IPR elasticity of FDI is back in China?

The last years there seemed to be no relation between the level of protection and enforcement of intellectual property rights and foreign direct investments (FDI) in China. Most companies did not let them scare by the intellectual property related challenges in China and invested massively. Of course one can argue that if China had a higher level of protection and enforcement of intellectual property rights it would attract even more FDI. So because of this China faces some opportunity costs. But China is not complaining, it is doing economically much better than the rest of the world.

Businesses always have to make the decision whether the opportunities really weigh up against the risks. Let us apply the 'price elasticity of demand' formula on this topic. In this case the level of intellectual property rights protection and enforcement is like price a more or less endogenous factor. And the outcome; the amount of FDI is just as the demand an exogenous factor. One can compare quality of a product with the opportunity of investing in China. Therefore the intellectual property rights elasticity of FDI in China might have worked all the time, but the perceived opportunities in China were just too high to show any negative impact of the IPR protection and enforcement level on the FDI in China.

For Microsoft the tipping point might just happened. It is complaining that it has a market share in China of 15 to 20 percent but which is only good for 1 percent of the revenues. All thanks to copyright piracy.

Microsoft is considering focussing more on India and Indonesia, according to Steve Ballmer, CEO of the software manufacturer from Redmond, Washington, U.S.A. Then again, Mr Ballmer's expesses himself sometimes a bit dramatic, see here. Read Alex Kennedy's article about it for the Associated Press.