The Effects of Timing and Order of Government Support Mechanisms for SME Exports.

VerfasserTinits, Priit
PostenSmall and medium enterprises

1 Introduction

The process of firm internationalization is a key foundation of International Business (IB). This is where IB adds value to society--by understanding firm growth in an international context and the strategies and instruments that enhance it. From time to time, academic journals publish empirical studies on government export support and its efficacy (e.g., Martincus & Carballo, 2010a; Wilkinson & Brouthers, 2000). The research question in many of these studies is "is government support for firm internationalization efficient?" and authors employ extensive datasets to support the conclusion. As with many phenomena, papers on the topic present mixed empirical findings. Thus, there is a need to explore the role of government support mechanisms for exports in a more nuanced way. This article shows that focusing on the role that different "dimensions of time" (Jones & Coviello, 2005) play can lead to a useful richer analysis.

The internationalization of small and medium-sized enterprises (SMEs) received little attention in the early days of IB theories, especially from a transition economy perspective. The same is even more true for exporting which is the most common way to expand internationally but which has received much less attention than other modes like foreign subsidiaries or joint ventures. However, with the advance of globalization, diminishing trade barriers and advances in information technology, conducting business abroad has become easier. In addition, policymakers have realized the important contribution SMEs can cumulatively create for providing employment and generating economic growth, so the internationalization strategies of SMEs have again emerged as an important topic of much interest to the general public, policy makers and IB scholars. Entering foreign countries is difficult for most foreign companies due to the liability of foreignness (Zaheer, 1995), which posits that any company that enters a foreign market is at a disadvantage. The challenges of expanding abroad are especially large for SMEs, which possess fewer resources than large companies and are thus doubly challenged also facing the liability of smallness (Paul et al., 2017). One of Paul et al.'s (2017) untested propositions suggested that SMEs should make use of institutional support, such as home government incentives, to create export success. The case for export promotion for the government emerges from the socio-economic benefits of outward orientation (Cavusgil & Yeoh, 1994). In much of the IB internationalization literature this role is mentioned only in passing, and is rarely explicitly included in models and systematically tested. This provides an important research opportunity.

There have been many studies about the effectiveness of a single home government support mechanism for internationalization. However, few studies compare the effects of several support measures to determine which works best and particularly how to best combine support measures in terms of sequence. This scarcity is unfortunate because rather than the general proposition that government incentives can help to increase foreign sales, SMEs, which often lack resources compared to large firms (Armario et al., 2008; Li et al., 2004), must decide which opportunities are most important to direct their limited resources towards. We focus on exporting, which is often the first mode of internationalization a firm uses (Johanson & Vahlne, 1977) and the least committing mode of internationalization which comes with lower uncertainty and lower fixed costs (Helpman et al., 2004). Exporting is beneficial because it brings about external and internal benefits. Exporting is positively correlated with productivity, particularly labor productivity (Bernard & Jensen, 1995; Garcia et al., 2012) and exporters pay higher wages (Schank et al., 2007). However, the benefits are not only due to potentially greater revenues that foreign markets offer but also the learning that takes place by observing and responding to competition in foreign markets which can spill over and result in innovation which can also benefit the home market (Blalock & Gertler, 2004; Salomon & Jin, 2008). The socio-economic benefits that exports generate in the home country nurture the interest of home governments to offer various types of support to firms endeavoring internationalization.

Our research context--Estonia--is a small, open economy. However, it differs from other small, trade intensive countries, such as Ireland, Singapore, and New Zealand, as it was opened for international trade only in the 1990s. This means that its companies lacked exporting knowledge, experience and networks. In such a situation, capacity building activities are even more needed than in other countries with more export experience. However, at the same time in Estonia the government also had little experience offering such services. On the other hand, our setting is advantageous as in such a context, government support mechanisms do not carry path dependence--the support instruments can be designed based on the best international practice and there are no firms who expect to receive the support due to historical ties. In an open application procedure, such as in Estonia, one would expect a merit-based and unbiased recipient selection process. This likely has the potential to demonstrate better performance results for export support mechanisms than in countries where vested interests play a larger role.

The shift from a previously closed central trade system to the global market means that for the firm, by default, all potential export markets are more developed than the domestic market. Therefore, even more than it is common for SMEs, the first challenge of Estonian firms was to start exporting, and only later to expand their export geography. This also provides an advantage and makes our research context unique among other small and open economies, as we can assume a more similar starting position and mitigate the effects of previously established an international network to build their sales activities on or that the SME had superior products to start with when starting to export it. The purpose of this paper is to systematically explore if and how government assistance can advance the internationalization of SMEs. Specifically, we focus on firms that already export and delve further into the effect of government support on export intensity (export sales as a share of total sales) by studying the impact of each of the following government support mechanisms alone and in combination with another--(i) support to develop a comprehensive export plan, (ii) supported participation in trade fairs, (iii) participation in ministerial business delegation visits to a foreign country. Previous literature normally focuses on evaluating one support mechanism rather than comparing the efficiency of multiple support mechanisms. Our results will be presented in multiple time dimensions, and in a visual framework to distinguish between the different axes of dimensions, demonstrating the importance of considering applicable dimensions of time (e.g., chronological time, reference time, sequence time, and effect length time) in IB studies.

2 Literature Review

2.1 Concept of Time in Internationalization Literature

Traditional internationalization models (e.g., "Uppsala model" by Johanson & Vahlne, 1977) have discussed firm internationalization in stages. Even though the stages approach implies successiveness and therefore time, there is a lack of explicit acknowledgement of time in stage models (Jones & Coviello, 2005). Events are recognized when they mark change in stages (such as establishing the first subsidiary abroad), but otherwise the focus on states, which is rather stylized representation of the reality. Describing IB events is complicated as George and Jones (2000) discuss that the difference between incremental/evolutionary and discontinuous/revolutionary changes, is not phenomenon-specific, and can in different situations affect the same phenomenon differently (e.g., job stress in a regular situation or during layoffs). Empirical studies are normally time-linked, but the time dimension is usually commented on only descriptively, noting for example when the data was collected or the regularity of the data. Even if the authors suspected that the time frame may have an impact on the result, it is difficult to verify because frequent data collection is expensive (e.g., by surveys), often data cannot be collected post-hoc, and secondary data is often collected for reasons other than the research questions. Hurmerinta et al. (2016) caution that despite giving definitions and terminology to experienced changes to make time explicit, it would always remain an abstract and relational concept. In short, time matters, but to discuss academic research findings precisely, one needs to first specify which dimensions of time are being studied.

There are many ways in which to categorize time and a commonly-accepted typology of time aspects that are relevant to IB is far from established. In one such attempt, Jones and Coviello (2005, p. 290) identified several primary dimensions of time that may be relevant in studying internationalization: chronological time, reference time, time sequence, time periods, time duration, time intensity, cyclical dimension, gap time, and rate of internationalization. Not all of these will be integral to every research design, but it is important to consider which of the dimensions matter for a specific study. Hurmerinta et al. (2016) proposed conceiving time on horizontal and vertical axes. The former expresses the chronological time and the latter can be used to define the context and the events and actions in the cross-section of time.

In this article we will demonstrate that it is useful to consider different dimensions of time especially since results may be different for...

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