Political Tension and the Internationalization of Innovation by Emerging Market Firms

Abstract

There is increasing evidence that suggests a trend of de-globalization and highlights the importance of political factors in firms’ international activities. The issue is more salient for emerging market firms which are trying to foster global innovation but face potential discrimination in advanced countries because of the increasingly intense political climate. While political tension reduces the attractiveness of a prospective foreign market, it increases the need for a firm to protect their knowledge assets in that market, especially if the market is critical for the firm’s competitive advantage. Using the data of worldwide patents originally developed by Chinese listed firms, we show that political affinity between a firm’s home country and a potential host country is negatively associated with the likelihood of filing foreign patents in that country. Moreover, we theorize and find that the negative relationship is contingent on the competition from domestic rivals, the strength of intellectual property rights protection in the host market, and the political objective of the state.