Managerial secrecy and intellectual asset protection in SMEs: The role of institutional environment Hélène Delerue ⁎, Albert Lejeune 1 Département de Management et Technologie, École des sciences de la gestion, Université du Québec à Montréal, 315 Ste. Catherine East, Montreal, Quebec, Canada H2X 3X2 article info abstract Article history: Received 25 August 2010 Received in revised form 19 October 2010 Accepted 21 October 2010 Available online 16 November 2010 Although secrecy is argued to play an important role in intellectual asset protection, the evidence suggests that the use of secrecy varies significantly across countries. This study contributes to the literature on intellectual property management in R&D firms by investigating aspects of the institutional environment that are most liable to promote managerial use of secrecy. Hypotheses were tested in a sample of 297 R&D biotechnology SMEs operating in 19 countries. Results suggest that the attributes of the institutional environment explain managerial use of secrecy. © 2010 Elsevier Inc. All rights reserved. Keywords: Secrecy Intellectual property Institutional environment 1. Introduction We investigated the effect of institutional environment on managerial use of secrecy. Secrecy is defined as “any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others” (Restatement of the Law Third, Unfair Competition)(Brown and Prescott, 2000). In the biotechnology sector, secrecy is almost as important as patenting for intellectual property (IP) protection (Thumm, 2001). The means of IP protection are grouped into two categories: (1) formal protection, such as patents and other legal mechanisms, and (2) strategic protection, such as lead time, secrecy, complementary sales and service, and complementary manufacturing facilities and know-how (Levin et al., 1987; Cohen et al., 2000). Data from the third European Community Innovation Survey (CIS3) show that, in most countries, strategic protection is more frequently used than formal protection, and that secrecy is the most commonly used strategic protection. The rising commercial value of scientific and technical information, major reductions in the delay between basic research and its applications, and the high cost of patenting all promote secrecy. Secrecy is a highly attractive mechanism, because the holder of the secret can appropriate its returns indefinitely, and firms can exploit this competitive advantage for long periods (Hannah, 2005). Nevertheless, the use of secrecy varies significantly across countries (Thumm, 2001; Ronkainen and Guerrero-Cusumano, 2001; Cohen et al., 2002). For instance, secrecy is proportionally more important than patents in the United Kingdom compared to France (Jaumotte and Pain, 2005). Secrecy rates are 15% for the United Kingdom and 22% for Italy (Thumm, 2001). A comparative study in new European countries showed that 44% of small Slovenian firms use secrecy versus 6% in Romania (Crowley, 2004). According to Cohen et al. (2002), Japanese respondents report secrecy as a minor appropriability mechanism, in contrast to U.S. respondents, who report it as a major mechanism. Despite these differences across countries, there is little discussion on the underlying reasons. Why do some firms make intensive use of secrecy while others do not? It has been shown that the choice of appropriability mechanisms critically depends on several exogenous factors such as the prevailing institutional environment (Teece, 1986). The present study contributes to the Journal of International Management 17 (2011) 130–142 ⁎ Corresponding author. Tel.: +1 514 987 3000x1583; fax: +1 514 987 3343. E-mail addresses: vidot-delerue.helene@uqam.ca (H. Delerue), lejeune.albert@uqam.ca (A. Lejeune). 1 Tel.: +1 514 987 3000x4844; fax: +1 514 987 3343. 1075-4253/$ – see front matter © 2010 Elsevier Inc. All rights reserved. doi:10.1016/j.intman.2010.10.002 Contents lists available at ScienceDirect Journal of International Management