R&D Investment Structure & IP Protection: Key Insights for Taiwan Firms Adopting ISO 56001 IMS

Winners Consulting Services Co., Ltd. advises executives in Taiwan: a study by leading economists reveals a clear complementary relationship between a company's investment in basic research and its spending on intellectual property protection. Larger firms with greater market opportunities and more effective IP protection tend to have a higher proportion of basic research. In contrast, small and medium-sized enterprises lacking effective IP protection mechanisms fall into a dual dilemma: they are unable to absorb external knowledge and cannot retain their own innovative outcomes. This provides a crucial decision-making basis for Taiwanese companies considering how to deploy R&D resources through the ISO 56001 Innovation Management System (IMS).

About the Authors and This Study

This paper was co-authored by three highly influential scholars in the field of innovation economics. Bruno Cassiman is a professor at IESE Business School in Spain, with a long-standing research focus on corporate innovation strategy and knowledge flows. His work has had a profound impact on R&D decision-making frameworks for global enterprises. David Pérez Castrillo is an expert in industrial organization and game theory at the Universitat Autònoma de Barcelona in Spain, having published numerous important papers on technology transfer and licensing. Reinhilde Veugelers is a professor at KU Leuven in Belgium and serves as an innovation policy advisor to the European Commission. Her research directly influences EU-level innovation governance policies and is frequently linked to policy reports from the European Patent Office (EPO) and EUIPO.

The three authors, with expertise spanning strategic management, industrial organization, and econometrics, used empirical data from innovative Belgian manufacturing firms to construct a theoretical model that integrates both "knowledge inflow (absorption of spillover effects)" and "knowledge outflow (protection mechanisms)." The study is widely cited in academia for its research depth and practical policy relevance.

R&D Investment Structure Determines a Firm's Knowledge Flow Capability: Core Insights from the Paper

The central question of this research is: How can a company, by choosing different types of R&D investments, simultaneously influence its ability to "absorb knowledge from the outside" and "prevent its own knowledge from leaking"? The researchers break down a firm's investment behavior into three dimensions: applied research investment, basic research investment, and intellectual property protection investment, and they empirically validate their model using a sample of innovative Belgian manufacturing firms.

Core Finding 1: Basic Research is the Key Switch for "Absorptive Capacity"

The study finds that only when a company invests in basic research can it effectively absorb external knowledge spillovers, thereby enhancing the efficiency of its own applied research. In other words, basic research is not merely an academic pursuit but a prerequisite for a company to tap into external knowledge sources. SMEs with limited budgets that focus entirely on applied research will be unable to benefit from external technological developments due to a lack of absorptive capacity, creating a closed-off innovation island.

Core Finding 2: An Economy of Scale Effect Exists Between IP Protection and Basic Research

The study's econometric results show that the ratio of basic to applied research has a non-decreasing relationship with the "size of the available external knowledge pool," "market size and opportunities," and "effectiveness of IP protection." This implies that an effective intellectual property protection mechanism is not just a defensive tool but a comprehensive strategy that encourages companies to increase their investment in basic research. The empirical data also confirms the complementarity between legal protection (e.g., patents) and strategic protection (e.g., trade secret protection), with their combined use yielding significantly better results than a single tool.

Core Finding 3: Small-Budget Firms Fall into a "Basic Research Gap Trap"

Under conditions of short-term budget constraints, low market opportunities, inadequate legal protection, or a limited external knowledge pool, a firm's optimal decision is to not invest in basic research at all. This creates a mathematical equilibrium trap: lack of basic research → inability to absorb external knowledge → low efficiency in applied research → insufficient returns on innovation → even less budget for basic research. Many mid-sized manufacturing and technology service companies in Taiwan are likely on the verge of this trap.

Implications for Taiwan's Trade Secret Protection and Innovation Management (IMS) Practices

The core takeaway from this research for Taiwanese companies is: The strength of IP protection capabilities directly determines whether a company can leverage the economy of scale benefits of basic research. Taiwan's current Trade Secret Act provides a foundational legal framework for protection, but the law itself does not automatically translate into internal management capabilities.

According to a joint report by the EUIPO and EPO, EU companies that own and effectively manage intellectual property significantly outperform their peers in terms of revenue, exports, and employment. This echoes the conclusion of Cassiman et al.'s research: the effectiveness of IP protection is not just a legal compliance issue but a core variable influencing a company's R&D investment decisions.

For Taiwanese companies, this means three specific management gaps need to be addressed with priority:

• Gap 1: R&D investment structure is not managed in tiers. Many Taiwanese companies do not differentiate between basic and applied research in their R&D budgets, making it difficult to assess the return on investment in building absorptive capacity. The ISO 56001 Innovation Management System (IMS) requires companies to establish a clear innovation knowledge management framework, which is a systemic tool to solve this problem.
• Gap 2: Over-reliance on a single type of IP protection tool. The paper's empirical evidence shows that legal protection (patents) and strategic protection (trade secrets) are complementary. Taiwanese companies that rely on only one of these will fail to maximize their IP protection effectiveness, thereby reducing the incentive to invest in basic research.
• Gap 3: Lack of systematic mechanisms to control knowledge outflow. Article 2 of Taiwan's Trade Secret Act explicitly requires reasonable protection measures, but at the operational level within R&D departments, companies often lack corresponding access controls, confidentiality agreements, and knowledge boundary management procedures.

By implementing ISO 56001 IMS, Taiwanese companies can institutionalize the process of closing these three gaps, creating an auditable and continuously improving innovation management capability, rather than relying on individual judgment or one-off compliance actions.

