Demand uncertainty: Exporting delays and exporting failures

This paper presents a model of trade that explains why firms wait to export and why many exporters fail. Firms face uncertain demands that are only realized after the firm enters the destination. The model retools the timing of the resolution of uncertainty found in models with heterogeneity of firm productivity. This retooling addresses several shortcomings. First, the imperfect correlation of demands reconciles the sales variation observed in and across destinations. Second, since demands for the firm's output are correlated across destinations, a firm can use previously realized demands to forecast unknown demands in untested destinations. The option to forecast demands causes firms to delay exporting in order to gather more information about foreign demand. Third, since uncertainty is resolved after entry, many firms enter a destination and then exit after learning that they cannot profit. This prediction reconciles the high rate of exit seen in the first years of exporting. Finally, when faced with multiple destinations to which they can export, many firms will choose to sequentially export in order to slowly learn more about its chances for success in untested markets.     

Corporate entrepreneurship,customer-oriented selling,absorptive capacity,and international sales performance in the international B2B setting: Conceptual framework and research propositions

In the international business-to-business (B2B) setting, a firm's salespeople often have more direct, prolonged, and intimate contact with the customer and market environments than any other employees of the firm. In fact, for customers in many B2B markets, the salesperson is the face of the firm. The sales function can be characterized as an inherently entrepreneurial activity. Entrepreneurship is founded on knowing or seeing something others do not see, and the sales force has long been recognized as an important source of knowledge about a firm's customers and environment. However, there has been relatively little work linking entrepreneurship to international sales performance, especially in the B2B context.This paper focuses on the intelligence-gathering role of salespeople to firms practicing corporate entrepreneurship in the international B2B setting. More specifically, drawing on the theories of corporate entrepreneurship and the knowledge-based view of the firm, the authors develop a conceptual model that proposes international sales performance for firms practicing corporate entrepreneurship will be enhanced when salespeople practice customer-oriented selling and the firm's absorptive capacity is stronger. Recommended methodology for testing the proposed model is a single-informant survey of sales managers with firms in the domain of interest, using structural equation modeling with moderator tests. The paper concludes with implications and directions for future research.     

Do trade policy differences induce sorting? Theory and evidence from Bangladeshi apparel exporters

This paper provides a new heterogeneous firm model for trade where firms differ in their productivity and experience different market demand shocks. The model incorporates the variations in trade policy, trade preferences, and the rules of origin needed to obtain them that are faced by Bangladeshi garment exporters to the US and EU. We estimate firm's productivity using an extension of the Olley Pakes procedure that accounts for the biases arising from both demand shocks and productivity being unobserved. Predictions of the model are then tested non-parametrically and are shown to be supported empirically.     

Where Do Firms Export,How Much and Why?

The empirical finding that exporting firms are more productive on average than non‐exporters has provoked a large theoretical literature based on models such as Melitz ( 2003 ), where more productive firms are more likely to overcome costs associated with trade. This paper investigates how closely the productivity heterogeneity framework fits the data from a firm‐level survey that includes information on export destinations and firm characteristics such as productivity. We find a high degree of unpredictable idiosyncratic participation in export markets by firms and a relatively weak positive correlation between the extent of a firm's export market participation and its export sales. We find that a small number of standard gravity variables provide a close fit to the country‐level determinants of trade but that greater variation results in more difficulty in explaining firm‐specific factors driving exporting behaviour. We also illustrate some elements of the dynamics over time in firm exporting patterns by destination. We show that lagged exporting activity has a significant effect on a firm's current exporting profile.     

Firm-level volatility and exports

This paper shows that the share of exports in the total sales of a firm has a positive and substantial impact on the volatility of its sales. Decomposing the volatility of sales of exporters between their domestic and export markets, I show using an identification strategy based on a firm-specific geographical instrument that firms with a larger export share have more volatile domestic sales and less volatile exports. These empirical patterns can be explained using a model in which firms face market-specific shocks and short-run convex costs of production. In such a framework, firms react to a shock in one market by adjusting their sales in the other market. I point to strong evidence that output variations on the domestic and export market are negatively correlated at the firm level. This result casts doubts on the standard hypothesis that firms face constant marginal costs and maximize profits on their different markets independently of each other. Furthermore, it points to the caveat that sales volatility on a particular market only gives limited information about the size of shocks on that market.     

