Antecedents of firm export performance the role of export promotion programs

The model integrates the use of EPPs, management perception of export market environment, export knowledge, export commitment, and export strategy that influence firm export performance

Antecedents of Firm Export Performance: The Role of Export Promotion Programs

Brisbane, Queensland 4000

Australia

2004

Key Words

Antecedents of export performance, Impact of Export promotion programs, Export Assistance Programs, Developing country, Bangladesh

Abstract

This study empirically investigates the direct and indirect effects of export promotion programs (EPPs) on firm export performance Government export promotion programs normally define the premise for successful exporting activities of the corporate sector and play a key role in stimulating international business activities of firms (Cavusgil and Michael, 1990; Marandu, 1995; Seringhaus and Rosson, 1990) While the extant literature on export performance mostly neglected EPPs as an antecedent of export performance, the literature on export promotion fails to relate it

to export performance A very few researchers in this area have focused on a direct relationship between EPPs and firm export performance, however, no study has investigated the effect of EPPs on other determinants of export performance toward establishing any indirect relation between EPPs and export performance This study attempts to develop and test a comprehensive model of firm export performance that investigates how EPPs directly and indirectly influence firm export performance

Theoretical foundations are drawn from internationalization process and based theories as frameworks for the analysis of the study The model integrates the use of EPPs, management perception of export market environment, export knowledge, export commitment, and export strategy that influence firm export performance and develops a number of hypotheses Export promotion programs are classified into two categories according to their similarity of purpose- “market development”, and “finance and guarantee” related programs All other variables in the model are latent and are measured by a set of observed items The model is tested

resource-on primary data obtained from a sample survey of exporting firms drawn from three major export oriented industries in Bangladesh Structural Equation Modeling (SEM) techniques (in AMOS 5) are used to test the validity of the overall model and the relationship between variables hypothesized in the model A two stage process is employed whereby the construct measurements are first evaluated, followed by an evaluation of the structural relationships

Analysis of the structural relationships supports most of the hypothesized relationships The dimensions of export promotion programs are found to positively impact overall export performance The research findings demonstrate that the use of market development-related export promotion programs influence firm export performance directly as well as indirectly through management perception of the export market environment, export knowledge and commitment However, finance and guarantee-related export promotion programs indirectly influence export performance through export commitment The study provides a guideline for managers of firms suggesting how they can benefit from EPPs in improving their positive attitude towards the export market environment, building their knowledge and enhancing commitment to exporting for better success in their international operations This study provides guidelines to policymakers in designing and targeting export promotion programs effectively The study also contributes to the literature by examining the indirect impact of EPPs on firm export performance Finally, the limitations of the study are considered and possible directions for further research outlined

Table of Contents

Key Words ……… ii

Abstract ……… iii

List of Tables……… vii

List of Figures……… viii

List of Abbreviations……… ix

Statement of Original Authorship……… x

Acknowledgements……… xi

Publications and Conferences Chapter 1 Introduction 1 - 8 1.1 The research focus ……….1

1.2 The research problem, the question and the objective ………….… 2

1.2.1 The research problem……… ………….… 2

1.2.2 Research question and objective of the study… ……….5

1.3 The research significance……….……… ………… 5

1.4 The research methodology……….……… ………….7

1.5 Organization of the thesis……….……… 7

Chapter 2 Literature Review 9 - 61 2.1 Introduction……… ……….9

2.2 Theoretical foundations of firm export performance………… …… 9

2.2.1 International trade theory……… … 10

2.2.2 Internationalization process/stage theory……… … 13

2.2.3 Competitive strategy theory……… 15

2.3 Definitions, determinants and measures of export performance… 18

2.3.1 Conceptual definitions of firm export performance….…… 18

2.3.2 Determinants of export performance……….…… 19

2.3.3 Models of export performance……….… 29

2.3.4 Measures of export performance……… 38

2.4 Export promotion related literature……… … 42

2.4.1 Studies on how to develop export promotion programs….…45 2.4.2 Studies on the impact of export promotion programs on firm export performance……….…53

2.5 Conclusion ……… 59

Chapter 3 The Research Model and Hypotheses 63 - 81 3.1 Introduction……….…63

3.2 The research model and hypotheses ……… 63

3.3 Conclusion ……… 80

Chapter 4 Research Methodology 83 - 118

4.1 Introduction……….………83

4.2 Operationalization of variables……….……… 83

4.3 Research methods……….……… 91

4.3.1 Nature of research ……….……….91

4.3.2 Questionnaire – the research instrument….………92

4.3.3 Translation of research instrument ……….……… 93

4.3.4 Pre-test of research instrument……….……… 95

4.3.5 Final questionnaire ……….…….………….…… 95

4.3.6 Key informant……….……….………96

4.3.7 Population and sample……….……….…… 97

4.3.8 Sample size……….…….…… 98

4.3.9 Data collection, data editing and entry………….……….…100

4.3.10 Non-response bias……… ……… 102

4.3.11 Check for outliers……… ……… 103

4.3.12 Basic descriptive statistics of the sample……… ……… 104

4.3.13 Validity and reliability of research instrument….……… 107

4.4 Data analysis procedures ……….………… 108

4.4.1 Factor and reliability analysis……… 109

4.4.2 Structural equation modeling (SEM)……… 110

4.4.2.1Advantages of structural equation modelling…… 112

4.4.2.2Characteristics of structural equation modeling application……… 113

4.4.2.3Identification……… 113

4.4.2.4Estimation……… 114

4.4.2.5Assessment of overall model fit……….… 115

4.5 Conclusion……….… 118

Chapter 5 Analysis and Results 119 - 162 5.1 Introduction……….… 119

5.2 Results of exploratory factor analysis ……….….119

5.2.1 Export commitment……… 121

5.2.2 Export knowledge……….123

5.2.3 Export strategy……… 124

5.2.4 Management perception of export market environment… .125 5.2.5 Export performance……… 128

5.2.6 Summary of the exploratory factor analysis results……….128

5.3 The structural equation model……… 129

5.3.1 Measurement models……… 130

5.3.1.1Export commitment……… 132

5.3.1.2Export knowledge……….…134

5.3.1.3Export strategy……….… 135

5.3.1.4Management perception of export market Environment ………137

5.3.1.5Export performance……… …138

5.3.1.6Summary of the measurement models………….….139

5.4 Results of structural equation model……… … 141

5.5 Discussion of the results……… … 147

5.6 Conclusion……… ……158

Chapter 6 Summary, Conclusions and Implications 163 - 179 6.1 Introduction……… ……… 163

6.2 Overview of Research……… …… 163

6.2.1 Previous research……… … … 164

6.2.2 Proposed model……… ….67

6.2.3 Questionnaire development and administration……… 167

6.2.4 Model testing and research findings……… …… 168

6.3 Contributions of the study……… ….………170

6.3.1 Theoretical perspective……… ………170

6.3.2 Managerial perspective……… …………173

6.3.3 Public policy maker perspective……… …… 174

6.4 Strengths and limitations of the study……… … 176

6.5 Future research direction……… 177

6.6 Conclusion……… …… 179

Appendix A: Letter from Supervisor and Head of School……… 181 Appendix B: Survey Instrument (English version)………182 - 193 Appendix C: Survey Instrument (Bangla version)……….194 - 207 Bibliography ……… 209 - 229

