Human capital in outsourcing decisions : an empirical study on patent data

Abstract

Outsourcing of knowledge activities has become more popular as the world´s economy has become increasingly knowledge-based in recent years (Parkhe, 2007). The knowledge that is held by a firm is known as the firm’s Human Capital, which is considered the most important intangible resource within a firm (Musteen & Ahsan, 2013). Further, researchers have found that there is a relation between the level of human capital within a firm and the likelihood of outsourcing knowledge-based processes (Mayer, Somaya, & Williamson, 2012). The purpose of this study is to update and extend previous research by Mayer et al. (2012) on the relation between human capital and outsourcing in knowledge-based processes, and to reinforce its implications. Based on US patent data from 2005 to 2015, we analyse 113 Fortune 500 firms and their decisions to outsource the patent application process. We first identify the outsourced patents based on a series of assumptions and controls. We propose that the decision to outsource a patent application process is driven by the specific human capital in the firm, or the lack thereof. We estimate the degree of accumulated human capital in the firm at the time of the application drafting and analyse its effect on the outsourcing decision. Our results support previous research on this topic. We find that relevant firm-specific and industry-specific human capital in the firm decreases the probability of outsourcing, while the degree to which the patent application process requires occupational human capital increases this probability. We also find that the internal capacity of the firms’ legal departments is negatively related to outsourcing of the patent application process.