International market selection strategies of manufacturing and ...

ENTREPRENEURSHIP & REGIONAL DEVELOPMENT, 13 (2001), 17 ± 46

International market selection strategies ofmanufacturing and services ® rms

PAUL WESTHEAD,* MIKE WRIGHT,**

DENIZ UCBASARAN** and FRANK MARTIN*

*Department of Entrepreneurship, Faculty of Management, University ofStirling, Stirling FK9 4LA, Scotland, UK; e-mail: [email protected];and **Centre for Management Buy-Out Research, School of Management andFinance, University of Nottingham, Nottingham NG7 2RD, UK

The following broad research question is explored in this study: do manufacturing ® rms cite thesame exporting methods and modes as those cited by ® rms engaged in construction or serviceactivities? This study, therefore, addresses a major weakness associated with stage models ofinternationalization (i.e. a focus solely upon manufacturing ® rms). In 1990/91, survey responseswere gathered from 621 independent businesses located in Great Britain. In 1997, a follow-ontelephone survey was conducted with 150 surviving ® rms. This survey gathered information onthe propensity to export goods or services abroad and the mode of export behaviour.Implications for researchers, practitioners and policy-makers are highlighted.

Keywords: internationalization; exporting ® rms; entry modes; performance; policy implications.

1. Introduction

Julien (1996) asserted that about 85% of small ® rms are operating to some degreewith a strategy that can respond to market globalization (i.e. the purchase of goods orservices from foreign countries, the sales of goods or services to foreign countries,investments in foreign countries, agreements between enterprises from diå erent coun-tries, etc.). To provide a greater understanding of market globalization processes, hepresented the following typology of small ® rm behaviour and their associated inter-nationalization strategies. First, local (or regional or domestic) ® rms outside globalmarkets, which use only domestic resources for production and distribute their prod-ucts or services to nearby markets. Second, ` glocal’ ® rms that sell their products orservices on domestic markets but obtain all or some of their supplies from foreigncountries. Third, small ® rms using international resources that export less than20% of their products or services. Fourth, exporting small ® rms that import as wellas export, sometimes in increasingly numerous markets. Fifth, importing and export-ing small ® rms operating in diå erent kinds of niches. Sixth, small ® rms utilizinginternational networks and operating indirectly on the world market through linkswith other international ® rms. Julien’ s typology identi® es a number of importantthemes that explain why some small ® rms are more likely to become exporters. Italso illustrates that small ® rms can choose a variety of routes to internationalize theiractivities. Surprisingly, this typology has not been empirically tested in a variety ofnational and cultural environments. Moreover, the assertion that 85% of small ® rmshave some form of international link needs to be tested in a variety of environments.

Entrepreneurshi p and Regional Development ISSN 0898± 5626 print/ISSN 1464± 5114 online # 2001 Taylor & Francis Ltdhttp://www.tandf.co.uk/journals

Using a much narrower de® nition of globalization than Julien, several studies havesolely focused on the propensity of ® rms to export a proportion of their sales abroad. Atwo-category classi ® cation of small ® rms has been used to compare exporters and non-exporters. Evidence from studies focusing upon the exporting activities of new andsmall ® rms suggests that only a minority of ® rms sell their goods or services abroad (fora review see Westhead 1995a). The majority of new and small ® rms can be classi® ed as` local’ ® rms because they sell their goods or services solely in domestic markets.Nevertheless, there has been a rapid growth in the research literature surroundingthe characteristics and contributions of ` exporting’ and ` non-exporting ’ ® rms(Miesenbo« ck 1988, Ford and Leonidou 1991, Westhead 1995a, McDougall andOviatt 1996, Havnes et al. 1998, Prince and van Dijken 1998). Most notably, therelationship between ® rm size and the ability to be an exporter has attracted con-siderable research attention. Evidence regarding the relationship between exportactivity and size (measured in terms of sales revenues or employment) is rathermixed. Bonaccorsi (1992) detected a signi® cant positive relationship between large® rm size (a useful surrogate measure of a ® rm’ s resources) and the ability to be anexporter. This relationship has been supported in numerous studies that have focusedon sales revenues size (Bannock 1987, Bannock and Peacock 1989, Calof 1993,O’ Reilly 1993, Westhead 1995a, Bagchi-Sen 1999) or employment size (Cavusgiland Naor 1987, Westhead 1995a). Some studies have, however, found that smaller® rms are more likely to be exporters (Bilkey and Tesar 1977) or an insigni® cantrelationship has been detected between ® rm size and the propensity for a ® rm to bean exporter or the intensity of export activity (Cavusgil 1984).

To encourage wealth creation and job generation (Britton 1989, Buckley et al. 1990,O’ Farrell et al. 1996, Julien et al. 1997), many policy-makers and practitioners areseeking to encourage more ` export capable’ ® rms (Philp 1998) to operate globally. Forexample, enterprise agencies are encouraging ® rms to consider direct exporting, jointventures, strategic partnerships , technology alliances and/or direct outward invest-ment leading to production in foreign countries (Scottish Enterprise Network 1999).Evidence suggests that owner-managers of small ® rms wishing to export face a numberof internal and external obstacles ( Julien et al. 1997, Bagchi-Sen 1999). These obstaclesinclude insuæ cient information on the possibilities and constraints of foreign markets;the narrow attitudes of owner-managers who prefer to concentrate on domestic mar-kets; insuæ cient resources; and poorly developed strategies to gain a market share innew markets (Samuels et al. 1992, Bagchi-Sen 1999). In response, enterprise anddevelopment agencies have introduced initiatives to address obstacles to inter-nationalization. Many agencies are encouraging more ® rms to export their goods orservices abroad because of the micro- and macroeconomic bene® ts associated withreducing national trade de® cits (Christensen 1991) as well as to reduce the displace-ment eå ects associated with high levels of new ® rm formation in saturated marketenvironments at their carrying capacity level.

Policy-makers and practitioners need to recognize that the decision to sell goodsor services abroad can be associated with a number of risks. There are numerous(actual and perceived) ® nancial and non-® nancial barriers (Hall and Naude 1998)that may deter small ® rms (and entrepreneurs) from selling into foreign markets.Policy-makers and practitioners also should appreciate that many small ® rms (andentrepreneurs) neither have the inclination nor the ability to be exporters (Westhead1995a). Firms solely servicing domestic customers in their local and/or regional hinter-land always enjoy certain advantages (e.g. greater knowledge of the culture and

18 PAUL WESTHEAD ET AL.

superior information networks) over foreign competitors (McDougall and Oviatt1996) and may, therefore, prefer to solely service customers in domestic markets.For example, construction and services ® rms providing high quality and/or low costservices contribute to developing the infrastructure of localities. This amenity role canencourage individuals to move to these environments, thus potentially increasing thesupply of nascent and experienced entrepreneurs who at a later date may establishtheir own ventures (Reynolds et al. 1994). As intimated above, highly competitivedomestic (or residential enterprises) construction and services ® rms may also act as abarrier to the entry of foreign-based ® rms into domestic markets.

Despite the growing volume of research focusing on the internationalization process,there is still insuæ cient knowledge about the factors that encourage some constructionand services ® rms to export goods or services abroad (O’ Farrell et al. 1998a).Consequently, there remains considerable debate surrounding the factors encouragingmanufacturing as well as construction/services ventures to export their goods or ser-vices abroad. Smallbone and North (1995) have also asserted that the contribution ofolder ® rms to economic performance should not be overlooked. This study providesinformation about the internal and external environmental stimuli and strategiesreported by manufacturing as well as construction and services businesses that havesurvived the initial hurdles to business development. Unique longitudinal evidenceis presented surrounding whether exporting ® rms (in 1990/91) were more likely tosurvive 7 years later than were non-exporting ® rms. Changes in the proportion of salesexported abroad at two points in real time for manufacturing and non-manufacturing® rms (i.e. construction or services ® rms) are reported. Further, the job generationperformance of exporting and non-exporting ® rms engaged in manufacturing andconstruction/services activities are compared. Evidence from a cross-sectionalfollow-up study conducted in 1997 focusing upon surviving ® rms, in addition,makes a novel contribution to debates focusing upon the internationalization ofsmall ® rms. Reasons and methods reported by manufacturing ® rms for selling goodsor services abroad are compared with responses made by construction or services ® rms.

2. Objectives of this study

Studies focusing upon the internationalization activities of small and medium-sizedenterprises (SMEs) have generally drawn upon non-random case studies (McDougallet al. 1994, Boter and Holmquist 1996) or small sample surveys (McDougall 1989,Calof 1993, McDougall and Oviatt 1996, Bagchi-Sen 1999). As highlighted above, themajority of studies have focused upon the exporting activities of manufacturing ® rms(Bilkey and Tesar 1977, Roy and Simpson 1981, Boter and Holmquist 1996,Holmlund and Kock 1998, Philp 1998, Bagchi-Sen 1999), particularly those manu-facturing technology-base d products (McDougall 1989, McDougall and Oviatt 1996).More recently, some researchers have focused upon the exporting activities of services® rms (Erramilli 1991, Erramilli and Rao 1993, Westhead 1995a, Boter and Holmquist1996, O’ Farrell et al. 1996, 1998a, b, c, O’ Farrell and Wood 1998). Many previousstudies have also failed to acknowledge that the reasons for internationalizing andmodes of foreign market entry reported by respondents in small service ® rms may bemarkedly diå erent from those reported by respondents in manufacturing ® rms.Supporting this viewpoint, empirical evidence from surveys of small business service® rms casts doubt on the established paradigms (generally drawing upon evidence

INTERNATIONAL MARKET SELECTION STRATEGIES 19

collected from large ® rms) which have been developed to explain why and how ® rmsinternationalize (O’ Farrell et al. 1998c). Owing to the bias of previous researchtowards manufacturing ® rms, there is the possible risk that the technical assistanceprovided by policy-makers and practitioners is solely geared to the needs of manu-facturing ® rms. Most studies have focused upon new ® rms (i.e. ® rms less than 10 yearsold) (McDougall 1989, McDougall and Oviatt 1996) or publicly listed companies(Bloodgood et al. 1996). In addition, the majority of studies have focused upon theexporting activities of entrepreneurs and ® rms located in Scandinavia (Christensen1991, Boter and Holmquist 1996, Ahokangas 1998, Haahti 1998, Holmlund and Kock1998) and the USA (Bloodgood et al. 1996, McDougall and Oviatt 1996). The valuesand norms of entrepreneurs owning and managing exporting and non-exporting ® rmslocated outside Scandinavia and the USA is relatively neglected (Shane et al. 1993,Westhead 1995a, O’ Farrell et al. 1996) and relevant policies, support systems andinfrastructure may also diå er between countries. There is, therefore, a need to repli-cate the studies conducted in Scandinavia and the USA in a wider variety of culturalenvironments. Further, longitudinal studies focusing upon the exporting behaviour of® rms and the subsequent performance impacts associated with being an exporter arerare, with there being calls for more studies focusing upon these themes (McDougalland Oviatt 1996).

