The Impact of Emerging Market Competition on Innovation and Business Strategy

34 Pages Posted: 2 Nov 2016 Last revised: 14 Dec 2017

See all articles by Lorenz Kueng

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

Multiple version iconThere are 2 versions of this paper

Date Written: December 11, 2017

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.

Keywords: International Competition, Innovation, Management Practices, Firm Performance

JEL Classification: F14, L2, O3

Suggested Citation

Kueng, Lorenz and Li, Nicholas and Yang, Mu-Jeung, The Impact of Emerging Market Competition on Innovation and Business Strategy (December 11, 2017). Available at SSRN: https://ssrn.com/abstract=2862734 or http://dx.doi.org/10.2139/ssrn.2862734

Lorenz Kueng (Contact Author)

University of Lugano - Faculty of Economics

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Swiss Finance Institute

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Nicholas Li

University of Toronto - Department of Economics ( email )

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Mu-Jeung Yang

University of Washington - Department of Economics ( email )

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