Import competition and firm reorganization. The case of transition countries

Recent managerial literature has found new evidence on the link between international trade liberalization and the changes of internal firm organization in developed countries. In particular, import competition is shown to stimulate firms to become atter (Wulf, Guadalupe, 2006). Opposite to a widespread assumption that attening implies higher decentralization, flattening may, in practice, increase the control of higher managers (Wulf, 2011). A coherent theory explaining such evidence has still to evolve. However, it is often argued that attening allows firms to make intra-firm coordination and information sharing more effcient. The aim of this study is to complement existing literature focused on developed countries, by studying the process of attening and its link with trade liberalization in transition countries. Analysis of such a link would allow shedding more light on firms' adjustments to trade liberalization. Moreover, it would underline the drivers of additional possible gains from trade due to organizational change in these countries. The analysis is based on the EBRD-World Bank Management, Organization and Innovation (MOI) survey on more than 1000 firms in 10 transition countries, supplemented by the information on trade liberalization. The results show that firms become atter as a response to the increase in import penetration, thus, confirming existing evidence on the positive link between trade liberalization and firm attening. However, the paper underlines other factors in uencing attening, ownership structure in particular. Such results bring us closer to the understanding of intra-firm adjustments prompted by increasing foreign competition, and highlight the opportunities for intra-firm effciency growth.