In this study, the authors are interested in the impact of internal factors (i.e.resources of the business and the strategic orientation of the business) and externalenvironmental factors (i.e. declining pro® ts in domestic markets, activities of foreigncustomers pulling a ® rm abroad, etc.) in¯ uencing manufacturing as well as construc-tion/services ® rms to export their goods or services abroad (Ahokangas 1998, Bagchi-Sen 1999). Research into the constraints and inducements on international operationsalso has practical value for training and consulting purposes (Haahti 1998).Additional research will enable policy-makers and practitioners to better understandthe needs and objectives of entrepreneurs. Moreover, it will provide informationsurrounding the constraints reported by the owner-managers of small ® rms who areunable or reluctant to sell their goods or services abroad. As intimated above, it isassumed that some entrepreneurs are not alert to pro® table opportunities in foreignmarkets. Policy-makers and practitioners, therefore, need to gain insights in themotives of entrepreneurs whose SMEs have entered export markets. Most notably,they would bene® t from information surrounding how entrepreneur’ s decisions deter-mine the choice of foreign markets to enter as well as the methods and modes to enterforeign markets. There may be a need to understand that these ® rms may havediå ering needs due to motivation diå erences as well as their stage of internationaliza-tion. Recording the alternative forms of operationalization enables the degree of inter-national involvement to be identi® ed (Haahti 1998). The strategic orientation impacton the propensity to export (Reid 1982) is explored by comparing the responses madeby respondents in manufacturing ® rms compared with their counterparts in construc-tion or services ® rms.

The following broad research question is explored in this study: do manufacturing® rms cite the same exporting methods and modes as those cited by ® rms engaged inconstruction or services activities?

By comparing the responses made by respondents in these two broad types of ® rms,this study therefore addresses a major weakness associated with the stage models ofinternationalization (i.e. a focus solely upon manufacturing ® rms). Further, this studyseeks to address some of the speci® c concerns relating to previous research. This study


draws upon a sample of 621 manufacturing, construction and services businesseslocated in 12 contrasting environments in Great Britain and which were ® rst surveyedin 1990/91, and then re-interviewed in 1997. The follow-on survey focused upon thepropensity of ® rms in 1997 to export goods or services abroad. Therefore, the pro-pensity to export was explored at two points in time. Most notably, this longitudinalevidence was utilized to identify whether exporting rather than non-exporting ® rms(in 1990/91) were more likely to survive 7 years later. In contrast, the cross-sectionalfollow-on survey conducted in 1997 provided evidence surrounding reasons for export-ing abroad and mode of export behaviour.

This paper is structured as follows. The next section reviews and develops theor-etical frameworks relating to the internationalization of ® rms. Drawing upon thesetheoretical views, testable hypotheses are derived in section 4. The data collectionmethodology and the characteristics of the respondents to the follow-on survey arethen detailed. In section 6, the research methodology is discussed. Results are thenpresented and the derived hypotheses are formally tested. In the ® nal section,conclusions and implications for policy-makers, practitioners and researchers arepresented.

3. Theoretical frameworks to explain the internationalizationof � rms

Numerous theories have been presented to explain why some small ® rms engage ininternational operations.1 It is diæ cult, however, to ® nd any characteristics commonto all approaches (Boter and Holmquist 1996: 472). Havnes et al. (1998: 104) recentlyobserved that research-based knowledge about internationalization is fragmented. Inaddition, they concluded that there is no uniform theory of the exporting behaviour ofSMEs.

Most theories have been speci® cally presented to explain the internationalization ofmanufacturing ® rms. These theories fail to appreciate that many manufacturing aswell as services ® rms (and entrepreneurs) do not want to export abroad. Most notably,many owner-managers do not want to commit the resources of the ® rm (i.e. physical,® nancial and managerial) to enter export markets (Christensen 1991). Further, sometheories fail to appreciate that some construction and services ® rms (particularlyknowledge-based ® rms and those oå ering business services) have the ability andinclination to internationalize.

Traditional internationalization theory (Buckley and Casson 1976, Rugman 1981)suggests that the internationally active ® rm can create some kind of ® rm-speci® cadvantage in its domestic markets. Internationally active ® rms seek opportunities inforeign markets. Moreover, they seek to internationalize to reduce costs by transfer-ring goods or services across national borders where it is cheaper to do so. By followingthis strategy, the ® rm can maintain control over the internal resources that havecontributed to the ® rm’ s success in domestic markets (Ahokangas 1998). The abilityof this perspective to explain the internationalization of small ® rms has been ques-tioned and several alternative theories have been proposed.

In particular, considerable research has examined the view that a ® rm’ s decision toenter export markets follows a gradual sequential process associated with severalstages of internationalization . Each stage is characterized by ` typical ’ behaviour. Asthe ® rm enters into a new stage its international commitment and involvement in


international marketing activities increases. It is assumed within the stage modeltheory that the process of internationalization is a unilinear evolutionary processwith incremental stages (Johanson and Wiedersheim-Paul 1975, Bilkey and Tesar1977, Cavusgil et al. 1979, Luostarinen 1979, Joynt and Welch 1985, Welch andLuostarinen 1988). It also assumed that the process has as a cyclical evolution patternwith a more diå erentiated character (Haahti 1998). Czinkota and Johnsson (1981)have presented a six-stage model of internationalization.2 Within this perspective, it isassumed that the ® rm is bound to choose a certain method or mode of operationthrough which it services customer needs in foreign markets (Ahokangas 1998).Firms (and entrepreneurs) can choose one or more of the following methods: indirectexporting, direct exporting, licensing, joint ventures or direct investments.3

Stage model theory of internationalization is useful when studying the inter-nationalization of small ® rms that belong to conventional manufacturing industries.However, this perspective is less useful when studying the internationalization ofknowledge-intensive and business services ® rms. The wider applicability of the stagemodel theory of internationalization has been questioned on several counts (seeChristensen (1991), Boter and Holmquist (1996) and McDougall et al. (1994) forfurther discussion). This perspective fails to recognize that some ® rms export fromthe outset and may generate more sales from exporting than from domestic sales.Moreover, it is increasingly recognized that new venture development is non-linearand even chaotic (Stevenson and Harmeling 1990, Bell 1995). The theory has beencriticized for not including the acquisition of ® rms (Forsgren 1990) and for putting toomuch emphasis on ` psychic’ distance between the home country and the marketsentered by the internationalizing ® rm (Melin 1992). It fails to take into accountthe aspirations of entrepreneurs (Boter and Holmquist 1996), the resource needs ofsmaller and newer ® rms and the network context in which ® rms are embedded(Holmlund and Kock 1998). The perspective also fails to appreciate that manyservices ® rms may enter foreign markets in a less organized manner (Lindqvist 1991).

Alternative descriptive theories focusing upon the internationalization of ® rms havebeen presented. Theorists, for example, have explained market expansion and inter-nationalization of ® rms due to growth through strategic decisions (Aharoni 1966, Reid1982, 1984). It is widely recognized that the performance and growth of small ® rms isin¯ uenced by external environmental conditions (Miesenbo« ck 1988, Birley andWesthead 1990, Vaessen and Keeble 1995). Most notably, business survival anddevelopment is related to a ® rm’ s ability to gain access to a predictable uninterruptedsupply of critical resources (such as customers) (Child 1974, Pfeå er and Salancik1978). Many small ® rms initially gather resources (e.g. customers, suppliers, ® nance,skilled labour, etc.) within a 50-km radius of the businesses ’ main operational premises(Havnes et al. 1998). To gain access to more resources, many ® rms sell their goods orservices beyond local markets to regional and national markets (Ha® kansson 1979). Ata later date, some ® rms (and entrepreneurs) have the ability as well as the inclinationto export a proportion of their goods or services abroad. The limited resource bases ofmany small ® rms can, however, retard the ability of ® rms to break out of domesticmarkets. To enter export markets, a ® rm (and its owners) may need to gather costlyinformation and resources. Moreover, owner-managers need to plan and make stra-tegic decisions.

The internationalization of a small ® rm can vary with the location of the ® rm in theinternational value chain (Holmlund and Kock 1998). To defend or maintain itsposition in a particular business network, a ® rm may be ` pushed’ into becoming an


exporter. Firms can also be ` pulled’ into becoming exporters because other ® rms in thesame business network have established relationships with other businesses in foreignmarkets. Many knowledge-based business service ® rms (e.g. accounting, advertisingand insurance businesses), in particular, obtain their competitive advantage not solelydue to their internal resources.4 They achieve some of their competitive advantage bydeveloping mutually supportive interactions with other service ® rms. Further, theycan create a ` capital of trust’ (Holmlund and Kock 1998) through eå ectively utilizingtheir institutional and social networks (O’ Farrell et al. 1998c). Owing to their inabilityto accumulate all necessary resources, some knowledge-based business services ® rmsmay be only able to initially enter export markets in co-operation with service organ-izations and other businesses (Boter and Holmquist 1996). Some services ® rms havebeen forced to follow if their major customers have entered foreign business networks(Erramilli and Rao 1990, Hellman 1996). Business alliances, in addition, can beutilized by services ® rms to enter foreign markets (i.e. to reduce cost, to oå er a broaderrange of products or services, to attract new customers and to pool resources) (Welch1992). Within the network theory of business internationalization (Johnanson andMattsson 1988, Nystrm 1990, Christensen 1991, Holmlund and Kock 1998), it issuggested that ® rms with increased mutual knowledge and trust have a competitiveadvantage and are able to extend their external environment to include foreignmarkets (Johanson and Mattsson 1988, Blankenberg and Johanson 1992).

