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How to cite this thesis
Surname, Initial(s). (2012) Title of the thesis or dissertation. PhD. (Chemistry)/ M.Sc. (Physics)/ M.A. (Philosophy)/M.Com. (Finance) etc. [Unpublished]: University of Johannesburg. Retrieved from: https://ujdigispace.uj.ac.za (Accessed: Date).
EXPORT READINESS OF ENTERPRISES SUPPORTED BY GOVERNMENT‟S
INCENTIVE SCHEME
by
Z. APRIL
MINOR DISSERTATION
Submitted in partial fulfilment of the requirements for the degree
MAGISTER COMMERCII
in
BUSINESS MANAGEMENT
in the
FACULTY OF MANAGEMENT
at the
UNIVERSITY OF JOHANNESBURG
Supervisor: Dr C. REDDY
JANUARY 2014
i
Acknowledgements
The completion of this study required an enormous amount of time, effort and support from
numerous individuals. I benefited greatly from their wisdom, investment and encouragement.
I sincerely appreciate the efforts and support of my wife, Vuyokazi, and daughter, Sisipho.
I also want to thank my colleagues for their support and encouragement, and the
Department of Trade and Industry for allowing me to conduct this study.
A note of special thanks to my supervisor, Dr Colin Reddy. Without his persistence and
guidance I would simply not have been able to complete this study.
Finally, I want to express my thanks and appreciation to my family for all their support and
love.
ii
Abstract
This study set out to explore the factors that facilitate the export readiness of emerging
exporters who benefit from the Export Marketing and Investment Assistance (EMIA) scheme
at the Department of Trade and Industry (dti). I hypothesised that management commitment,
management skills, financial resources; technical knowledge, capacity to manufacture and
international marketing intelligence have a positive relationship with export readiness. I used
a questionnaire based on the work of Van Elden (2003) to collect data from emerging
exporters. I tested the reliability of each scale showing Cronbach alpha values ranging from
072 to 0.86. A regression analysis confirmed that all six factors were significantly correlated
to export readiness. I recommend that the dti view more carefully whether the beneficiaries
of EMIA have the capacity indicated by the six factors before spending resources on such
beneficiaries. EMIA staff should recommend interventions based on these six factors to
those applicants who are unsuccessful.
iii
List of Accronyms
ABSA AMALGAMATED BANKS OF SOUTH AFRICA
B-BBEE BROAD-BASED BLACK ECONOMIC EMPOWERMENT
CC CLOSE CORPORATIVE
CPA CERTIFIED PRACTICING ACCOUNTANT
DTI DEPARTMENT OF TRADE AND INDUSTRY
EMIA EXPORT MARKETING INVESTMENT ASSISTANCE
ETF EXPORT TRADE FINANCE
HDIs HISTORICALLY DISADVANTAGED INDIVIDUALS
IMF INTERNATIONAL MONETARY FUND
NEDP NATIONAL EXPORTER DEVELOPMENT PLAN
NGP NEW GROWTH PATH
PFMA PUBLIC FINANCE MANAGEMENT ACT
SARS SOUTH AFRICAN REVENUE SERVICES
SEDA SMALL ENTERPRISE DEVELOPMENT AGENCY
SMMEs SMALL MEDIUM AND MICRO ENTERPRISES
TCC TAX CLEARANCE CERTIFICATE
TISA TRADE INVESTMENT SOUTH AFRICA
TPSF TRADE POLICY AND STRATEGY FRAMEWORK
UNCTA UNITED NATIONS CENTRE ON TRANSNATIONAL
CORPORATIONS
UNCW UNIVERSITY OF NORTH CAROLINA WILMINGTON
UNESCAP UNITED NATIONS ECONOMIC AND SOCIAL COMMISSION FOR
ASIA AND THE PACIFIC
UNIDO UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION
UWS UNIVERSITY OF WESTERN SYDNEY
VRIO VALUE, RARITY, IMITABILITY, ORGANISATIONAL SPECIFICITY
WAEMU WEST AFRICAN ECONOMIC AND MONETARY UNION
WTO WORLD TRADE ORGANISATION
iv
AFFIDAVIT: MASTER’S AND DOCTORAL STUDENTS
TO WHOM IT MAY CONCERN
This serves to confirm that I_ Zuko April ______________________________________________________
(Full Name(s) and Surname ID Number_8007015363085__________________________________________________________________ Student number__201023136__________________________________________________ enrolled for the Qualification_MCom__________________________________________________________________ Faculty _Management______________________________________________________________________ Herewith declare that my academic work is in line with the Plagiarism Policy of the University of Johannesburg which I am familiar with. I further declare that the work presented in the ___________________________ (minor dissertation/dissertation/thesis) is authentic and original unless clearly indicated otherwise and in such instances full reference to the source is acknowledged and I do not pretend to receive any credit for such acknowledged quotations, and that there is no copyright infringement in my work. I declare that no unethical research practices were used or material gained through dishonesty. I understand that plagiarism is a serious offence and that should I contravene the Plagiarism Policy notwithstanding signing this affidavit, I may be found guilty of a serious criminal offence (perjury) that would amongst other consequences compel the UJ to inform all other tertiary institutions of the offence and to issue a corresponding certificate of reprehensible academic conduct to whomever requests such a certificate from the institution. Signed at _____________________on this ______________day of _______________ 20___. Signature__________________________________ Print name_________________________
STAMP COMMISSIONER OF OATHS Affidavit certified by a Commissioner of Oaths This affidavit conforms with the requirements of the JUSTICES OF THE PEACE AND COMMISSIONERS OF OATHS ACT 16 OF 1963 and the applicable Regulations published in the GG GNR 1258 of 21 July 1972; GN 903 of 10 July 1998; GN 109 of 2 February 2001 as amended.
v
UNIVERSITY OF JOHANNESBURG
FACULTY OF MANAGEMENT
DECLARATION ON SUBMISSION OF COPIES FOR EXAMINATION
DECLARATION BY STUDENT
STUDENT NUMBER 201023136 ID NUMBER 8007015363085 I, Zuko April (Full names and surname as should be reflected on degree certificate) Hereby declare that this (minor dissertation / dissertation / thesis) submitted for the Degree (e.g. MCOM) in the Masters in Commerce (MCOM) (e.g. HRM) Field of study at the University of Johannesburg, apart from the help recognised, is my own work and has not been formerly submitted to another university for a degree. APPROVED TITLE: “FACTORS INFLUENCING THE EXPORT READINESS OF SOUTH AFRICAN BUSINESSES SUPPORTED BY THE EXPORT MARKETING AND INVESTMENT SCHEME”
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SIGNATURE DATE
DECLARATION BY SUPERVISOR AND CO-SUPERVISOR
Approval for submission of examination copies is hereby granted to the abovementioned student. The title is as officially approved. An article ready for publishing has been submitted / has not been submitted. Satisfactory arrangements have been made. SIGNATURE OF SUPERVISOR DATE ________________________________________________ ________________________________ SIGNATURE OF CO-SUPERVISOR DATE
FOR OFFICE USE
Registration: YES NO
Title: YES NO
FACULTY OFFICER DATE
vi
Table of Contents
Chapter 1: Introduction ......................................................................................................... 1
1.1 Background............................................................................................................. 1
1.2 Research Problem .................................................................................................. 2
1.3 Research purpose and question ............................................................................. 2
1.4 Research objectives ................................................................................................ 3
1.5 Methodology ........................................................................................................... 3
1.6 Limitations of the study ........................................................................................... 3
1.7 Outline of the study ................................................................................................. 4
Chapter 2: Theory and hypotheses ....................................................................................... 5
2.1 Export readiness ..................................................................................................... 5
2.2 The dti‟s EMIA scheme ........................................................................................... 6
2.3 Hypotheses ............................................................................................................. 9
2.3.1 Management commitment .............................................................................. 11
2.3.2 Management skills ......................................................................................... 14
2.3.3 Financial resources ........................................................................................ 16
2.3.4 Technical knowledge ..................................................................................... 19
2.3.5 Manufacturing capacity .................................................................................. 20
2.3.6 International marketing intelligence ................................................................ 20
2.4 Summary .............................................................................................................. 22
Chapter 3: Research Methodology ...................................................................................... 24
3.1 Research Design .................................................................................................. 24
3.2 Population and sample .............................................................................................. 25
3.3 Measures .............................................................................................................. 26
3.3.1 Control Variables ........................................................................................... 28
Chapter 4: Results and findings ................................................................................... 31
Chapter 5: FINAL CONCLUSION ............................................................................... 35
5.1 Major findings ............................................................................................. 40
vii
5.2 Conclusions ........................................................................................................... 41
5.3 Recommended future research ............................................................................. 42
Reference list ...................................................................................................................... 44
5. Addenda ........................................................................................................................ 51
List of Tables
Table 1: Definitions for the types of business supported by the EMIA scheme ...................... 7
Table 2 : Types of finance needed by emerging exporters .................................................. 18
Table 3: Summary of hypotheses. ....................................................................................... 22
Table 4:Measures ............................................................................................................... 26
Table 5: Reliability scores ................................................................................................... 31
Table 6: Descriptive statistics and correlations .................................................................... 32
Table 7: Results for hierarchical regression models of export readiness and factors of export
readiness ............................................................................................................................ 34
List of Figures
Figure 1: Management – components of management ....................................................... 12
Figure 2: Management skills pyramid .................................................................................. 15
1
Chapter 1: Introduction
1.1 Background
In 2012, the Department of Trade and Industry (the dti) announced a number of initiatives to
increase the South African export base and reduce the trade deficit, the main initiative being
adding value to goods and services before exporting them (SA1 dti, the, NEDP, 2013.). The
government of South Africa has developed a number of economic policies to develop South
Africa‟s export potential. The key vehicle for this is the National Exporter Development Plan
(NEDP), which aims to develop a pool of „export-ready‟ companies. The NEDP takes into
account the current South African economic policies such as the New Growth Path (NGP) –
Vision 2013 and the South African Trade Policy and Strategy Framework (TPSF). It aims to
increase the export of products and services that add value and contribute to employment
and a green economy (Davies, 2013).
