Économie et Statistique n° 405 - Firms

Economie et Statistique
Paru le : 01/02/2008
Consulter

The Conquest of Foreign Markets in the Chemical Industry

Benjamin Nefussi

A French company wanting to conquer a foreign market can either produce its product in France and export it, or produce it within the foreign market itself. This choice is usually presented as a balancing act between fixed costs and variable costs. Setting up locally requires heavy investment, but the cost per unit produced is lower if production takes place locally since it reduces product transport costs from France to the destination country. In this context, it is often shown that the most productive companies agree to pay the high cost of setting up abroad. This result, which is true of all destinations, can be made more precise by distinguishing the decision to set up abroad not only by company, but also by destination. We test this result in the highly internationalised case of the chemical sector. As expected, the size of the destination market always makes it worthwhile setting up abroad rather than exporting. However, productivity only has a positive effect when the market in question is sufficiently large. In smaller markets the least productive companies are most likely to set up abroad. Furthermore, companies choose to set up more frequently in countries where many French companies are already present, which are geographically close and which share a border with France. If countries neighbouring a particular destination provide interesting opportunities for the company, it is more likely to set up there, which confirms the «platform» role of foreign investment.

Economie et Statistique
No 405-406
Paru le : 01/02/2008