Responses of Advanced Country MNEs to Low-cost Country Imports in Their Home Markets

There has been little exploration of the competition arising from low-cost countries' imports to the home markets of multinational enterprises (MNEs) headquartered in developed countries. This study presents theoretical and empirical analyses of the level of future MNE activities in LCCs due to the rising prevalence of LCC imports in the MNEs' home markets. Building upon oligopolistic parallel behavior theory, we analyze the impact of LCC competition intensity and LCC product quality. We test the model using data collected from a top management survey of 423 U.S. and German manufacturing firms. The intensity of competition from LCCs and the quality of products imported from LCCs significantly explain MNEs' subsequent responses to that competition. Cross-country comparisons show that while LCC product quality is important in both samples, the intensity of competition from LCCs is significant for MNEs' future activities in LCCs only in the U.S. sample. A stronger prior orientation toward LCCs and low logistics costs also lead to higher levels of future MNE activities in LCCs, while technological progress does not.