Governance choice misfit and firm performance in offshoring innovation: the role of institutional environment

In this paper, we analyse the effect of institutional factors on the relationship between governance choices and business outcomes when offshoring innovation. Grounded in an institutional theory perspective, we use survey data from the ORN database to estimate regression models and identify governance modes related to specific drivers of offshore innovation. We then analyse the effect on firm performance of choosing a governance mode not in line with the one predicted by the model. We find that choosing a fully owned offshoring operation when theory would predict selecting offshore outsourcing has a negative effect on performance, but not vice versa. We also find that institutional factors of rule of law and IPR protection strength in host countries negatively affect firm performance when offshoring innovation activities.