Why Small Firms Export: Another Look

This article examines what factors motivate small firms to export. Specifically, this study looks at firms with 200 or fewer employees, dividing the sample into two groups: firms with 25 or fewer employees and firms with more than 25 employees. The results suggest that firms with 25 or fewer employees export for two main reasons: the firm has a unique product, and it has a technological advantage over competitors. Firms with more than 25 employees export for the above two reasons, plus two additional reasons: to achieve economies of scale and to avoid losing out on foreign opportunities. Due to the limitations of the size and scope of this research, future research should include additional SIC categories as well as firms outside California. In a 1997 release, the U.S. Bureau of the Census announced that although companies with 500 or more employees accounted for 71 percent of export value, small and medium-sized firms (those with fewer than 500 employees) accounted for almost 96 percent of all exporters (United States Department of Commerce, 1997). Also, as reported in the Federal Reserve Bank of Richmond's publication Cross Currents, surveys conducted by Arthur Andersen and the National Small Business United found that firms with fewer than 500 workers that export grew from 11 percent in 1992 to 26 percent in 1995 (Taper 1995). The same author also notes that The Exporter reported that firms with "fewer than 100 employees make up the bulk of the new exporters" (Taper 1995). Various studies have investigated a number of questions related to what motivates firm managers to export. For example, is the profit motive the only reason for exporting, or are there other reasons? Does the firm export because it believes it is selling a unique product, or do the firm's products have a technological advantage over competitors? Does the firm's management possess special knowledge about foreign customers or market situations? Does management want to take advantage of any tax benefits that are available? Is the firm motivated by the belief that the firm can achieve economies of scale by exporting? Is the firm overproducing and needs new markets? Does management believe that domestic sales are declining and therefore has a need to export? Is the firm exporting because it has excess capacity? Is the firm exporting because it is close to foreign customers and ports? Literature Review There are various approaches dealing with the questions of why firms export and what are the motivational factors for exporting. One approach emphasizes the perception of the export decision-maker with respect to risk, return, and costs. This "perceptual factors approach" is best exemplified by the studies of Simpson and Kujawa (1974) and Brooks and Rosson (1982). In this research, stimuli--both internal (excess capacity, for example) and external (for example, trade fairs)--are significant conditions for exporting, but not, in themselves, sufficient. Both studies suggest that the main difference between firms that export and those that do not is most likely the firm's perception of cost, risk, and profit. Another approach involves identifying the stages of export development. In a summary of 43 studies dealing with export behavior and the firm, Bilkey (1978) concludes that exporting is essentially a process of development. This development may involve two processes: a learning sequence and stages of export activity. Investigation of the learning sequence is seen most prominently in Johanson and Vahlne's (1977) research dealing with the process of a firm's internationalization. Their model involves the development of knowledge through experience in foreign markets. An example of research on export stages was developed by Bilkey and Tesar (1977), who analyzed the relation between managers' perceptions of exporting and firm characteristics in six stages of the export development process. The stages range from firms unwilling to export (stage one) to those exploring the possibilities of exporting to additional markets (stage six). …