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

across different locations (Contractor et al., 2010; Mukherjee et al., 2013). With respect
to enhancing the value from outsourcing innovation activities, task specificity helps firms
obtain immediate cost-cutting benefits and manage the human capital of external contract
providers.

At the same time, task specificity also lowers the risk of knowledge leakage. As firms
can disaggregate their innovation activities into many finer portions and tasks, some of
which being performed in offshore locations and others performed at home, the intellectual

property generated in the weak IPR location is still protected because it creates value only
after combining with those generated at other locations and at home. For example, firms
can separate a whole R&D activity into different tasks with little stand-alone value and
distribute some tasks to address their concerns about the location of weak IPR protection
(Quan and Chesbrough, 2010). Firms can also lower the imitation risk by contracting

out more specific tasks that have less market value than generic ones (Buss and Peukert,
2015). In this fashion, task specificity can reduce the incentive of potential defectors
including contractor providers with knowledge of the focal firm’s technologies to cheat

in the countries with weak IPR protection. Even though an individual contract provider
has access to the outsourcing a firm’s technologies, the access is only limited to a small
portion of the total proprietary information which is specific to the task. For one thing,
the proprietary information in one contract provider is limited and constrained without
the information of others (Gooris and Peeters, 2016; Quan and Chesbrough, 2010). For

another thing, the proprietary information about a whole innovation activity can likewise
be separated just as the activity can be separated into different tasks underlying their own
specificity (Berry, 2017; Martínez-Noya and García-Canal, 2018).

Since an outsourcing firm can use task specificity to allocate specific portions of
its innovation activity across countries, it can access and manage the human capital of
contract providers in developing countries. At the same time, since the focal firm only
allows each contract provider to access a small portion of the total proprietary information,
the costs for coordinating all the information will increase. As such, firms could

disaggregate and outsource different tasks of an innovation activity to the countries with
weak IPR protection and still capture most of the value from outsourcing innovation by
the designing of task specificity. Therefore, we propose the following hypothesis:

Hypothesis 2: The developing countries with the greater availability of low-cost,

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