Strategic Responses to Multiple Dimensions of Low-Cost-Country Competition

Abstract

This paper presents theoretical and empirical analyses of strategic responses to competition from low-cost countries (LCCs). Surveying 423 firms in the U.S. and Germany, we consider the nature of low-cost competition and strategic responses by advanced market incumbents. The theoretical framework develops multiple dimensions of foreign competition, i.e. intensity and quality, and introduces three new strategic responses, relocation, avoidance and deterrence. The results strongly support the hypotheses that firms employ relocation, avoidance, and marketing differentiation strategies when LCC competition rises. As LCC product quality increases, firms increasingly use relocation strategies but reduce their reliance on avoidance and market differentiation.