A longitudinal study of the relationship between export activity and innovation in the Spanish firm: The moderating role of productivity

Does innovation lead the firm to export more products, or does a firm's export propensity induce it to innovate? How does a firm's productivity level change this relationship? After confirming that exporters develop more innovations than non-exporters, this study attempts to answer these questions by studying two effects. First, we analyse the impact of innovation on a firm's export activities while addressing potential endogeneity concerns. Second, we examine the impact of export activity on a firm's innovation performance. We must address both questions when considering firm productivity. To this end, we conduct a longitudinal analysis of 14,142 observations of an annual average of 1767 Spanish firms within the manufacturing sector during the period from 2001 to 2008. The results suggest that the self-selection hypothesis adequately explains the observed phenomena. That is, innovation induces firms to increase their export activities. This finding is robust to endogeneity. Nevertheless, firms do not experience any learning-by-exporting effects on the obtaining of product or process innovations. Productivity does not modify any of these relationships.     

Export Market Participation,Investments in R&D and Worker Training,and the Evolution of Firm Productivity

This paper uses micro panel data for firms in the Taiwanese electronics industry in 1986, 1991 and 1996 to investigate a firm's decision to invest in two sources of knowledge – participation in the export market and investments in R&D and/or worker training – and assess their effect on the firm's future productivity. The firm's decisions to export and invest in R&D and/or worker training are modelled with a bivariate probit model that recognises the interdependence of the decisions. The effect of these investments on the firm's future productivity trajectory is then modelled while controlling for the selection bias introduced by endo‐genous firm exit. The findings indicate a significant interaction effect between exporting and R&D investments and future productivity, after controlling for size, age and current productivity. Firms that undertake both investment activities have significantly higher future productivity than firms that do one or neither. In addition, these firms are more likely to continue investing in these activities leading to further productivity gains. These findings are consistent with the hypothesis that export experience is an important source of productivity growth for Taiwanese firms and that firm investments in R&D and worker training facilitate their ability to benefit from their exposure to the export market.     

Networks,firms, and trade

Fixed costs associated with learning about demand and setting up distribution networks are expected to be lower when there are more potential contacts in the destination market, suggesting a greater probability of market entry and larger export revenues. We match historically-determined emigration stocks with detailed firm-level data from Portugal to examine the effect of migrant networks on these export outcomes. We find that larger stocks of emigrants in a given destination increase export participation and intensity. In addition, we show that the former of these effects tends to be more pronounced among firms that are more likely to have close ties with the emigrants. These results are consistent with a multiple-destination version of the Melitz (2003) model featuring market-specific entry costs and idiosyncratic firm-destination demand shocks.     

Managers' mobility,trade performance,and wages

Knowledge is key to the competitiveness and success of an organization and in particular of a firm. Firms and their managers acquire knowledge via a variety of different channels which are often difficult to track down and quantify. By matching employer–employee data with trade data at the firm level we show that the export experience acquired by managers in previous firms leads their current firm toward higher export performance, and commands a sizeable wage premium for the manager. Moreover, export knowledge is decisive when it is market-specific: managers with experience related to markets served by their current firm receive an even higher wage premium; firms are more likely to enter markets where their managers have experience; exporters are more likely to stay in those markets, and their sales are on average higher. Our findings are robust to controlling for unobserved heterogeneity and, more broadly, endogeneity and indicate that managers' export experience is a first-order feature in the data with an impact on a firm's export performance that is, for example, at least as strong as that of firm productivity.     