The NEDP will focus on the enhancement of the national export culture, provision of
information and advice, capacity building, creation of opportunities with the aim of expanding
the exporter base and increasing the growth and diversification of South Africa‟s export
basket (Medupe, 2013). However, the NEDP has struggled to assist local companies to
become export ready. This might be because South African companies lack the skills to deal
with the complexity of exporting their products. Another reason is that the NEDP‟s key
instrument, the Export Marketing and Investment Assistance (EMIA) scheme has limited
itself to developing one skill, that of marketing. Currently, EMIA only offers financial
assistance to buy flight tickets, book accommodation, help develop marketing brochures,
pay subsistence allowances, and transport the marketing material of approved participants
to an international trade fair.
The economic integration of South Africa into the rest of world in 1994 has made it
necessary for emerging South African exporters to look for foreign market opportunities in
order to gain and sustain a competitive advantage. South Africa, as an emerging economy,
tries to create trade opportunities for its emerging exporters in the high growth emerging
markets around the world through economic policies and trade initiatives that include export
development and promotion. Such policies are also aimed at encouraging exports. For such
export promotion initiatives to succeed, it is very important that emerging exporters are well
equipped to exploit any opportunities in foreign markets. Furthermore, South Africa has
1 Please note that, in the in-text citations concerning South African government website publications like
this one, South Africa will be abbreviated to SA.
2
enough entrepreneurs that can be developed to become exporters, hence it is important to
have comprehensive and effective enterprise development interventions (SA2 dti, the,
NEDP, n.d.).
1.2 Research Problem
The problem is that EMIA focuses on marketing small enterprises with the potential to export
without ensuring that they have the requisite capabilities and capacity to export. This
approach might lead to small enterprises not being able to sustain their operations in the
export market. Exporting is an integrated process that needs a good understanding of the
basics of exporting and the ability to be flexible to the volatile requirements of foreign
markets. All the factors of export readiness have to work together in unison for the export
process to work (Van Eldik, 2003). The EMIA scheme achieves its objectives by taking part
in various trade fairs and exhibitions around the world in the form of national pavilions and
group missions. Assistance is only provided to qualifying South African exporters for
introducing South African products into foreign markets by taking part in suitable exhibitions
in a cost effective manner (Bothma, n.d.).
While EMIA covers international marketing intelligence to some extent, there is a need to
explore other important competencies that might supplement its marketing initiatives to
increase the export readiness of South Africa‟s emerging exporters. Research is therefore
required to explore the competencies for export readiness necessary to complement the
standardised marketing strategies currently adopted by the dti‟s EMIA programme in order to
develop the export readiness of local companies.
1.3 Research purpose and question
The purpose of the study is to explore some of the pertinent factors associated with the
export readiness of South African companies on the EMIA scheme. As a result, this study‟s
research question is, „What are the key factors behind the South African enterprises deemed
to be export ready?‟
The study will assist the dti to improve the EMIA scheme by getting the emerging exporters
ready to export, by using interventions based on the six factors associated with export
readiness to those applicants who are applying for EMIA assistance.
2 Please note that, in the in-text citations concerning South African government website publications like
this one, South Africa will be abbreviated to SA.
3
1.4 Research objectives
Research objectives have been set as follows:
- To review existing definitions of export readiness,
- To identify pertinent factors that lead to export readiness,
- To use the EMIA Scheme to establish the link between the emerging exporters and
the pertinent factors of export readiness in the South African context.
1.5 Methodology
I develop a set of hypotheses using existing research on export competencies. I then go on
to test these hypotheses using a quantitative approach. I designed a survey instrument
based on the work of Van Eldik (2003).
1.6 Limitations of the study
In order to be an exporter you need to fall in one of the two categories: the exporter has an
advantage at the buyer‟s end or has a product or access to a product that is being sold
locally. In the first category, it is assumed that the exporter has a strong position at the
buyer‟s end. This means that the exporter has a relationship with the international buyers, or
has expertise in certain markets and the ability to secure those markets for a number of
goods and services. The trade agents and other middlemen for the product normally fall in
this category.
In the second category, it is assumed that the exporter or potential exporter has a product,
has access to such product or expertise in trading in that product. The product must
currently be sold in the domestic market, and there should be plans to sell it in the foreign
market. The export market should not be seen as a separate market, but as an extension of
the local market (SA dti, the: Learn to export, n.d.). Emerging exporters fall in the second
category of exporters because they already have a product, or access to a product, or
expertise in trading in such product. The product is also successfully sold in the domestic
market. The success of the second category depends on two factors, namely, whether the
business is export ready and whether the product is export ready.
The focus for this study was based on the second category of export readiness, and the
study therefore does not cover the whole topic of export readiness. For example, only
emerging exporters‟ export readiness is discussed and not the export readiness of the
product. The sample was restricted to the EMIA emerging exporters, and therefore the
4
bigger population of South African exporters was not included. The research design
minimised the bias by randomly stratifying the respondents from the EMIA database.
It is also very important for the emerging exporter‟s management to put emphasis on
development through learning, resource allocation and decision making during the stage in
which they are developing export readiness. The emerging exporter‟s readiness is achieved
through incremental decisions and commitment (Tan et al., 2007:4). This study will focus
only on emerging exporters‟ learning capabilities, and will not look at other factors such as
attitudes and information gathering, because the current EMIA scheme is designed to
improve the learning capabilities of the emerging exporters. The assumption is that the
emerging exporters have already gathered relevant information and have the right export
attitude before engaging in exports. One of the EMIA scheme requirements is that an
emerging exporter must have been successfully operating in a domestic market before
engaging in exports.
1.7 Outline of the study
Chapter two deals with the theory and hypothesis. Chapter three deals with the issues
related to research methodology such as sampling and procedure, measures, and statistical
procedure. Chapter four deals with results, findings as well as the presentation and
discussion of results. Chapter five gives summary, conclusions, recommendation,
managerial implications as well as suggestions for future research.
5
Chapter 2: Theory and hypotheses
This chapter begins with a review of definitions of export readiness. I then outline the EMIA
scheme and go on to develop hypotheses of key factors leading to export readiness.
2.1 Export readiness
Several perspectives exist on export readiness. These include perspectives arising from
financial institutions (Van Eldik, 2003:72), the international readiness of local business as
well as models like the Innovation and Uppsala models (Tan, Brewer & Liesch, 2007:72).
According to the Innovation model, a firm learns through distinct stages of increasing
management‟s export commitment, with the firm‟s management initially disinterested but
becoming more involved as an “experimental” exporter, developing over time into an active
exporter, and ultimately becoming a committed exporter (Tan et al., 2007:294). The Uppsala
model describes export readiness as an incremental process where the firm passes through
a number of developmental stages. The first stage of the Uppsala model concerns
knowledge about foreign markets and resource commitment; the second, decisions to
commit resources, and the final one entails the performing of current business activities
through the accumulation of experiential knowledge (Tan et al., 2007:294).
The term „export ready‟ is normally used by financial institutions. It shows that the emerging
exporter seeking financial assistance has the character, capacity and courage to enter into
business in the foreign market (Van Eldik, 2003:10). Export readiness shows that the
emerging exporter applying for financial assistance has done due-diligence to enter into
business in the foreign market. Export readiness is mundanely defined in terms of emerging
exporters who are disposed to take information, resources and assistance and utilise them
to achieve their export objectives. The ability to take calculated risks and to make financial
and non-financial commitments is also part and parcel of the characteristics of the emerging
export company that is „export ready‟ (Van Eldik, 2003:10). Financial risk is the possibility
that a financial outcome for the business adversely deviates from what has been anticipated
(Yu, Somani & Tesfatsion, 2010:2). The non-financial risk can be described as business or
operating risk associated with internal and external systems for the monitoring, negotiation
and delivery of financial transactions. The risks can be wide-ranging and can include natural
disasters and human error (CPA Australia, 2013). There are various factors that determine
export readiness, including management commitment to exports, management skills,
financial resources, technical knowledge, capacity to manufacture, and international
marketing intelligence. For an emerging exporter to be regarded as „export ready‟, that
6
exporter must be able to demonstrate achievement of the six factors that determine export
readiness (SA dti, the, Business ready to export?, n.d.).
