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Survive or Die? A Decade of Tough Competition for Foreign Affiliates

Giorgia Giovannetti (), Giorgio Ricchiuti () and Margherita Velucchi ()

Working Papers - Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: Firms' survival and internationalization are key elements to assess a country's competitiveness. In this paper, we draw on these two strands of literature and study how firms' characteristics affect demographic dynamics. We focus on foreign direct investors' survival probability, modelling it conditional on both parent company and affiliates' set of characteristics. The novelty of our approach is twofold: on the one hand, we generalize the base model used in business demography disentangling the effect of affiliates and parents. On the other hand, we stress the technological level relationships between affiliates and their investors. For the empirical assessment, we use an original longitudinal database (2004 - 2012) for Italy. We show that, larger affiliates of large investors compete better and survive more. Being part of networks of affiliates in the same country and/or sector also decrease the risk of exiting markets. When the investors have a higher (lower) technological level, their affiliates' failure probability increases (decreases). When the investor is more advanced than its affiliates, it considers the investment abroad like a cost-saving, low skills investment. The investor will easily disinvest, moving to a more convenient economic context. Affiliates with a higher level of technology, instead, are considered strategic to the parent company, due to skills, talent or competencies.

Keywords: Business Demography; Survival; Competitiveness; Internationalization (search for similar items in EconPapers)
JEL-codes: C41 L11 L25 F21 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2015
New Economics Papers: this item is included in nep-bec, nep-cse and nep-int
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