R&D Offshoring and its Effects on the Patenting Activity of Chinese Firms

Abstract

Involvement in R&D offshoring can result in loss in the ability of the offshoring firms to innovate. To prevent this, firms can design strategies to foster technology transfer by enhancing possibilities to re-adapt and re-invent the foreign-developed technologies. This paper examines the effect of two different modes of governance of R&D offshoring –market and hierarchies - on the patenting activity of indigenous firms, as well as how strategies for enhancing re-adaptation, innovation around and re-invention moderates those effects. We examine this issue empirically using data from 2011 to 2014 for a sample of 312 firms, classified as 'high and new-tech enterprises' located in the Hebei Province of China. Results suggest that governing R&D offshoring through market influence positively firms’ patenting activity, while vertically integrating R&D offshoring though the establishment of R&D labs in industrialized countries has a negative effect. Collaboration with domestic universities and public research organizations seem to stimulate the reinvention of foreign-developed technologies, accessed either through market or hierarchies, and in this way it enhances the effect of R&D offshoring on firms’ patenting activity. On the contrary, employment of foreign staff seems to substitute the effect of R&D offshoring, especially of the vertical integration mode, suggesting that foreign staff may foster knowledge transfer and adaptation but not necessarily re-invention or innovation around the foreign-developed technologies. Our study extends the debate of R&D offshoring to domestic independent firms and suggests boundary conditions for reaping the benefits from R&D offshoring.