Winners Consulting Services Helps Taiwanese Companies Translate Research Findings into Management Actions

Winners Consulting Services Co., Ltd. helps Taiwanese companies implement the ISO 56001 international standard for innovation management and establish protection mechanisms that comply with Taiwan's Trade Secret Act to prevent the risk of R&D results leakage. Based on the core insights of this paper, we recommend that Taiwanese companies take the following specific actions:

1. Conduct an R&D Investment Structure Diagnosis: In line with ISO 56001's knowledge management requirements, review the company's current budget allocation between basic and applied research, assess gaps in the ability to absorb external knowledge, and ensure that R&D activities are aligned with the overall innovation strategy. The paper's research shows that the ratio of basic to applied research is a key structural variable affecting a company's long-term innovation efficiency, not a minor budget detail.
2. Establish a Dual-Track IP Mechanism Combining Legal and Strategic Protection: Design a dual-track IP protection plan tailored to the company's R&D stages, based on the requirements of Article 2 of Taiwan's Trade Secret Act (reasonable protection measures) and patent application strategies. For R&D results that have not yet met the patentability threshold, a trade secret protection mechanism can provide immediate and continuous protection, filling the time and scope gaps of patent protection.
3. Institutionalize Knowledge Boundary Management within the IMS Framework: As required by ISO 56001, establish procedures for R&D personnel access control and management of knowledge inflow/outflow in external collaborations (including NDA templates and data room management rules), and regularly audit their effectiveness. Our consulting experience at Winners Consulting Services shows that companies that systematically implement this mechanism can increase their R&D return on investment by an average of 15% to 30% and achieve an auditable level of compliance within 7 to 12 months.

Frequently Asked Questions

The paper finds a complementary effect between basic research and IP protection. How should Taiwanese companies with limited budgets decide on the investment ratio between the two?

The correct decision sequence is to first establish a robust IP protection mechanism and then evaluate the investment level for basic research. The study by Cassiman et al. indicates that the proportion of basic research should increase with the effectiveness of IP protection—the stronger a company's protection, the higher the marginal return on basic research investment. Article 2 of Taiwan's Trade Secret Act requires companies to implement reasonable protection measures, which is the legal baseline for IP protection. We recommend that Taiwanese mid-sized enterprises first use the ISO 56001 IMS framework to build a foundational IP protection system, then gradually increase the ratio of basic research in their R&D budget. This approach prevents investing heavily in basic research with inadequate protection, which could lead to spillover losses outweighing the benefits.

When implementing ISO 56001, what are the most common challenges Taiwanese companies face regarding trade secret protection compliance?

The most common challenge is a 'disconnect between policy and execution.' While companies may have non-disclosure agreements (NDAs) and information security policies, they often lack the corresponding knowledge management procedures required by ISO 56001 IMS. This results in an inability to effectively track and protect R&D knowledge during internal circulation, external collaborations, or employee departures. Article 2 of Taiwan's Trade Secret Act explicitly requires 'reasonable protection measures,' and judicial determination of 'reasonableness' often hinges on whether a company can provide evidence of systematic management. ISO 56001 offers an auditable framework that integrates disparate protection measures into a documented system, significantly strengthening a company's evidentiary position in litigation while fulfilling the IMS requirement for continuous improvement.

What are the core requirements of ISO 56001, and how long does it take for a Taiwanese company to implement it?

The core requirements of ISO 56001 cover six key areas: leadership commitment and innovation strategy, innovation portfolio management, standardization of innovation processes, knowledge management and absorptive capacity building, integration of IP protection mechanisms, and performance evaluation with continuous improvement. For a typical mid-sized Taiwanese company with a basic management structure, the process from initial diagnosis to establishing a preliminary framework takes about 3 to 4 months. Full documentation and personnel training require 5 to 7 months, and reaching a state ready for external audit generally takes 7 to 12 months. If a company completes its gap analysis and secures top management commitment within the first 90 days, implementation can be significantly accelerated, concurrently establishing a foundation for reasonable protection measures as required by Taiwan's Trade Secret Act.

What are the costs and expected benefits of implementing ISO 56001 IMS? Is it a worthwhile investment for Taiwanese SMEs?

The full implementation cost for a mid-sized Taiwanese manufacturing or tech service company, including consulting fees, training, and documentation, typically ranges from NT$800,000 to NT$2,000,000, depending on company size and existing management maturity. In terms of benefits, a joint EUIPO and EPO report shows that companies effectively managing IP significantly outperform their peers in revenue. Furthermore, tracking of clients advised by Winners Consulting Services reveals an average 15% to 30% increase in R&D return on investment. For SMEs, implementing ISO 56001 IMS mitigates the risk of falling behind due to a lack of absorptive capacity for basic research—the 'basic research gap trap' warned of by Cassiman et al. From a risk management perspective, it is a strategic investment worth prioritizing.

Why choose Winners Consulting Services for assistance with trade secret protection and Innovation Management System (IMS) issues?

Winners Consulting Services Co., Ltd. is one of the few consulting firms in Taiwan with the dual expertise to both analyze academic research and provide hands-on guidance for ISO 56001 IMS implementation. Our team's expertise spans intellectual property law, innovation management system design, and R&D strategy planning, enabling us to directly translate insights from top-tier international academic studies, like the one by Cassiman, Pérez Castrillo, and Veugelers, into actionable management practices for Taiwanese companies. Our service begins with a complimentary mechanism diagnosis, allowing businesses to receive an objective assessment of their current state before committing resources. This clarifies the specific impact of ISO 56001 implementation on compliance with Taiwan's Trade Secret Act, IP protection effectiveness, and R&D ROI, ensuring every investment is based on clear evidence.