Patently different? The influence of offshore patent strength on the nature of R&D offshoring

Despite concerns of leakage of Intellectual Property (IP), multinational firms are increasingly offshoring research and development activity to developing countries with weak Intellectual Property Regimes (IPRs). This paper examines how the strength of the IPR at an offshore location influences the nature of multinational R&D activities in that location. We argue that, on average, the weaker the IPR at the offshore location, multinational firms are more likely choose to perform in that host location R&D projects that are more valuable to the firm than to its competitors and are less likely to build on the firm’s prior knowledge. We also argue that in offshore locations with weak IPRs, this type of project selection is even more likely when the R&D project is aimed at the offshore market and is less likely when the project is aimed at the firm’s headquarters location. We test our theory using a novel dataset of patents assigned to US multinationals that were partially or fully offshored to India or to the UK, and were filed in the US or at the offshore location (India or UK). We thus contribute to a better understanding of multinationals R&D strategies in offshore locations.