Market knowledge: Evidence from importers

Previous firm‐level literature established that there are substantial costs of entry into new export markets. Chaney (The American Economic Review, 104, 2014, 3600) opens the black‐box of entry costs by building a dynamic network model of international trade where firms acquire customers in new destinations through their existing customers in other destinations. Following his conjecture, this paper examines whether firms use their existing suppliers in a destination to find their first clients in those markets. I use a disaggregated data set on Turkish firms' exports and imports for the 2003–08 period, and investigate the effect of import experience on export entry. By identifying import experience using instrumental variables, and shutting down productivity channels with firm‐year fixed effects, I find that having a supplier in the destination country raises the probability of starting to export to that country by 5.5 percentage points on average, revealing a “market knowledge” phenomenon. The paper's main contribution to the literature is finding that firms' country‐specific import experience increases the likelihood of export‐market entry. Digging further to explore heterogeneous effects, I find that this effect does not exist when trading with low‐income countries, but it increases with the destination country's size, proximity, language similarity and the size of its Turkish immigrant community. Moreover, the strength of the firm's relationship with its supplier as proxied by several variables such as the share of imported products that are differentiated increases the probability of export‐market entry.     

Development of firm export market oriented behavior: Evidence from an emerging economy

Based on gathered survey data from Chinese apparel exporters, using structural equation modeling technique, a proposed firm's export market oriented (EMO) behavior model was empirically tested. A great set of antecedent factors (i.e., organizational structure, export systems, export coordination, top management factors, and export dependence) and moderating factors (i.e., environmental turbulence, export experience) were examined in the context of China, which extends the EMO literature from mainly Western business setting to non-Western business environment. This study identifies several key antecedents (i.e., export reward and training systems, top management support, and export dependence) facilitating the development of firm's EMO behavior while determining the specific moderating effects of environment and experience, and therein explains a large percentage of variance in EMO behavior (78.3%). Importantly, we uncover some instances where the theory of firm EMO behavior's antecedents does not hold for Chinese apparel exporters.     

Optimal trade,industrial, and privatization policies in a mixed duopoly with strategic managerial incentives

Abstract

This paper examines optimal trade, industrial, and privatization policies in a home-market model of mixed international duopoly with strategic managerial incentives. Under linear demand and constant marginal costs, the optimal degree of privatization is shown to depend crucially on cost and demand parameters and on the availability of strategic trade and industrial policies. If both firms are equally efficient, optimal trade and industrial policies drive out the foreign firm and the privatization policy loses its effect on national welfare; however, if the home firm is less efficient, then full privatization combined with an import tariff and a production subsidy is optimal for the home country, while an export subsidy is optimal for the foreign country. If trade and industrial policies are unavailable and if both firms are equally efficient, full state-ownership, which drives out the foreign firm, becomes optimal; however, if the home firm is less efficient, only partial privatization is optimal, The state-ownership share is increased if either the market size grows, the home firm's efficiency increases, or the foreign firm's efficiency decreases. Further, the paper demonstrates the potential conflict between privatization and trade liberalization policies.     

Geographic export diversification: Determinants and their link with export performance

This study examines company‐specific factors that may help explain the choice of an export‐market strategy and explores how the selected export strategy contributes to explaining company's export performance (XP). Concentrating on a specific area within a broad spectrum of export behavior analysis has enabled us to examine these factors in greater depth. The results of our research, which was carried out using a sample comprising Spanish exporting companies, show a firm's size, a firm's age, and a firm's greater foreign ownership in its share capital are all determining factors for adopting a strategy geared to export‐market diversification. A greater level of investment in R&D and greater international commitment are also important in this regard. We suggest reinforcing these two factors because there is evidence of a better XP among firms that have a wider range of foreign markets.     

Manufacturing restructuring and the role of real exchange rate shocks

Using a new and extensive micro data set we investigate the impact of a change in international competitive pressure on industrial performance and restructuring. Unlike previous studies we are able to account for the heterogeneity across firms in their exposure to foreign competition. We focus on a situation akin to a natural experiment, and examine the impact of a sharp real appreciation of the Norwegian Krone in the early 2000s on Norwegian manufacturing firms which differ substantially in their trade orientation. A change in the real exchange rate (RER) affects a firm through three different channels: (i) firm's export sales, (ii) firm's purchases of imported inputs, and (iii) import competition faced in the domestic market. Unlike previous studies, we are able to examine all three channels. Both net exporters and import-competing firms were exposed to increased competition due to the real appreciation. Both groups reacted by shedding labor, but only the first group experienced increasing labor productivity. Partly, the productivity improvements came from measured TFP gains, while capital deepening does not appear to have been affected by the shock.     

