The Nature of Import Competition and Firms’ Environmental Engagement in Emerging Markets

We study the relationship between firm environmental engagement and the nature of import competition in emerging markets by distinguishing between differentiation-based and cost-based import competition. Drawing on the institutional perspective of CSR, we argue that differentiation-based import competition is associated with a greater reduction in firm environmental engagement than cost-based import competition. Firms in emerging markets are not used to competing on non-price factors. Thus, they cut corners and reallocate their resources away from environmental activities to investments in capital stocks. We also advance that the reduction in a firm’s environmental engagement is less pronounced for firms with higher product quality and more diversified product portfolios because they can leverage customer loyalty and reduce the “directness” of foreign competition, respectively. We test and find support for our arguments on a sample of manufacturing firms in Turkey over the period 2009-2015. Our study advances research on the relationship between market competition and corporate social responsibility.