Offshoring as a Survival Strategy in Globalizing Industries: New Evidence from Belgian Manufacturing

This paper analyzes the impact of globalization on the exit behavior of manufacturing firms in one of the world’s most open economies: Belgium. We find that imports from low-wage countries exert a strong competitive effect that lowers a firm’s chances of survival. This competitive effect is found to arise mainly in industries where intra-industry trade, an indicator of product differentiation, is relatively low. As an offensive strategy to cope with the rising competitive pressure from imports, we find that firms exploiting opportunities afforded by globalization, in particular the off-shoring of activities, are able to improve their chances of survival. Making a distinction between domestic firms and subsidiaries of multinational firms, we also find that domestic firms face a higher risk of exit when multinational firms compete in their relevant input and output markets. Finally, we show that subsidiaries of multinational firms are better adapted to cope with globalization forces, and we find them to be less sensitive to domestic market conditions in the host country.