List of Tables

Table 2.2 Past Empirical Studies on Export Promotion Programs………… 44

Table 4.1 Concept, Conceptual and Operational Definition, and

Measurement of Variables………

85

Table 4.3 Distribution of Respondents by Industry Type……… 104 Table 4.4 Distribution of Respondent Firms by the Number of Employees 105 Table 4.5 Distribution of Respondent Firms by Length of International

Table 4.6 Summary of Respondents’ Personal Characteristics……… 107

Table 4.8 Goodness of Fit Criteria and Acceptable Fit Interpretation…… 117 Table 5.1 Extracted Factors and Factors Loadings Related to Export

Table 5.4a Extracted Factors and Factor Loadings Related to Management

Table 5.5 Extracted Factor and Factor Loadings Related to Export

Table 5.7 Export Commitment – Factor Loadings, Critical Ratios and

List of Figures

Figure 2.1 The Aaby and Slater Model (1989)……… 30

Figure 2.2 The Cavusgil and Zou Model (1994)……… 31

Figure 2.3 The Katsikeas, Piercy, and Ioannidis Model (1996)……… 33

Figure 2.4 The Lages Model (2000)……… 34

Figure 2.5 The Katsikeas, Leonidou, and Morgan Model (2000)………… 36

Figure 2.6 The Leonidou, Katsikeas, and Samiee Model (2002) 37

Figure 2.7 The Bruning Model (1995)……… 46

Figure 2.8 The Singer and Czinkota Model (1994)……… 55

Figure 2.9 The Marandu Model (1995)……… 56

Figure 2.10 The Gencturk and Kotabe Model (2001)……… 58

Figure 3.1 A Conceptual Model of Firm Export Performance……… 66

Figure 4.1 The Direct and Indirect Effects……… 111

Figure 5.1 A Testable Model……… 141

Figure 5.2 The Empirically Tested Structural Model of Firm Export Performance……… 145

List of Abbreviations

ADF = Asymptotically Distribution free

BFLLFEA = Bangladesh Finished Leather, Leather goods and Footwear

CMIN/DF = Chi-square/ Degree of freedom

SPSS = Statistical Package for Social Science

Statement of original authorship

“The work contained in this thesis has not been previously submitted for a degree or diploma at any other higher education institution To the best of my knowledge and belief, the thesis contains no material previously published or written by another person except where due reference is made.”

Signed:

Date:

Acknowledgements

A dissertation is a mosaic of contributions from several people; without their operation and unhesitating assistance the task would be impossible First, I gratefully acknowledge the privilege of having received an International Post Graduate Research Scholarship (IPRS) Additional funding received from the School of Advertising, Marketing and Public Relations (AMPR) and the Faculty of Business, QUT, made this study possible These sources of funding were greatly appreciated I

co-am also grateful to the University of Rajshahi for providing me study leave during this study

I would like to express my deepest gratitude to my supervisor, Senior Lecturer Dr Yunus Ali for his invaluable advice, guidance, encouragement, patience and time devoted throughout his supervision of this thesis Without his patient criticism and generous willingness to spend his valuable time with me discussing many issues, I may never have reached the dissertation stage at all

I am also sincerely grateful to my Associate Supervisor, Professor William Renforth for his constructive suggestions, guidance, time, encouragement and support up to data analysis stage of this thesis A special thank must also go to Dr Stephen Cox for his support in data analysis and valuable advice on statistical issues I would further like to thank Dr Mohammad Alauddin, Dr A B M Rabiul Alam Beg and Dr M Jahangir Ali for their insight and helpful suggestions on different parts of this thesis I

am also grateful to company executives who provided me valuable information in this study My special appreciation goes to Mr Hafizur Rahman, Joint secretary, BGMEA, Md Fazle Hossain, Assistant secretary, BGMEA, Mr Omar Farouq, Deputy Director, EPB, and Mr Rabi-Ul Hasan for their support and assistance during the field studies in Bangladesh

I would also like to thank Professor Charles Patti, the Head of School of AMPR, QUT, and his administrative staff for their support by way of providing excellent facilities and equipment to make it possible to complete this thesis

This dissertation marks the culmination of many years of support and encouragement

on the part of my parents, brother, and sisters My parents provided me with a love of learning, the desire to achieve, and the determination and perseverance to succeed Without the support and encouragement of my family, this dissertation could never have been completed

I am especially indebted to my wife, Soji, for her patience and devotion In fact, I would “share” my degree with her Without her love, trust, encouragement and countless hours of work, my doctoral studies would never have been completed Throughout, my children, Puspo and Porag have been an important source of inspiration

Many friends assisted me in a variety of ways during my graduate studies To all of them, thank you

Finally I wish to dedicate this thesis to the memory of my late father, late sister and late grandmother My only regret is that they were not with me to its completion

Publications and Conferences

Shamsuddoha, A K., and M Y Ali, (2005), Causal Effects of Export Promotion Programs on Internal Determinants of Firm Export Performance: Empirical Evidence

from a Developing Country, in the Proceeding of the 34 th European Marketing Academy Conference (Full paper on CD, ISBN ), Bocconi University, Milan, Italy, 23

Shamsuddoha, A K., and M Y Ali, (2004), Direct and Indirect Impact of Export

Promotion Programs on Export Performance Abstract in Marketing Accountabilities and Responsibilities, Book of Abstracts and Program ANZMAC 2004, Victoria

University of Wellington, New Zealand, pp 182

Shamsuddoha, A K., and M Y Ali, (2004), Direct and Indirect Impact of Export

Promotion Programs on Export Performance Full paper in Australia New Zealand Marketing Academy Conference Proceedings (On CD, ISBN CD 0-475-22215-1),

Victoria University of Wellington, New Zealand

Shamsuddoha, A K., and M Y Ali, (2002), The Role of Export Promotion Programs

in Economic Development of Bangladesh Paper presented at the conference

Bangladesh in the New Millennium: Unveiling Development Challenges and Visions,

and abstract published in the Conference Proceedings, School of Economics, University of Queensland, Australia, pp 53

Chapter 1

Introduction

1.1 The Research Focus

Export can play a very important role in contributing to a nation’s economic prosperity Increased exports can result directly or indirectly in an increase of domestic production, economic growth, a decrease in the unemployment rate, and the generation of foreign currencies to meet import costs A country’s ability to compete successfully in world markets, maintain a favorable balance of trade and control its external payments situation reflect its economic strength and marginal competenceover other nations The government of a country is to some extent responsible for thegeneral economic health of a nation It can directly and indirectly influence firms’business objectives Given the role exports play in constituting the wealth of a nation,export development is certainly an aspect of economic development to whichresponsible governments must pay attention The government should intervene in foreign trade, not aim to raise barriers to imports but to promote a nation’s exports Inalmost every developing country, government policy makers view exports as a top priority in their national planning policies This awareness of the importance of exports also exists in most highly advanced countries as well