Tan et al. (2007:3) explain a pre-export readiness stage, which they describe as a learning
stage experienced by all emerging exporters while becoming export ready. The authors state
that there is a stage called pre-internationalisation, which begins before export readiness or
international readiness. International readiness is a concept that describes an emerging
exporter‟s potential transition from a purely domestic emerging exporter into an international
emerging exporter. The main point of analysis for this phase on export readiness is based on
the learning process in the pre-internationalisation stage that involves gathering information,
which leads to motivation and action by emerging exporters‟ management, which is
influenced by the emerging exporter‟s resources (tangible and intangible) and moderated by
preventative factors such as emerging exporters‟ resources and information. The pre-
internationalisation phase ends when the emerging exporter decides to engage in export. If
the emerging exporter decides not to export, it will remain within the pre-internationalisation
phase where the learning process continues (Tan et al., 2007:14).
International readiness is therefore an emerging exporter‟s preparedness and propensity to
commence internationalisation. This is determined by the emerging exporter‟s development
and learning in its pre-internationalisation phase. This pre-internationalisation phase is
homogeneous to all the other models discussed earlier as it emphasises information
accumulation before an export decision or any commitment is made. The study will use
export readiness and not internationalisation throughout the study.
According to Tan et al. (2007:10-11), the attitude of the emerging exporter‟s management
towards exporting, their resources, capabilities and other considered factors serve as
motivation towards being export ready. The emerging exporter‟s management should take
into account the information gathering and learning capabilities, and they should have the
right attitude towards exporting during the pre-internationalisation phase.
2.2 The dti’s EMIA scheme
EMIA develops export markets for South African products and services and recruits new
foreign direct investment into the country. It aims to increase the contribution of small,
medium and micro enterprises (SMMEs) to the economy, advance broad-based black
economic empowerment (B-BBEE), increase the levels of direct investment in the economic
sectors with long-term development potential, improve emerging exporters‟ export market
access to high-growth markets and to link the first and second economy.
7
EMIA achieves its objectives by taking part in various trade fairs and exhibitions around the
world in the form of national pavilions and group missions. Assistance is only provided to
qualifying South African exporters for introducing South African products into foreign markets
by cost-effectively taking part in suitable exhibitions (Bothma, n.d.). The EMIA qualifying
criteria approves only South African manufacturing companies that have an EMIA qualifying
product and are in good standing with South African Reserve Bank. The approved
companies only attend trade fairs in the sectors in which they operate. Food manufacturing
companies will, for example, only attend agro-processing trade fairs and defence
manufacturing companies only attend defence and aerospace trade fairs.
Businesses eligible for EMIA assistance include SMMEs, historically disadvantaged
individuals (HDIs), other-sized businesses and emerging exporters. Companies that do not
have a valid tax clearance certificate (TCC) as required by the Public Finance Management
Act (PFMA) are not considered for approval.
The following table defines the types of business that would qualify for the EMIA scheme.
Table 1: Definitions for the types of business supported by the EMIA scheme
SMME HDI OTHER-SIZED BUSINESS EMERGING
EXPORTERS
Total assets, excluding fixed
property, must be less than
R15 million.
An SMME and of South
African nationality.
Businesses that do not qualify
under the definition of an
SMME as stipulated by the
EMIA scheme.
A Historically
Disadvantaged Individual
(HDI) entity such as a
CC, Partnership, Sole
Proprietor or
Cooperative.
Less than 200 full-time
employees.
At least 51% of the
business must be owned
by black person(s), women
or disabled person(s).
At least 51% of the
business is owned by
black persons, women or
disabled persons of
South African nationality.
Total annual turnover must
be less than R40 million.
Total annual turnover must
be less than R5 million.
Total annual turnover must be
more than R40 million.
Has an annual turnover
of less than R5 million.
Is not involved in any
current exports.
Has traded locally for
more than 12 months.
Has an EMIA qualifying
product or service.
Source: the dti, 2013
8
The dti started initiatives to ensure it achieves the EMIA objectives and export readiness by
committing resources and supporting a wide variety of qualifying exporting entities.
According to the 2008-2009 annual report on Export Marketing and Investment Assistance
(SA dti, the, 2010), 77% of the 920 EMIA applications approved in the 2011-2012 financial
year, were SMMEs, whilst HDIs and other businesses accounted for 3%, and 3%
respectively.
The difference between SMMEs, HDIs, and other-sized businesses are based on the
threshold for sales and B-BBEE status. The HDI distinction is based on the BEE status of
the emerging exporter, and an annual turnover of less than R5 million. The other-sized
businesses are the SMMEs with a turnover of more than R40 million per annum. The
emerging exporters accounted for 17% of the total approved.
The success of the scheme is measured by the achievement of the EMIA objectives and the
export sales generated by the supported companies that have participated in a particular
trade fair. The dti has committed resources to the EMIA scheme in the form of financial and
administrative assistance. The total financial assistance paid to the approved exporters in
the 2011-2012 was R78 million and the sales reported amounted to R6,4 billion.
The dti prioritised financial and administrative assistance to the emerging exporters in order
to reach the EMIA objectives. However, the emerging exporters did not manage to achieve
the expected objectives, because they were not export ready. The literature suggests that
there are certain characteristics that an emerging exporter must have before they are
considered to be export ready. The factors for export readiness include management
commitment, management skills, financial resources, capacity to manufacture, technical
knowledge and international marketing intelligence (Van Eldik: 2003:10). EMIA currently
uses the EMIA product, SARS standing and the size of the company as its main qualifying
criteria to assist exporting companies. In addition, once the company has been selected to
participate in a trade fair, EMIA only pays part of or all the expenses related to travelling,
accommodation, freight forwarding, and building of the exhibition stand for the approved
company. Therefore, EMIA does not take into account the factors of export readiness when
selecting companies to assist.
Emerging exporters must ensure that they fall in the second export category before applying
for assistance from EMIA. This includes being export ready and having an EMIA qualifying
product or service that has been successfully sold in South Africa. The potential exporter
should do an analysis of the strengths and weaknesses of its business to either build upon
the strengths or improve the weaknesses.
9
The EMIA scheme corresponds with the global trends adopted by emerging economies.
Research on exporting suggests that exporters are most likely to achieve superior
performance in foreign markets by adopting standardised marketing approaches like the
EMIA scheme (Aulakh et al., 2000:348). The standardisation of international marketing
strategy refers to the use of a common product, price, distribution and promotion programme
on a worldwide basis (Jain, 1989:70). The world is growing into a single economy and the
exporting companies are able to market standardised products and services using similar
strategies that lead to lower costs and higher profit margins.
The emerging exporter‟s international strategy should support the company‟s overall
business strategy, whether it is regarding cost leadership, differentiation, or a mixture of the
two. For instance, if a company follows an overall business strategy of cost leadership, the
emerging exporter‟s management should develop a marketing strategy that supports cost
leadership for the company‟s products and services from those of the competitors
(De Burca, Brown & Fletcher, 2004:107). According to the dti‟s EMIA guidelines for 2012, an
emerging exporter is an HDI entity such as a Close Corporation (CC), Partnership, Sole
Proprietor or Cooperative, that is at least 51% owned by black persons, women or disabled
people, is not involved in any current exports, has traded locally for more than 12 months,
has an EMIA qualifying product or service, and has an annual turnover of less than R5
million.
These EMIA criteria for emerging exporters will be used throughout the study. The emerging
exporters from emerging economies have to match their internal and external environmental
competitive and comparative advantages with the requirements of the foreign markets in
which they compete (Aulakh, Kotabe & Teegen, 2000:345). Although organisational
characteristics and management risk perceptions have been shown to impact the
management‟s decision to engage in export, the current global competitive environment
asks for the proactive application of specific export strategies to achieve success in foreign
markets (Aulakh et al., 2000:344). The study claims that the South African companies are
lacking the expertise to make them export ready in order to ensure their success in the
foreign market. The factors that facilitate the export readiness of emerging exporters will be
discussed next by means of a set of hypotheses.
