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The Impact of Emerging Market Competition on Innovation and Business Strategy

Author

Listed:
  • Lorenz Kueng

    (University of Lugano - Faculty of Economics; Swiss Finance Institute; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Northwestern University - Kellogg School of Management)

  • Nicholas Li

    (University of Toronto - Department of Economics)

  • Mu-Jeung Yang

    (University of Washington - Department of Economics)

Abstract

How do firms in high-income countries adjust to emerging market competition? We estimate how a representative panel of Canadian firms adjusts innovation activities, business strategies, and exit in response to large increases in Chinese imports. Whether firms invest in process or product innovation matters: on average, the number of process innovations declines more strongly than the number of product innovations. In addition, firms that initially pursue process innovation strategies and survive have higher profits ex-post, but are ex-ante more likely to exit. In contrast, firms that initially pursue product innovation strategies have higher profits if they survive, without significant impact on exit. Both empirical patterns are consistent with our theory, which suggests that innovation strategies do not ensure insulation against competitive shocks, but instead increase risk.

Suggested Citation

  • Lorenz Kueng & Nicholas Li & Mu-Jeung Yang, 2020. "The Impact of Emerging Market Competition on Innovation and Business Strategy," Swiss Finance Institute Research Paper Series 20-35, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp2035
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    References listed on IDEAS

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    1. David Atkin & Azam Chaudhry & Shamyla Chaudry & Amit K. Khandelwal & Eric Verhoogen, 2017. "Organizational Barriers to Technology Adoption: Evidence from Soccer-Ball Producers in Pakistan," The Quarterly Journal of Economics, Oxford University Press, vol. 132(3), pages 1101-1164.
    2. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    3. Sutton, John, 2012. "Competing in Capabilities: The Globalization Process," OUP Catalogue, Oxford University Press, number 9780199274536.
    4. Johan Hombert & Adrien Matray, 2014. "Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?," Working Papers hal-02011417, HAL.
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    Cited by:

    1. Pian Shu & Claudia Steinwender, 2019. "The Impact of Trade Liberalization on Firm Productivity and Innovation," Innovation Policy and the Economy, University of Chicago Press, vol. 19(1), pages 39-68.
    2. David Autor & David Dorn & Gordon H. Hanson & Gary Pisano & Pian Shu, 2020. "Foreign Competition and Domestic Innovation: Evidence from US Patents," American Economic Review: Insights, American Economic Association, vol. 2(3), pages 357-374, September.
    3. Ujjayant Chakravorty & Runjuan Liu & Ruotao Tang, 2017. "Firm Innovation under Import Competition from Low-Wage Countries," CESifo Working Paper Series 6569, CESifo.
    4. Boddin, Dominik, 2018. "Imports, Exports and Domestic Innovation," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181640, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    International Competition; Innovation; Management Practices; Firm Performance;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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