Favorable macro environmental factors are thought to be preconditions for exportingbut whether a firm actually exports or not depends on the micro level firm factors where the firm’s decisions affecting export success or failure are made These microlevel factors include strategies to be used, organizational structures created toformulate and carry out new strategies, and the caliber of management needed tomake decisions Given the same combination of strategy, structure, and managementfactors, a favorable macro environment raises overall export performance, while an unfavorable environment lowers overall export performance (Marandu 1995) Some external environmental factors, such as national export promotion measures, or thecompetitive position of the firm’s product in foreign markets, usually define the

parameter for successful exporting activities Governments can play a key role instimulating the international business activity of domestic firms through exportpromotion programs (Cavusgil and Michael, 1990) From a government’s point ofview, offering export support programs is intended to improve the internationalcompetitiveness of domestic firms From a firm’s perspective, export promotionmeasures attempt to reinforce the motivations of a firm to export These motivesinclude exploitation of technological advantage, the ability to offer unique products,the maximization of comparative marketing advantages, and the need for marketdiversification (Seringhaus and Rosson, 1990) The use of export promotionprograms (EPPs) provides better pay off in terms of a firm’s competitive position(overall strength of the firm) and efficiency (profitability) and is reflected in the export performance of existing exporters and encouraging more firms to export(Gencturk and Kotabe, 2001) Therefore, an assessment of the effectiveness of exportpromotion programs is an important step toward achieving sustainable economicdevelopment of a country Despite increasing scholarly attention over how to improvethe efficiency of assistance programs (Kotabe and Czinkota, 1992; Moini, 1998;Seringhaus and Botschen, 1991), the effectiveness of export promotion programs on firm export performance (FEP) has not been examined conclusively This study willmake a significant contribution to our understanding of the impact of exportpromotion programs on firm export performance.

1.2 The Research Problem, the Question and the Objective

1.2.1 The Research Problem

The complexity of international business and the lack of know-how can place a firm

at a competitive disadvantage (Rabino, 1980; Ramaswami and Yang, 1989; Seringhaus, 1986) It has become increasingly apparent that knowledge and expertiseare the critical factors in competing in foreign markets In addition, several barriers to exporting exist that can impede firms in seeking or expanding export sales.Information, knowledge, experience, and resources are needed to overcome exportbarriers and export promotion programs have emerged to provide information, knowledge, experience and resources to firms Export promotion, while only one

element in the export development process, potentially contributes in a criticallyimportant area, namely in motivating the business community and helping in thelearning process so vital in the global competitive environment Although the importance of export promotion programs is well recognized in the literature andaccorded appropriate priority (Seringhaus and Rosson, 1990), however, the empiricalsupport to the influence of such programs on firm export performance is limited The issue can be examined to what extent export promotion programs influence firmexport capabilities and export strategies and ultimately export performance.

Several studies have examined firm related determinants (such as firm characteristicsand competencies, managerial characteristics, management support, and exportmarketing strategy) and external determinants (industry characteristics, foreignmarket characteristics and domestic market characteristics) of firm exportperformance in the mainstream of the export performance literature However, alimited number of studies (Donthu and Kim, 1993; Katsikeas, Piercy and Ioannidis,1996) have examined the impact of export promotion programs on a firm’s exportperformance As an example, Donthu and Kim (1993) suggested that those who usedmore outside export assistance from federal, local and private agencies had higherexport growth Katsikeas, Piercy and Ioannidis (1996) did not include exportpromotion programs as an independent variable in their model as such, but they foundnational export promotion policies serve as an export stimulus that positivelyinfluences export performance (goal achievement) These studies that somehow examined the effect of EPPs on firm export performance are not rigorous enough As such, the extant literature on export performance has mostly overlooked exportpromotion programs as an antecedent of performance

On the other hand, a number of studies have concentrated on export promotionprograms and these studies suggest how such programs can be more effective Somestudies (Gencturk and Kotabe, 2001; Marandu, 1995; Singer and Czinkota, 1994; andWilkinson and Brouthers, 2000) examined the direct relationship between exportpromotion programs and export performance Wilkinson and Brouthers (2000)examined the effectiveness of four government export promotion programs (tradeshows, trade mission, foreign offices, and objective market information programs) in attracting FDI and export of high-tech product and found only trade shows were

positively associated with the volume of high-tech exports (dependent variables).Singer and Czinkota (1994) revealed a significant positive relationship between the numbers of export assistance services used (management commitment/persistence in their model) and the number of export outcomes achieved That study suggested thatthose who committed to use a greater number of export assistance services, tended toperform more pre-export activities (making a decision to export, export planning,making overseas market contacts and establishing export channels) and have greaterexport performance (beginning to export, increasing exports of current products in current markets, exporting new products and exporting to new countries) Their analysis, however, was limited to examining a bivariate relationship between exportoutcome type and type of service used

Marandu (1995) suggests on the basis of an empirical study on Tanzania that the level

of usage of, and satisfaction with, export promotion services does have a positiveimpact on export performance i.e., export intensity However, Marandu’s (1995) study fails to clearly conceptualize the relational path between export promotionprograms and export performance Gencturk and Kotabe (2001) integrated exportmarketing involvement and the use of state export promotion assistance programs ascritical variables affecting export performance Their study is more comprehensivethan prior studies in this literature stream which incorporated managerial andorganizational characteristics variables in the research model and adopted morerigorous statistical techniques to examine the impact of export promotion programs

on export performance in terms of efficiency, effectiveness and competitive position.The Gencturk and Kotabe (2001) results suggested that the usage of export promotion programs had a positive impact on a firm’s efficiency and competitive position but noeffect on its effectiveness Though, this study incorporated managerial andorganizational characteristics variables in the model it did not examine how exportpromotion programs influence them in the export performance model

In conclusion, few studies have explored the empirical link between export promotionprograms and other determinants of performance toward establishing any indirectrelation between export promotion programs and export performance However, the internationalization process theory indicates how gradual knowledge acquisition leads

to greater commitment to exporting and international operations (Johanson and

Vahlne, 1977) The resource-based theory of the firm proposes that human competencies in the form of knowledge and expertise are critical to superior organizational performance (Barney, 1991; Coff, 1997) While these competenciesare internal and are acquired by firms, export promotion programs help firms toobtain the information, knowledge, experience, and resources they need to develop anexport strategy and achieve better performance (Singer and Czinkota, 1994) This suggests that there is a link between export promotion programs and otherdeterminants of export performance Therefore, export promotion programs may also influence firm export performance indirectly through other determinants of exportperformance.

1.2.2 Research Question and Objective of the Study

For each research problem a research question is necessary to provide a platform fordeveloping a theoretical framework, data collection and analysis of the study An

appropriate research question encapsulating this research problem is: how do export

promotion programs directly and indirectly effect firm export performance? This is

the central question which will be pursued through the thesis

To seek an answer to this research question, the main objective of this study is to develop and test a comprehensive model to examine the direct and indirect effects of export promotion programs on firm export performance Drawing on the literature aconceptual research model was developed and empirically tested with primary datacollected for the study

1.3 The Research Significance

The study has significance in broadening research and empirical knowledge about the impact of export promotion programs on firm export performance The contributionfalls into three categories: theoretical advancement of existing export performanceliterature, advances in public policy issues relating to export promotion and practical assistance to exporting firms

First, from a theoretical perspective, our knowledge on the impact of exportpromotion programs on the export performance of a firm is very limited While theextant literature on export performance mostly neglects export promotion programs as

an antecedent of export performance, the literature on export promotion fails to relate

it to export performance This study contributes to the literature as to how exportpromotion programs directly and indirectly influence firm export performance by theinclusion of export promotion programs as an independent determinant in the exportperformance model and empirically tests a number of hypotheses linking exportpromotion programs with other determinants of export performance Moreover, moststudies in the literature used the direct impact of global measures (all exportpromotion programs are measured collectively) of export promotion programs on firm export performance but failed to identify the impact of different categories ofprograms (designed for different purposes) This study contributes to the literature byexamining the direct and indirect impact of two main categories of export promotionprograms (foreign market development-related programs; and finance and guarantee-related programs) on firm export performance

