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UDC: 338.43
K. GrigoryanArmenian State University of Economics
Keywords: Export-ready firms, new-to-export firms, export
performance, export involvement, firm effectiveness and
competitiveness
ANALYSIS OF THE DETERMINANT FACTORS OF EXPORT PROMOTION
PROGRAMS*
ntroduction. Export promotion has received an increasing amount
of research attention (e.g., Cavusgil 1990; IDiamantopoulos and
Inglis 1998; and Souchon 1996; Samiee and Walters 1990). Similarly,
the growth of state trade initiatives and export promotion programs
in the United States during the last two decades has been
staggering. In light of federal budget cuts and as a supplement to
the International Trade Administration's trade promotion efforts,
state governments have significantly increased their staff and
budgets for export assistance, particularly in nurturing small
local businesses (Cavusgil 1990; Kotabe and Czinkota 1992). The
International Trade Administration's U.S. and Foreign Commercial
Service (a consolidated federal export promotion program) promotes
export assistance partnerships with state government agencies
through the development of local export promotion networks. Given
the prominent role of state export promotion agencies as external
sources of export information, this study focuses specifically on
these agencies and exporters' use of the assistance available from
them.
The Role of the Export Promotion Assistance Programs. Although
many export-willing firms are motivated to expand internationally,
they lack the necessary internal skills to do so successfully.
Export assistance initiatives for these firms should revolve around
the training of firms in the intricacies of export market
development. Export promotion assistance also should be
strategically targeted at export-ready firms that have achieved
export maturity-those with a solid management base, reliable
product, sufficient sales experience, and adequate financial
resources.
Miesenbock (1988) and Thomas and Araujo (1985) conclude that
though export behavior and foreign market entry decisions can be
understood in terms of innovation adoption behavior, the export
development process is determined by the interaction between the
firm and the individual characteristics of managers. Therefore,
export promotional programs are more likely to have a favorable
impact on new-to-export firms that are predisposed toward exporting
than on firms that are averse to exporting. Increasing the
awareness of the existence of export promotion programs by these
firms would be a priority.
Export assistance programs for these firms should include
encouraging the active exploration of exporting, providing
assistance with product adaptation, and helping with financing.
Successful export promotion requires a pool of foreign trade
personnel with the necessary skills and experience. Although many
colleges and universities already have started internationalizing
their business curricula, few business students are attracted to
jobs in trade promotion. To educate and sharpen the capabilities of
exporting staff, an educational institution, such as a national
institute of export training and promotion, should be
considered.
Export promotion assistance generally comprises:
(1) Export service programs such as seminars for potential
exporters, export counseling, how-to-export handbooks, and export
financing and
(2) Market development programs such as dissemination of sales
leads to local firms, participation in foreign trade shows,
preparation of market analysis, and export newsletters.
In addition, assistance efforts can be differentiated by whether
the intent is to provide informational or experiential knowledge.
Informational knowledge typically is provided through how-to-export
assistance, workshops, and seminars, and experiential knowledge is
imparted through the arrangement of foreign buyers or trade
missions, trade and catalog shows, or participation in
international market research.
* Special thanks to Professor Jim Cobbe (Florida State
University, Florida, US) for the patient guidance and extensive
research assistance
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An Analysis of the Factors Determining the Type of Export
Promotion Assistance Programs. The use of state export promotion
assistance programs is an important determinant of firms' export
performance not only directly but also through its interaction with
the firms' export involvement behavior. The direct effect
explicitly models the premise that state export assistance programs
are an important resource for building the knowledge and experience
necessary for successful foreign market involvement. However, this
normative logic has not been subjected to a rigorous empirical
test, and even less attention has been given to the effect export
promotion assistance usage has on different types of performance
outcomes. Export promotion assistance usage is an important export
success factor but that its importance depends on the dimension of
export performance considered. More specifically, usage of export
assistance is expected to provide the highest payoff in terms of a
firm's competitive position and efficiency but to make little if
any contribution to its effectiveness.
The rationale for the expected differences in the performance
impact of export promotion assistance stems from export activities
requiring a large amount of detailed and varied information,
involving substantial paperwork, and demanding a considerable
amount of financial and managerial resources.
In this respect, export promotion programs represent readily
available external sources of information and experiential
knowledge and provide the firm with an external capability to cope
with the complexities of exporting. As such, export promotion
programs are believed to enhance a firm's competitiveness compared
with that of nonusers by increasing the knowledge and competence
applied to export market development. Furthermore, export
assistance is generally provided free or at a nominal charge,
offering a cost-efficient means of gaining knowledge and
experience. Such assistance also provides a central inventory for
market information and sales leads, which enables the firm to save
time and money. Therefore, the use of export promotion programs can
result in a considerable reduction in the investment necessary to
generate and maintain in-house export expertise. Another well-known
and empirically supported financial benefit of export promotion
assistance is the direct cost savings enjoyed by users through
programs such as subsidies, below-market rate loans, and reduced
bulk rates on rental spaces at trade shows and travel fares (e.g.,
Gronhaug and Lorentzen 1993). As such, usage of export promotion
programs enables a firm to reduce operating costs and become more
profitable and therefore more efficient in its export
activities.
