Exit in globalising industries: the role of international (out)sourcing.

Exit; Industries; Industry; International;

Exit in globalising industries: the role of international (out)sourcing

This paper studies the impact of globalisation on the exit behaviour of domestic and foreign firms in the manufacturing industries of Belgium, one of the most open economies in the world. The strongest effects are found to come from rising import growth and rising multinational firms penetration of the industry, which systematically increase the probability of exit of (inefficient) domestic firms. Product differentiation and international (out)sourcing moderate this impact and lower the risk of exit. Controlling for productivity differences across firms, exporting on itself does not lower the probability of exit. Subsidiaries of multinational firms are found to be subject to similar disciplinary forces from import competition as domestic firms but do not show exit to respond to the same passive learning process. Keywords: Exit, Sourcing, International Competitio

Offshoring as a Survival Strategy in Globalizing Industries: New Evidence from Belgian Manufacturing

This paper analyzes the impact of globalization on the exit behavior of manufacturing firms in one of the world's most open economies: Belgium. We find that imports from low-wage countries exert a strong competitive effect that lowers a firm's chances of survival. This competitive effect is found to arise mainly in industries where intra-industry trade, an indicator of product differentiation, is relatively low. As an offensive strategy to cope with the rising competitive pressure from imports, we find that firms exploiting opportunities afforded by globalization, in particular the off-shoring of activities, are able to improve their chances of survival. Making a distinction between domestic firms and subsidiaries of multinational firms, we also find that domestic firms face a higher risk of exit when multinational firms compete in their relevant input and output markets. Finally, we show that subsidiaries of multinational firms are better adapted to cope with globalization forces, and we find them to be less sensitive to domestic market conditions in the host country. Keywords: Exit, Off-shoring, Sourcing, Globalization JEL Code: F1, F23, L

Global sourcing by mne's: impact on domestic firms

The unequal situation of large global firms with extensive networks and smaller domestic firms has created a dual structure in many industries. In this paper we examine the competitive position of domestic single-plant firms under growing rivalry of global companies that source abroad and flexibly coordinate production activities within a multinational network. Growing rivalry is modelled as a decrease in sourcing costs for multinational firms. We separate a direct and an indirect effect - i.e. competitive strategic effect- of a lower sourcing cost on the production decision of multinational and domestic firms. We show how cost characteristics of domestic firms determine the impact of these effects. We theoretically find that, ceteris paribus, output flexible firms will be most vulnerable and exit first from the market. Product differentiation is found to reduce the strategic effect of global sourcing by MNE's on the competitive position of domestic firms

Globalisation and De-industrialisation in Belgium: on the Role of Imports and International Sourcing

As an open economy with a strong dependence on trade and activities of multinational firms, Belgium is one of the countries most sensitive to the economic globalisation process. We show how imports of intermediate products have risen strongly, especially in those industries where local manufacturing activities are strongly dependent on the presence of multinational firms. We make a distinction between ‘relocating’ sectors where growing imports go hand in hand with a decrease in value added to output ratio, and ‘upgrading’ sectors where rising imports go together with an increase in the value added to output ratio. In terms of industry dynamics, we find that upgrading sectors are showing strong expansion of output and employment, while relocating sectors show strong declines in employment. In particular, our paper highlights the finding that if upgrading is possible, foreign sourcing can help to expand activities in Belgium and improve the competitiveness of the Belgian economy.status: publishe

Offshoring as a survival strategy in globalizing industries: New evidence from Belgian manufacuring

This paper analyzes the impact of globalization on the exit behavior of manufacturing firms in one of the worldâ s most open economies: Belgium. We find that imports from low-wage countries exert a strong competitive effect that lowers a firmâ s chances of survival. This competitive effect is found to arise mainly in industries where intraindustry trade, an indicator of product differentiation, is relatively low. As an offensive strategy to cope with the rising competitive pressure from imports, we find that firms exploiting opportunities afforded by globalization, in particular the offshoring of activities, are able to improve their chances of survival. Making a distinction between domestic firms and subsidiaries of multinational firms, we also find that domestic firms face a higher risk of exit when multinational firms compete in their relevant input and output markets. Finally, we show that subsidiaries of multinational firms are better adapted to cope with globalization forces, and we find them to be less sensitive to domestic market conditions in the host country.status: publishe