Second, most of the theoretical development and empirical testing of theories in thisfield has been conducted in developed country contexts This study fills a much-needed gap in the literature with empirical findings concerning export behavior ofdeveloping country firms thereby increasing the generalizability of the findings

Third, this study contributes to the extension of the Uppsala model of internationalization The Uppsala model places an emphasis on experientialknowledge toward developing commitment to export However, the model does not explain why or how the export process starts and the sequence of conditions are notdiscussed This study suggests export promotion programs, as sources of educationalknowledge (such as, trade show, trade mission, and training), that facilitates firm entry into the initial export stage to gain experiential knowledge This is a significantcontribution to the literature Similarly, this study also contributes to extend theresource-based theory by adding export promotion programs as sources of resources

in terms of experience, knowledge, information and physical support-related services

to fill the gap of internal resources of a firm toward achieving export goals

Fourth, the study provides a guideline for managers of exporting firms as to how theycan benefit from export promotion programs in improving their positive attitudetowards the export market environment, building their knowledge and enhancingcommitment to exporting for better success in their international operations.

Finally, this study also provides some guidelines to policy makers in designing andtargeting export promotion programs effectively

1.4 The Research Methodology

The purpose of this study is to test a theoretical model to answer the narrowly definedresearch question The model is probed for its validity and statistical significances ofthe variables in the model Therefore, structural equation modeling techniques areapplied to test the validity of the overall model and to test the relationship betweenvariables hypothesized in the model A single country, Bangladesh, has been selected

as the context of this research to control heterogeneity of export promotion programsacross countries Firms in three industries: apparel, leather & leather products, andspecialized textiles, formed the population for the study A cross-sectional singlesource design is used where the unit of analysis is an organization A mail surveywith telephone follow up was used to collect the data

1.5 Organization of the Thesis

This thesis is developed through six chapters providing details of the theoreticalbackground of the research, research variables and their measurement methods, data source, analysis and interpretation of the findings, conclusion and recommendations

of the research Following this introduction, Chapter 2 reviews the literature related tothe topic with a specific focus on the major concepts that impact this research The literature is classified into three streams (theoretical background, empirical studies conducted on firm export performance as well as export promotion programs), whichprovide the theoretical framework within which this study fits and the platform on which the research question is developed A research model, conceptual definitions ofthe variables and detailed hypotheses of the study are presented in Chapter 3 Operational definitions and measurements of the variables, the survey procedures and

methods used to collect the data, an overview of the sample characteristics and thestatistical techniques for data analysis in this study are discussed in Chapter 4 Findings of statistical analyses are reported and interpretations of the results arediscussed in Chapter 5 Finally, Chapter 6 concludes the work with an overview andimplications for management The strengths and limitations of the study are alsodiscussed and recommendations for further research are presented in this chapter.

on the theoretical framework used in those studies Section 2.4 of the chapter reviews

in detail the export promotion program-related literature to understand its position inthe study of export performance Finally, the literature synthesis is simplified and atestable research model derived

2.2 Theoretical Foundations of Firm Export Performance

Theory is a very useful tool for developing research ideas and then tying those ideas

to existing knowledge Theories use a few principles to explain and summarize a large number of facets, and they are a source of hypotheses that stimulate newdiscoveries (Mitchell and Jolly, 1996) Three broad theories of international

marketing/trade that provide the underpinnings to developing firm exportperformance are critically reviewed below in brief.

2.2.1 International Trade Theory

A platform of scholarly contributions has been constructed to better understand the phenomenon of export trade Pioneers in this field were economists, who proposedseveral theories on the engagement of nations in foreign trade The most notable tradetheories are: absolute advantage (Smith, 1776), comparative advantage (Ricardo,1817), factor endowment (Heckscher, 1919; Ohlin, 1933; Samuelson, 1948), andproduct life cycle (Vernon, 1966; Wells, 1968) The basic idea of these theories is that trade brings gains in national income through specialization and productiveefficiency

Adam Smith wrote in “The Wealth of Nations” (1776) that nations should export

goods that are produced cheaply and import goods that are produced dearly, which is known as the theory of absolute advantage In addition, he also referred to trade as anexchange of surplus commodities above their domestic demand However, Smith saw

no possibility of trading between two countries when one was able to produce everycommodity at an absolutely lower real cost than the other

David Ricardo (1817) later advanced Adam Smith’s theory of absolute advantage

with the concept of relative cost advantage Ricardo contends that countries tend tospecialize in production and export those commodities for which they have a relativecost advantage, and import commodities for which they have a relative costdisadvantage

These classical theories of trade were based on a number of important assumptions.First, it assumed that transportation costs were zero and factors of production weremobile domestically, but immobile internationally Second, the law of comparativeadvantage was based on a two-country model Third, the amount and efficiency of labour input was assumed to be the sole determinant of the cost of production These assumptions proved too simple for the real world In recent years, countries havetraded in both commodities and factors of production The neoclassical model of

trade developed by Heckscher (1919), Ohlin (1933), and Samuelson (1948) addressedsome of the shortcomings of Smith and Ricardo’s classical theories.

The Heckscher-Ohlin-Samuelson (H-O-S) theory maintains that a nation’s

comparative advantage is determined by the relative abundance of its factors of production, such as capital and labor Export facilitates intensive use of the country’srelatively abundant factors and import conserves the use of a country’s relativelyscarce factors The H-O-S theory is based on a number of simplified assumptions.First, the model consists of only two countries, two factors of production in fixedamounts, and two goods Second, each country possesses identical preferences(demand patterns) and technology Third, factors are fully mobile within countries, but immobile between countries Fourth, perfect competition in all markets and zerotransportation costs are assumed

Leontief (1953) was the first economist to test the H-O-S model empirically He usedUnited States data for the year 1947, expecting to find that the United States exportedcapital-intensive goods and imported labor-intensive goods, since it was the mostcapital- abundant nation in the world However, the result was contrary to hispredictions It showed that United States’ imports (calculated from importsubstitution goods) were more capital-intensive than its exports (the LeontiefParadox) Some explanations of the Leontief Paradox are: a) factor intensity reversal:the capital- labor ratio of producing a particular good may vary according to wage-rental ratios (Minhas, 1962); b) natural resources: when natural resources becomescarce and natural resources and capital are complimentary, those goods whoseproduction require large quantities of natural resources will also require largequantities of capital (Vanek, 1959); c) skills and human capital: labor is nothomogenous and the export sector could use higher skills compared to the importcompeting sector (Kravis, 1956; Keesing, 1966); and d) tariffs and other protection measures imposed in foreign trade distort the pattern of trade (Travis, 1964)

In the 1960s researchers at the Harvard Business School (Vernon, 1966; Wells, 1968)provided a new explanation of international trade and investment patterns in the

