Can Innovation and Servitization Help Firms Escape Foreign Competition?

Abstract:

The extraordinary increase of Chinese exports over the past two decades has represented a new source of competitive pressure for European firms. Imports from China have increased more than tenfold between 1992 and 2012 in EU countries.There is a substantial literature exploring the effect of China's rise on industry employment and local labor market conditions. However, far less is known about the impact of Chinese competition on innovation activities at the firm level. Related to this, we also need to improve our understanding of the role played by Chinese import penetration in firms' transition out of manufacturing towards more service-like enterprises. The main purpose of this research project is therefore to shed light on the effects of Chinese import competition on the two main strategies that domestic firms can pursue in order to stay in business: 1) innovation; 2) the switching out of production and increased focus on knowledge intensive tasks and activities.