The resource-based perspective on the process of internationalization (McDougallet al. 1994, Bloodgood et al. 1996, Ahokangas 1998) suggests that ® rms (and entrepre-neurs) are motivated to enter foreign markets because they cannot generate all necess-ary resources (such as customers) from domestic markets. Within this perspective, it isspeci® cally assumed that external resources in foreign markets (for example, cus-tomers) are strategically identi® ed and acquired through direct sale to foreign marketsor through co-operation with other ® rms, for example, as a subcontractor (Andersonet al. 1995, Blenker and Christensen 1995).

Luostarinen and Hellman (1993) have questioned the theoretical applicability ofstage model internationalization theory. They suggest that the internationalizationprocess is in¯ uenced by factors in a ® rm’ s internal and external environments (also seeHavnes et al. (1998) and Bagchi-Sen (1999)). Developing upon themes in the strategicdecision perspective as well as the resource-based view of internationalization , theyhave presented an alternative four-stage model. This model is based on the notion that® rms (and entrepreneurs) acquire strategically relevant information for international-ization, not only by acting in the markets and learning from experience, but also bypursuing co-operative activities and using other external information sources overtime.5 The major contribution of Luostarinen and Hellman’ s model is that it speci® -cally focuses upon the content of international operations at the level of the ® rm unlikeother models of the internationalization process (Ahokangas 1998).

As intimated above, the decision of entrepreneurs (and ® rms) to export their goodsor services can be in¯ uenced by internal and external environmental conditions andstimuli (Ford and Leonidou 1991, Ahokangas 1998, Haahti 1998, Prince and vanDijken 1998, Bagchi-Sen 1999). Despite imperfect knowledge, some entrepreneurshave more information about customers and market opportunitie s than their counter-parts. Possibilities for pro® table exchange exist because of imperfect knowledge(Kirzner 1973). Entrepreneurs may have diå erent competencies and skills fromother individuals in the general population. This additional knowledge can enableentrepreneurs to make judgements, co-ordinate scarce resources and make strategic


decisions that involve the reallocation or organization of their businesses ’ resourcesbased on the information that they have acquired (Casson 1982, Pleitner et al. 1998).Awareness of market imperfections requires knowledge about market factors, informa-tion about market opportunities, insights into customer needs as well as the ability todeliver the products or services required by customers (Haahti 1998). Using theiradditional knowledge, some entrepreneurs take calculated risks (Knight 1921).Further, they co-ordinate and use the resources of their businesses to back theirjudgements (Casson 1982) to exploit pro® table opportunities in foreign as well asdomestic markets.

The resources and capabilities mobilized by an entrepreneur have an importantimpact on the ability to enter export markets. Chandler and Hanks (1994a) haveargued that ® rm performance is a function not only of the accessibility to resources,but also of an entrepreneur’ s managerial competence. Bloodgood et al. (1996) haveargued that a new venture’ s ability to enter foreign markets is directly related to itsaccumulated tangible and intangible resource stocks. Firms with resource stocks thatare valuable, inimitable, rare and non-substitutabl e have a competitive advantageover their competitors (Barney 1991, Chandler and Hanks 1994b) in domestic andoverseas markets. Bloodgood et al. (1996) have asserted that ® rms with unique bundlesand combinations of these resource stocks may have a greater proclivity towardsinternationalization.

Collis (1991) has argued that the decisions surrounding international businessactivities are path dependent. The foreign investment decisions taken by ® rms are,in part, in¯ uenced by unique competencies developed over their histories. McDougallet al. (1994) also noted that international entrepreneurs try to avoid domestic path-dependence by establishing ventures that have routines for managing multiculturalworkforces, for co-ordinating resources located in diå erent nations and for targetingcustomers in multiple geographic locations simultaneously. In addition, many large® rms have partners, non-executive directors and middle managers with managementexperience abroad. The owners of these large ® rms can draw upon this experience toexploit new market opportunities in foreign countries in order to capture potentialpro® t opportunities outside the domestic market and/or to withstand competitivepressure.

Vatne (1995) presented a conceptual model focusing upon the internationalizationof SMEs engaged in manufacturing activities. He suggested that a business’ s terri-torially-based environment can in¯ uence a ® rm’ s internal resources. Social network-ing and an entrepreneur’ s quality may in¯ uence a ® rm’ s ability to identify andacquire external resources and its ability to use acquired external resources for productdevelopment, production and promotion. Building upon this framework, O’ Farrellet al. (1998c) have extended the model to include the internationalization of SMEsengaged in business service activities. They have suggested that a realistic theory ofbusiness service internationalization needs to appreciate the importance of client-supplier interaction. Also, they have suggested that a variety of demand-side factorsin¯ uence the reasons for foreign market entry, while supply-side factors can in¯ uencea business service ® rm’ s ability to internationalize. Most notably, the supply of suit-ably educated and experienced individuals with a wide variety of skills can encouragethe formation of ® rms that have the internal competencies to sell specialized andinnovative services internationally. The range of collaborative partners and the den-sity of network opportunities can encourage the clustering of interacting industriesthat may provide a competitive advantage for ® rms entering foreign markets.


4. Derivation of hypotheses

In this section, hypotheses are developed that focus on issues relating to the perform-ance of exporting and non-exporting ® rms. Factors that encourage owner-managers ofsmall ® rms to export, as well as those factors that deter export activity are reviewed. Inaddition, hypotheses are presented surrounding the mode of entry into the largestcurrent foreign export market.

4.1 Performance of ` non-exporters ’ and ` exporters’

Previous studies have generally neglected the link between exporting and performanceand survival. An exception is the study conducted by McDougall and Oviatt (1996).Their longitudinal study of 62 new manufacturing ® rms in the USA engaged in thecomputer and communications industries revealed that ventures that had increasedinternational sales, compared to those that had not, exhibited superior performance interms of both relative market share and return on investment (ROI). However, theirstudy was conducted over only a 2-year period and focused solely upon a relativelysmall sample of manufacturing ® rms.

Westhead (1995a), during his cross-sectional study of new ® rms in Great Britain,focused upon the performance of ® rms engaged in manufacturing and producer ser-vices activities. He found that exporting ® rms recorded signi® cantly higher levels ofabsolute growth since the businesses had received their ® rst orders than did non-exporting ® rms.

This empirical evidence suggests the following hypotheses:

Hypothesis 1 (a) Exporting ® rms in 1990/91 are more likely to have survived than non-exporting ® rms over the 1990/1 to 1997 period.(b) Surviving exporting and non-exporting ® rms in 1997 report contrast-ing levels of absolute employment growth over the 1990/1 to 1997 period.

4.2 The decision to enter foreign markets

A ® rm’ s internal environment (such as the demographic characteristics of a ® rm, aswell as the backgrounds, competencies, motivations and attitudes of principal owner-managers) can in¯ uence owner-managers to export their ® rm’ s goods or servicesabroad. The external environment (for example, exchange rate movements, regula-tions and standards imposed by Government and the wider economic climate) can, inaddition, in̄ uence the decision made by entrepreneurs to export a proportion of theirsales abroad (Wiedersheim-Paul et al. 1978, Aaby and Slater 1989, Young et al. 1989,Bagchi-Sen 1999). Further, some ® rms may be ` pushed’ into exporting abroad due toa declining domestic market and/or increased competition from a dominant largecompetitor or the entry of a large number of ® rms oå ering similar products or servicesin the domestic market. Policy-makers and practitioners can also directly encourageowner-managers to enter foreign markets. Most notably, they can introduce a varietyof ` hard’ (e.g. ® nancial assistance) as well as ` soft’ support measures (e.g. technicalassistance) to encourage owner-managers to actively consider selling their products orservices abroad (Smallbone et al. 1993, MacPherson 1995). These initiatives have been


introduced to raise the expectations of owner-managers, develop their competencies,broaden their international networks and bring to their attention the variety ofpotential pro® table opportunities in foreign markets (Bijmolt and Zwart 1994). Theeå ectiveness of these initiatives to remove the mental, informational, technical and® nancial barriers to foreign market entry have, however, yet to be proven con-clusively.

Despite the eå orts of policy-makers and practitioners, many owner-managers withlimited information and networks are unaware of opportunities in local let aloneforeign markets. Most independent ® rms are family-owned (and managed)(Westhead and Cowling 1998). Family ® rms are associated with ` family’ and ` satis-® cer’ agendas (i.e. to maintain/enhance the lifestyle of the owners and to provideemployment for family members of the management team, etc.). These ® rms aremore likely to pursue family agendas rather than aggressive growth-orientatedstrategies (Daily and Dollinger 1992) or strategies that focus upon immediate ` pro® tmaximization’ (Westhead 1997). The reluctance of owner-managers of small ® rms tosearch for opportunitie s in foreign markets can be compounded by constraints oncapital availability and management time (O’ Farrell et al. 1998c). As highlightedabove, many construction and services ® rms do not want to enter export marketsbecause they want to focus upon pro® table opportunities in domestic markets.Further, due to the nature of market conditions some services activities are not easilytraded internationally. Many construction and services ® rms also do not individuallyhave the resources, capacity, expertise or information to exploit foreign market oppor-tunities. The following reasons have been cited by owner-managers for not exportingabroad: no perceived demand abroad; initial costs are too high; not enough infor-mation; not enough resources; language diæ culties; satisfaction with home marketopportunities; and the owner-managers are risk-averse to export activities(Miesenbo« ck 1988, Bannock and Peacock 1989, Bonaccorsi 1992, Bagchi-Sen 1999).

To gain access to an uninterrupted supply of critical resources, such as customers,some owner-managers of new ventures trade internationally from the outset(McDougall et al. 1994). Resource-constrained ® rms may, however, sell goods orservices abroad at a later date when they have the resources and competencies totrade internationally. A resource-based view helps to explain owner-managers ’ movesto export. For example, to maintain the custom and loyalty of existing customers indomestic markets, some SMEs are ` pulled’ into international markets by the inter-nalization activities of domestic clients. Some small ® rms enter foreign markets as sub-contractors (Anderson et al. 1995). Many sub-contracting exporting ® rms do notactively initially select their foreign markets because the decision is made by thepartner ® rm obtaining the contract. Therefore, for some SMEs, export activities aregenerally based on unsolicited orders.6

Firms exporting for the ® rst time generally select foreign markets that have some` market and cultural similarity’ with the ® rm’ s domestic market (Erramilli 1991). Inmany instances, ` psychologically close’ countries to the domestic market are initiallyselected (Johanson and Vahlne 1977, Wiedersheim-Paul et al. 1978, Papadopoulousand Denis 1988, Boter and Holmquist 1996, O’ Farrell et al. 1996, 1998b). However,following an experience learning curve (Ursic and Czinkota 1984), some ® rms maysubsequently actively seek out more geographically distant foreign opportunities andmarkets. O’ Farrell et al. (1996), during their study of business services ® rms, noted amarginal increase in the importance of pro-active market selection when dealing with


the largest foreign market, possibly suggesting a learning process over time associatedwith greater experience.