Product Life Cycle (PLC) theory In the model, Vernon (1966), and Wells (1968),

identified four stages in the life cycle of a product: introduction stage, growth stage,

maturity stage, and decline stage The life cycle theory of world trade holds thatadvanced countries like the US play the innovative role in product development.These countries are producers and net exporters of the new product at the first stage.Later on, other relatively less advanced countries take over the market position held

by the innovative country (Darlin, 1988) The second stage countries would gothrough the same cycle as did the innovative country and, in turn, would lose theirmarkets to the next group of countries, such as third world countries as thetechnology matures further and becomes more labor intensive compared to other new generation products Thus, a product initially produced in advanced countries would eventually be produced only in less-developed countries (LDCs), with the result thatthe innovating countries would meet their needs for that product through importsfrom LDCs Vernon (1966) and Wells (1968) suggest that market size and level ofeconomic development are important in explaining trade and investment patterns in the early and middle stages of the product life cycle, while costs of the factors ofproduction are significant in explaining the role of developing countries in laterstages

The theory suggests that a product is initially produced and consumed in an advanced country and gradually its production shifted to relatively less advanced countries asthe product reaches its relative mature stages Finally, the product is produced in less-developed countries and exported to advanced countries at the maturity stage of its PLC because LDCs are better endowed for its production than the advancedcountries The PLC theory is effectively a theory explaining shifts in the production

of a commodity across countries and the consequent direction of trade in terms ofendowments of skills and technology

In summary, although these international trade theories are useful for the analysis ofbroad issues pertaining to international trade, their value is limited insofar as they canonly partially explain the export behavior of an individual firm (Wells, 1968; Bilkey,1978; Cannon, 1980) In reality, international trade is far more complex than thelimiting assumptions upon which the theories of international trade are based Despitethese limitations, however, the theory of comparative advantage does demonstratethat trade between countries can lead to increases in world output and can be mutuallybeneficial to all nations Moreover, international trade theories, which explain why

nations trade with each other, are related concepts to international marketing Thesetheories are aimed at understanding product flows between countries, either in theform of exports or imports In this situation, international marketing and internationaltrade are concerned with the same phenomenon (Krugman and Obstfild, 1991;Rivera-Batiz and Rivera-Batiz, 1994; Sachs and Larrain, 1993; Yarbough andYarbough, 1994)

2.2.2 Internationalization Process/Stages Theory

Because of the limited scope of economic theories, many researchers adopt a more microscopic approach Their studies produced a number of models thatconceptualized the process by which individual firms initiated, developed andsustained their involvement in exporting (Haar and Ortiz-Buonafina, 1995) Thesemodels focused not only on the economic rationale of the export development process, as do international trade theories, but also concentrated on firm specificaspects of behavior related to trade (Albaum, Strandskov, and Duerr, 1998) There aretwo popular general models explaining the internationalization process: the Uppsalainternational process model (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977), and the innovation related internationalization models (Bilkey andTesar, 1977; Cavusgil, 1980; Reid, 1981; Czinkota, 1982; Naidu and Rao, 1993)

The Uppsala internationalization model (Johanson and Wiedersheim-Paul, 1975;

Johanson and Vahlne, 1977, 1990) has received considerable attention over the last two decades as an explanation of firm export behaviour The model implies four distinctive stages of gradually increasing foreign involvement which firms follow on their way to becoming fully internationalized: 1) no regular export activities; 2)export via independent representatives; 3) establishment of an overseas salessubsidiary; and finally, 4) foreign processing and production This process modelemphasizes the incremental path of internationalization through the gradualacquisition, integration, and use of experiential knowledge about markets located

abroad Internationalization hinges on two aspects: knowledge processed by the firm about specific foreign markets and commitment of firm resources to those markets.

The model assumes that management will not commit higher levels of resources to a market until it has acquired increasing levels of experiential knowledge through lowerlevel commitment such as unsolicited exporting Because such learning is time-

consuming, internationalization is said to occur slowly (Anderson 1993; Johansonand Vahlne, 1977, 1990) As Anderson (1993) contends, the model does not explainwhy or how the process starts, and the sequence of states or conditions are notdiscussed The external environmental factors such as the domestic market condition, the industry environment, and government policy of promoting internationalization ofthe country’s business firms may have a profound effect on firms’ strategic decision

to (1) enter the first stage of internationalization, and (2) gain further knowledgetoward increasing commitment Since government export promotion programs aredesigned to encourage firms’ international endeavors (Czinkota and Ricks, 1981),such a government policy is instrumental to conceive a firm’s internationalizationprocess

Similar to the Uppsala model, the Innovation model (Bilkey and Tesar, 1977;

Cavusgil, 1980; Crick, 1995; Naidu and Rao, 1993; Reid, 1981) suggestsinternationalization as an incremental sequence of market-targeting innovations

within the firm, evolving slowly as the firm gradually acquires relevant knowledge and experience Cavusgil’s (1980) review suggested that companies tend to

internationalize without much rational analysis or deliberate planning, thatinternationalization is a gradual process advancing in incremental stages over a relatively long period of time, and that each stage entails increasing commitments of resources and managerial talent The slowness of the process may be a reflection of management’s aversion to risk-taking and its inability to rapidly acquire relevantknowledge and market information (Cavusgil, 1980) The numbers of stagesidentified differ, depending on the level of aggregation employed Differentresearchers identified from four to six stages (Cavusgil, 1980; Rao, 1990; Lim,Sharkey and Kim, 1991; Crick, 1995) Although many versions of the stages of internationalization have been suggested, all use the concept of innovation adoption process as the basic understanding of the internationalization process They allportray one common view that the decision of a firm to go international is a gradualprocess, which can be subdivided The theory helps to explain export performance atthe different stages of the firm’s internationalization process

Both Uppsala and Innovation models are based on the traditional views thatemphasize deterministic processes (e.g., the “establishment chain”) in which

internationalization proceeds almost ceaselessly, seemingly without much deliberateplanning However, foreign expansion tends to be, in reality, a major undertaking,fraught with contingencies and risk To confront these challenges, many firms rely on careful strategic planning which accounts for a potentially wide array of product-market conditions and strategic options (Root, 1994) For example, a “born global”(BG) firm is defined as a firm which from or near its founding, seeks to derive asubstantial proportion of its revenue from the sale of its products in internationalmarkets The key distinguishing feature of the BG is that its origins and fundamental orientation are strongly international Management at these firms demonstrates earlycommitment of financial, human, and other resources to generating foreign sales.Therefore, the phenomenon of the BG firm presents a substantial new challenge to conventional thinking and affords an opportunity to extend and enrich numeroustheoretical perspectives.

2.2.3 Competitive Strategy Theory

Many scholars (Christensen et al., 1982; Andrews, 1987; Chandler, 1962; Mintzberg,

1987, 1988) have contributed to the concept of “strategy,” but “competitive strategy”

is a concept that is perhaps most closely associated with Porter (1980) Portersuggests competitive strategy means developing a broad formula for how a business

is going to compete, what its goal should be, and what policies will be needed to carry out those goals The goal of competitive strategy is the attainment of superior,sustainable organizational performance (Hofer and Schendel, 1978) Two most widely accepted frameworks describe how firms can develop a competitiveadvantage: a) resource-based theory of firm strategy, as originally proposed byPenrose (1959) and expounded by Wernerfelt (1984) and Kay (1993); and b)industrial organization theory (Aldrich, 1979; Hofer, 1975; Porter, 1980; Venkatraman and Prescott, 1990)

The resource-based theory sees a firm as a unique bundle of tangible and intangible

