Patenting Abroad vs. Outsourcing Abroad:A Cross-Country Investigation of Innovation in Emerging Markets

Drawing on the concept of exploration and exploitation, we examine 1) whether possession of patents abroad strengthens the core competence of the firm, which in turn promotes exploration and 2) whether outsourcing to foreign markets affects the procurement of resources and knowledge, which in turn promotes exploitation. Furthermore, we test the moderating effect of the product timescale (short-term and long-term orientation) to better explain the nature of innovation in emerging countries. To test our hypotheses, we use the data from the World Bank Group that includes 1555 firms in 11 developing nations. The results show strong support for the relationship between patenting and outsourcing abroad, and innovation. However, the moderating variable was not supported. Our post hoc analysis reveals the importance of balancing exploration and exploitation in innovation.