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Entry decisions of multinational firms: The role of competition threats
Author(s) -
Bao Cathy Ge
Publication year - 2019
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12776
Subject(s) - multinational corporation , competitor analysis , competition (biology) , business , barriers to entry , credibility , productivity , foreign direct investment , industrial organization , investment (military) , international trade , economics , marketing , market structure , ecology , macroeconomics , finance , politics , political science , law , biology
How do multinational corporations ( MNC s) influence each other's foreign entry decisions? In this paper, I examine the interactions in MNC s' entry decisions by investigating how MNC s respond to competition threats from their multinational competitors. The analysis shows that entry threats anticipated through foreign investment news encourage MNC s 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 MNC s, 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, MNC s' 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 MNC s' 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.