Combating copycatting from emerging market suppliers

We examine how different strategies can be used to protect global manufacturers from the prevalent issue of supplier copycatting in emerging markets. To do so, we develop a theoretical framework that also contributes to the recent practitioners’ debate about who should be responsible for protecting intellectual property (IP) rights within the supply chain. In particular, using a game theoretical model, we consider a manufacturer that sells a product to an emerging market, which requires the completion of multiple tasks. The manufacturer can perform any of these tasks in-house or outsource any of them to an emerging market supplier. The former approach carries a higher cost, while the latter puts the manufacturer’s IP at risk of supplier copycatting. Either the manufacturer or the emerging market government can exert enforcement effort to protect the IP rights within the supply chain. Our results show that, surprisingly, the manufacturer should outsource fewer tasks when in-house production is more costly. Further, the manufacturer’s enforcement effort can help the supplier but hurt customers and the emerging market. In answer to the question of who should take responsibility for IP protection, we recommend that the government enforce IP protection when the manufacturer has a weak brand, and that the manufacturer enforce IP protection when it has a strong brand.