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NTU Management Review Vol. 33 No. 1 Apr. 2023

to relocate their innovation activities offshore (Chen and Hsiao, 2013; Kumar, 2001).
Secondly, outsourcing innovation activities also involves the firm’s need to acquire tacit
inputs such as skilled workers, advanced technology, and new knowledge from offshore
contractor providers. That is, offshore innovation outsourcing is needed for knowledge

unavailable in-house or for finding the best knowledge around the world (Mukherjee,
Gaur, and Datta, 2013; Musteen, Ahsan, and Park, 2017). When developing countries can
fulfill such a need particularly with cost advantages, firms surely will consider outsource

innovation activities to access human capital in the developing countries to create value.
Furthermore, we argue that firms conduct offshore innovation outsourcing in
developing countries not only to create value by accessing human capital, but also
to capture value by managing the knowledge embedded in the human capital within,
between, and among offshore partners. According to KBV (e.g., Kogut and Zander,

1992; Takeishi, 2002), outsourcing implies partitioning activities based on knowledge
between the firm and its providers. While some partition activities are independent, others
are interdependent (Sanchez and Mahoney, 1996). Extending from this perspective, we

propose two mechanisms–task specificity and project modularity–for firms to manage
innovation activities outsourced in developing countries with weak IPR protection.
On the one hand, we define task specificity as disaggregating an innovation activity
into independent specific tasks. Specifically, task specificity enables firms to allocate tasks
efficiently and to manage the global configuration of tacit knowledge that resides in the

human capital of offshore partners across locations. It also provides limited access to the
knowledge of a specific task, exposes a little value of each task, and increases the cost of
coordinating a whole innovation activity. As such, task specificity can be a mechanism

that firms use to manage outsourcing in developing countries with weak IPR protection.
On the other hand, we define project modularity as modularizing interdependent tasks in
a project. Specifically, project modularity enables firms to access the specific knowledge
embedded in the human capital of offshore partners and to integrate knowledge across
offshore partners quickly and efficiently. It also creates the complexity of interdependent

tasks, hides the information of each project, and minimizes the need for communication
between projects. Accordingly, project modularity can be another mechanism that firms
use to capture value from outsourcing innovation in developing countries with weak IPR

protection.

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