Production-cost gaps between developed countries and developing countries incite firms located in the former to develop specific strategies to respond to competition from the latter. Strategies to improve cost competitiveness-based, for example, on improving production methods (process innovation)-are generally bound to fail, given the size of initial gaps in production costs. The literature suggests an alternative strategy that may offer a more effective response to competition from the South: product innovation. The strategy often leads firms to engage in R&D and allows them to exploit their comparative advantages, such as technological expertise and access to high-skilled labour. An empirical analysis of French business strategies for dealing with competition from the South shows that firms exposed to such competition are significantly more diversified. They adjust their production profile more extensively and more often. Only the most productive firms combine these strategies with a genuine innovation effort, which may partly explain their higher survival rate previously documented in the literature.