This discussion suggests the following hypotheses:

Hypothesis 2 (a) Construction/services ® rms in 1997 report diå erent reasons thanmanufacturing ® rms for not selling any of their products or servicesabroad.(b) Construction/services ® rms in 1997 report diå erent reasons thanmanufacturing ® rms for selling any of their products or services abroad.

4.3 Factors in̄ uencing foreign-country market choice

Within a number of theories of internationalization (i.e. transactions cost theory andstage model theories), it is assumed that formal and systematic qualitative and quan-titative analysis is undertaken by ® rms to identify potential market opportunities inforeign countries. Factors relating to market size, market growth, level of competition,servicing costs and the foreign countries’ social, political and economic environmentare assumed to be systematically considered (Knickerbocker 1973, Root 1987,Papadopoulous and Denis 1988). Further, owner-managers of larger ® rms, particu-larly those involved in manufacturing, with considerable existing resources (i.e.diverse managerial skills and competencies) are generally more likely to be committedto actively searching for export markets. These factors, in part, may in¯ uence foreignmarket selection and the mode of entry selected.

O’ Farrell et al. (1996), drawing upon their survey of business service ® rms inScotland and the South East of England, have however asserted that internationalmarket selection is seldom formally planned. During their study, they found that thevast majority of respondents in exporting ® rms stated that ` the choice was whether todo the job or not’ (O’ Farrell et al. 1996: 114). Many small ® rms were found to react toexternal environmental events. For this latter group of ® rms, the market selectionissues were found to be irrelevant because they were generally in¯ uenced by externalevents. Further, the foreign-country market choice reported by this latter group of® rms was primarily order-led or client-led (O’ Farrell et al. 1998c). Many small® rms report that they had been pulled into exporting by customers who demandthe products/services produced by ® rms (i.e. one-oå order, one-oå project, UK clientinternationalizing and ` pulling’ the ® rm abroad, and acting as a sub-contractor toanother ® rm that made the decision concerning the country chosen) (Bannock andPeacock 1989, O’ Farrell and Wood 1994, Anderson et al. 1995, O’ Farrell et al. 1996).For ® rms systematically selecting foreign countries to enter, O’ Farrell et al. (1998c)interestingly found that demand-side factors, such as the availability of orders andmarket size, were more important than country risk factors and location variables inthe domestic or foreign region. They also noted that ad hoc orders, size of market, goodcommunications, established links with overseas partners and the availability of suit-able overseas staå were the key drivers in¯ uencing foreign-country market choice.

The above discussion suggests the following hypotheses:

Hypothesis 3 (a) Construction/services ® rms in 1997 report diå erent reasons thanmanufacturing ® rms for selecting foreign-country markets.(b) Construction/services ® rms in 1997 did not report the same level offoreign-country market entry as that reported by manufacturing ® rms.


4.4 Modes of entry into foreign markets

The mode of foreign market entry selected (Johanson and Vahlne 1977, Phatak 1983,Calof and Beamish 1995, Havnes et al. 1998, O’ Farrell et al. 1998a) is of criticalimportance because it can in¯ uence the position and the degree of centrality of thatposition in the foreign market (or network). Most notably, it can in¯ uence a ® rm’ sability to gain access to vital information and acquire resources as well as its ability tobecome included (or excluded) from the foreign network (Holmlund and Kock 1998).Moreover, Root (1987) has claimed that the modes of entry into foreign markets arelikely to diå er on key dimensions such as the amount of resource commitment, theextent of risk, the potential for returns and the degree of managerial control.

As discussed above, many stage model theories of internationalization assume that® rms start oå with no permanent exports and that they initially export via an exportagent. Stage model theory suggests that exporting via agents is followed by salesthrough a subsidiary and ® nally production in a foreign subsidiary. Alongsidethese modes of entry into export markets are several alternatives including jointventures, franchising, networking, licensing, piggy-backing (i.e. sub-contracting) ,etc. (O’ Farrell et al. 1998b).

O’ Farrell et al. (1996) found that 60% of the surveyed services ® rms had chosendirect exporting as the mode of entry. Further, in both Scotland and the South East ofEngland, the vast majority of ® rms had not considered alternative entry modes. Onlya minority of ® rms had actually considered alternative modes, and few had conducteda systematic evaluation process. The 19% of ® rms that had actively chosen their entrymode generally made their decision with reference to three key issues: relative costs,¯ exibility (i.e. the ease with which servicing arrangements could be changed) andmarketing advantages . These ® rms were, however, more likely to have stated thefollowing: to take advantage of ad hoc orders, to exploit UK managerial expertiseand to maintain standards of service quality.

The above discussion suggests the following hypothesis:

Hypothesis 4 Construction/services ® rms in 1997 did not report the same modes ofentry for selling goods or services in foreign markets as those reportedby manufacturing ® rms.

5. Data collected

This study draws upon a longitudinal data set of ® rms. Principal founders ofindependent businesses located in 12 environments in Great Britain were surveyedin 1990/91 (Birley and Westhead 1992).7 In 1990/91, no comprehensive list of inde-pendent ® rms existed in Great Britain. Lists of ` potential ’ independent businesses wereidenti® ed using local business directories as the primary data source. These lists werecleaned and community businesses (i.e. organizations not operating to make pro® ts forbusiness owners) and subsidiaries and branches of companies were excluded to yield alist of 4914 names and addresses. The former were excluded since either their remitmeans that they are unlikely to be involved in exporting or if they are their motives fordoing so are not performance oriented. Further, the latter were excluded since theyare not independent decision-making units.


Questionnaires were mailed over the period October 1990 to March 1991 to theprincipal founders of businesses in the survey frame.8 In total, 744 valid responses weregathered. The 15% valid response rate was slightly higher than that recorded insimilar studies (Keeble et al. 1992, Mason and Harrison 1993). Data quality issuessurrounding the study have been discussed in detail elsewhere (Birley and Westhead1992).

From the total sample of 744 valid responses, 621 questionnaire responses coveredbusinesses between 1 and 50 years of age and the respondents had speci® ed their agewhen they started their ® rst business (Westhead and Wright 1998). In 1997, attemptswere made to contact the 621 independent ® rms interviewed in 1990/91. Data wascollected over the 2-month period from August to September 1997. A four-stageprocess was used. First, a search of the British Telecom On-Line CD-ROM servicewas conducted. Second, the Yellow Pages telephone directory listing business activitieswas searched. Third various trade directories (e.g. Kelly’ s Trade Directory) and localauthority industrial directories were searched. Fourth, the Companies House micro-® ches on company dissolutions and name changes were searched.

After detailed and extensive searching, the authors noted that 138 businesses(22.2%) had survived at the original 1990/91 address and a further 75 businesseshad survived at a new address (12.1%). Thirteen businesses had survived but theyhad been taken over by another business (2.1%). Forty-seven businesses were con-® rmed as having closed (7.6%), whilst a further 348 businesses (56.0%) did notappear to be trading in any identi® able form. Following Cooper and Bruno (1977:17), Kalleberg and Leicht (1991: 144), Garnsey and Cannon-Brooke s (1993: 185± 186)and Westhead (1995b: 10± 11), businesses that could not be traced through this processwere regarded as business closures.

It is very diæ cult to compare these ® ndings with any oæ cial statistics on thesurvival of British businesses in general, since the basis of the comparison is imperfect.Perhaps the nearest comparison is with businesses de-registered for Value Added Tax(VAT) in the UK. Over the early 1990s, about 12% of the stock of ® rms de-registeredeach year (Department of Trade and Industry, quarterly press releases publishedthroughout the 1990s). Based on an annual 12% de-registration rate over the 1990to 1997 period, it would be expected, if their age distribution was identical to the VATregistered ® rms, that 398 ® rms would have closed. The ` observed’ number of busi-nesses closing is three less than ` expected’ (395 ` observed’ closures compared with 398` expected’ closures). This suggests that the business survival searches were conductedin a reasonably accurate manner and that the closure rate in the sample is very similarto that reported in the wider business population.

A structured questionnaire covering issues such as the extent, nature and modeof export activity was administered in 1997. In addition, the questionnaire focusedupon issues relating to business size. To achieve a high response rate, telephone inter-views were conducted by one of the authors. This methodology yielded 150 validresponses.9 ± 11 A noteworthy valid response rate of 66% was achieved with regardto the con® rmed surviving sample of 226 ® rms.12 It was concluded that the respon-dents to the follow-on sample were broadly representative of those ® rst interviewed in1990/91. Owing to the inevitable problem of sample attrition, the follow-on sample,however, cannot be regarded as a representative sample of the total business popula-tion in the UK. Further, respondents to surveys administered in 1990/91 and 1997cannot be strictly regarded as being representative of all types of exporting and non-exporting ® rms.


6. Research methodology

In this study, ® rms that did not export any of their sales turnover outside the UK wereclassi® ed as non-exporting ® rms. Bivariate non-parametric statistical tests wereselected to identify statistically signi® cant diå erences between exporting and non-exporting ® rms in 1997. Non-parametri c tests have less rigorous assumptions thanparametric tests (i.e. small samples can be analysed and the normality assumptiondoes not have to be satis® ed) (de Vaus 1991). Chi-square tests were used to identifydiå erences between the two groups of ® rms with regard to variables measured at anominal level, while Mann-Whitney U tests were used in relation to variables meas-ured at an interval level.