“resources” (assets, capabilities, processes, managerial attributes, information, and knowledge) that enable the firm to conceive and implement strategies aimed at improving its efficiency and effectiveness (Barney, 1991; Wernerfelt, 1984) Thetheory contends that the principal determinants of a firm’s export performance are its internal organizational resources (Barney, 1991; Collis, 1991) that are superior in use

and hard to imitate or supplant (Porter, 1991; Prahalad and Hamel, 1990) While thistheory explains how a firm utilizes its superior tangible and intangible resources to formulate and implement strategies for superior organisational performance(including its export and international operations), it fails to recognize that suchresources could also be acquired and enriched by some firms through collaborativearrangements with other firms (Harrigan 1987; 1988; Perlmutter and Heenan, 1986)and corporate-government partnership (Czinkota, 1992) Managers with a favourableattitude toward exporting and the export environment tend to find such anarrangement that can fill their firms’ resources gap through strategic alliances with other domestic or foreign firms, and/or outsource some of those resources fromprivate (e.g., research organisations for export market-related information) and publicorganizations (e.g., government assistance on export market information, foreigntrade mission, trade show and sales lead) This suggests that a manager not onlyutilizes his/her firm’s internal resources for better performance, he/she also findsopportunities to acquire and enrich through collaborative arrangements (including the use of appropriate government assistance) to exploit the international marketopportunities for above average performance.

Industrial organization theory examines the “fit” between strategy and the external

environment of the firm (Aldrich, 1979; Hofer, 1975; Porter 1980; Venkatraman andPrescott, 1990) In the external context about theories of business strategy the primaryconsideration is the firm’s environment and the key to success is to adapt to thatenvironment (Ellis and Williams, 1995) Superior performance hinges on the ability

of management to align the strategy variables within its control with thoseenvironmental factors outside its control (Galbraith, Craig and Schendel, 1983) Industrial organization theory rests on two premises: 1) organizations are dependent

on their environments for resources (Pfeffer and Salancik, 1978), and 2) organizationscan manage this dependency by developing and maintaining strategies (Hofer andSchendel, 1978) Accordingly, firms manage their relationship with the environment

by developing and activating strategies such as marketing (Bourgeois, 1980; Hofer and Schendel, 1978; Scherer and Ross, 1990) It is expected that some will modifytheir strategies to profit from potential cross-border opportunities or to safeguardcompetitiveness by expanding their activities abroad (Cavusgil, Zou and Naidu, 1993) Thus, shifts in the external environment of business (such as new global

market opportunities or government support services to export) may be instrumental

in enhancing the export performance of firms

Summary

This section describes the three broad types of theories i.e., international trade theory,internationalization process/stages theory, and competitive strategy theory, thatdirectly or indirectly relate to firm export performance International trade theoriesexplain why nations trade with each other and are related concepts to internationalmarketing In this situation, international marketing and international trade is concerned with the same phenomenon The internationalization process/stagestheories show that the export activities of a firm developed through a gradual process– experience and confidence in one stage help a firm move to the next stage,eventually reaching the final stage of global operations Switching from one stage tothe other is certainly a deliberate strategy of the firm based on its organizational and managerial capabilities Therefore, the process theory cannot be understood clearlywithout understanding the impact of strategy and structure on the internationalizationprocess The goal of competitive strategy theory is the attainment of superior,sustainable organizational performance Both internal and external determinants ofexport performance can be interpreted by competitive strategy theory Specifically,internal determinants are justified by the resource-based theory, while externaldeterminants are supported by the industrial organization theory

Most of these theories, especially the internationalization model, and resource-based

theory, have a direct bearing on this study in designing the theoretical framework A

basic assumption of the Uppsala model is that lack of knowledge about foreignmarkets is a major obstacle to international operations, and such knowledge can beacquired through learning (Johanson and Vahlne, 1977, p 23) The theory alsosuggests that firms’ gradual knowledge acquisition leads to higher commitment toexport and international operations This proposed research has been designed(among other objectives) to examine the impact of a firm’s knowledge on itscommitment to export that eventually influence export performance Therefore, theframework of this study is partly built on the internationalization model As discussedearlier, the resource-based theory proposes that human competencies in the form of knowledge and expertise are critical to superior organizational performance

(including its international operations) This study has been developed using thistheory as its conceptual source to examine the impact of a firm’s internalorganizational resources (particularly its knowledge and expertise) on exportperformance In doing so, this study also explores how government export promotion programs contribute to a firm’s resource-base and its international marketingoperations The basic objective of export promotion programs is to act as an externalresource for firms to gain knowledge and experience that is vital for successfulforeign market involvement (Gencturk and Kotabe, 2001).

2.3 Definitions, Determinants and Measures of Export Performance

Export performance is the dependent variable in this research This section discussesdifferent definitions, operational measures and determinants of export performance.Performance is an indispensable guide for any firm analyzing its level of success,both in the domestic and international arenas Assessing export performance is acomplex task, its usefulness depending on the credibility of the measures (i.e.,financial and non-financial) and on the ways in which one measures performance(i.e., objective and subjective terms) Indeed, dealing with this variable may becomevery complicated because export performance can be conceptualized and operationalized in many ways (Das, 1994; Diamantopoulos and Schlegelmilch,1994) This section is divided into three parts The first part describes conceptual definitions of the export performance of a firm The possible determinants of firmexport performance are discussed in part two Some export performance models arereviewed in this part to identify the determinants that influence firm exportperformance Part three describes the different measures of export performance used

by previous researchers

2.3.1 Conceptual Definitions of Firm Export Performance

Export performance is defined as the extent to which a firm’s objectives (both economic and strategic) for exporting a product into a foreign market are achievedthrough the planning and execution of export marketing strategy (Cavusgil and Zou,1994) One area of agreement in the management literature is that organizationalperformance is multidimensional, with no single criterion being adequate (Lewin andMinton, 1986; Nicholson and Brenner, 1994; Gencturk and Kotabe, 2001) Walker

and Ruekert (1987) suggest that the relevance and importance of performancedimensions vary across stakeholder groups (investors, employees, customers) and depend on whether the focus is on the short term or long term Researchers highlightthree performance dimensions considered to be of most interest to corporate andbusiness unit managers The first is effectiveness, in terms of a business’s product andprograms relative to competitors Indicators such as sales growth can measureeffectiveness The second is efficiency, which is concerned with the outcome of business programs relative to the inputs employed to implement them Profitability isthe key measure of this dimension The third dimension is adaptability, in terms of how the business responds to changing conditions and opportunities in theenvironment (Walker and Ruekert, 1987) Indicators of adaptability are likely to bemore strategic in nature, such as responses to competitors of the degree to which thefirm has capitalized on new product/market opportunities This is consistent with thenotion of environment/firm co-alignment, or fit, from strategic management(Venkatraman and Prescott, 1990)

2.3.2 Determinants of Export Performance

The focus of this part of the review is to identify how many studies have includedexport promotion programs as an independent variable in export performance models

A summary of several predictors or determinants and their relationship with exportperformance is reported in Table 2.1 The review covered the period from 1980 to

2004 Identification of eligible studies is based on a systematic bibliographic search,using both manual and computerized methods Though the list is not a comprehensiveone, it does include some of the most influential articles published in this area overthe past two decades as reviewed in three important studies (Aaby and Slater, 1989;Chetty and Hamilton, 1993; Zou and Stan, 1998) as well as identified in a computer(ABI/INFO) search for this study Through this review, 59 export performancestudies are identified and collected

Aaby and Slater (1989), in their review article have classified variables as firm characteristics, firm competencies, and marketing strategies Each one of these groups

is further operationalized by several underlying constructs Koh (1991) has provided asimilar classification based on the structure-strategy-performance paradigm Inanother study (Schlegelmilch, 1986), 194 independent variables are identified and

grouped into factual variables (organizational characteristics, management/training,performance/control, research and development, and marketing) and attitudevariables Therefore, the large number and fragmented nature of independentvariables included in export performance studies may be interpreted as a lack of coherence and consensus among researchers on the parameters of an exportperformance model (Bodur, 1994) In this connection, Table 2.1 illustrates the number of variables and how they influence export performance.