Reliance on export promotion assistance, however, has not been
shown to be influential in export expansion. It appears that export
promotion programs may not automatically culminate in sales: Firms
must engage in various activities to bring about export sales.
Therefore, export assistance is not expected to be a determinant of
firms' effectiveness in terms of sales growth. A reliable trade led
or even a secured export order will be ineffective, for example, if
the firm does not have the working capital requirements needed to
fulfill the order or finance the deal. Export promotion assistance
may be necessary for firms to compete in international markets, but
it is not sufficient, by itself, for export sales growth (e.g.
Seringhaus 1986). Thus, we can summarize that:
The usage of export promotion programs by a business will be
positively associated with the firm's (a) efficiency and (b)
competitive position but will have (c) no impact on its
effectiveness.
In addition to its direct effects, the usage of state export
promotion programs is hypothesized to influence a firm's export
performance indirectly through its interaction with the firm's
level of export involvement. The potential role of export
assistance usage as an intervening variable, as well as the need to
focus on more complex relationships, has already been recognized in
export research (e.g., Gronhaug and Lorentzen 1983; Leonidou,
Katsikeas, and Piercy 1998; Seringhaus 1986).
On the one hand, the export literature supports the contention
that higher export involvement facilitates greater access to and
usage of export promotion programs and thus better export
performance. Highly involved firms are considered to be better
positioned for acquiring necessary expertise from secondary
sources, because their established organizational structures and
managerial processes facilitate the processing of external
information (Samiee and Walters 1990). The use of externally
available secondary programs can also be habit forming in that
firms continue to rely on external assistance despite a buildup of
necessary experience.
On the other hand, equally strong conceptual and empirical
support is available for the opposing argument that the need for,
as well as the performance impact of, export assistance is greater
at lower levels of export involvement. Because inexperienced
exporters perceive the intensity of export impediments and the cost
of export activities to be prohibitive, they are expected to depend
on and benefit more from readily available external expertise and
knowledge that is provided by export promotion programs.
Conversely, the relatively lower reliance of highly involved firms
on external sources of information and assistance has been
attributed to their highly developed internal capability to cope
with the complexities of exporting as well as their more specific
and focused information needs (Diamantopoulos and Inglis 1988).
Therefore, this
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research stream supports the contention that the usage of export
promotion programs becomes increasingly inconsequential for export
success at higher levels of export involvement.
Export assistance needs to achieve either a specific reduction
of risk or an increase in profits for firms. It should be
concentrated primarily in those areas where profit and risk
inconsistencies produce market gaps, and be linked directly to
identifiable organizational or managerial characteristics that need
improvement. Otherwise, assistance supports only exports that would
have taken place anyway. Such a focus, of course, requires the
implementation of evaluation criteria and measurement mechanisms,
which determine the effectiveness of export assistance for policy
purposes. Such measurement should not be based on the firm's export
performance. Rather, the measurement should be based on the export
involvement of the firm, focusing on the number of customers,
transactions and countries served.
Coordination must occur both within and outside the government.
Within government, it will be crucial to set overall effectiveness
priorities and to trade off export assistance programs across
agencies. Otherwise, an economic sector with relatively low
employment effects could consume resources in an over proportionate
fashion while priority industries would suffer from insufficient
support.
Externally, export assistance must be directly linked to
domestic industries to ensure that the policy gains abroad can be
taken advantage of by firms. Doing so must include collaboration
for both product and process technologies, which now play a crucial
role in attaining global competitiveness. The issue of quality
performance can well become the focus of a cooperative effort
throughout an entire industry, its suppliers and customers alike.
Rather than concentrate only on the well entrenched industries, it
is particularly important here to include a focus on sunrise
industries.
Within government, export assistance should emphasize those
areas where government can bring a particular strength to bear --
such as contacts, prowess in opening doors abroad or information
collection capabilities. Externally, programs should aim at the
large opportunities abroad. As far as firms are concerned,
attention should not just concentrate on assisting or bailing out
industries in trouble, but also on helping successful firms do
better.
Conclusions. Export assistance is likely to have the greatest
impact when it serves the needs of companies. Programs therefore
should start out by analyzing the current level of international
involvement of the firm and then deliver assistance appropriate to
the firm's needs. Assistance must take foreign market conditions
and foreign buyer preferences into account, and communicate the
resulting constraints and opportunities to domestic firms. It is
easier to sell what is in demand.
In a world of rapidly changing global realities, the future is
shrouded in much uncertainty. Yet the likelihood of continued and
closer global linkages and interdependence is high. Firms need to
be prepared for the global marketplace. If governments can help
them to grow and successfully meet the competition on foreign
shores as well as at home, they will have strengthened them and the
country as a whole.
We can conclude also that businesses are ambivalent about
receiving help. On the one hand, they welcome the assistance by the
various agencies, particularly if rendered in a professional
manner. On the other hand, they are unsure of its usefulness and
resist government intrusion into their business operations. If it
can be clearly demonstrated that various export promotion programs
do help in initiating or developing export markets, perhaps a
greater number of business firms would seek assistance and avail
themselves of export opportunities.
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Gronhaug, K. and Lorentzen, T. (1993). Exploring the Impact of
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