Classification of Firms Factors Determining the Types of Export Assistance and Measures

Paper title: Export involvement and performance of the firms as characteristic features of export assistance

Abstract: Generating exports is a primary policy concern of most governments. Export marketing involvement of firms and firms' usage of government export assistance programs are important export success factors. The relevance of export assistance programs and the role they play vary depending on the dimension of export performance being considered. Export marketing assistance programs refer to all public measures designed to assist firms' exporting activity, ranging from counseling, tax incentives, and export financing to trade shows and sales leads. Although the number and nature of classifications vary across studies, the paper focuses on the following three exporter categories: non regular, regular, but inward-oriented, and sustainable export-oriented firms. On the basis of a review of extant literature on performance in general and export performance in particular, it is adopted a multidimensional view of performance in which efficiency, effectiveness, and competitive position represent the dimensions considered to be of particular importance for export success.

Keywords: Export marketing assistance programs, non-regular, regular, but inward-oriented, and sustainable export-oriented firms, efficiency, effectiveness, and competitive position

Author: Karen Grigoryan

Author Affiliations: PhD in Economics, Associate Professor, Department of Macroeconomics, Armenian State University of Economics, Yerevan, Armenia, Erasmus Mundus Post doctorate fellow in the Department of Management and Business Development, University of Ruse, Ruse, Bulgaria

1 Export involvement and performance of the firms as characteristic features of export assistance

Introduction Encouraging exports, i. e. increasing the firms’ propensity to export is a primary task for most governments. It is known that there are organizational and managerial differences among the firms involved in export marketing to ascertain the robustness of and replicate the observed differences in firms' export marketing involvement behavior. Export marketing involvement of firms and firms' usage of government export assistance programs are important export success factors. However, the relevance of export assistance programs and the role they play vary depending on the dimension of export performance being considered. In this paper, we give a very broad overview of the determinant factors of export assistance. Of course, we do not pretend to give a full review of all factors and conditions, which are the subjects of another research. Literature review Over the past decades, a substantial amount of systematic research has been done on the determinants of and impediments to knowledge utilization within organizations (Aistrich, Saghafi and Sciglimpaglia 2006; Baker, and Noordewier 1997; Souchon 1996; Menon and Varadarajan 1992; Sinkula 1994; Diamantopoulos and Inglis 1988). Success in an intensely competitive global business environment hinges on better and effective use of information. Indeed, information as a source of sustainable competitive advantage and therefore success in the global marketplace has risen to the forefront in debates on the global competitiveness of specific industries and markets.

As the largest producers of external information, local as well as national governments' role in providing local firms with information necessary to enhance their global competitiveness and performance is no longer taken for granted. Almost all developed and most developing countries have strengthened their commitment to export marketing assistance programs and have developed full-fledged programs to enhance the export activity of firms located within their jurisdiction. Broadly, export marketing assistance programs refer to all public measures designed to assist firms' exporting activity, ranging from counseling, tax incentives, and export financing to trade shows and sales leads. Therefore, the basic objective for these programs is to act as an external resource for firms to gain knowledge and experience that is vital for successful foreign market involvement.

2 At least on the surface, state export marketing assistance programs make sense, because they are reputed to have impressive results. In one nationwide study, for example, every increase of $1 in state manufacturing export assistance expenditures was claimed to result in approximately $432 increase in manufacturing exports (Coughlin and Cartwright 1987).

Opponents, however, argue that private market forces and not public assistance programs determine the competitive position and export performance of firms within a state. Furthermore, claims of significant increase in export performance attributed to these programs are considered self-serving post hoc rationalizations by many commentators, because most states do not have reliable evidence or necessary data (Nothdurft 1992) to either support or contradict these claims.

It is very important to identify the factors, other than export assistance usage, that have been found to explain export success, to assess the determinants of firms' export performance and explore the role that the use of state export assistance programs plays in this process.

The extant literature conceptually documents and empirically supports a firm's export involvement as an important success factor. The prevailing view in this literature suggests that involvement in exporting is a developmental process that can be conceptualized as a learning sequence or as export stages. In this context, several taxonomies have been proposed for classifying firms according to their level of involvement in exporting (Czinkota and Johnston 1981).

Export involvement of firms

Although the number and nature of classifications vary across studies, we focus on the following three exporter categories, which represent the frequently used and widely accepted behavioral patterns encountered in the literature: a) non regular, b) regular, but inward-oriented, and c) sustainable export-oriented firms.

Non regular export characterizes the behavior of firms that display little interest in exporting and foreign market development. Exporting activity is typically prompted by unsolicited inquiries in a reactive manner and involves no effort to explore the feasibility of exporting.

Regular, but inward-oriented activity represents the firms that actively explore the feasibility of exporting but currently export less than 10 % of total sales. Because the firm continues to treat its international activities as marginal business, it tends to allocate managerial and financial resources as well as production capacity to export markets with some degree of reluctance. In

3 general, the firms export to countries that are geographically close or share a culture similar to that of the home country.

Sustainable export-oriented activity represents an experienced exporter with an export sales level greater than 10% of total sales, whose exporting activity is conducted on a regular basis and whose export offerings are adjusted optimally to changes in the foreign environment (e.g., exchange rates, tariffs). Similarly, strategies tend to be designed to meet the specific needs of foreign customers and to capitalize on foreign market opportunities better. Exporters search for business opportunities worldwide, most notably in countries that have very different cultures and are farther away from the home country than the firm's current export markets.

