Using the dismantling of the Multi-fibre Arrangement quotas on Chinese textile and clothing

products in conjunction with China's accession to WTO, within firms adjustments to intensified

low-wage competition is analyzed. Employing Danish employer-employee matched data supple-

mented with transaction-level data from between 1995 and 2007, the analysis shows a significant

increase in skill and capital intensity associated with downsizing in response to heightened com-

petition. Competition is found to negatively affect employment, value-added and intangible assets

of the Danish firms, and firms are found to refocus their innovative efforts away from goods where

China's competitive advantage becomes higher. The results show an important role of the distri-

butional impact of low-wage competition within firms in restructuring the industry and support

theories that indicate compositional changes in the scopes and operations of \Northern" firms in

response to competition from \South".