Internationalization Strategies of Multi-Product Firms

• Applicant: Professor Dr. Carsten Eckel
• Subject Area: Economic Theory
• Term: from 2015 to 2019
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 280330956

This project focuses on the analysis of potential internationalization strategies of multi-product firms. The literature on international trade documents the relevance of multi-product firms in international markets and shows that adjustments in the product ranges of multi-product firms have significant influence on how globalization impacts the market structure of the affected industries. Importantly, these adjustments are quantitatively significant in determining the welfare gains from globalization. This project focusses on foreign direct investment of multi-product firms. We want to analyze the impact of adjustments within multi-product firms on the decision to invest abroad, and the welfare and labor market consequences of these decisions. These questions cannot be addressed using the traditional models with single-product firms, and require the integration of novel theoretical elements from the literature on multi-product firms into a multinational context. The research proposal can be divided into two distinct sub-projects, which are motivated by the differentiated motives, why firms relocate production abroad. The first sub-project focuses on efficiency seeking FDI and aims to blend well established theoretical techniques from the offshoring literature with novel achievements from the literature on multi-product firms. In particular, this sub-project aims to reevaluate the labor market consequences of (cost-based) offshoring in the presence of multi-product firms. The focus of the second sub-project lies on the optimal manner by which multi-product firms can access foreign markets (market seeking FDI). Within this part of the project, it is planned to develop a novel multi-product framework where firms can serve foreign customers by exports and foreign direct investment simultaneously. This framework can then be used to investigate the differential labor market effects of the two internationalization strategies. The theoretical model is expected to bring forth a number of novel predictions regarding the optimal internationalization strategies of multi-product firms. These predictions will be tested by using firm-level data for German multinationals (MiDi Microdatabase Direct Investment). The project group consists of three researchers who have worked both individually and jointly in the area of multi-product firms. All project members are very familiar with the still dynamic literature on multi-product firms and a range of papers within this field documents that all members have worked both theoretically and empirically on different aspects of multi-product firms in an international context.

• DFG Programme: Research Grants