Intangible Assets and the Organization of Global Supply Chains

Abstract

This paper introduces the concept of intangible assets in sequential supply chains and the importance of their appropriability in the organizational decision of firms. We focus on the quality of intellectual property rights (IPR) institutions, which on top of the hold-up problem between a supplier and the final producer entails an additional risk of imitation as technology may leak to competing producers in the market. The level of IPR enforcement in the location of a supplier can therefore play a crucial role in determining the decision of a final good producer whether to outsource or integrate a particular stage of production. The analysis is performed with Antràs and Chor (2013) in the background, where the position of the input along the supply chain, i.e. its upstreamness, and the degree of sequential complementarity of stagespecific inputs influence the organizational strategy of firms through the incentive structure of supplier investments. Our findings show that introducing intangible assets in sequential supply chain may have the opposite effect of contractibility on outsourcing decision, where only tangible property rights are considered. We argue therefore that the risk of imitation is a relevant feature that needs to be accounted for in the incomplete contract literature. Our theoretical predictions are validated on Slovenian firm-level data.J.E.L. Classification: F12, F14, F21, F23, D23, L22, L23, L24, O34.

Financial constraints, institutions, and foreign ownership

“…This research, which is surveyed in Antràs and Yeaple (2014), has investigated theoretically and empirically several mechanisms through which firm boundaries are extended using FDI. A non-exhaustive list of the mechanisms that have been shown to be important includes the relative location of firms along a global value chain and the elasticity of final demand (Antràs and Chor, 2013), final product prices (Alfaro et al, 2016), the relative contractibility of upstream and downstream production stages (Alfaro et al, forthcoming), and intangible assets and intellectual property rights protection (Bolatto et al, 2017). When we take the model to the data, we control for these alternative explanations of FDI.…”

Organizing Global Supply Chains: Input Cost Shares and Vertical Integration

“…For review articles, see Lafontaine and Slade (2007), Bresnahan and Levin (2012), and Legros and Newman (2014). 13 Recently, Fattorini et al (2017) explore network centrality in the IO network, while Bolatto et al (2017) investigate the role of intangible assets in sequential supply chains.…”

Financial Constraints, Institutions, and Foreign Ownership

“…This literature, which is extensively surveyed in Antràs and Yeaple (2014), has explored a number of mechanisms by which firm boundaries are extended using FDI. A non-exhaustive list of forces that have been shown to be important in recent work includes the relative location of firms along a global value chain and the elasticity of final demand (Antràs and Chor, 2013), final product prices (Alfaro et al, 2016), the relative contractibility of upstream and downstream production stages (Alfaro et al, forthcoming), and intangible assets and intellectual property rights protection (Bolatto et al, 2017). The paper most related to ours in this body of work is that of Antràs et al (2009).…”