Multinational Responses, Uncertainty, and Strategic Trade Policy: Evidence from Emerging Markets

Strategic trade policy to stimulate domestic production in emerging markets is an increasing feature of smart industrial policy. However, the posture and strategic responses of the global multinational firms are key determinants of how relevant the global firms remain in the local economy after the implementation of the trade policy. This paper attempts to review strategic posture options for multinationals operating in Africa' s largest economy where a strategic trade policy to favour large domestic manufacturers in resource-based industries has been implemented through strategic import bans since the early 2000's. Using representative industries of relatively high trade protection and publicly available market data, two oligopolistic markets are analysed. The key questions addressed are: How have emerging market multinationals adopted a proactive response in a strategic trade policy war, rather than assume a defensive posture? Second, how have foreign multinationals seized the advantage of domestic manufacturing offered by the strategic trade policy before domestic firms? The findings reveal that while both incumbent multinationals lost their market leadership, the future strategic positioning of the multinational depends on a combination of factors including innovation, willingness to shape the market, and the ability to manage residual uncertainty.