De Backer, Koen; Sleuwaegen, Leo (Vlerick Business School, 2002)
In analyzing firm entry and exit across Belgian manufacturing industries, this paper presents evidence that import competition and foreign direct investment discourage entry and stimulate exit of domestic entrepreneurs. These results are in line with theoretical occupational choice models, where it is shown that crowding out of domestic entrepreneurs through foreign direct investment works through selection in product and labor markets. However, the empirical results also suggest important long term structural positive effects of FDI on domestic entrpreneurship as a result of learning, demonstration, networking and linkage effects between foreign and domestic firms which tend to moderate or even reverse crowding out effects on domestic entrepreneurship.
Sleuwaegen, Leo; De Voldere, Isabelle (Vlerick Business School, 2001)
This paper starts from the antitrust practices in the European Community and the US with respect to the delineation of the relevant geographic market in dealing with concentrations and shows that regulations and guidelines at this moment focus almost exclusively on demand substitution. However, the process of globalisation involves essentially global supply conditions and competition. A methodology is presented for delineating the relevant geographic market, that better takes this globalisation trend into account and brings both demand and supply substitution better in balance. The practical use of the methodology is illustrated for the Volvo-Scania merger case that was blocked by the European Commission in 1999.
Corporate strategic decisions regarding the international and product market scope of a firm's activities are the essence of corporate strategy, and how these choices in turn affect performance is the subject of a large body of research in the fields of international business and strategic management. When making these strategic decisions, managers are likely to take into account that these decisions are interrelated since they will require allocating a firm's fixed bundle of resources. Yet, the international business and strategy literatures have mostly treated these two scope decisions as independent strategies, and have also largely ignored the interrelated nature of these strategic scope decisions vis-à-vis their expected impact on performance. As a result, little is known about the nature of the relationship between these strategic choices - whether they are substitute or complementary strategies - or how they jointly impact firm performance. To address this important gap in our understanding of corporate strategy, this paper examines the joint and simultaneous nature of the relationships among these strategic scope decisions and firm performance in a unified framework. Our analysis serves to integrate prior international business and strategy research, and our model and empirical methods address a number of shortcomings of prior empirical studies. Our results indicate that the relationship between a firm's international and product market strategies and its performance is nonlinear, with performance first rising but then falling as the firm's international or product diversification rises, implying that the performance impact of these strategies is path dependent. Our results also provide the first evidence that, within the firm, international and product diversification are substitute strategies for performance. Keywords: Corporate Strategy, International Diversification, Product Diversification
Bowen, Harry; Sleuwaegen, Leo (Vlerick Business School, 2004)
A perception of declining EU competitiveness has intensified calls for structural reforms within the EU. This paper examines recent evidence on changes in relative EU competitiveness and considers the observed changes in relation to the evolving competitive environment facing EU firms during the past two decades. Our analysis suggests that recent declines in EU competitiveness reflect an adjustment (or lack thereof) within the EU in response to an evolutionary “Third Step” in the process of EU integration: global market integration. We find that, starting from the mid-1990s, the EU began to face unprecedented increases in external sources of competition. The rising competition from external sources has created pressures for EU firms to alter their organizational and product market strategies to meet the challenge of a globally integrating market. While many leading EU firms are found to have responded to this challenge, EU firms remain hampered by anachronistic EU product and labor market regulations. The growing calls for structural reform therefore reflect the increased external competitive pressure on EU firms as they attempt to respond to growing global competition and to thereby strengthen their global competitiveness. JEL Classification: D21, F02, F23, L10, O40 Keywords: Competitiveness, European Integration, Foreign Competition, Globalization.
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.
The globalization of industries over the past two decades has resulted in domestic markets facing increasing inroads by foreign competitors. Utilizing resource-based theory, this paper examines how increased foreign competition impacts a firm's diversification strategy. Building on the important role of a firm's core competences as the basis for sustainable competitive advantage, we postulate that increased foreign-based competition, as measured by the degree of import penetration in a firm's core business industry, will engender a defensive response by the firm to protect its core business. This defensive response will in turn lead the firm to focus on its core business at the expense of non-core business activities with a consequent reduction in the firm's level of diversification. In addition, we conjecture that this increased focus and reduction in diversification will be greater the more attractive is the firm's core business to the firm and the more attractive is the firm's core industry. Our empirical analysis is conducted using a unique panel data set of both diversified and undiversified U.S. firms over the period 1985-1994. The special nature of the data sample raises important methodological and statistical issues which are addressed here by the use of a nonlinear TOBIT procedure. Our results indicate strong support for the hypothesized negative relationship between firm diversification and foreign-based competition. Moreover, we find significant evidence that this negative relationship is moderated by the attractiveness of a firm's core business industry, the profitability of the firm's core business and overall firm performance. These findings lend support to the resource-based theory of the firm and they suggest that the observed trend in corporate refocusing over the last decade has, to a significant extent, been driven by increased foreign-based competition.
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