2.3 Hypotheses
Earlier, I noted that financial institutions recognise an export ready enterprise, as one that
has done its due diligence on its capacity to enter the foreign market. A financial institution is
a public or private enterprise, such as a bank, of which the main purpose is to collect money
10
from the public and invest it in financial assets such as stocks and bonds, loans, mortgages,
leases and insurance policies (Campbell, 2011). In South Africa, the financial institutions
include banks such as Absa, Nedbank, Standard Bank, Bidvest Bank, First National Bank
and Sasfin, and other institutions like the Small Enterprise Development Agency (Seda) and
Reichmans Capital Trade & Asset Finance. The term „export ready‟ shows that the emerging
exporter asking for financial assistance has done due-diligence to enter into business in the
foreign market. It „qualifies‟ an entity for export assistance on a more consistent, challenging
and advanced level than an emerging exporter in the process of learning how to export, and
that may lack the financial and management commitment necessary to succeed in the
foreign market. The attitude of the emerging exporter‟s management towards exporting, their
resources, capabilities and other considered factors serve as motivation towards being
export ready.
The emerging exporter‟s management should take account of the information gathering and
learning capabilities, and should have the right attitude towards exporting during the
pre-internationalisation phase (Tan et al., 2007:11). The information gathering, learning
capabilities and attitude of emerging exporters will be discussed briefly with regards to
export readiness. An emerging exporter is deemed export ready if the exporter is willing and
able to use information, resources and assistance given in order to achieve its export
objectives (Van Eldik, 2003:10). The gathering of information is an important element of the
exporting process, and whilst all the emerging exporters require similar information, it
appears that different sources of information are used based on the length of exporting
experience they have (McAuley, 1993:52-64). The gathering of information for exporting is
complicated by the fact that access to it and the ability of the user to make the best use
possible of the information may vary. The emerging exporters have to master the skill of
gathering export information and make the most of it. The information gathering facilitates
the taking of informed decisions about the exporter‟s strategic moves, possibly providing a
competitive advantage.
Organisational learning capability can be defined as the organisational and managerial
characteristics that facilitate the learning process and enable the organisation to learn.
Knowledge performance is then explained as the ability of an individual, group or
organisation to understand what they have learned (Shoid & Kassim, 2012:274). The
emerging exporters should identify the factors that encourage learning within their
organisations, improve export performance and be export ready. Organisational learning
assists the emerging exporter to apply the most appropriate and accurate management
practices, structures and procedures to facilitate and encourage learning (Goh, 2003:216).
11
Attitude is a mental state of willingness, organised through experience, exerting a directive
or dynamic influence on the individual‟s response to situations to which it is related
(Allport, 1987:2). The management of the emerging exporter should lead by example so that
it is easy for the other employees to follow. The attitude can be shared in the organisation
through the vision or mission of the emerging exporter. Management attitude is very
important towards getting the enterprise to be export ready.
There are various factors that determine export readiness, including management
commitment to exports, management skills, financial resources, technical knowledge,
capacity to manufacture, and international marketing intelligence. For an emerging exporter
to be regarded as export ready, that exporter must be able to demonstrate achievement of
the six factors that determine export readiness (Van Eldik, 2003:14-19).
2.3.1 Management commitment
Management is the organisational process that includes strategic planning, setting
objectives, managing resources, deploying the human and financial assets needed to
achieve objectives, and measuring results (Mfusi, 2011). Management commitment refers to
any action taken in the present that binds an organisation to a future course of action, and
action becomes commitment if it restricts an emerging exporter‟s options in a way that would
cost money to reverse (Sull, 2003: 84). A strategic plan is a tool used to organise the present
on the basis of the future projections of the desired future. The strategic plan serves as a
road map that leads an organisation from where it is in the present to where it would like to
be at a predetermined time in future (Waldron, Vsanthakumar & Arulraj, 1997). The
management of the emerging exporter should ensure that the strategic plan is simple, clear
and documented, and based on the current organisational situation, and it must be allowed
enough time to be implemented (Waldron et al., 1997). The business objectives are the
areas of emphasis that the organisation plans to continue improving or achieve, such as to
get a certain market share within a certain period (Waldron et al., 1997).
It is the duty of the emerging exporter to ensure that the company has specific and attainable
objectives and develop actions through which to achieve these objectives. The business
resources refer to the factors of production, namely human capital, land, capital and time.
The emerging exporters have to optimally manage the factors of production in order to be
export ready. Finally, the definition of management states that all the components of
management must be measured by the emerging exporter. In addition, management
commitment is also reflected by the level of human, financial and time resources, for
example, that are deployed to make the company export ready (Sull, 2003:85). Commitment
12
from the emerging exporter‟s management is the most important determining factor of export
success. The emerging exporter‟s management commitment towards export readiness will
be measured by the achievement of the different components of management, which have
been summarised in Figure 1.
Management therefore include strategic planning, time, setting objectives, managing
resources, allocating human and financial resources, and measuring the results. The
definition of management is detailed and can best be summarised as follows:
Figure 1: Management – components of management
Source: UNCW (2013)
Furthermore, the management commitment is reflected by the emphasis on the entity‟s
development through learning, resource allocation and decision making during the export
readiness stage. The emerging exporter‟s export readiness is achieved through incremental
decisions and commitment (Tan et al., 2007:4). A committed emerging exporter would
deploy as many resources as possible to export readiness.
Management
Strategic planning
Time
Setting objectives
Managing resources
Deploying human and
financial assets
Measuring results
13
Few emerging exporters approach exporting with sufficient management commitment and
confidence (Cavusgil & Zou, 1998:349). The management‟s international vision and
perceived importance of exporting facilitates the export readiness of the emerging exporter.
Their confidence is another determinant of export readiness. Most potential exporters have
the perception that exporting is too hard; as a result they do not commit enough resources to
it and therefore do not become export ready (Moghaddam, Hamid, & Aliakbar, 2012: 5151).
A strong and sustainable commitment from management is also usually required to
successfully compete internationally. Management commitment to an export programme
usually requires a substantial amount of time from key personnel, as well as the commitment
of sufficient resources to develop and manage the programme effectively. A long-term
commitment from management can facilitate market entry and expansion, and therefore lead
to successful export (UWS, n.d.).
The emerging exporter‟s management commitment to exports for the business is a very
important aspect of export readiness. This is due to the fact that management is responsible
for drafting and executing the vision, mission and goal of the emerging exporter, and for
committing the resources. This includes crafting strategies or export plans that the
management deems fit to achieve its intended goals and objectives. Many businesses tend
to achieve export success if the reason for exporting is in alignment with their overall
strategic goals and objectives. The reluctance of management to be involved in developing
an export plan from the onset whilst building relationships with key stakeholders in the
international market may actually hinder export success and market penetration (Van Eldik,
2003:12). The reluctance of management to get involved could be due to a short-term
perspective and attitudinal factors related to the export programme.
The commitment of the emerging exporter‟s management towards the business can vary
widely, from capital investments, human resource management, making public statements,
and deciding on the direction of the business, to decisions on whether or not to engage in
exports, and each management commitment should have both immediate and long-term
influence on the emerging exporter (Sull, 2003:84).
Exporting requires the management of the company to learn new processes and be
adaptable to the different requirements and regulations that each new country of export
bring. It is thus necessary to do market research about the intended market, and the
surrounding political and economic environment (Food Export Association, 2011). The
emerging exporter‟s management first has to conduct market research in the foreign market
to identify opportunities and risks before committing resources to the exporting venture. Over
14
a period of time and in combination with other favourable business factors, a management‟s
commitment to exports shape the business identity, define the business strengths and
weaknesses, establish its opportunities and threats, and sets the business direction (SA dti,
the, Export opportunities, n.d.).
Secondly, the decision to export should not be taken lightly because of the risks involved,
and management has to ensure the survival of the company. The export risks involved
include country-specific risks like wars, credit or financial risks like interest rates, the
exchange rates, transportation risks such as pirates, and other risks like language barriers.
Management commitment to export programmes also brings confidence to the different
stakeholders of the emerging exporter such as investors, customers, and employees,
because it backs their intentions with action (Sull: 2003:84). This entails that management
has a long-term view of the exports, which means that even if it takes longer to get export
orders, management will still be committed to the export strategy (UWS, n.d.).
According to Valos & Baker (1996:15), the PricewaterhouseCoopers report on public
hospital purchases of medical products (1990) found that a lack of long-term perspective and
attitudinal factors of the emerging exporter‟s management caused lack of commitment,
which affected the export readiness of the company. The report found that companies fail
both in practice and in the attitude towards exporting as a result of lack of management
commitment to exports. Management must be realistic and know that export programmes
involve long-term objectives and not short-term pay-offs. I therefore hypothesise that:
Hypothesis 1 The management commitment is positively related to export readiness
2.3.2 Management skills
Management skill is a learned capacity to carry out pre-determined results, often with the
minimum outlay of time, energy, or both (Söderbom & Teal, 2000:4). It is also the ability to
recognise, organise, execute, evaluate, and delegate. A management skill in international
business is a clear process that can be taught or learnt and that takes time, dedication and
self-discipline (Isaacs & McAllister, n.d.:134). It is an export readiness skill to be able to take
information, resources, and assistance that is given and use it to achieve export readiness
(Van Eldik, 2003:10). The management of an emerging exporter needs to have a
combination of skills in order to be successful in international business. The emerging
exporter that seeks to enter a foreign market needs export managers to carry out the
required export activities. The exporting of products requires management and personnel
with international trade experience and specialised skills in logistics, dealing with custom
15
clearance, foreign sales, and fluency in the foreign language of the host country (Van Eldik,
2003:70). The Management Skills Pyramid (Figure 2) shows all the basic skills that a
manager should master to be successful in international business, and shows how these
skills build on each other towards success (Full Management – Skills Pyramid, 2009:89).
