Page 77 - 臺大管理論叢第33卷第1期

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

the availability of low-cost and high-skilled talent is the significant factor driving firms
to outsource innovation activities in developing countries. Apart from cost advantages
which can be exploited in developing countries, we find that human capital’s influence on
innovation activities and outcomes is crucial to outsourcing innovation in those countries,

even if they have weak IPR protection. In other words, the availability of abundant
low-cost and high-skilled technicians, scientists, and engineers required for innovation
activities at relatively low costs drives firms to create value by offshore innovation

outsourcing in developing countries.
In addition, firms that outsource innovation activities in developing countries with
weak IPR protection may also confront issues of value capture and appropriation. Since
outsourcing implies partitioning activities based on knowledge, a firm can design task
specificity or project modularity as the managing mechanism to capture the value of

outsourcing innovation in weak IPR protection countries. According to the empirical
results, we did find systematic differences in the design of task specificity and project
modularity for the innovation activities outsourced to weak IPR protection countries

compared to strong IPR protection countries. For one thing, task specificity enables firms
to allocate independent tasks that require tacit knowledge that resides in human capital
to offshore vendors while at the same time limiting each vendor’s access to the complete
knowledge of an innovation activity. Thus, task specificity can be used to manage offshore
innovation outsourcing and to lower the risk of knowledge leakage. Our findings support

this assertion and show that an activity of high task specificity, compared to that of low
task specificity, can strengthen the effect of human capital on the likelihood of outsourcing
innovation in a country with weak IPR protection. Also, project modularity enables

firms to assign interdependent tasks that require specific domains of knowledge from
different offshore vendors, thereby creating a complex of interdependent tasks that can
hide proprietary information from one vendor to another. Therefore, project modularity
can be another mechanism that firms can use to capture value from offshore innovation
outsourcing. According to our empirical results, an activity of high project modularity,

in contrast to an activity of low project modularity, can further enforce the positive effect
of human capital on the likelihood of outsourcing innovation in a weak IPR protection
country.

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