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Value Creation and Capture in Developing Countries: The Driver and Mechanism of Offshore Outsourcing
Innovation

Using the survey data of Offshoring Research Network (ORN), World Economic
Forum (WEF), and Index of Economic Freedom (IEF), we find our premises supported
and offering several contributions. First of all, we respond to the recent call regarding the
KBV research on global strategy and IB literature (e.g., Grant and Phene, 2022), as we

complement the extant research based on the TCE and RBV perspectives by adopting
the KBV lens to explain value creation and capture of offshore innovation outsourcing
in developing countries. Moreover, we broaden the research on internationalization of

innovation by examining various innovation activities outsourced to developing countries
which can provide abundant human capital for those outsourcing firms to create value.
We further explore the moderator and contingency on the relationship between the driver
and the choice of offshore locations, which has been downplayed in the IB literature
(e.g., Chen and Hsiao, 2013), as we propose two mechanisms–task specificity and

project modularity–which moderate the driver of offshore innovation outsourcing and the
decision on outsourcing to developing countries. Lastly, we add to the literature regarding
the impact of global outsourcing and offshoring on IPR protection (e.g., Belderbos et

al., 2021). As we examine the two possible mechanisms which firms use to mitigate
the risk of ineffectual institutions in developing countries, particularly those with weak
IPR protection, we then provide further theoretical grounding and empirical support to
the works on the IPR protection and shed some light on the recent research of global
outsourcing and offshoring.

The rest of this paper is structured as follows. We review the literature regarding
internationalization of innovation, offshore outsourcing innovation, and the KBV
perspective; we then extend the discussions to firms’ value creation and capture of offshore

outsourcing innovation. Next, we elaborate the empirical setting of this paper and discuss
the research methodology. Thirdly, we outline the analytical results, present the research
findings, and finally offer discussions and conclusions at the end.

2. Theoretical Background and Hypothesis Development

2.1 Internationalization of Innovation and Offshore Outsourcing Innovation
The internationalization of innovation is a core research theme in the IB literature

(Dunning, 1988). Continuing this core theme, scholars have explored related subjects, such

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