Market performance and deviance from industry norms: (Mis)alignment of organizational risk and industry risk

Much of the attention in the risk literature focuses on organizational risk. This research argues that industry-level risk indirectly influences firm performance in addition to the direct effects of organizational risk. We contend industry-level risk norms influence market performance. Our general hypothesis is that when managers pursue strategies that deviate from industry risk norms, the firm's market performance will decline. We also test for the moderating effects of performance relative to targets and managerial ownership. The general hypothesis was supported for market risk and returns risk, but not for strategic risk. In addition, performance relative to target moderates this deviation-market performance relationship for market and returns risk. These findings have implications for the risk literature, particularly a firm's risk premium, and institutional theory, in terms of the tradeoff related to conformity to norms.     

Foreign demand shocks,product switching,and export product quality: Evidence from China

Using Chinese customs data spanning from 2000 to 2013, we explore how foreign demand shocks in exporting markets impact product switching, factor adjustments, and export quality of Chinese exporting firms. We document that positive demand shocks would render firms to expand product scope by increasing the number of added varieties and decreasing the number of dropped varieties. In line with the expansion of product scope, firms adjust their factor reallocations by hiring more employees and producing in a more capital-intensive way when facing higher positive demand shocks. Higher capital intensity induces productivity improvement, and thus increases firms' export revenue, export price, and export-product quality. We also document that positive foreign demand shocks render firms to concentrate less on their core varieties by skewing their export sales away from the best performing products.     

Small Business Exporting

This study investigates the effect of export marketing activites and size of the firm in the firm's stage of internationalization. The results of an empirical survey indicate that efficient marketing techniques and product adaptation are important determinants of a firm's internationalization stage. However, the size of the firm appears to be the critical variable in predicting a firm's given stage in its export marketing development.     

Home Firm Performance After Foreign Investments and Divestitures

An almost undisputed aim for firms in today's globalised world is to operate internationally. Several papers find a positive relationship between foreign direct investment (FDI) and the domestic performance of firms. In this paper, we address the ‘FDI – export’ relationship to better understand this trend. Furthermore, by presenting results on firm's post‐divestiture employment growth at home, we are able to provide a more comprehensive view on firm performance after stepping in and out of foreign markets. We apply a propensity score matching technique in combination with a difference‐in‐difference estimator to analyse the performance dynamics of French firms that either invested abroad or carried out foreign divestitures during the period 2000–2007. FDI has, on average, a positive effect in terms of export share, operating turnover and employment in firm's domestic market. Industry differences reveal that firms in high‐tech industries experience a strong increase in their domestic performance, whereas firm performance in low‐tech industries increases only moderately in post‐investment periods. In contrast, the divestiture impact on the post‐divestiture performance is rather negligible.     

Foreign sourcing and exporting

The aim of this paper was analysing the role of sourcing intermediate inputs internationally on export decisions and distinguishing whether intermediates are sourced from firms belonging to the same business group or from independent suppliers. To analyse firms' export decisions, we use a specification that also accounts for sunk costs and accumulated experience in export markets (i.e., export market learning). We consider that importing intermediates might have direct and indirect effects (operating through enhanced productivity) on the export participation decision. The direct effects on exporting are isolated once we control for productivity and the effects of belonging to an international group. We use a manufacturing panel data set drawn from the Spanish Survey on Business Strategies (ESEE) for the period 2006–14. Both productivity and inward or outward FDI increase the probability of exporting. Moreover, our results uncover the existence of sunk costs and export market learning, and also the relevant role played by intermediate imports in firms' export choices. Their effects act both through the (indirect) channel of enhancing firms' productivity and through a direct effect related to product upgrading, more competitive selling prices or learning from the firm's import experience.