As our world has become increasingly interconnected, there have been many discussions about how globalization impacts income inequality and emerging markets. What is less often discussed, however, is the influence globalization has on inequality for businesses around the world. In a recently published paper, two researchers set out to gain a better understanding of just that.
The paper, which is based on research from Professor Exequiel Hernandez and doctoral candidate Sarath Balachandran at the University of Pennsylvania’s Wharton School, looks to answer one central question: When emerging markets adopt policies that encourage participation in the global economy, how are the companies within these countries impacted?
“Issues of intellectual property rights being weak is often the number one concern [companies doing business in emerging markets] have in operating in these markets.” – Professor Hernandez
It’s a broad question, so to narrow their focus, Hernandez and Balachandran focused specifically on the role of intellectual property (IP) laws and their ability to help emerging-market countries establish international ties. According to Hernandez the “issues of intellectual property rights being weak is often the number one concern [companies doing business in emerging markets] have in operating in these markets.” And, being able to establish international alliances is especially important for companies in emerging markets because they gain access to larger markets and new technologies and capabilities. This, in turn, helps these firms expand their knowledge, improve their products and generally become stronger.
The report examined 13 countries that made credible and meaningful improvements to their IP laws between 1991 and 1999, including Brazil, Argentina and Chile. Several significant findings emerged.
First, the research demonstrated that, on average across all 13 countries, improvements to IP systems led to a significant and permanent increase in both the quantity and quality of foreign partnerships local companies were able to establish. Hernandez and Balachandran also found that for weak firms—firms with the most difficulty accessing international partnerships—strong IP policy had the greatest impact on facilitating partnerships. Better IP protections worked to mitigate concerns and encourage foreign companies to enter partnerships with emerging market companies that may have had fewer connections or global experience.
This new research shows that a strong IP ecosystem plays a critical role in leveling the playing field for businesses in emerging markets. Countries looking to advance development and strengthen their local economies must not overlook these findings, and should adopt policies that protect IP to encourage more, high-quality foreign partnerships. This supports local companies while, also on a broader level, fostering overall economic progress.