The determinants of export performance are classified into two main groups, namely,determinants internal to the firm and determinants that are external (Reid, 1981) Theinternal determinants conceivably are subject to management’s discrete decision-

making power that can be classified into four general categories: firm characteristics

and competencies (firm size, firm age, firm technology, and firm international

competence), managerial characteristics (skills of top management, training of

managers, export experience), management support (export commitment,

management’s attitude and perceptions, proactive export motivation), and export

marketing strategy (general export strategy, product quality, product line, product

adaptation, price adaptation, dealer support and promotion adaptation)

The external determinants are derived from external environmental factors These arefactors that the firm usually tends to consider “given” and they shape the context in which the firm has to operate Hence, the firm does not directly control the environmental context The external environment generally affects organizations bymaking resources available or by withholding them The extant literature identified

three types of external determinants of export performance: industry characteristics (industry’s technological intensity, industry’s level of instability), foreign market

characteristics (export market attractiveness, export market competitiveness, export

market barriers), and domestic market characteristics (domestic marketattractiveness) In Table 2.1, out of total 59 studies, 57 studies have included internaldeterminants, however only 21 studies have included external determinants in theirstudies

Table 2.1 Determinants of Export Performance

Studies that examined the variables

Firm characteristics and competencies

–

Ali, 2004; Cavusgil & Naor, 1987; Christensen, daRocha and Gertner, 1987; Kaynak & Kuan, 1993; Louter, Ouwerkerk and Bakker, 1991;

Cavusgil & Kirpalani, 1993; Cooper &

Kleinschmidt, 1985; Das, 1994; Evangelista, 1994

–

Seifert & Ford, 1989Kaynak & Kuan, 1993; Louter, Ouwerkerk andBakker, 1991

Kaynak & Kuan, 1993; De Luz, 1993

Firm

international

competence

+ Aaby and Slater, 1989; Anderson, 1993; Barney,

1991; Coff, 1997; Johanson and Vahlne, 1977, 1990; Madsen, 1987; Samiee and Walters, 1999; Wang and Olsen, 2002; Atuahene-Gima, 1995; Cavusgil & Zou, 1994; Katsikeas, Piercy &

Ioannidis, 1996; Moini, 1995; Naidu and Prasad, 1994; O’Cass & Julian, 2003; Seifert & Ford,1989

support

Relationship found

Studies that examined the variables

Export

commitment

+ Ali, 2004; Aaby and Slater, 1989; Cavusgil and

Nevin, 1981; Cavusgil and Naor, 1987; Cavusgiland Zou, 1994; Donthu and Kim, 1993;

Evangelista, 1994; Gomez Mejia, 1988; Gronhaug and Lorenzen, 1982; Julian, 2003; Katsikeas, Piercy and Ioannidis, 1996; Koh, 1991; Madsen, 1994; O’Cass & Julian, 2003; Wiederscheim,Olson and Welch, 1978

+ Aaby and Slater, 1989; Bodur, 1994; Chetty and

Hamilton, 1993; Cooper and Kleinschmidt, 1985; Cavusgil and Zou, 1994; Donthu and Kim, 1993; Evangelista, 1994,1996; Moen, 2000

& Norvel, 1997 Julian, 2003; O’Cass & Julian, 2003 Product quality/

uniqueness

+ Beamish, Craig and McLellan, 1993; Dominguez

and Sequeira, 1993; Louter, Ouwerkerk and Bakker, 1991

Diversified

product line

+–

Christensen, da Rocha and Gertner, 1987 Kirpalani and Macintosh, 1980

Product

adaptation

+ Cooper and Kleinschmidt, 1985; Cavusgil and

Zou, 1994; Koh, 1991

Price adaptation + Axinn, Noordewier & Sinkula, 1996; Christensen,

da Rocha and Gertner, 1987; Kirpalani and Macintosh, 1980; Koh, 1991; Louter, Ouwerkerkand Bakker, 1991; Zou, Andrus & Norvell, 1997

Distribution

channel

adaptation/

dealer support

+ Beamish, Craig and McLellan, 1993; Bilkey,

1982; Cavusgil & Zou, 1994; Madsen, 1989; Rosson & Ford, 1982; Zou, Andrus and Norvell,1997

Promotion

adaptation

+ Namiki, 1994; Seifert and Ford, 1989; Zou,

Andrus and Norvell, 1997

Studies that examined the variables

+ Cavusgil & Zou, 1994; Holzmuller & Kasper,

1991; Holzmuller and Stottinger, 1996; Ito &Pucik, 1993

Foreign market characteristics

Export market

attractiveness

+–

De Luz, 1993Kaynak & Kuan, 1993

Export market

barriers

_ Diamantopoulos and Schlegelmilch, 1994; Donthu

and Kim, 1993; Kaynak and Kuan, 1993; Khan, 1978; Madsen, 1994; Moini, 1995; Raven, McCullogh and Tansuhaj, 1994

Export market

competitiveness

+–

Cavusgil and Zou, 1994 Bilkey, 1982; Jung, 1984

Domestic market characteristics

Domestic

market

attractiveness

+–

Atuahene-Gima, 1995; Katsikeas, Piercy and Ioannidis, 1996; Ito Pucik, 1993

Madsen, 1989

Internal Determinants of Firm’s Export Performance

The internal determinants can be classified into four groups which are discussed inbelow

Firm Characteristics and Competencies

Export researchers regard firm size as a critical variable in explaining export behaviorand success (Cavusgil and Naor, 1987; Kaynak and Kuan, 1993) Some researchershave used the number of employees as a measure of size (Evangelista, 1994), while other researchers have used sales volume (Kaynak and Kuan, 1993) For all theattention firm size has received, there is little agreement regarding the impact thatorganizational size has on export success According to Kaynak and Kuan (1993), assize and export volume increase, there is a sequential and gradual change in terms ofexport marketing attitudes, and therefore, a strong impact by firm size on export sales Nevertheless, when looking at the percentage of total profit from exporting (an exportperformance indicator), the same study reveals that successful exporters arecharacterized by smaller corporate size (e.g., annual sales, number of employees) butemploying more people in export operating units This implies that even though firms

of larger size excel in earning a lion’s share of the export market, they may not bedealing with the lucrative niches given the larger share As long as there are enoughpeople directly involved in exporting, the other structural adjustments would notfurther improve export performance Ali (2004) also found mixed relationshipbetween firm size and export performance He measured firm size by total sales and the number of employees and export performance by export volume, export intensity,and export growth of a firm He found a relationship only between firm size (measure

by total sales) and export performance (measured by export volume)

On the other hand, a negative relationship between firm size and export performancehas been found in other studies (Cavusgil and Kirpalani, 1993; Cooper and Kleinschmidt, 1985; Das, 1994; Evangelista, 1994) In light of the conflictingevidence, it seems no definitive conclusions can be drawn from past research on therelationship between export success and the size of the firm

Firm’s age (number of years in exporting) is also an important factor in exportperformance (Seifert and Ford, 1989) However, Kaynak and Kuan (1993) andLouter, Ouwerkerk, and Bakker (1991) reported a negative impact of the firm’snumber of years in exporting on export profitability and sales.