7. Results

7.1 Survival over a 7-year period by non-exporting and exporting ® rms in 1990/91

Information surrounding the propensity to export outside the UK in 1990/91 wasprovided by 603 businesses. Contrary to expectation (hypothesis 1(a)), table 1 showsthat a slightly larger proportion of ® rms that had not exported goods or servicesabroad in 1990/91 were likely to survive 7 years later. A À2 test, however, con® rmedthat this diå erence was not statistically signi® cant at the 0.05 level. The ability to bean exporter, therefore, did not signi® cantly improve a ® rm’ s chance of survival.Additional multivariate statistical analysis is required to identify the internal andexternal environmental factors that encourage business survival.

7.2 Changes in the intensity of export activity between 1990/91 and 1997

Table 2 shows that 148 surviving respondents to the follow-on survey had earlierreported the proportion of their gross sales exported outside the UK in 1990/91.The level of internationalization ranged from 0 to 60%. Forty-one respondents sug-gested that their ® rms were exporters and 107 ® rms were non-exporters in 1990/91.Only 11 ® rms in 1990/91 reported international sales of 15% or more. As expected,manufacturing ® rms exported a signi® cantly larger proportion of their sales outsidethe UK than ® rms engaged in construction/services activities.


Table 1. Business Survival Over the 1990/91 to 1997 Period by Reported Non-Exporters and Exporters in 1990/91

Business Businessnon-survival survival Total

Characteristics (n ˆ 394)* (n ˆ 209) (n ˆ 603) Degreesof ® rms in À2 of freedom Signi® cance1990/91 No. % No. % No. % statistic (df) level

0.02 1 0.8961Non-exporter 304 65.1 163 34.9 467 100.0Exporter 90 66.2 46 33.8 136 100.0

* Including businesses that could not be traced after extensive searching.

Seven years later, the level of gross sales sold outside the UK reported by respon-dents in the 150 ® rms in the follow-on sample ranged from 0 to 95% (row 2). Nineteenof the 107 non-exporting ® rms in 1990/91 were exporters in 1997. On the downside, 13exporting ® rms in 1990/91 were no longer exporters in the follow-on sample. In 1997,48 respondents suggested that their ® rms were exporters and 102 ® rms were non-exporters. As found in 1990/91, manufacturing ® rms exported a signi® cantly largerproportion of their sales outside the UK in 1997 than ® rms engaged in construction/services activities.13,14


Table 2. Percentage of Sales Exported Outside the UK by Firms Engaged inManufacturing and Construction/Services Activities: 1990/91 and 1997 Survey

Responses

ConstructionManufacturing /services Total

Variables ® rm in 1997 ® rm in 1997 sample

Percentage of sales exported outside the UK in 1990/91*,{Mean 6.4 1.7 3.4Median 0.0 0.0 0.0Standard deviation 14.8 4.9 10.0Kurtosis 6.4 18.2 17.4Minimum 0 0 0Maximum 60 30 60Number of respondents 54 94 148Number of non-exporting ® rms 34 73 107Number of exporting ® rms 20 21 41

Percentage of sales exported outside the UK in 1997{,}Mean 13.0 3.4 6.9Median 0.0 0.0 0.0Standard deviation 22.1 9.8 16.1Kurtosis 4.0 14.9 10.2Minimum 0 0 0Maximum 95 50 95Number of respondents 55 95 150Number of non-exporting ® rms 28 74 102Number of exporting ® rms 27 21 48

Absolute change in the percentage of sales exported outsidethe UK between 1990/91 and 1997*,{,}Mean 6.8 1.7 3.6Median 0.0 0.0 0.0Standard deviation 21.2 7.5 14.3Kurtosis 7.6 17.1 18.0Minimum 745.0 712.0 745.0Maximum 95.0 48.0 95.0Number of respondents 54 94 148

* Information derived from survey administered in 1990/91.{ Manufacturing ® rms exported signi® cantly more sales outside the UK in 1990/91 than construction/services ® rms

(Mann-Whitney U statistic ˆ 2147.5, z score ˆ ¡1:97, signi® cance level ˆ 0.0485).{ Information derived from survey administered in 1997.} Manufacturing ® rms exported signi® cantly more sales outside the UK in 1997 than construction/services ® rms (Mann-

Whitney U statistic ˆ 1832.0, z score ˆ ¡3:68, signi® cance level ˆ 0.0002).} No statistically signi® cant diå erence was recorded between manufacturing and construction/services ® rms with regard

to the absolute percentage change in sales exported outside the UK between 1990/91 and 1997 (Mann-Whitney Ustatistic ˆ 2278.0, z score ˆ ¡1:18, signi® cance level ˆ 0.2371).

Over the 7-year period, the number of ® rms reporting international sales of 15% ormore increased from 11 to 22 ® rms. The mean change in the proportion of salesexported outside the UK was only 3.6% reported by the 148 valid respondents(row 3). The large standard deviation of 14.3 percentage points along with thekurtosis measure (18.0) suggests that changes in internationalization were dominatedby a small number of dramatic moves (a similar ® nding was noted by McDougall andOviatt 1996).

7.3 Performance and size of non-exporting and exporting ® rms in 1997

The employment contribution of exporting and non-exporting ® rms in 1997 wasnoteworthy.15 Employment data for 1990/91 and 1997 was available for 48 exportersand 102 non-exporters .16 In 1997, the 48 exporters employed a total of 946 employees.The 102 non-exporters employed a further 1061 employees.

No statistically signi® cant diå erence was detected between the employment sizes ofexporters and non-exporters (in 1997) with regard to their employment sizes in 1990(Mann-Whitney U statistic not statistically signi® cant at the 0.1 level). The meanemployment size of the 48 exporters and the 102 non-exporters in 1990 was 12.4 and10.0 employees, respectively. Interestingly, exporting ® rms (in 1997) on average weresigni® cantly larger than non-exporting ® rms in terms of total employment size in 1997(Mann-Whitney U statistic was statistically signi® cant at the 0.0061 level). The meanemployment size of the 48 exporters and the 102 non-exporters in 1997 was 19.7 and10.4 employees, respectively.

Exporting ® rms (in 1997) were not a homogeneous group with equal ability to haveincreased their absolute employment sizes over the 1990/91 to 1997 period. Whileexporters make a notable contribution to the total employment pool, the aggregatedata masks a highly skewed distribution of employment growth. In short, most expor-ters employed a few people and only a small number of ® rms were signi® cant employ-ment generators over the 1990/91 to 1997 period. In the exporter ® rm sample, 6 ® rmsrecorded no change in employment size over the 1990/91 to 1997 period, while afurther 17 ® rms reduced their employment sizes in total by 99 employees. The 25employment growing exporters had generated 452 jobs. Interestingly, the two fastestgrowing exporters (4% of the sub-sample) had generated 38% of these gross new jobs(172 jobs). The skewed distribution of employment growth was even more apparent inthe non-exporters sample. Twenty-two non-exporters reported no change in theiremployment size, but a further 39 non-exporters indicated that they had reducedtheir employment size in total by 231 employees. However, the 41 non-exporterswith increased employment had generated 269 gross new jobs. Within this group,the four fastest growing non-exporters (4% of the sub-sample) had generated 48%of these gross new jobs (130 jobs). This evidence, therefore, questions the view that theoverall job growth in the small business sector is due to a large number of ® rms (Dalyet al. 1991). Instead, empirical evidence from the exporters ’ and non-exporters ’samples suggest that relatively few ® rms create employment on a signi® cant scale(Storey et al. 1987).

Exporting ® rms (in 1997), on average, recorded larger absolute employmentincreases over the 1990/91 to 1997 period (Mann-Whitney U statistic statisticallysigni® cant at the 0.0754 level). The mean absolute employment growth reported by


the 48 exporters and the 102 non-exporters was 7.4 and 0.4 employees, respectively.17

Hypothesis 1(b) is, therefore, tentatively supported.

7.4 Reasons cited for not exporting any sales abroad

Respondents in non-exporting ® rms were presented with 17 statements covering 17speci® ed reasons as to why they may not have exported any of their sales abroad in1997. A total of 72 construction/services ® rms responded compared with 27 responsesfrom manufacturing ® rms. The most frequently cited main reasons for not exportingabroad reported by respondents in the 99 responding non-exporting ® rms were asfollows: ` focus on local market’ (72%), ` no contacts abroad’ (5%) and ` not enoughresources’ (4%). As expected, a signi® cantly larger proportion of construction/services® rms rather than manufacturing ® rms reported a focus on local markets (56 ® rms:78% compared with 15 ® rms: 56%) (À2 ˆ 4:78; df ˆ 1, signi® cant at the 0.05 level).

Respondents in non-exporting ® rms were asked to rank each reason for not export-ing abroad on a scale from ` 0’ (i.e. the statement was irrelevant) to ` 5’ (i.e. thestatement was very important) . The responses of the manufacturing and construc-tion/services ® rms in the sample are summarized in table 3. Respondents in manu-facturing as well as construction/services ® rms suggested a ` focus on the local market’was an important reason for not exporting. In fact, this was the only statementrespondents in both groups consistently regarded as being important with mean scoresgreater than ` 3’ . As expected, respondents in construction/services ® rms were to asigni® cantly greater extent likely to cite this reason than respondents in manufacturing® rms. Respondents in both groups of ® rms did not regard the following reasons asbeing ` important’ . They were, however, more likely to be regarded as being ` relevant’by respondents in manufacturing rather construction/services ® rms: ` not enoughresources’ ; ` no contacts abroad’ ; ` problems of red tape and documentation ’ ; ` manage-ment perceives exporting to be too risky’ ; ` language barriers/linguistic problems’ ;` ® nancing diæ culties’ ; ` diæ culties in foreign markets’ ; ` not enough information’ ;` lack of quali ® ed staå ’ ; ` various kinds of trade impediments ’ ; ` initial costs too high’ ;` no perceived demand abroad for products/services’ ; ` cultural diå erences’ ; and ` diæ -culties in distribution’ . The empirical evidence, therefore, con® rms the assertion thatthe major reason why many ® rms do not export abroad is due to the fact that theyfocus on servicing customer needs in local domestic markets. This reason was cited byrespondents in manufacturing as well as construction/services ® rms but the mean scorefor the latter interval level variable was signi® cantly greater than for the former.Consequently, the evidence presented in table 3 suggests that hypothesis 2(a) issupported.

