To Acquire or to Ally? Strategic Responses of Incumbents to Increased Entry Threat

How does foreign competition affect incumbent firms’ external growth strategies? We find firms respond to reductions in U.S. import tariffs by opting for alliances over acquisitions. Consistent with alliances being less costly and more flexible, this effect is more pronounced among firms with less financial or operational flexibility. Incumbents tend to partner with firms operating in the same industry, high-tech, or B2C industries. In the long term, firms that choose alliances demonstrate improvements in net sales, market share, financial performance, and innovation efficiency. Our study provides insights into how incumbents interact and reset firm boundaries when threatened by foreign competition