Changing Vertical Integration Strategies under Pressure from Foreign Competition: The Case of US and German Multinationals

Abstract

abstractThis study contributes to the emerging body of research into the influence of foreign competition on firm scope. Industrial organization economics, the resource‐based view of the firm, and transaction cost economics consistently predict vertical de‐integration in the face of intensifying pressure from imports and foreign direct investment. We show this was the case for 407 US firms between 1987 and 2003. Results for a panel of 95 German firms reveal a similar reaction to pressure from an increase in imports, but show no reaction to increased exposure to incoming foreign direct investment during the same time frame.