David vs. Goliath? Smaller European Exporting firms facing Asian competition on global markets
| Published date | 01 February 2016 |
| Date | 01 February 2016 |
| Author | Zuzanna Studnicka,Jan Van Hove,Filip Abraham |
| DOI | http://doi.org/10.1111/sjpe.12109 |
DAVID VS. GOLIATH? SMALLER
EUROPEAN EXPORTING FIRMS
FACING ASIAN COMPETITION ON
GLOBAL MARKETS
Filip Abraham*, Jan Van Hove** and Zuzanna Studnicka***
ABSTRACT
This paper analyses the presence of Asian competition in the export markets of
Belgian manufacturing firms between 1998 and 2010. We focus on the value of
exports at the firm level where we consider both the intensive and the extensive
margin. Within Asia a distinction is made between China, India, Hong Kong,
Japan, Singapore, South Korea, and Taiwan. We find that Asian competition
matters significantly for Belgian export companies.
II
NTRODUCTION
The emergence of China and other Asian economies causes a fair amount of
concern in Europe. Although the growth opportunities for successful exporters
in rapidly expanding Asian markets are well recognized, the fear reigns that
the industrial competitiveness of European economies will be irreversibly
affected by relentless Asian competition. This fear is particularly common
among smaller and medium-sized firms of small open economies who depend
on foreign markets for a major part of their sales and profits.
This paper explores the presence of Chinese and Asian competition in the
export markets of Belgian manufacturing firms. Belgium is a prime example
of a small open European economy with a long-standing industrial history
and a large share of small- and medium-sized companies. Asian firms have
become successful exporters in a large number of markets and sectors. This is
particularly true for the impressive rise of China as a new world power. Bel-
gian exporting firms are experiencing the brunt of the emergence of several
Asian countries on the world scene. This result is considerable apprehension
about the future of the Belgian industrial sector.
In earlier work, we used detailed sector data to assess how Chinese compe-
tition harms OECD countries’ export performance in other OECD markets
(see Abraham and Van Hove, 2011). In this paper, we build on the empirical
*KU Leuven and Vlerick Business School
**KU Leuven and INFER
***KU Leuven
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12109, Vol. 63, No. 1, February 2016
©2016 Scottish Economic Society.
18
literature on heterogeneous exporting firms (Helpman et al., 2008), including
multi-product firms, to study how Belgian firms cope with Asian competition
taking into account product-level information at the firm level. We analyze
the extent to which Belgian export firms are competing in the same markets
and sectors where Asian firms from (mainland) China, Hong Kong, India,
Japan, Taiwan, Singapore, and (South) Korea are present and have built up a
strong market share. In doing so, we focus on the value of Belgian exports
and decompose this variable in an intensive and extensive margin. We use a
unique dataset that includes for all Belgian manufacturing firms the bilateral
export flows of all products to all export destinations for the 1998–2010 per-
iod.
In focusing on firm-level export evidence, we follow the rapidly expanding
literature that recognizes the heterogeneous characteristics of firms as well as
their heterogeneous responses to globalization [see for instance Melitz (2003),
Bernard et al. (2003) and Eaton et al. (2004)]. Most recently the product-level
heterogeneity of firm-level exports is additionally taken into account. Within
these models, the value of exports of multi-product firms is not restricted to
the product-level value or volume of (bilateral) exports –the so-called inten-
sive margin of trade –but refers also to the number of products firms export,
the so-called export variety or extensive margin of trade (Allanson and Mon-
tagna, 2005; Nocke and Yeaple, 2006; Bernard et al., 2010; Agur 2010; Eckel
and Neary, 2010; Elliott and Virakul, 2010; Iacovone and Javorcik, 2010;
Eckel et al., 2015).
Throughout the paper, we focus our analysis on (1) the characteristics of
Belgian exporting firms, (2) the characteristics of the markets of destination of
exports, (3) the competitive presence of Asian competitors, and (4) examples
of sectors that highlight the interaction between Belgian and Chinese firms.
Those four issues provide an appropriate framework to assess the impact of
Asian competition on Belgian export performance.
The competitive impact of Asian competitors will be felt more by Belgian
firms when Belgian and Asian exporting firms target the same markets and
sectors so that their export markets and sectors overlap. Likewise, a large or/
and rising market share of Asian firms in a particular country is an indicator
of growing competition for Belgian exporting firms.
The impact of competition on firm-level export performance has been stud-
ied theoretically and empirically in the recent literature. Melitz and Ottaviano
(2008) studied the impact of differences in competition toughness across desti-
nation markets in a monopolistically competitive model of trade with hetero-
geneous firms. Mayer et al. (2014) provided theoretical and empirical support
that competition across destination markets affects exporting firms’ product
range and product mix. The literature fails so far to take into account compe-
tition by particular countries. This paper aims to fill this gap.
The remainder of this paper is structured as follows. Section II presents our
dataset as well as the definition of some concepts. In Section III, we provide
some stylized facts related to the characteristics and export performance of
Belgian exporting firms. In Section IV, we present the regression methodology.
DAVID VS. GOLIATH 19
Scottish Journal of Political Economy
©2016 Scottish Economic Society
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