Attracted by the market in emerging economies, some companies are setting up their research and development activities there. But in these countries, intellectual property rights are weak. The risk of knowledge theft is therefore high.

According to researchers, René BELDERBOS, Martin CARREE et Joseph PARK professor at NEOMA the “internal linkage strategy” helps to protect against the flight of ideas, and thus strengthens their performance.

This is the result of their study published in the Strategic Management Journal in February 2021, “Do R&D investments in weak IPR countries destroy market value? The role of internal linkages”.

How you went about your research ?

We empirically analysed data on 1763 cross-border R&D investments by 117 leading multinational firms. We took market values of these firms (based on stock price) as a performance measure, and investigated the relationship between internal linkage strategies, foreign R&D investments, and firm market valuation.

Why is your research innovative and impactful?

The growing market potential of emerging economies (notably BRICs) has led to an increase in research & development (R&D) activities there by multinational firms. A known challenge to multinational R&D investors in these economies is the weak protection of intellectual property rights (IPR). Our study shows the effectiveness of internal linkage strategy when firms invest in R&D in weak IPR countries.

What are the effects of this strategy on the company’s performance?

This strategy indeed increases long-term performance of the firm, which implies firms should adopt this strategy if they perform R&D activities in emerging economies.

We further prove that this strategy bears substantial costs if this is applied in non-relevant context. This suggests an important caveat that firms should carefully assess benefits and costs of this strategy before adopting this.

BELDERBOS, R., J. PARK (NEOMA), M. CARREE, “Do R&D investments in weak IPR countries destroy market value? The role of internal linkages”

Strategic Management Journal, February 2021

Available here: https://doi.org/10.1002/smj.3268