Figure 2: Management skills pyramid
Source: Full Management – Skills Pyramid, 2009:89
The management skills are therefore intended to effectively and efficiently get the results
through action. The management skills of the emerging exporter are measured through the
efficiency and effectiveness with which its leaders can inspire the emerging export team
through leadership, improving and developing themselves through self-management,
developing staff through motivation, training and coaching, employee involvement, and
finally, through the results of getting the firm export ready through planning, organising,
directing, and controlling all the factors of production with minimum effort, energy and time
(Prasad & Gulshan, 2011:1).
Aspects of management skills that increase an enterprise‟s export readiness include in
international business include the ability to decentralise various emerging exporter functions
to the foreign market and develop managers in that market. According to Valos and Baker
(1996:15), close relationships between the workers and management, manager education
level and general management skills are very important for export readiness and success.
Skills such as processing export orders or selling to foreign buyers are advantageous as
well, and it is important for the emerging exporter to incorporate these skills at senior
management level. If the emerging exporter does not have some of these skills and
experience, it will be to their detriment. However, some services, such as logistics and
16
language interpreters, can be outsourced to other companies. Management should also
have an understanding of the export procedures and knowledge of the different stakeholders
involved in the export process (SA dti, the, Business ready to export? n.d.).
The management of the emerging exporter has to ensure that there are enough people at
the senior decision-making level that have international business experience that are
valuable, not easily imitable, resources that are rare and specific to the organisation.
According to the resource-based view, emerging exporters have a limited number of
resources and capabilities. When the skills are valuable, rare, not easily imitable, and
organisationally specific (VRIO), the proper use of the resources allows the emerging
exporter to achieve a sustainable competitive advantage (Aulakh et al., 2000:359). A
hypothesis has been developed that:
Hypothesis 2 The management skills of an enterprise are positively related to their export
readiness.
2.3.3 Financial resources
Financial resources refer to the disposable money available to the business in the form of
cash, liquid securities, and short-term credit. Before any business can go into an export
venture, the management of the business should be secure, with enough financial resources
to operate efficiently and meet its objectives (Wrigley, 2000:292). A liquid asset is an asset
that can be converted into cash quickly with little or no loss of value (Diamond & Dybvig,
1986). Short-term credit is a bank loan with a maturity date of less than a year (Kpodar &
Gbenyo, 2010:3).
The emerging exporter has to ensure that the company has enough disposable income
when doing business in a foreign country. Emerging exporters can finance export
undertakings either internally and/or with external finance. The lack of export finance hinders
the export readiness of emerging exporters. For an emerging exporter to be export ready
and successful, enough funding must be available to acquire assets, to fund production cost,
pay for warehousing and logistics, and for working capital and other overheads. If internal
funds are not enough to support export activities, external funds can be sourced from
commercial banks and other financial service providers. Engaging in the international export
market can require substantial funding in the initial stages and later on – to finance working
capital, product alterations, logistics, and daily operations (Buljevich & Park, 1999:15).
17
The emerging exporter‟s management should identify main sources of finance and key items
to be financed in order to get export ready (Lindemane, 2011:960). The lead times between
different stages of the export process, such as production, distribution and receipt of
payment, are normally longer for international transactions. The ability to take calculated
risks and to make financial commitments should be an intrinsic part of the emerging
exporter‟s characteristics (Van Eldik, 2003:10). The emerging exporter‟s financial position is
measured by the availability of different forms of financial resources.
This section of the study is based on the emerging exporters that have to seek external
funding for their export operations (Buch, Kesternich, Lipponer & Schnitzer, 2010:1).
Emerging exporters should avoid running into financial constraints preventing them from
achieving their export objectives. The financial constraints may be due to characteristics that
are specific to emerging exporters or to the export sector. Constraints specific to the
emerging exporter may include a customer structure that could result in liquidity problems.
The quality of the emerging exporter‟s management and the ability of the external investors
to extract financial information and creditworthiness from the company may also pose
problems. The availability and quality of fixed assets that can be used to secure loans also
determine the ability of the emerging exporter to raise finance for its export activities (Buch
et al., 2010:1).
The sector-specific characteristics relate to production technologies used and the finance
raised will be for acquiring the relevant technology. Country-specific financial constraints
refer to constraints in the respective financial markets of the home and host countries (Buch
et al., 2010:1). The business should have adequate cash, savings, or access to finance to
sustain the production for at least a year or two. In addition, the business should also have
sound financial systems in place for managing expenses and income on a daily basis. The
financial resources should be enough to sustain the business for at least two years, as the
business is unlikely to make a profit during the time that it seeks to establish itself in the
foreign market (SA dti, the, Business ready to export?, n.d.). The financial resources should
exceed the local needs to support export market development, because it is often more
costly to establish a business abroad than is it is locally.
Discussed below are the types of export financing required by the emerging exporter that
wants to be export ready.
18
Table 2 : Types of finance needed by emerging exporters
Pre-shipment finance Definition Purpose
Auboin & Meier-Ewert (2003) states that, Export Trade
Finance (ETF) is the financial facility available to emerging
South African exporters to enable them to finance export
on a pre- or post-shipment basis. It is short-term in nature
and is made available in the form of a loan denominated in
foreign currency, and the financing period is not more than
12 months. The capital and interest rates of the loan are
paid in foreign currency at the end of the financing period.
The UNESCAP (2005:18), states that pre-shipment
finance is the amount of money required for the purchase
of raw materials, components and parts to fulfil the sales
order. The pre-shipment finance is provided by a financial
institution like a bank, when the seller of the goods wants
the payment before the shipment of the goods.
- Procure raw materials
- Carry out manufacturing
of the goods to be sold or
exported
- Provide a warehouse for
goods and raw materials
- Storage for manufactured
goods
- Transport the goods to
the customers
- And to serve as working
capital to the business
Post-Shipment finance
According to the UNESCAP (2005:18), this is the amount
of funds required to finance the operation during the
period between the dispatch of goods and receipt of
payment. It is required for the daily expenses of operating
the business and includes overheads, labour and the
costs of maintaining production equipment.
- It is required for the daily
expenses of operating the
business and includes
overheads, labour and the
costs of maintaining
production equipment.
Source: UNESCAP (2005:18-19)
The main sources of finance needed for exporting can be divided into two categories: (1)
Pre-shipment finance is required to procure raw materials, manufacture the goods to be sold
or exported, provide a warehouse for goods and raw materials, store the manufactured
goods, transport the goods to the customers and serve as working capital for the business,
(2) Post-shipment finance is required for the daily expenses of operating the business and
includes overheads, labour costs and the maintenance of the production equipment. The
lack of pre- and post-shipment finance by the emerging exporter hamper the company‟s
attempt at being export ready.
The lack of support from financial institutions has a negative impact on the export readiness
of exporting companies (Valos & Baker, 1996:13). The inability to allocate or raise funds by
the emerging exporter can cause the failure of the emerging exporter in achieving its
objectives related to export readiness. I hypothesise as follows:
19
Hypothesis 3 The financial resources of the enterprises are positively related to their export
readiness.
2.3.4 Technical knowledge
Technical knowledge involves undertaking efforts such as research and development in
order to offer improved products to suit the international market. Access to technical
knowledge assists the emerging exporter‟s management in matching or surpassing the
competitors‟ product attributes in order to meet customer expectations and to be export
ready.
Emerging exporters should ensure that the management of the business has access to the
technical expertise required to manufacture a product suitable for the international market in
terms of design, quality and function. Product design defines the product‟s characteristics,
such as its appearance, materials used to make it, its dimensions, tolerances and
performance standards. Product design incorporates different functional departments of the
company, including marketing analysts, art directors, engineers and finance to plan
strategically (Reid & Sanders, 2013:42). Emerging exporters have to do thorough market
research in order to only provide products with acceptable product designs and to keep up
with the current trends. Product quality is the ability of the product to fulfil the customers‟
needs and expectations (UNIDO, 2006:1).
Product performance can also be defined as the products ability to meet customer
expectations. There is a perception that consumers in developed economies view products
and services from the emerging economies negatively and associate them with low prices
and low quality (Cordell, 1993:5). The emerging exporters need to understand their customer
needs and expectations in order to be able to define the level of quality and performance
that is expected. The company should also change negative perceptions associated with the
product through meeting the quality and performance expectations of the customer.