Many exporting researchers have attempted to explain the observed difference in firms' level of involvement in exporting--namely, why some firms remain passive whereas others aggressively pursue export opportunities worldwide. The research on this issue indicates that though all firms are exposed to factors that stimulate (e.g., unutilized production capacity) and/or obstruct (e.g., financial constraints) export involvement, the impact of both stimuli and barriers to involvement varies depending on exporters' organizational and managerial characteristics.

Exporters' organizational characteristics, such as firms' international experience, export coverage, and technological intensity (e.g., Diamantopoulos and Inglis 1988), are important sources of organizational advantage for initiation, development, and sustenance of higher levels of involvement in exporting. Similarly, the importance of managerial attributes in shaping the firm's export involvement is widely recognized in the extant literature. Of the many characteristics considered in the literature and reviewed recently by Leonidou, Katsikeas, and Piercy (1998), a fairly consistent pattern of support is available for the positive influence of decision makers' education level, export expertise, and international orientation on firms' level of export involvement.

Export performance of firms

The export performance of a firm constitutes the key dependent variable of interest in this study and represents an important stream of research in international business. However, the difficulties of assessing performance, especially in an international context, have made the evaluation of export performance of individual firms mostly an elusive goal. As a result, this topic has attracted considerable conceptual but relatively little empirical attention (Chetty and Hamilton 1993).

4 The complexity and difficulty of assessing export performance is further revealed by the diversity of approaches and measures employed in both conceptual and empirical research on this topic (Cavusgil and Zou 1994). The multitude of performance dimensions considered in the literature demonstrates that there is no universally accepted criterion for export success and that organization can pursue, measure, and judge export performance on various dimensions. Therefore no single aspect of performance can accurately encompass the total contribution of export promotion programs to either the immediate or the long-term export success of a business. On the basis of a review of extant literature on performance in general and export performance in particular, we adopt a multidimensional view of performance in which efficiency, effectiveness, and competitive position represent the dimensions considered to be of particular importance for export success.

Efficiency captures the relationship between the organizational resources employed and the organizational outputs achieved. The most common indicator of efficiency used in the literature is export profitability (Samiee and Walters 1990). Effectiveness reflects the success of a business compared with competitors in the market. Measures of effectiveness include market share and export sales growth (Samiee and Walters 1990). Competitive position refers to the overall strength of a firm that arises from its distinctive competencies, management style, and pattern of resource deployment. Indicators of competitive position used in the export literature include overall quality and competence applied to firms' export activities (Kotabe and Czinkota 1992).

A few studies that have related various levels of export involvement to performance consistently report a positive relationship. In one of the earlier and more direct tests of this relationship, Piercy (1981) notes that whereas reactive/passive exporters tend to be more concerned about export volume, both volume and profitability become increasingly important for active exporters. These results are confirmed by Cavusgil and Zou (1994), who observe a positive association between higher levels of export involvement and export performance in terms of both export sales and profits. It appears that firms, while still seeking sales growth, emphasize profitability more at higher levels of export involvement as a compensation for the perceived increase in uncertainty and risk. Greater involvement in exports is enhanced by greater reliance on foreign markets as a source of sales and especially of profits. The competitive benefits of exporting also appear to be more salient at higher levels of export involvement. (Kotabe and Czinkota 1992), for example, note that firms consider their competitiveness to be enhanced by exporting as a result of increased sales opportunities and improved quality of management.

5 Less direct yet equally strong evidence of a positive association between export involvement and performance abounds in the literature. For example, Cooper and Kleinschmidt (1985) find that exporters that have broader world market coverage and therefore pursue higher levels of involvement realize a more rapid growth rate in export sales than do those relying on a nearest neighbor. Samiee and Walters (1990) suggest that successful exporters consider exporting important for their overall business, are motivated to export for proactive reasons, and export on a sustained basis that reflects higher levels of export involvement. Similarly, several studies report that systematic analysis and planning of exports found at higher levels of involvement is a strong predictor of export success (e.g., Diamantopoulos and Inglis 1988).

Finally, an international country portfolio has to be managed proactively and balanced through expansion, extension, and withdrawal decisions (Douglas and Craig 1996). Market and portfolio dynamics might render international strategies inappropriate in some markets. Furthermore, unexpected and increasing opportunity and coordination costs might arise that eventually could outweigh the benefits of the increasing internationalization (Hitt, Hoskisson and Kim 1997).

Export withdrawal can be defined as a firm's strategic decision to remove a product/market combination from its international portfolio. Differently to a forced withdrawal (e.g., a politically motivated expulsion from a country), a strategic withdrawal can have both internal (e.g., new strategic priorities) and external (e.g., a dramatically changing competitive environment) causes and should not, a priori, be regarded as a reactive strategy or a failure.

It should be noticed also that export orientation of firms affects their sales channel strategy. Exporting firms using indirect export do not employ multiple channels and typically use indirect sales channels while those who control their own exporting use direct sales channels (Gabrielsson, Kirpalani, & Luostarinen, 2002). This is, in its turn, influences to the export assistance nature within trade policy of the country.

Conclusions: The main focus of this study is the methodological performance implications of state export promotion assistance usage along the export involvement. Accordingly, it is considered that organizational and managerial antecedents of export involvement only to ascertain their collective impact on export involvement; this approach validates the export involvement construct used in this study to represent different types of exporters. According to the conceptual model proposed in this study, the export success of a firm along all three dimensions of performance is posited to be a function of its export involvement and its use of state export promotion assistance programs.

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