Protection of intellectual property rights (IPRs) and multinational firm boundaries: an examination of Korean firms’ exports to affiliates

ABSTRACT

In this study, we examine Korean firms’ exports to foreign affiliates as an internalisation measure to understand how innovation is related to internalisation. We have analysed a novel, economy-wide panel dataset of 21,393 Korean firms from 2008 to 2019 and found that firms’ innovation is positively related to the internalisation of product markets in international business, and that this relationship is attenuated by the host country's intellectual Property (IP) strength. Our findings are consistent with those of prior studies and suggest that firms’ internalisation decisions can be understood within the single mode of foreign entry.

KEYWORDS:

• Firm boundaries
• innovation
• intellectual property
• internalisation
• Korean firms

JEL CLASSIFICATION:

• F23
• F60
• O3

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 As of 2019, Korea ranks 5th in outward foreign direct investment flows among OECD countries, reporting USD 50.984 billion (OECD, 2017).

2 If more than 50% of the total number of issued stocks or capital of one company is owned by the other company, the former is defined as a subsidiary company while the latter is defined as a parent company. Additionally, if one company owns 25%-50% of the total number of issued stocks or capital of the other company, it is defined as a related company.

3 If a firm employs less than 50 workers but its capital is larger than 100 million won and it is engaged in wholesale and retail trade or other services, the firm is included in the data.

4 When we examined our data, we learned that the variable of the proportion of exports to related firms is not consistent across all years. We surmised that this variable represents the value of exports to related firms from 2008 to 2018, and the proportion of exports to related firms for year 2019. Our surmise seems quite sensible because the survey was conducted on the value of exports to related firms until 2018 and it was changed to report the proportion of exports to related firms in 2019.

5 Korean firms’ major exporting countries include China, U.S., Vietnam, Hong Kong, Japan, Taiwan, India etc., and they do not necessarily have well-established strong IP regimes in place.

6 In this study, we used the number of Korean patents, postulating that it is strongly correlated with the number of patents held by the firms in other countries, following the literature. Firms tend to simultaneously pursue patent rights for the same invention across multiple jurisdictions because patent protection is provided by each jurisdiction (De Rassenfosse et al., 2013; Lanjouw et al., 1998). Moreover, there is no such thing as a patent with ‘global coverage’ (Maxwell & Maxwell, 2022). Thus, we submit that the number of patents held by a firm in Korea reasonably reflects its innovativeness as generally understood across the globe.

7 Our data contain information on the countries of the focal firm's affiliates from 2008 to 2018.

8 A small constant is also added to prevent the exclusion of a large number of observations in which a firm has zero patents.

Additional information

Notes on contributors

Hyelin Choi

Hyelin Choi is an Associate Professor of Global Commerce at Soongsil University. She received a Ph.D. degree in Economics from the Ohio State University and worked at Korea Institute for International Economic Policy (KIEP). She is interested in multinational firm's decisions, foreign direct investment and global value chains. She has published original articles in the finest journals in the area of her studies such as Asian Economic Journal, Global Economic Review and Journal of Korea Trade.

Jiyoon Chung

Jiyoon Chung is an Assistant Professor of Global Commerce at Soongsil University. She received a Ph.D. degree in strategic management and entrepreneurship from the University of Illinois at Urbana-Champaign. She is broadly interested in firms' innovation and global strategies. Her work has appeared in leading scholarly journals and conference proceedings, such as Research Policy, Technological Forecasting and Social Change, European Planning Studies, and Academy of Management Best Paper Proceedings.