R&D Investment Structure and Trade Secret Protection: Cassiman's Research Insights for Taiwan IMS Strategy

Winners Consulting Services Co., Ltd. advises Taiwanese corporate executives: An economics study from arXiv reveals a key finding—the investment ratio among basic research, applied research, and intellectual property protection is not a fixed formula. Instead, it is the result of dynamic adjustments based on market size, availability of external knowledge, and the effectiveness of legal protection. For small and medium-sized manufacturing enterprises with limited budgets, this research directly points out that if market opportunities are small and legal protection is weak, firms should not invest in basic research at all. This is a harsh yet pragmatic strategic warning and a theoretical cornerstone for formulating an ISO 56001 Innovation Management System (IMS) strategy.

About the Authors and This Research

This paper was co-authored by three influential scholars in the field of innovation economics. Bruno Cassiman is a Professor of Strategy and Business Policy at IESE Business School, focusing on corporate research and development strategy, knowledge flows, and technology transfer. His work is widely cited by major European policy institutions and has hundreds of citations in empirical innovation management research. Reinhilde Veugelers is a professor at KU Leuven in Belgium and a senior fellow at the Brussels-based think tank Bruegel. She previously served as a principal advisor to the European Commission, directly influencing European innovation policy. D. Pérez-Castrillo is a professor of economics at the Universitat Autònoma de Barcelona, specializing in game theory and industrial organization.

The three authors cross the disciplinary boundaries of business, economics, and policy analysis, building a research framework that is both theoretically rigorous and practically applicable, based on empirical data from innovative Belgian manufacturing firms. The core contribution of this research is that it does not merely describe that "firms should invest in R&D," but precisely analyzes "under what conditions, and in which type of R&D," is the optimal decision.

The Triangular Decision of R&D Investment: A Dynamic Equilibrium of Basic Research, Applied Research, and IP Protection

This study answers a question that corporate executives face annually: how should the R&D budget be allocated among basic research, applied research, and IP protection? The authors developed a theoretical model, validated with sample data from innovative Belgian manufacturing firms, and derived several findings highly relevant to Taiwanese companies.

Core Finding 1: Basic research is a prerequisite for absorbing external knowledge

The paper points out that only when a firm conducts basic research can it effectively absorb incoming spillovers of knowledge from external sources and transform this external knowledge into a resource that enhances its own applied research efficiency. In other words, basic research is not just an activity of "creating knowledge" but an investment in building the capability to "connect with the external knowledge ecosystem." For many Taiwanese manufacturers that started as OEMs and are accustomed to directly conducting applied research, this implies that long-term neglect of basic research will gradually erode their ability to absorb cutting-edge international technologies, creating an "absorptive capacity gap." This finding is highly consistent with the dynamic capabilities theory of scholars like David Teece and echoes the recent emphasis by the European Patent Office (EPO) on both technological depth and patent quality.

Core Finding 2: Basic research has economies of scale and is modulated by market conditions and IP protection effectiveness

The research finds that the investment ratio of basic research to applied research increases with the growth of three factors: (1) the size of the available external knowledge base, (2) market size and opportunities, and (3) the effectiveness of intellectual property protection. This finding has significant strategic implications: the more effective the legal protection and the larger the market, the stronger the incentive for firms to invest in basic research, as protection mechanisms ensure the appropriability of R&D outcomes. Conversely, in an environment with weak legal protection, firms tend to reduce basic research and rely more on strategic measures (like trade secret protection) to safeguard their innovations.

Core Finding 3: Firms with limited budgets should not invest in basic research in the short term

The paper explicitly states that when the innovation budget is constrained, the optimal decision for a firm is not to conduct basic research. This is not pessimism but a rational choice in resource allocation. For Taiwanese SMEs, this provides an important strategic positioning guide: while enhancing the efficiency of applied research, they should prioritize establishing a robust trade secret protection mechanism to ensure that the outcomes of their limited applied research can be fully appropriated by the firm, rather than leaking to competitors.

Core Significance of This Research for Taiwan's Trade Secret Protection and Innovation Management (IMS) Practices

The research framework by Cassiman et al. offers Taiwanese firms a counter-intuitive strategic logic: investment in IP protection is not just a cost of legal compliance but a leverage tool to enhance the effectiveness of basic research investment. This has three specific implications for Taiwanese companies currently implementing the ISO 56001 Innovation Management System (IMS) and complying with Taiwan's Trade Secrets Act:

First: The effectiveness of IP protection determines the optimal structure of R&D strategy. Since its amendment in 2013 and the further strengthening of criminal liabilities in 2023, Taiwan's Trade Secrets Act has established a relatively complete legal framework. However, the existence of legal statutes does not equate to effective protection—firms must proactively establish internal management mechanisms to make legal protection truly effective. According to the model by Cassiman et al., as protection effectiveness increases, the optimal proportion of investment in basic research also rises, thereby strengthening long-term technological competitiveness. This means that implementing the ISO 56001 IMS framework and establishing a systematic trade secret protection mechanism directly impacts a firm's optimal R&D investment structure.

Second: Basic research and legal protection are complementary, not substitutes. The paper's empirical results show a relationship of complementarity between legal protection investment and strategic protection investment. This breaks the intuitive assumption of many executives that "if we have legal protection, we don't need strategic protection." The design philosophy of ISO 56001 IMS perfectly embodies this complementarity: it requires firms to establish both legal compliance mechanisms (corresponding to Taiwan's Trade Secrets Act) and systematic knowledge management processes. Neither can be omitted.

