Increasing global competition is changing the environment facing most companies today. As trade barriers fall and transaction costs decline, new global competitors are entering previously more isolated domestic markets. In response to this intensified competitive pressure, local companies are pushed to enhance performance by innovating and adopting process and product improvements. This domestic sector dynamic leads to higher productivity, which, in turn, can create sustainable competitive advantages for companies, as well as being the most important driver of job creation and per-capita income growth for the economy. This link has been established in McKinsey Global Institute’s extensive country productivity research. ; Our new study goes further than previous research by focusing on how increasing global competition leads to productivity growth, using the U.S. automotive manufacturing sector as a case example. More specifically, we have focused on the production of new vehicles in the U.S., including parts assembly. We have chosen this example because of the globally competitive nature of the automotive market and the size of the U.S. in this market over our period of analysis. As we shall see, some of the non-US original equipment manufacturers (OEMs) had clear productivity advantages which enabled them to create significant competitive pressure in the U.S. market.