Fearlessly Swimming Upstream to Risky Waters: The Role of Geographic Entry in Innovation

Abstract

We examine the puzzling geographic pattern that shows firms entering countries with weak intellectual property rights (IPR) protection with their research and development (R&D) activities. Geographic entry into weak IPR protection countries is at odds with conventional wisdom as such an environment erodes a firm's ability to appropriate from its innovations. We offer that while the well‐established practice of spreading out a firm's value chain activities across a region has important implications for value creation, what remains unaddressed is the value appropriation aspect of such activities. We introduce a multilevel theory and maintain that operating regionally through commercialization activities (downstream activities) provides complementary assets to the upstream activities – specifically R&D activities in a country within that region – with which focal firms can appropriate more from their innovations. We find that regional downstream commercialization activities can substitute for weak IPR regimes, thereby providing firms with an alternative mechanism for protecting their intellectual property in weak IPR countries.