No. 241

November 2004

SMALL BUSINESS

RESEARCH

SUMMARY

Costs of Developing a Foreign Market for a Small Business:

The Market & Non-Market Barriers to Exporting by Small Firms

by Palmetto Consulting, Inc, Dahlonega, GA 30533

under contract no. SBAHQ03M0523 (2004, 59 pages)

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

In response to the globalization of businesses, there

has been a proliferation of international market

searching and penetration by small business owners.

In 2001, 230,736 small and medium-sized firms with

fewer than 500 workers exported goods. Small and

medium-sized companies account for 97 percent of

all U.S. exporters; their exports were valued at $182

billion, or 29.2 percent of all U.S. goods exported.

Small business decisions to export are influenced by

many factors, the most crucial of which is the cost of

developing a foreign market. This research uses case

studies to investigate the costs and difficulties small

firms face in initiating export activity

Overall Findings

The author studied the experiences of nine U.S.

exporters in South Carolina. Feedback from the chief

executive officers (CEOs) of these firms suggests that

psychological, personal, and opportunity costs, such

as the time involved in learning how to perform the

logistics of exporting and overcoming the fear of

exporting are often more important than out-of-pocket costs. Hence, developing a process to communicate

information to small firms seems to be important in

helping firms export more effectively.

Highlights

• The sample firms initiated exporting generally in

reaction to customer inquiries, rather than as the

result of a carefully planned strategic initiative. None

were strongly export-oriented, and most did not have

a written business or marketing plan for selling their

products overseas.

• Opportunity costs, especially of time, are significant barriers to exporting or to increasing export

behavior. Exporting takes time and energy that is

more profitably spent on domestic operations.

• The sample firms identified transaction costs as

problems to be anticipated and overcome, but not as

insurmountable barriers to exporting. 

• The firms depended heavily on modern information technology to initiate and support their exporting efforts. 

• The barriers to exporting are situation-specific,

thus reducing the substantive value of developing a

definitive list of export barriers.

• Because this study is based on only nine cases in

an effort to explore in depth the issues associated

with barriers to foreign market entry, it should not be

used to draw general implications for export policy

pertaining to all small firms. More research will be

needed to learn whether these findings apply more

broadly, for example, in the service sector.

Data Sources and Methodology

This research adopted a case-study method. Nine

cases were chosen to explore the dynamic, decisionmaking processes of developing a foreign market.

The South Carolina Export Consortium, a not-forprofit organization that assists South Carolina companies with international trade issues, provided a list
of small exporting firms. Data were collected from

in-depth interviews with entrepreneurs, founders,

and/or managers deeply involved with international

decision-making processes, companies' websites,

internal and external documentation, product and

firm brochures, and other secondary data.

This report was peer-reviewed consistent with

Advocacy’s data quality guidelines. More information

on this process can be obtained by contacting the

Director of Economic Research at advocacy@sba.gov

or (202) 205-6533.

Ordering Information

The full text of this report and summaries of other

studies performed under contract to the U.S. Small

Business Administration’s Office of Advocacy are

available at www.sba.gov/advo/research. Copies are

also available from:

National Technical Information Service

U.S. Department of Commerce

5285 Port Royal Road

Springfield, VA 22161

(800) 553-6847 or (703) 605-6000

(703) 487-4639 (TDD)

www.ntis.gov

NTIS order number: PB2005-100505

Pricing information:

Paper copy, AO6 ($34.00)

CD-ROM, A00 ($18.95)

Microfiche, A01 ($14.00)

Electronic download, A00 ($ 8.95)

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