Do foreign players change the nature of the game among local entrepreneurs?

The effect of foreign-owned companies on entrepreneurial survival in the Finnish business sector is analyzed by using a new, exceptionally rich linked data on employees, entrepreneurs and their companies. Our new indicator of foreign presence, based on the observed spatial scopes of the local labor markets, outperforms other commonly used alternatives for measuring regional effects. According to the results, foreign-owned companies crowd out local entrepreneurship. They increase competitive pressure in a way that selects efficient entrepreneurs from inefficient ones, which stimulates productivity-enhancing restructuring at the micro-level. In contrast to the theoretical prediction, higher education does not seem to make entrepreneurs less vulnerable to the foreign presence despite their possibly higher ability to adopt knowledge from foreign-owned companies.