7.5 Reasons cited for exporting products or services abroad

Respondents in the 48 exporting ® rms were presented with 17 statements covering avariety of reasons why their ® rms exported products or services abroad. A total of 21construction/services ® rms responded compared with 27 responses from manufactur-ing ® rms. The most frequently cited main reasons for exporting abroad reported byrespondents were ascertained. A larger proportion of respondents in manufacturingrather than construction/services ® rms suggested that they had been ` pulled’ into


exporting due to ` being contacted by foreign customers who place orders’ (33%compared with 29%) (table 4). In addition, a larger proportion of respondents inmanufacturing ® rms reported that ` export markets had been actively targeted by thekey founder/owner/manager’ (22% compared with 14%). However, a larger propor-tion of respondents in construction/services ® rms suggested that the main stimulus hadbeen due to the fact that ` UK clients had internationalized and ` ` pulled’ ’ this businessabroad with them’ (19% compared with 7%). A larger proportion of respondents inconstruction/services ® rms also suggested that there had been a ` one-oå order’ (14%compared with 7%).

Respondents in exporting ® rms were asked to rank each reason for exporting theirproducts/services abroad on a scale from ` 0’ (i.e. the statement was irrelevant) to ` 5’(i.e. the statement was very important). All the responses to the statements were, onaverage, ranked less than ` 4’ . Further, no statistically signi® cant diå erences at the 0.05level were reported by respondents in the manufacturing and construction/services® rms with regard to the presented interval level variables.


Table 3. Reasons Cited by Non-Exporters Engaged in Manufacturing andConstruction /Services Activities for Not Exporting Any of Their Products /Services

Abroad: 1997 Survey Responses

ConstructionManufacturing /services® rm in 1997 ® rm in 1997 Mann-

Reasons cited by non-exporters for (n ˆ 27) (n ˆ 72) Whitneynot exporting any of their U Signi® canceproducts/services abroad* Mean statistic z score level

1 Focus on local market 4.33 4.86 723.5 73.13 0.00172 Lack of management time 2.19 1.08 610.0 73.09 0.00203 Not enough resources 2.19 1.03 591.5 73.26 0.00114 Not enough capacity 2.48 0.89 488.5 74.19 0.00005 No contacts abroad 2.52 0.83 514.0 73.91 0.00016 Problems of red tape and 2.04 0.92 638.0 72.85 0.0043

documentation7 Management perceives exporting 2.41 0.74 452.5 74.41 0.0000

to be too risky8 Language barriers/linguistics 1.89 0.93 631.5 72.91 0.0036

problems9 Financing diæ culties 1.96 0.74 539.5 73.71 0.0002

10 Diæ culties in foreign marketing 2.15 0.67 555.5 73.70 0.000211 Not enough information 2.00 0.69 531.5 73.77 0.0002

(regarding foreign opportunities,markets and culture)

12 Lack of quali® ed staå 1.78 0.71 575.5 73.44 0.000613 Various kinds of trade impediments 1.85 0.68 588.5 73.33 0.000914 Initial costs too high 1.59 0.76 669.0 72.65 0.008115 No perceived demand abroad 1.56 0.78 632.5 72.92 0.0035

for products/services16 Cultural diå erences 1.44 0.58 581.0 73.37 0.000717 Diæ culties in distribution 1.85 0.38 443.0 74.97 0.000018 Other reasons 0.37 0.08 926.0 71.06 0.2894

* Ranked on a scale where 0 ˆ irrelevant, 1 ˆ not important at all, 2 ˆ not important, 3 ˆ neither important norunimportant, 4 ˆ important, 5 ˆ very important.

Presented empirical evidence suggests that both manufacturing and construction/services ® rms are generally reactive exporters. Further, they became exporters withoutmuch rational analysis or deliberate planning (Cavusgil 1980). Both types of ® rms hadadopted a reactive strategy. They generally responded to the needs of customerslocated in foreign markets. In addition, many construction/services ® rms played areactive sub-contracting role and responded to the needs of domestic ® rms who hadobtained orders to service customers in foreign markets. Interestingly, to a slightlygreater extent manufacturing ® rms had adopted proactive strategies and had searchedfor customers in foreign markets. Nevertheless, hypothesis 2(b) cannot be supported.

7.6 Location of largest foreign market entry and reasons for selection

A À2 test con® rming that there was no statistically signi® cant diå erence at the 0.05level was reported between the two groups of ® rms with regard to the location of thelargest foreign market entered by exporting ® rms. Nevertheless, markedly moremanufacturing ® rms reported that their largest foreign markets were in the USA(26% compared with 5%) or the Middle East (7% compared with 0%). In contrast,a larger proportion of construction/services ® rms exported to geographically closermarkets located throughout Europe (57% compared with 48%).

Respondents in the 48 exporting ® rms were asked whether their businesses activelyselected the largest current foreign market. Twenty-one construction/services ® rmsresponded compared with 27 responses from manufacturing ® rms. Only 19 exporters(40%) reported that they had actively selected the largest current foreign market. No


Table 4. Main stimulus cited by exporters engaged in manufacturing and con-struction/services activities in� uencing their decision to export their products/

services abroad: 1997 survey responses.

Manufacturing ® rm Construction/servicesin 1997 (n ˆ 27) ® rm in 1997 (n ˆ 21)

Main stimulus cited by exporters in̄ uencingthe decision to export abroad* No. % No. %

1 Being contacted by foreign customers who 9 33.3 6 28.6place orders

2 Export markets actively targeted by key 6 22.2 3 14.3founder/owner/manager

3 UK clients internationalized and ` pulled’ 2 7.4 4 19.0this business abroad with them

4 One-oå order 2 7.4 3 14.35 Part of the intrinsic growth objective of the ® rm 2 7.4 2 9.56 Favourable exchange rate 2 7.4 0 0.07 Exporting seen as the easiest way to grow 0 0.0 2 9.58 Other 1 3.7 1 4.89 Export markets pro-actively targeted by 1 3.7 0 0.0

other members of staå10 The availability of information 1 3.7 0 0.011 Activities of national/local public sector 1 3.7 0 0.0

agencies established contacts with overseas clients

* Chi-square tests failed to detect any statisticall y signi® cant diå erences between the two groups of ® rms at the 0.05 level.

statistically signi® cant diå erence was detected between respondents in manufacturingand construction/services ® rms (10 ® rms: 37% compared with 9 ® rms: 43%)(À2 ˆ 0:01; df ˆ 1, signi® cance level ˆ 0.9112). This evidence suggests that the major-ity of manufacturing as well as construction/services ® rms had not actively selectedtheir export markets. Hypothesis 3(a) is, therefore, not supported.

Respondents in exporting ® rms were presented with 17 statements covering avariety of reasons why they may have selected the largest current foreign market.The most frequently cited main reason for selecting the largest current foreign marketwas ` to take advantage of information or an order speci® c to this country’ . A slightlylarger proportion of ® rms engaged in construction/services activities (11 ® rms: 52%)than manufacturing activities (12 ® rms: 44%) reported this response. A À2 test, how-ever, con® rmed that this diå erence was not statistically signi® cant at the 0.05 level.The three other most frequently cited main reasons were as follows: ` the size of theforeign market’ (11% of manufacturing ® rms compared with 5% of construction/services ® rms); ` perceived ability to charge higher prices (to earn an adequate return)’(7% compared with 5%); and ` being ` ` pulled’ ’ abroad by a major customer inter-nationalizing ’ (4% compared with 9%).

Respondents in exporting ® rms were also asked to rank each reason for selecting thelargest current foreign market on a scale from ` 0’ (i.e. the statement was irrelevant) to` 5’ (i.e. the statement was very important). With the exception of only one demandfactor statement (i.e. ` to take advantage of information or an order speci® c to thiscountry’ ), all the responses to the statements were, on average, ranked less than ` 4’ .Further, no statistically signi® cant diå erences at the 0.05 level were reported byrespondents in the manufacturing and construction/services ® rms.

The language barrier (Crick 1999) may be less of a obstacle for manufacturing ® rmswishing to enter foreign markets. In marked contrast, construction/services ® rms mayneed to address language barriers as well as cultural and legal barriers to enteringforeign markets. This is because they may need to develop and maintain strong linksand relationships with customers located abroad. As expected, table 5 shows thatmanufacturing ® rms had entered more foreign countries than construction/services® rms (on average, 11 countries compared with 9 countries). This diå erence between


Table 5. Number of Countries the Business Was Exporting to in 1997 Reported byExporters Engaged in Manufacturing and Non-Manufacturing Activities: 1997 Survey

Responses.*

ConstructionManufacturing /services Total

Number of countries the ® rm was exporting to in 1997 ® rm in 1997 ® rm in 1997 sample

Mean 11.0 9.0 10.1Median 5.0 6.0 5.0Standard deviation 17.7 12.4 15.5Kurtosis 16.0 15.7 16.6Minimum 1 1 1Maximum 90 60 90Number of respondents 27 21 48

* No statisticall y signi® cant diå erence was recorded between manufacturing and construction/services ® rms with regardto the number of foreign countries they were exporting to in 1997 (Mann-Whitney U statistic ˆ 260.5, z score ˆ ¡0:48,signi® cance level ˆ 0.6306).

the two groups of ® rms, however, was not statistically signi® cant at the 0.05 level.Consequently, hypothesis 3(b) cannot be supported.

7.7 Modes of entry into the largest current foreign market selected by exporters

Respondents in the 48 exporting ® rms were asked to indicate the main mode of entryused to enter their largest foreign market. Twenty-one construction/services ® rmsresponded compared with 27 responses from manufacturing ® rms. No statisticallysigni® cant diå erences at the 0.05 level were reported between manufacturing andconstruction/services ® rms. Nevertheless, a slightly smaller proportion of manufactur-ing (67%) rather than construction/services ® rms (76%) had selected ` direct export-ing’ . This evidence suggests that a number of ® rms desired to maintain direct controlover their resources. On the downside, a ® rm sending out its own salesmen is a verycostly (and potentially risky) mode of entry (Holmlund and Kock 1998). Most no-tably, it can take a considerable amount of time for a salesman to establish relation-ships with suppliers and customers, and eå ectively penetrate social and businessnetworks in foreign countries. There is also the risk that a ® rm not using a foreignlocal agent may gather an imperfect picture of foreign market opportunities. A directexporting mode strategy may, in part, re¯ ect inexperience by business owners whomay not be aware of alternative foreign market entry modes.