Technological strength is another critical variable in successful exporting Aaby andSlater (1989) assert that most empirical studies establish a positive relationship between technological strength and the propensity to export Moreover, Chetty and Hamilton (1993) found a positive effect of firm technology on export performance.However, Kaynak and Kuan (1993) reported export sales were negatively related to Taiwanese export product technology intensity They find that export sales performance of Taiwanese firms can be improved by marketing mostly low-technology products This could possibly be due to the perceived image of Taiwaneseproducts by the international market, and the fact that people still tend to question the quality of technologically advanced products made in Taiwan Therefore, it appearsthat more attention should be given to the context in which the technology level isstudied

Firm competencies, in terms of both international competence and overall businesscompetencies (strong market position, strong human resources, strong functional capabilities, and export market knowledge) appear to be important determinants of export performance (Atuahene-Gima, 1995; Cavusgil and Zou, 1994; Katsikeas, Piercy and Ioannidis, 1996; Moini, 1995; O’Cass and Julian, 2003; Seifert and Ford,1989) This finding is consistent with those of previous reviews (Aaby and Slater, 1989; Madsen, 1987) For example, Cavusgil and Zou’s (1994) investigation ofAmerican exporters found that a firm’s international competence influences its exportperformance

Managerial Characteristics

Research has consistently pointed to management as the principal force behind theinitiation, development, sustenance, and success of a firm’s export effort, because ofdirect responsibility for and involvement in export decisions (Miesenbock, 1988) Earlier studies dealing with success factors in exporting have examined the extent towhich characteristics of managers (skills of top management, age, education, export

experience and knowledge of foreign languages) have been linked to export success(Das, 1994; De Luz, 1993; Koh, 1991; Reid, 1981) Koh’s (1991) study of Americanexporters and Kaynak and Kuan’s (1993) investigation of Taiwanese exporters assertthat the skills of top managers are a key factor in terms of export performance Otherstudies also suggest that export performance is influenced by the training of managers

in international business (De Luz, 1993) and their knowledge of foreign languages(Bilkey and Tesar, 1977) Reid (1981) argued that variables like educationalbackground and foreign language skills were antecedents of attitudes toward exportmarketing Exporting experience (operationalized as the number of years engaged inexporting activities) is another firm characteristic facilitating export performance or success (Madsen, 1989; Das, 1994) Management’s international experience seems to have a positive effect on export sales, export profits, export growth, and a compositemeasure of export performance This is perhaps because managers’ internationalexperience helps to identify and leverage international opportunities while avoidinginternational threats Overall, it can be concluded that export performance benefitsfrom having educated and internationally experienced managers

Management Support

Management support is mainly indicated by the export commitment of top management (Ali, 2004; Cavusgil and Zou, 1994; Donthu & Kim, 1993; Evangelista,1994) However, management attitude (Eshgi, 1992; White, Griffith and Ryans,1998) and proactive export motivation (Bodur, 1994; De Luz, 1993) are also used asindicators of management support According to Aaby and Slater (1989) and Chettyand Hamilton (1993), factors related to management’s attitudes and perceptions seem

to be potent determinants of the financial measures of export performance such asexport sales, profit, and growth In addition, export commitment also influences non-financial measures of export performance, including perceived export success,satisfaction and goal achievement Ali (2004) suggests that behavioural commitmenttoward exporting has a significant positive impact on export performance (measured

by export volume and export intensity) Koh (1991) proposed that a firm’s management will modify its internationalization strategy if a high level ofcommitment to exporting exists within the firm This finding is consistent with allprevious studies (Aaby and Slater, 1989) Cavusgil and Zou (1994) reinforced theconclusion that high management commitment allows a firm to aggressively go after

the export market opportunities and pursue effective export marketing strategies that improve export performance However, Axinn, Noordewier and Sinkula’s (1996)investigation found a negative relationship between managerial attitudes and exportperformance On the whole, the studies provided evidence that management support

of export activities is (often strongly) associated with export performance

Export Marketing Strategy

Export marketing strategies have been other important predictors of exportperformance All export marketing strategy-related studies have a positiverelationship with export success, whereas only three studies had a negative relationship with export success (Table 2.1) However, the combined tendency in the reviewed studies seems strong enough to conclude that the effect of export marketingstrategy on performance is positive

External Determinants of Firm’s Export Performance

The internal factors can be classified into three groups, which are discussed below

Industry Characteristics

Das (1994) and Lim, Sharkey, and Kim (1996) found that industry instability(operationalized as rate of change in technology, predictability, riskiness) positivelyinfluences export sales Four studies that addressed industry technological intensityalso reported a positive influence on export performance (Cavusgil and Zou, 1994;Holzmuller and Kasper, 1991; Holzmuller and Stottinger, 1996; Ito and Pucik, 1993)

Foreign Market Characteristics

While some studies found that export market attractiveness has a positive effect onexport performance (De Luz, 1993); others reported a negative effect (Kaynak andKuan, 1993) Trade barriers have a negative impact both on export profitability and

on export sales (Khan, 1978) Therefore, it appears that selecting markets with low trade barriers is a good idea Bilkey (1982) and Jung (1984) find low levels ofcompetition are associated with high export performance So, avoiding highlycompetitive markets and identifying growing markets seems to be piece of goodadvice

Domestic Market Characteristics

Katsikeas, Piercy and Ioannidis (1996) found a positive effect on export performancefor the national export policy, but a non-significant effect for domestic marketpressure and domestic currency devaluation Madsen (1989) reported a negativeinfluence of domestic market attractiveness on export sales It seems that therelationship between domestic market conditions and export performance needs to befurther researched

After reviewing 59 studies, it is concluded that only two studies (Donthu and Kim,1993; Katsikeas, Piercy and Ioannidis, 1996) have included export promotionprograms in their studies and examined its impact on export performance Donthu and Kim (1993) investigated the relationships between the firm controllable independent variables such as a firm’s management characteristic factors (commitment toexporting and attitude toward exporting) and export marketing policy factors(international market expansion strategy, use of export assistance, and product policy)and export growth, the dependent variable This study found that the extent of use of outside export assistance from federal, local and private agencies has an impact on export growth This suggests that those who used more of these agencies for exportassistance had higher export growth Though the Donthu and Kim (1993) studydeveloped a comprehensive model including managerial characteristics and exportmarketing policy, it did not explore the indirect effect of export assistance programs

on any of these variables In terms of measurement, they used assistance providingagencies (federal, state, local and private) as a proxy for export assistance usagerather than using export assistance programs as an operational measure

Katsikeas, Piercy and Ioannidis (1996) developed and empirically tested a model of export performance focusing on exporters from a small EU country, Greece Theseauthors included firm characteristics, export commitment and export relatedperception variables (such as, export stimuli, exporting problems, and competitiveadvantages) as independent variables in their model However, the study did not include export promotion programs as an independent variable in their model as such,but they found national export promotion policy as an export stimulus, whichpositively influenced export performance The study measured export performance interms of goal achievement over the last three years in relation to export sales, market