Superior product quality and good technical knowledge can give the emerging exporter an
advantage over their competitors who may not have such attributes. The emerging exporter
has to choose which attributes to capitalise on, whether product packaging, after-sales
service, delivery, or pricing (Van Eldik, 2003:13). Export-ready companies should
demonstrate their technical knowledge by providing unique and superior products and
packaging that are well-adapted to the target market, offer good value for money, and are
always delivered on time. The company should also provide an excellent pre- and post-sale
service (Valos and Baker: 1996:13). The following hypothesis has been set:
20
Hypothesis 4 The technical knowledge of the enterprise’s management is positively related
to their export readiness.
2.3.5 Manufacturing capacity
The capacity to manufacture refers to the volume of products that can be manufactured by
the production plant or emerging exporter in a given time using the available resources
(Vollmann, Berry & Whybark, 1997:141). Emerging exporters seeking to be export ready
should ensure that their entities are able to manufacture extra products for the foreign
market without compromising the supply for the local market. Secondly, the entity should be
able to produce at short notice and without major capital investment (SA dti, the, Business
ready to export?, n.d.). The capacity to manufacture is measured by the amount of additional
resources that should be made available to manufacture for the foreign market.
The emerging exporters engaging in the foreign market should have additional
manufacturing capacity. This includes the additional provision of space, raw material,
warehousing and personnel. The emerging exporters who do not have the additional
manufacturing capacity run the risk of losing either their local or foreign customers. The
management of the emerging exporter has to do proper capacity planning in advance to
ensure that they are able to produce the required products on demand. Aaby and Slater
(1989:350) found that the reliability of the emerging exporter to manufacture goods and
provide services to satisfy customer demands has a big impact on the export readiness of
the emerging exporter. The emerging exporter that is export ready has to be able to
manufacture goods and provide services reliably all the time. I therefore hypothesise as
follows:
Hypothesis 5 Capacity to manufacture goods and provide services is positively related to
export readiness.
2.3.6 International marketing intelligence
Marketing intelligence involves conducting thorough market research in order to understand
the foreign market for the entity‟s products as well as the profile of its competitors and their
prices. In addition, the entity has to gather information on the size of the market in the
foreign country, substitute products and potential buyers of the product (SA dti, the,
Business ready to export?, n.d.). Marketing intelligence is measured by the response of the
target market to the marketing strategies of the emerging exporters. It is also measured by
21
the ability of an emerging exporter to understand the customers and competitors and use
appropriate actions to capitalise on or counter the actions of its competitors.
Marketing intelligence also deals with marketing expertise, planning, analysis and niche
targeting – all important factors relating to export readiness. Export-ready companies would
excel in their export endeavours if they have additional funds and additional marketing skills
(Valos & Baker, 1996:13). The PricewaterhouseCoopers report (1990), as cited by Valos &
Baker (1996:13) found that exporting companies that are not export ready generally fail in
their marketing attitudes and practices. One of the major contributing factors causing failure
is that companies lack international marketing skills. According to the report, there are many
cases of products that failed in the foreign market because of a lack of attention to the needs
and preferences of the local markets, and the failure to integrate market research with the
production process at an early stage.
Emerging exporters should have an understanding of how cultural differences and consumer
behaviour affect marketing decisions in an emerging exporter‟s external and international
operations (Tse, Lee, Vertinsky & Wehrung, 1998:81). This understanding can be used to
predict strategic moves and responses of competitors, and to design effective competitive
strategies (Tse et al., 1998:15). Knowledge of the impact of cultural and consumer behaviour
of foreign customers makes better internal coordination of management decisions possible.
A better understanding of the consumers facilitates better responsive strategies to satisfy
their needs.
An emerging exporter that is not prepared to understand the culture of the consumers in its
foreign target market is most likely to use marketing practices that will not be understood by
the intended consumers. The company will therefore not succeed in meeting its export
objectives. The entity also runs the risk of never learning what the real profile and
demographics of their customers and competitors look like.
The following factors were most often found to be the cause of failure for emerging export
companies that were not export ready: unsound export marketing methods and skills, not
being able to find a niche market, not properly monitoring changes in the market, not being
able to develop a good marketing strategy or customer responsiveness (Valos & Baker,
1996:15). It is clear from the literature that international marketing intelligence is very
important for the export readiness of the emerging exporter. If it wants to be export ready,
the emerging exporter has to ensure that all the factors affecting its international marketing
are addressed. The hypothesis is:
22
Hypothesis 6 The enterprise’s international marketing intelligence is positively related to
export readiness.
2.4 Summary Table 3 gives a summary of the hypotheses and the sources of main literature used per
hypothesis.
Table 3: Summary of hypotheses.
Hypothesis Source
1. Management commitment
H1 The management commitment is positively related to
export readiness
Hilmer & Arcus (1992:15); SA dti, the, Export opportunities
(n.d.); Stuhlman (2012); Sull (2003:84 & 86); Tan et al.
(2007:3); UNCW (2013); UWS (n.d.); Valos &
Baker (1996:15); Van Eldik (2003:10 & 12); Waldron et al.
(1997).
2. Management skills
H2 The management skills of an enterprise are positively
related to their export readiness.
Full Management – Skills Pyramid (2009:89);
Isaacs & McAllister (n.d.:134); Kotabe et al. (2002:79); Prasad
& Gulshan (2011:1); SA dti, the, Business ready to export?
(n.d.); Skills Leaders Center (2007); Valos & Baker (1996:15);
Van Eldik (2003:10 & 70).
3. Financial resources
H3 The financial resources of the enterprises are positively
related to their export readiness.
Auboin & Meier-Ewert (2003) , Buch et al. (2010:1); Buljevich
& Park (1999:15); Diamond and Dybvig (1986); Kpodar &
Gbenyo (2010:3); Lindemane (2011:960); SA dti, the,
Business ready to export? (n.d.); UNESCAP (2005:18-19);
Valos & Baker (1996:13); Van Eldik (2003:10); Wrigley
(2000:292).
4. Technical knowledge
H4 The technical knowledge of the enterprise’s management
is positively related to their export readiness.
Cordell (1993:5); Reid & Sanders (2013:42); UNIDO (2006:1);
Valos & Baker (1996:13); Van Eldik (2003:13).
5. Manufacturing capacity
H5 Capacity to manufacture goods and provide services is
positively related to export readiness.
Aaby and Slater (1989:350); SA dti, the, Business ready to
export? (n.d.); Vollmann et al. (1997:141).
6. International marketing intelligence
H6 The enterprise’s international marketing intelligence is
SA dti, the, Business ready to export? (n.d.); Tse et al.
(1998:15 & 81); Valos & Baker (1996:13 & 15).
23
positively related to export readiness.
Research suggests that, once an enterprise is export ready, they have to make sure that the
product to be sold in the foreign market is also export ready. The product readiness will not
be discussed in detail, as it is a research topic on its own. However, these are the factors
that determine if the product is ready for exporting: market potential, product adaptability,
cost structure, competitor‟s product, product complexity and rights to sell the product
internationally (SA dti, the, Product ready to export?, n.d.).
24
Chapter 3: Research Methodology
The empirical research survey will take the form of the positivistic paradigm as it is
associated with quantitative and deductive research philosophies. In a deductive approach
the researcher works from the more general information to the more specific. The research
is based on theory; hypotheses are set and tested, and the data results then confirm the
theory (Johnson & Onwuegbuzie, 2004).
This study will employ a mono-methodological approach, which means adopting a single
approach, a quantitative approach in this case, (Leeds Metropolitan University, 2013). The
primary method of collecting data will be a questionnaire. The research questionnaire is
suitable for this survey as it will allow for more data to be collected from a number of
respondents without affecting validity and reliability of the of the research (Saunders, Lewis,
& Thornhill, 2012:429). The main source of literature used in this study was based on the
study conducted by Aulakh et al. (2000:342-361) on a sample taken from Brazil, Chile, and
Mexico. The second source was Tan et al. (2007:294-309) on a study conducted in
Australia. Both these sources were suitable because they are recent and they used sources
from different countries.
3.1 Research Design
The methodological approach adopted for this study is a survey. A survey is an approach
normally associated with the deductive research approach and tends to be used for
exploratory or descriptive research. Surveys using questionnaires all for the collection of
standardized data from a sizeable population in an economical way that allows for easier
comparison (Saunders, 2012). The survey strategy is easier to understand and explain.
Saunders (2012) further contends that the data collected using survey strategy can be used
to suggest possible reasons for particular relationships between variables and to produce
models of these relationships. Using sampling in survey approach makes it possible to
generalize the findings at a lower cost that when you are collecting the data for the whole
population, and the analysis of data becomes easier.
The survey approach also has a number of disadvantages that include data collected by the
survey is unlikely to be wide-spread as other approaches due to the limited number of
questions that can be asked (Saunders, 2012).