For manufacturing (4 ® rms: 15%) as well as construction/services ® rms (3 ® rms:14%), the use of an ` export agent’ was the second most important mode of entry. Thiswas closely followed by ` piggy-back entry’ (i.e. acting as a subcontractor to another® rm) (2 manufacturing ® rms (7%) compared with 1 construction/services ® rm (5%)).This evidence again suggests a passive international process by a number of ® rms. Theuse of agents visiting customers is a relatively cheap and easy mode to manage andcontrol. This method may be selected to compensate for a lack of resources as well as ameans of minimizing risk (Holmlund and Kock 1998). On the downside, this modecan lead to a loss of crucial contact between a ® rm and customers. There is also thepossibility that the agent will request additional remuneration for this detailed localknowledge. This additional cost may be passed on to customers in terms of higherprices.

` Joint ventures’ (7%) and ` foreign direct investment (FDI) in branch oæ ces’ (4%)were, however, solely used by manufacturing ® rms. Whilst ` franchising’ was only usedby one construction/services ® rm (5%).

Ten factors that may have in¯ uenced the mode of entry selected to enter the largestforeign market were presented to respondents in exporting ® rms. Respondents wereasked to rank the importance of each factor on a scale from ` 0’ (i.e. the statement wasirrelevant) to ` 5’ (i.e. the statement was very important). All the responses to thestatements were, on average, ranked less than ` 4’ . Further, no statistically signi® cantdiå erences at the 0.05 level were reported by respondents in the manufacturing andconstruction/services ® rms. The three factors most highly ranked as being ` relevant’ byrespondents in manufacturing as well as construction/services ® rms were as follows(i.e. a mean score greater than 2.75): ` on the grounds of cost eå ectiveness’ , ` on groundsof speed’ and ` one-oå orders from clients ± i.e. no choice’ .

Based on the presented evidence, it can be concluded that the majority of manu-facturing as well as construction/services ® rms had not conducted a systematic eva-luation of alternative entry modes. As expected, a larger proportion of construction/


services ® rms had selected ` direct exporting’ as the mode of entry into their largestcurrent foreign market. The majority of manufacturing ® rms also cited this lattermode of entry. As a result, hypothesis 4 cannot be supported.

8. Conclusions and implications

This paper has attempted to develop both conceptual understanding and empiricalanalysis relating to the exporting behaviour of small ® rms. In terms of conceptualdevelopment, this paper has presented a critical evaluation of the stage model theoryof internationalization . A resource-based perspective has been presented that empha-sizes the key role of resource constraints with respect to whether small ® rms export andthe mode of exporting that was adopted. The paper has developed hypotheses relatingto these issues. It has been suggested that ® rms engaged in service and constructionactivities may be aå ected diå erently in regard to their exporting behaviour than ® rmsengaged in manufacturing activities. Within this conceptual framework, the paper hasprovided a comparative longitudinal exploration of whether exporters were morelikely to survive and to report superior performance over a 7-year period.Moreover, it was explored whether manufacturing ® rms had used the same exportingmethods and modes as those cited by ® rms engaged in construction/service activities.

Several weaknesses of this study need to be noted. First, the sizes of the two follow-on samples of manufacturing and construction/services ® rms are relatively small.Second, both the samples had inevitably suå ered from the problem of sample attritionover the 7-year study period. As a result, evidence from the follow-on samples does notprovide a comprehensive picture of the export behaviour of all SMEs in Great Britain.The follow-on study, however, provides a wide range of information surrounding theexporting behaviour of manufacturing as well as non-manufacturing ® rms located in avariety of environments in Great Britain at two points in real time.

The key ® ndings of this study are as follows. First, while exporters displayed statis-tically signi® cantly greater absolute employment growth over the 7-year period, theyfailed to display a statistically signi® cantly greater propensity to survive. Second,evidence from the follow-on study suggests that many small ® rms do not want toexport their goods or services abroad. The main factor that deters many small ® rmsfrom exporting is simply due to the fact that they are domestic (or residential) enter-prises that focus on seeking pro® table business opportunities in local markets. Asexpected, ® rms in construction/service sectors were signi® cantly more likely thantheir counterparts in manufacturing sectors to have cited a ` focus on local market’as their main reason for not exporting. Third, although not rated as ` important’ byrespondents, resource constraint issues were found to be signi® cantly more relevant formanufacturing rather than construction/service sector ® rms. This empirical evidence,therefore, questions the wider applicability of stage models of internationalization thatassume that all ® rms, particularly manufacturing ® rms, will export. Fourth, mostmanufacturing as well as non-manufacturing ® rms were reactive rather than proactiveexporters because they had been ` pulled’ abroad by the activities of external agents.Fifth, an important suggestion from the results of the study is that manufacturing andconstruction/services ® rms were not homogeneous in their approaches to exporting.Interestingly, exporting construction/services ® rms were markedly more likely to havebeen pulled abroad by the internationalization of their clients. This diå erencebetween the two groups was not statistically signi® cant. Nevertheless, the latter


mode of entry indicates the importance of resource acquisition and networking issues,particularly for ® rms engaged in non-manufacturing activities. Sixth, the follow-onstudy revealed some statistically signi® cant diå erences between manufacturing andnon-manufacturing exporting ® rms with regard to the reasons for selecting the largestforeign market entered. Diå erences were also detected between manufacturing andnon-manufacturing ® rms with regard to methods and modes of foreign market entry.To maintain direct control over their resources nearly three-quarters of exportingmanufacturing ® rms as well as construction/services ® rms indicated that they hadentered their largest current foreign market through ` direct exporting’ . Althoughnot statistically signi® cant, a larger proportion of construction/services ® rms hadselected this mode of entry. Interestingly, less than 16% of respondents in manu-facturing as well as construction ® rms reported that they had the ® nancial resourcesto enter foreign markets using ` export agents ’ .

Exporters must strike a balance between foreign and domestic market commitments(O’ Farrell et al. 1998a). The former can be a valuable means to increase the legitimacyof an organization in domestic markets. In addition, an ability to export gives a strongsignal to potential customers and can be used to secure domestic orders. The studyinterestingly noted the contribution to performance improvement (i.e. absoluteemployment growth) was highly skewed towards a small number of fast-growingenterprises in the exporting and non-exporting samples. Evidence from the presentedcomparisons suggest that policy-makers and practitioners must continue to appreciatethe contribution played by manufacturing and non-manufacturing ® rm exporters tolocal and national economic development.

Policy-makers and practitioners could consider introducing initiatives that targetresources and assistance to the relatively smaller proportion of owner-managed ® rmsthat have the inclination as well as the ability to be exporters. The targeting of supporttowards ® rms has been termed as ` picking’ , ` stimulating’ or ` backing’ winners.Numerous advantages as well as disadvantages associated with the targeting of sup-port to particular ® rms (and entrepreneurs) have been highlighted (Storey et al. 1987,Bridge et al. 1998). Results from the follow-on survey con® rmed that a small propor-tion of ® rms had markedly increased the proportion of their sales exported abroad.Rather than encouraging more small ® rms to become exporters, policy-makers want-ing to maximize returns on investments could, therefore, consider targeting theirscarce resources to existing exporters. Exporting ® rms are relatively easy to identify.Existing exporters already appreciate the bene® ts as well as the problems associatedwith selling goods or services abroad.

Future research might usefully be focused on four main aspects. First, studies shouldincreasingly consider the internationalization strategies of services as well as manu-facturing ® rms. Theories explaining the internationalization of manufacturing andconstruction/services ® rms should consider the wide range of demand and supply-side factors that in¯ uence business internationalization. Studies should explorewhether the approach to internationalization diå ers between industries (i.e. ® nerlevel studies focusing upon standard industrial categories), whether the approach tointernationalization diå ers depending upon the environmental context (i.e. rural orurban) of a business’ s main operational premises and the types of businesses in terms oftheir resource endowments (including the entrepreneur) and their ability to acquireresources.

Second, additional careful longitudinal research is still required. This might usefullyfocus upon the internationalization of ` micro’ , ` small’ and ` medium’ sized ® rms


engaged in a variety of industrial activities rather than studies focusing solely uponlarge manufacturing ® rms. Additionally, this research could chart the life cycle ofsmall ® rms’ internationalization processes and identify the critical factors requiredfor successful internationalization . Longitudinal studies are required to evaluate alter-native causal processes and changing in¯ uences on foreign-country market selectionand entry mode choice (O’ Farrell et al. 1998a). Qualitative research approaches maybe particularly useful in this respect.

Third, although attempts have been made in this paper to synthesize the stagemodels of internationalization theory and resource-based ® rm theory relating to inter-nationalization, there is a need for further research to develop the underlying con-ceptual framework of internationalization by small ® rms in manufacturing and non-manufacturing sectors. Such work would contribute to providing a wider understand-ing of the processes by which exporting expertise is acquired and developed. Futurestudies should focus on how ® rms learn and disseminate exporting skills throughouttheir organizations as well as how ® rms can successfully implement their acquiredexporting competencies and social networks. The identi® cation of types of exporting® rms in terms of their mobilization of resources and development of their strategies( Julien et al. 1997) is also worthy of additional research attention.

Fourth and ® nally, future studies relating to the above issues could usefully utilizequantitative as well as qualitative methodologies in order to identify the key factorsencouraging ® rms to internationalize. In particular, the inevitable sample attritionproblem highlighted in this study suggests that there is a need to replicate this studyusing large representative samples of manufacturing and non-manufacturing ® rms ina variety of cultural environments.

Acknowledgements

The study conducted in 1990 was designed in association with Sue Birley and theSociety of Associated Researchers on International Entrepreneurship (SARIE). Viewsexpressed here have considerably bene® ted from the comments from three anonymousreferees.