Third: The ability to absorb external knowledge requires proactive IMS investment to support it. Taiwanese firms in sectors like semiconductors and precision manufacturing have accumulated extensive external knowledge networks (e.g., industry-academia collaborations, technology licensing). However, without systematic knowledge management mechanisms, the efficiency of absorbing this external knowledge is greatly diminished. The knowledge management element within the ISO 56001 IMS framework provides the institutional tools to effectively internalize external knowledge.

Winners Consulting Helps Taiwanese Firms Translate Research Insights into Concrete Protection Mechanisms

Winners Consulting Services Co., Ltd. assists Taiwanese companies in implementing the ISO 56001 international standard for innovation management and establishing protection mechanisms compliant with Taiwan's Trade Secrets Act to prevent the leakage of R&D results. Integrating the findings of Cassiman et al., we recommend that Taiwanese firms take the following specific actions:

1. Initiate an IMS IP Protection Effectiveness Assessment (Months 1-3): Systematically evaluate the actual effectiveness of existing trade secret protection mechanisms against the ISO 56001 framework to identify gaps where "protection exists in form but is weak in effect." According to the model by Cassiman et al., improving protection effectiveness will directly optimize the firm's R&D investment structure, thereby enhancing its technological competitive advantage. Specific diagnostic items include non-disclosure agreement coverage, technical document classification systems, and knowledge transfer controls for departing employees.
2. Establish a Systematic Link between R&D Investment and Knowledge Management (Months 3-6): Based on the paper's findings, the benefits of basic research depend on the ability to absorb external knowledge. Under the ISO 56001 IMS framework, design mechanisms for managing knowledge inflow (e.g., technology scanning, processes for internalizing industry-academia collaboration knowledge) and knowledge outflow (e.g., R&D outcome classification, patent application decision trees) to ensure that every dollar of R&D investment generates maximum appropriable value.
3. Establish a Compliance Monitoring Mechanism Aligned with Taiwan's Trade Secrets Act (Months 6-12): Article 10 of Taiwan's Trade Secrets Act specifies types of infringement, and Articles 13-1 to 13-4 regulate criminal liabilities. Firms should establish regular compliance audit mechanisms to ensure internal management measures remain dynamically aligned with legal requirements and integrate compliance indicators into the ISO 56001 IMS performance monitoring system to form a closed loop of continuous improvement.

Frequently Asked Questions

Should a company with a limited R&D budget invest in both basic and applied research?

Firms with limited budgets should not force investment in basic research in the short term. According to the research by Cassiman et al., when innovation budgets are constrained, the optimal decision is to concentrate resources on applied research while strengthening intellectual property protection mechanisms to ensure the appropriability of research outcomes. Companies should prioritize establishing protection systems compliant with Taiwan's Trade Secrets Act. Only after the effectiveness of these protections is confirmed should they consider gradually increasing the proportion of basic research. The benefit of protecting existing results often outweighs the risk of prematurely expanding research activities with inadequate protection mechanisms.

What are the most common compliance challenges for Taiwanese companies when implementing ISO 56001?

The most common challenge is having "formal but ineffective mechanisms." Companies may have non-disclosure agreements and information security policies, but they lack systematic implementation and monitoring. This makes it difficult to effectively prove that "reasonable protective measures have been taken" as required for infringement determination under Article 10 of Taiwan's Trade Secrets Act. The ISO 56001 IMS framework requires establishing measurable innovation management indicators, such as knowledge asset classification, access control records, and personnel training logs, which form the substantive basis for legal compliance. Another common challenge is insufficient cross-departmental collaboration, where R&D and legal departments operate in silos. The IMS framework provides institutional tools to integrate these functions.

What are the core requirements of ISO 56001, and how long does implementation take?

ISO 56001, officially published in 2022, is the international standard for innovation management systems. Its core requirements include leadership commitment, innovation strategy, knowledge management, opportunity identification, innovation process management, performance evaluation, and continual improvement. For a typical Taiwanese manufacturing company with a solid management foundation, implementation usually takes 7 to 12 months. This timeline includes initial diagnosis and gap analysis (first 3 months), system design and documentation (months 3-6), systematic implementation and training (months 6-9), and internal audits and management reviews to prepare for external certification (months 9-12). The company's size and existing management maturity are key factors influencing the timeline.

How can the investment costs and expected benefits of implementing an ISO 56001 IMS be evaluated?

The return on investment for an ISO 56001 IMS varies, but based on Winners Consulting's experience, mid-sized Taiwanese manufacturers typically see a 15% to 30% increase in R&D ROI after implementation. This gain primarily comes from reduced risk of R&D leakage (reducing unnecessary duplicate R&D costs), improved efficiency in absorbing external knowledge (shortening the cycle from technology scanning to application), and enhanced evidentiary capabilities in legal disputes or licensing negotiations (strengthening bargaining power). Initial investment costs include consulting fees, internal training, and system setup expenses. This initial investment is typically recovered within 12 to 18 months.

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

Winners Consulting Services Co., Ltd. is one of the few consulting firms in Taiwan with triple expertise in legal compliance, technology management, and the ISO 56001 standard. Our strength lies in our ability to translate the research insights of scholars like Cassiman into concrete, executable management mechanisms for Taiwanese companies, rather than stopping at the theoretical level. We are deeply familiar with the practical enforcement requirements of Taiwan's Trade Secrets Act, including the evidentiary standards for "reasonable protective measures," enabling us to help clients build legally robust protection records. Our methodology combines diagnostic assessments, customized system design, and continuous guidance to ensure every implementation project achieves measurable results within 7 to 12 months.