25
3.2 Population and sample
Every year, the dti‟s Trade Investment South Africa (TISA) captures all the names of the
companies who applied for EMIA support per type of business into a database according to
the criteria in Table 1. The exporting companies are then categorised according to size, and
emerging exporters are put in a different database, including the contact details of the
owner, the province, the sector and main type of business.
The population for this survey is all the emerging exporting companies that are mentioned in
the paragraph above. The population for this study is therefore representative of different
provinces, and sectors; however, since new companies, not previously on the TISA
database, decided to engage in exports, such companies might not have been included in
the sample at the time of the study. A sample of 1 300 emerging exporters was drawn from
the TISA emerging exporters‟ database. A sample of 338 was randomly selected from the
bigger sample, and 338 questionnaires were sent to the emerging exporters via e-mail. Of
the questionnaires sent, 64 were received after two months. Reminder e-mails were sent
again to respondents who did not answer, and they were then followed up by a phone call.
At the end of three months 103 questionnaires were received, which represents a response
rate of 31% (103/338).
It is often impossible to collect or analyse data from every possible data available owing to
restrictions of time, money and access. Sampling techniques enable the reduction of the
amount of data that needs to be selected by considering only data from a subgroup rather
than all possible cases or elements (Saunders et al., 2012:259). Probability sampling
technique (random sampling) was used for the study. The probability sampling was used
because it represents the population, which helped to obtain a high response rate and
reduced non-response bias. The sampled companies were sourced from the EMIA
application process, the walk-through customers who had made trade-related enquiries,
export councils affiliated to the dti, provincial investment departments and the EMIA
workshops conducted in different provinces on a monthly basis.
The question on emerging exporter background confirmed that the owner completed the
questionnaire. Of the respondents who participated in the sample, 9 respondents had below
matric qualification, 18 had matric, 36 had a degree or diploma, 33 had a post-graduate
qualification and 3 did not respond to the question. The majority of respondents were female
(n = 62), followed by male respondents (n = 36). Five respondents did not answer the
gender question. Fifty-two respondents had family businesses before opening their own, and
thirty-eight did not have family businesses prior to opening their own, nine respondents were
26
neutral in their responses on this question, which suggested that they did not have family
businesses or were not comfortable answering the question.
Finally, the sample was representative of all the provinces, sectors and races, which means
that the sample was not biased. Gauteng province had 102 companies in the database, the
Western Cape 66, KwaZulu-Natal 21, North West province 8, Mpumalanga 5, the Eastern
and Northern Cape 4 each, and Limpopo only 1. The sectors included agro-processing,
capital equipment, automotive, chemicals, minerals, and electro-technical.
3.3 Measures
A total of 32 questions were asked using a Likert scale (1 = strongly agree, 5=strongly disagree)
on the sample selected from the dti‟s emerging exporters database. These questions are shown
in Table 4 below.
Table 4: Measures
Variable Items measured
Export readiness The business is currently generating 25% of revenue from
exports.
Management commitment a. Are you able to commit a substantial amount of time to
developing an international market in the initial stages?
b. Are you convinced that exports are an important aspect of
your future survival?
c. Do you have a long-term view on developing your export
market, meaning that, even if it took time before you
succeeded in winning your first order, would you still
remain committed to exporting?
d. Are you prepared to rearrange the way your business
operates, should it be required, to become internationally
competitive?
27
Variable Items measured
Management skills a. Do you have any experience, or have access to available
expertise, in selling products to other countries?
b. Do you have experience, or have access to available
expertise, in processing export orders?
c. Do you have any understanding of the export procedure
and knowledge of the various role players involved in the
export process?
Financial resources a. Do you have (or have access to) adequate financial
resources over and above your local needs to support an
export market development programme?
b. Can you afford to fund your export market development for
at least 12 months without receiving returns?
c. Can you afford to invest in adapting your product or
packaging to suit the international market, if required?
Technical knowledge a. Does your business (or do you) have access to the
technical expertise required to ensure that your product is
suited to the international market in terms of design, quality
and function?
b. Does your business undertake research and development
to improve your product?
c. Are you familiar with the attributes of the products of
potential international competitors?
d. Does your business have an efficient system and sufficient
resources to ensure timely delivery of the product, product
adaptations and excellent after sales service?
Manufacturing capacity a. Can you increase your capacity to produce at short notice
without any major capital investment?
b. Does the business have the capacity to provide additional
space, raw materials, warehousing and personnel above
the domestic market needs?
28
Variable Items measured
International marketing intelligence a. Do you have any current knowledge of international
competitors, their products or prices?
b. Do you have information on the size of the world market for
your product?
c. Do you have knowledge of potential buyers for your
product?
d. Our product(s) comply with the well-known and
acknowledged South African Bureau of Standards (SABS)
and/or other international standards and/or specifications.
e. We have an understanding of export procedures and the
role of the EMIA scheme in export marketing.
Multi-item scales were developed for the variables of management commitment,
management skills, financial resources, technical knowledge, manufacturing capacity and
international marketing intelligence. Reliability of the variables used in the research was
measured using Cronbach‟s alpha3 (α). It determines the internal consistency or average
correlation of items in a survey instrument to gauge its reliability (Santos, 1999). Cronbach's
alpha is an index of reliability associated with the variation accounted for by the true score of
the „underlying construct‟. The alpha coefficient ranges in value from 0-1, and the higher the
score, the more reliable the scale (Nunnaly, 1978:245-246). Alpha value α ≥ 0.9 is excellent
for testing, 0.7 ≤ α < 0.9 is good, 0.6 ≤ α < 0.7 is acceptable, 0.5 ≤ α < 0.6 is poor, and α <
0.5 is unacceptable. All the scores that were used were good and scores that were below
0.6 were not used.
The statement, „The business is currently generating at least 25% of revenue from exports.‟
was run on Stata software using Cronbach‟s Alpha. It indicated a reliability of 0.72 and was
therefore selected as a dependent variable for measuring export readiness for this study.
3.3.1 Control Variables
I also controlled for numerous influences on export readiness.
Family background: I used a question “Did your family run any business prior to you
opening your own business?” to assess the family background of the enterprise owner. It
3 In statistics, Cronbach's (alpha) is a coefficient of internal consistency. Cronbach‟s alpha is the
most commonly used measure of reliability (i.e., internal consistency). It was originally derived by Kuder & Richardson (1937) for dichotomously scored data (0 or 1) and later generalized by Cronbach (1951) to account for any scoring method. (Bland & Altman, 1997)
29
has been found that owners who have family members who have operated businesses will
have direct experience having worked with their family or have a high sense of intuition
about business (Birley, 1988:4).
Education: I used a question “What is your level of education?” to assess the education
level of the entrepreneur. The findings are that there is a positive relationship between
export readiness and education. An assumption can be made that the emerging exporters
who are educated are more likely to be export ready than emerging exporters who are not.
Successful entrepreneurs have higher levels of education compared to that of unsuccessful
entrepreneurs (Chiliya & Roberts, 2012:466). Education facilitates a higher quality of
business performance and export readiness.
The control variables used were the family background and level of education of the
emerging exporter. The control variables affected the dependent variable of export readiness
significantly; hence they had to be controlled. It is important to control the two variables to
see if there is causal effect on export readiness. There is not a strong relationship between
the family background of the emerging exporters and export readiness. Education (Skill to
recognize export opportunities) and completing business related courses are both correlated
with the intention to start a new business (Chang, Memili, Chrisman, Kellermans & Chua,
2009:51). Prior knowledge of the firm (education, skills) assists the emerging exporter to
identify opportunities that are worth pursuing and lead to export readiness.
3.4 Statistical Procedures
Management commitment to exports: - Table 4 has the values that were calculated using the
Cronbach‟s Alpha. Management commitment had a score of 0.83 which is reliable and high.
The value of 0.7 ≤ α < 0.9 is good.
Management skills in international business: - Table 4 lists the values that were calculated
using the Cronbach‟s Alpha. Management skills had a score of 0.83 which is reliable and
high. The value of 0.7 ≤ α < 0.9 is good.
Financial resources: - Table 4 lists the values that were calculated using the Cronbach‟s
Alpha. Financial resources had a score of 0.73 which is reliable and high. The value of
above 0.5 is considered to be good.
Technical knowledge:- Table 4 lists the values that were calculated using the Cronbach‟s
Alpha. Technical knowledge had a score of 0.86 which is reliable and high. The value of 0.7
≤ α < 0.9 is good.
30
Manufacturing Capacity: - Table 4 lists the values that were calculated using the Cronbach‟s
Alpha. Manufacturing capacity had a score of 0.72 which is reliable and high. The value of
0.7 ≤ α < 0.9 is good.
International marketing intelligence: - Table 4 lists the values that were calculated using the
Cronbach Alpha. International marketing intelligence had a score of 0.81 which is reliable
and high. The value of 0.7 ≤ α < 0.9 is good.