Notes

1. First, monopolistic advantage theory suggests that ® rms will internationalize when they can use theirestablished advantages in foreign countries at little or no additional cost (Caves 1982). Second, productcycle theory suggests that ® rms internationalize in an attempt to protect their existing markets of matureproducts (Vernon 1966). Third, the stage model theory of internationalization suggests that a ® rm’ sinternational operations will gradually increase as it gains knowledge and experience in the inter-national arena ( Johanson and Wiedersheim-Paul 1975, 1978, Bilkey and Tesar 1977, Johanson andVahlne 1977, 1990, Cavusgil 1980, Anderson 1993). Fourth, oligopolistic reaction theory suggests that® rms will try to reduce their risk by imitating competing ® rms’ entrance into foreign operations(Knickerbocker 1973). Fifth, internationalization theory suggests that ® rms internationalize to reducecosts by internationalizing the transfer of goods and services across national borders where it is cheaperto do so (Buckley and Casson 1976). Sixth, the eclectic theory of international production seeks tointegrate internationalization theory with location-speci® c elements of international economies, such aslabour costs, barriers to trade and transport costs (Dunning 1988). Seventh, strategic choice theory(Reid 1982, 1984) suggests that ® rms facing strategic complexities respond opportunistically to chang-ing market opportunities through a careful evaluation of risks with managers actively determining manyfeatures of a ® rm’ s internationalization (O’ Farrell et al. 1998b). Eighth, a network theory of interna-tionalization has been proposed (O’ Farrell et al. 1998c). Within the network theory of business inter-


nationalization, it is suggested that ® rms with increased mutual knowledge and trust have a competitiveadvantage and are able to extend their external environment to include foreign markets ( Johanson andMattsson 1988, Blankenberg and Johanson 1992). Ninth, transaction cost theory suggests that ® rmschoose the least-cost international location for each activity they perform and grow by internationaliz-ing markets, bringing interdependent activities under common ownership and control up to the pointwhere the bene® ts of further internationalization are outweighed by the costs (Klein and Roth 1989).The limitations and applicability of the transaction cost theory outside the manufacturing sector hasbeen vigorously questioned (Dunning 1988, Hennart 1989, O’ Farrell et al. 1996). Zacharakis (1997)has, nevertheless, recently developed a theoretical application of the transactions cost approach toexporting by smaller ® rms.

2. Czinkota and Johnsson (1981) suggest that the internationalization process of a ® rm consists of thefollowing stages: the unwilling ® rm (stage 1); the uninterested ® rm (stage 2); the interested ® rm (stage3); the experimenting ® rm (stage 4); the semi-experienced small exporter (stage 5); and the experiencedlarge exporter (stage 6).

3. Phatak (1983) has presented an international operations model relating to diå erent stages of the inter-nationalization process. According to Phatak, the internationalization process consists of the followingstages: the foreign inquiry (stage 1); the export manager (stage 2); the export department (stage 3); salesbranches and subsidiaries (stage 4); assembly abroad (stage 5); production abroad [(a) contract manu-facturing, (b) licensing, and (c) investment in manufacturing] (stage 6); and integration of foreignaæ liates (stage 7).

4. Blenker and Christensen (1995: 251± 252) have asserted that ` In knowledge- and technology-basedcompetition, contractors realize that they cannot eæ ciently keep pace with the increasing number oftechnical ® elds relevant to corporate growth: they are bound to face a capability crisis. Even large ® rmstend to narrow down areas of skill-building, thus seeking access to competence and skills supportinginternal core skills. The ability to extract value from core skills therefore tends to rely more heavily onsupplied skills from the system of specialized subcontractors. Thus, international sourcing gains import-ance’ .

5. According to Luostarinen and Hellman (1993), the internationalization process of a ® rm consists of thefollowing stages: the domestic stage (i.e. no international operations) (stage 1); the inward stage (i.e.technology transfer or import of raw materials and components) (stage 2); the outward stage: (a)outward process (i.e. exporting, sales subsidiary, subcontracting, contract manufacturing, licensingand manufacturing subsidiary), and (b) co-operation processes (i.e. import of saleable goods, domesticjoint venture with foreign partner, import of sub-contracted components, contract manufactured goods,licensed products and import from manufacturing subsidiary) (stage 3); and the co-operation stage (i.e.co-operation agreements on manufacturing, purchasing and R&D) (stage 4).

6. A ® rm identifying a foreign market opportunity may not have suæ cient skills to undertake the order ontheir own and may require the additional expertise of a small ® rm to provide a sub-contracting role toensure that the order is delivered to customers located in foreign markets.

7. Data was collected over a 6-month period (October 1990 to March 1991).8. Since internationalization is a process it should be studied over time. It must be kept in mind that data

analysed in this study is drawn from snapshot cross-sectional studies of ® rms at two points in time, 1990/91 and 1997. In 1990/91, data was gathered on information surrounding the proportion of salesexported outside the UK at the time of the survey. This survey, however, failed to ascertain the datewhen each ® rm began exporting goods or services abroad. As a result, this study does not provideevidence on the sequence or logic of events leading to the initial decision to export goods or servicesabroad. The propensity to export as well as the intensity of export activity (i.e. the proportion of salesexported abroad in 1990/91 compared with 1997) can, nevertheless, be compared at two points in realtime using the data collected.

9. Out of the 150 respondents, 92% (138 respondents) had been owners of the surveyed businesses in 1990/91. Moreover, 112 respondents (75%) indicated that they were currently the principal owner, mana-ging director or chairman of the surveyed businesses. Sixty-four surveyed ® rms were limited liabilitycompanies, 45 ® rms were sole proprietorships and with the exception of one ® rm the remaining 40 ® rmswere partnerships. A total of 140 respondents were still independent owner-managed ® rms and a further10 surveyed ® rms (8 exporting and 2 non-exporting ® rms in 1997) had been taken over by anotherbusiness. In terms of sales revenues, only 32 ® rms (23.5% of valid respondents) reported sales of £1million or more. Moreover, 103 ® rms (69%) were of less than 11 employees in size in 1997 and only 8® rms (5%) employed 50 or more employees. In terms of business age (in 1990/91), 83 ® rms (55%) wereless than 6 years old and a further 29 ® rms (19%) were aged between 6 and 10 years old.

10. The Standard Industrial Category (SIC) activities (Central Statistics Oæ ce 1979) of the ® rms in thefollow-on sample were as follows: ` extraction of minerals and ores other than fuels; manufacture ofmetals, mineral products and chemicals’ (SIC 2) (5 ® rms: 3%); ` metal goods, engineering and vehicleindustries’ (SIC 3) (17 ® rms: 11%); ` other manufacturing industries’ (SIC 4) (33 ® rms: 22%); ` con-struction’ (SIC 5) (3 ® rms: 2%); ` distribution, hotels and catering; repairs’ (SIC 6) (37 ® rms: 25%);` transport and communication’ (SIC 7) (4 ® rms: 3%); ` banking, ® nance, insurance, business services’(SIC 8) (43 ® rms: 29%); and ` other services’ (SIC 9) (8 ® rms: 5%).


11. With reference to the total sample of 621 businesses (i.e. those re-interviewed (150 businesses) and notre-interviewed in 1997 (471 businesses)), it was noted that the valid respondent businesses were sig-ni® cantly older (the mean age of the responding and non-responding businesses in 1990 was 7.9 and 6.8years of age, respectively) (Mann-Whitney U statistic was statistically signi® cant at the 0.0294 level). Inaddition, valid respondents were larger in employment size than the non-respondents (the meanemployment size of the responding and non-responding businesses in 1990 was 10.8 and 10.0 employees,respectively) (Mann-Whitney U statistic was statistically signi® cant at the 0.0844 level). These resultswere expected because studies have consistently shown that older and larger ® rms are more likely tosurvive than new and small ® rms (Storey 1994). However, no statistically signi® cant response bias wasapparent between the respondents and the non-respondents to the follow-on study with regard tolocation type, main industrial activity and propensity to have exported sales outside the UK in 1990.The characteristics of principal founders (i.e. those detailed in 1990/91) of responding and non-respond-ing ® rms were also compared. No statistically signi® cant response bias was detected between therespondents and the non-respondents with regard to gender, age, occupational status of parents, highesteducational level, job title prior to establishing the surveyed business, the employment size of their lastemployer prior to start-up and prior business ownership experience.

12. The follow-on survey revealed a number of statistically signi® cant diå erences between surviving non-exporting and exporting ® rms in 1997. A larger proportion of exporters were private limited liabilitycompanies (70.8% compared with 29.4%) (À2 ˆ 23:49; df ˆ 2, signi® cance level ˆ0.0000) and hadbeen taken over and were now owned by another business (16.7% compared with 2.0%). Interestingly,a larger proportion of respondents in non-exporting ® rms reported that they held minority equity stakes(i.e. less than 50% of shares) in other businesses (18.0% compared with 5.1%) (À2 ˆ 2:80; df ˆ 1,signi® cance level ˆ 0.0942). As expected, a larger proportion of respondents in exporting ® rms suggestedthat they had experience in a previous business selling products or services abroad (58.3% comparedwith 18.6%) (À2 ˆ 22:11; df ˆ 1, signi® cance level ˆ 0.0000). It was, however, interesting to note that asigni® cantly larger proportion of respondents in non-exporting ® rms suggested that their major compe-titors were located outside the UK (94.1% compared with 77.1%) (À2 ˆ 7:81; df ˆ 1, signi® cancelevel ˆ 0.0052). This result, in part, may explain why a number of construction and services ® rmshad not entered foreign markets.

13. Seven of the 73 non-exporting construction/services ® rms in 1990/91 were exporters in 1997. On thedownside, 7 construction/services exporting ® rms in 1990/91 were no longer exporters in the follow-onsample. In 1997, 21 construction/services respondents (22%) suggested that their ® rms were exportersand 73 ® rms (77%) were non-exporters.

14. Twelve of the 34 non-exporting manufacturing ® rms in 1990/91 were exporters in 1997. On the down-side, 6 exporting manufacturing ® rms in 1990/91 were no longer exporters in the follow-on sample. In1997, 26 manufacturing respondents (48%) suggested that their ® rms were exporters and 28 ® rms(52%) were non-exporters.

15. Owing to small sample sizes, a detailed presentation of performance diå erences between exporting andnon-exporting manufacturing ® rms was not conducted. Similarly, analyses were not conducted com-paring the performance of exporting and non-exporting construction/services ® rms.

16. Sales revenue data was returned by 102 non-exporters and 48 exporters in 1997. A signi® cantly largerproportion of exporting ® rms reported sales of £1 million or more for the most recent ® nancial year(40% compared with 15%) (À2 ˆ 12:12; df ˆ 4, signi® cance level ˆ 0.0165).

17. The median absolute employment growth reported by the 48 exporters and the 102 non-exporters was1.0 and 0.0 employees, respectively.

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