Global sourcing by mne’s: impact on domestic firms
AbstractThe 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.
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Bibliographic InfoPaper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2005-7.
Length: 33 pages
Date of creation: 24 May 2005
Date of revision:
Sourcing; multinational firms; flexibility; exit Note;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-29 (All new papers)
- NEP-COM-2005-05-29 (Industrial Competition)
- NEP-NET-2005-05-29 (Network Economics)
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