&D intensity is at an intermediate level. The strengthening of IPRs reduces the losses due to imitation of the JV’s technology by the outsider firm and consequently increases the range of R&D intensities of production over which a JV occurs. 33.
… if the firm has all the bargaining power and IPRs are fully protected then a JV will be inferior to direct FDI from the point of view of (local) welfare. For a JV to dominate from a … welfare perspective we need some (local) bargaining power and/or imperfect IPR protection. 33.
For highly R&D intensive industries (local) welfare under a JV can be higher with full IPR protection, but only if the (host country’s) bargaining power in the JV is positive. ... 33.
posted by Noel Le @ 5:33 PM | International
Link to this Entry |
Printer-Friendly |
Email a Comment | Post a Comment(0)
|
