Entry decisions of multinational firms: The role of competition threats

How do multinational corporations (MNCs) influence each other's foreign entry decisions? In this paper, I examine the interactions in MNCs' entry decisions by investigating how MNCs respond to competition threats from their multinational competitors. The analysis shows that entry threats a...

Full description

Saved in:
Bibliographic Details
Published inWorld economy Vol. 42; no. 7; pp. 2144 - 2171
Main Author Bao, Cathy Ge
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.07.2019
Subjects
Competition
Competitors
Credibility
Economic analysis
Economic models
Employment
entry decisions
Expectations
FDI news
Foreign investment
Multinational corporations
News
Productivity
threats
Online AccessGet full text

Cover

More Information
Summary:How do multinational corporations (MNCs) influence each other's foreign entry decisions? In this paper, I examine the interactions in MNCs' entry decisions by investigating how MNCs respond to competition threats from their multinational competitors. The analysis shows that entry threats anticipated through foreign investment news encourage MNCs to take preemptive actions by entering the same city after the news, while the actual entry of competitors and the anticipated expansion of incumbents discourage more entry. Incumbent MNCs, on the other hand, respond to entry threats by upgrading productivity. The effect of competition threats depends on each MNC's own existing activity and production network within the region. The effect of entry threats increases with the size of threats, measured by the investment value, expected employment and expected output, the influence of the news, the credibility of the news and the local market orientation of the threats. Across industries, MNCs' entry decisions are found to respond to only the actual entry—not anticipated entry—in vertically linked industries. Further, by exploring the time path, I find that MNCs' preemptive entry is only taken before FDI news expires. The main results are robust to IV analyses that explore unique information from news source and news content.
ISSN:0378-5920
1467-9701
DOI:10.1111/twec.12776