A regression analysis was conducted on Stata statistical software. I regressed the export
readiness variables against each of the multi-item scales to test for each hypothesis. Each
regression also included the two control variables. There were six regressions in total.
31
Chapter 4: Results and findings
All the questions in the questionnaire were measured for reliability and the scores measured
per question were as follows:
Table 5: Reliability scores
Research Question Level of reliability measured
Management commitment 0.83
Management skills 0.83
Financial resources 0.73
Technical knowledge 0.86
Manufacturing capacity 0.72
International marketing intelligence 0.81
It was observed that all the reliability scores that were measured were within recommended
reliabilities suggested by literature. The values of 0.7 ≤ α < 0.9 are good.
32
Table 6 below displays means, standard deviations, and bivariate correlations of the study
variables.
Table 6: Descriptive statistics and correlations
Me
an
Sta
nd
ard
Devia
tion
Fa
mily
ba
ckg
rou
nd
Ma
nag
em
en
t Co
mm
itmen
t
Ma
nag
em
en
t Skills
Fin
an
cia
l Reso
urc
es
Te
ch
nic
al K
no
wle
dg
e
Ma
nu
factu
ring
Cap
acity
Inte
rnatio
na
l Ma
rketin
g
Inte
llige
nce
Export readiness
3.13 1.57 1
Family Background
2.8 1.55 0.0812 1
0.4318
Education 8.97 0.96 0.0118 0.9074
-0.2054*
1
0.0447
Management Commitment
1.51 0.54 0.1396 0.0585 0.1523 1
0.1682 0.5714 0.1305
Management Skills
2.16 0.93 -0.0106 -0.1583 0.3337* 0.2703* 1
0.9169 0.1234 0.0007 0.0065
Financial Resources
3.18 0.95 0.2113* -0.0302 0.2879* 0.146 0.4791* 1
0.0367 0.7717 0.0039 0.1494 '0.0000
Technical Knowledge
2.21 0.94 0.0811 -0.0456 0.2917* 0.3340* 0.6716* 0.5334*
0.427 0.6609 0.0034 0.0007 '0.0000 '0.0000
Manufacturing Capacity
2.29 0.86 0.1231 0.0157 0.3022* 0.3341* 0.4897* 0.4932* 0.6226*
0.2272 0.8803 0.0024 0.0007 0 0 0
33
International Marketing Intelligence
2.24 0.833 0.1177 -0.0664 0.4251* 0.2591* 0.5684* 0.4715* 0.6769*
0.2484 0.5228 0 0.0096 0 0 0
*p<0.05, *(p-value less than 0.05)
Hypothesis 1 (H1) proposed that the management commitment of emerging exporters is
positively related to their export readiness. As shown in Model 1 in Table 7, the effect size (β =
0.65, p<0.038) is both high and significant. These results support Hypothesis 1.
Hypothesis 2 (H2) stated that that the management skills of emerging exporters are positively
related to their export readiness. As shown in Model 2 in Table 7, the effect size (β = 0.59,
p<0.00) is very high and significant. The findings support the Hypothesis 2.
Hypothesis 3 (H3) suggested that the financial resources of emerging exporters are positively
related to their export readiness. As shown in Model 3 in Table 7, the effect size (β = 0.48,
p<0.006) is both high and significant. The findings support Hypothesis 3.
Hypothesis 4 (H4) stated that the technical knowledge of emerging exporters are positively
related to their export readiness. As shown in Model 4 in Table 7, the effect size (β = 0.54,
p<0.001) is high and significant. The results support Hypothesis 4.
Hypothesis 5 (H5) suggested that the manufacturing capacity of the emerging exporter is
positively related to export readiness. As shown in Model 5 in Table 7, the effect size (β = 0.54,
p<0.000) is very significant and high. The results support Hypothesis 5.
Hypothesis 6 (H6) proposed that the international marketing intelligence of the emerging exporter
is positively related to export readiness. As shown in Model 6 in Table 7, the effect size (β = 0.77,
p<0.000) is very significant and high. The findings support Hypothesis 6.
34
Table 7: Results for hierarchical regression models of export readiness and factors of export readiness
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
Family
background
-0.01 0.02 -0.04 0.01 -0.00 -0.02
Education -0.35* -0.25 -029* -029 -032* -0.29*
Management
commitment
0.65*
Management
skills
0.59*
Financial
resources
0.48*
Technical
knowledge
0.54*
Manufacturing
capacity
0.54*
International
marketing
intelligence
0.77*
F 2.86 5.90 4.14 6.43 5.89 9.22
R-square 0.0864 0.1554 0.1183 0.1337 0.1259 0.2026
N=100
*p<0.05
It can be concluded that the six factors discussed are positively related to export readiness.
Table 7 shows that education, which was used as a control variable, is very high and
significant for all the six models tested. This proves that there is a positive relationship
between people who are well educated and export readiness. An assumption can be made
that the emerging exporters who are educated are more likely to be export ready than
emerging exporters who are not. International marketing intelligence was also significant
with a high R-square (20.26%) compared to other factors of export readiness.
35
Chapter 5: Final Conclusion
5.1 Major findings
This study set out to explore the factors that facilitate export readiness. The results of this
study suggest that management commitment, management skills, financial resources,
technical knowledge, capacity to manufacture and international marketing intelligence have
a positive relationship with export readiness.
Two models will be used to explain the export readiness of the emerging exporter, namely,
the Uppsala model and the Innovation model. The Uppsala model describes the export
readiness of the emerging exporter. The Uppsala model advocates for a process of gradual
international involvement with interaction between the development of knowledge about
foreign markets and operations, and increasing the commitment of resources to the foreign
country (Chandra, Styles & Wilkinson, 2009:33). The first stage of the Uppsala model
concerns knowledge about foreign market and resource commitment; the second one
regards decisions to commit resources, and the third is about the performing of current
business activities through the accumulation of experiential knowledge (Tan et al., 2007:4).
The Uppsala model assumes that the emerging exporter identifies business opportunities in
each stage of the export readiness market involvement, but fails to explain the process of
opportunity identification (Chandra et al., 2009:33). The Uppsala model works best where
the emerging exporter progresses from no regular exporting to exporting via trade agents,
and eventually through a subsidiary or by opening a manufacturing plant in the foreign
country.
According to the Innovation model, an emerging exporter learns through distinct stages of
increasing management‟s export commitment, with the emerging exporter‟s management
initially disinterested but becoming involved as an „experimental‟ exporter, and developing
over time into an active exporter, who then ultimately becomes a committed exporter (Tan et
al., 2007:4). The weakness of the Innovation model is that it does not state when the
different developmental stages start and end.
The theoretical framework of the two models links foreign commitment with the accumulation
of experiential knowledge, but neither of the two models explains when the process of
experiential knowledge begins (Tan et al., 2007:5).
There is a high level of significance between emerging exporters‟ educational level and
export readiness. The level of significance between export readiness and management
36
commitment is (β =0.65, p<0.038), and between management and financial resources is
significant at (β =0.48, p<0.00), level of significance between education and capacity to
manufacture is (β =0.54, p<0.00), and between education and international marketing
intelligence is (β =0.77, p<0.00). Education, management skills and technical knowledge
have no levels of significance.
The competencies of export readiness follow. Management commitment and export
readiness had a very high level of significance at 0.65, suggesting a positive relationship.
Management commitment has been cited as one of the most important factors affecting the
success of a firm (Ahire and O‟Shaughnessy, 1998:5). The management attitude of the
emerging exporter towards exporting, the resources and capabilities, and other considered
factors serve as motivation towards being export ready (Tan et al., 2007:1). It is also of the
utmost importance for management to put emphasis on emerging exporters‟ development
through learning, resource allocation and decision making during the stage when they are
getting ready to export. The emerging exporter‟s export readiness is achieved through
incremental decisions and commitment (Tan et al., 2007:4). The commitment of the
emerging exporter‟s management to the business can vary widely, and may include capital
investments, human resource management, making public statements, and deciding on the
direction of the business such as engaging in exports. Each management commitment
should have both immediate and long-term influence on the emerging exporter
(Sull, 2003:82).
The Uppsala model is very useful to explain the incremental stages through which the
emerging exporter‟s commitment increases in the foreign country. The management of the
company first looks for opportunities, which are provided through the dti, and then, after
participating in few trade fairs internationally, gradually increases commitment through
knowledge accumulation. Once the emerging exporter gets a few trade orders, they will start
exporting through a trade agent, and as more orders are received, the emerging exporter
increases commitment, which eventually leads to building a manufacturing plant in the
foreign country. The Innovation model is useful in explaining that a decision has to be made,
which is whether or not to export, once the incremental information has been received.
Management skills and export readiness are positively related with a very high significance
level of 0.59*. Important factors that play a role in the export readiness of any emerging
exporter include background, which affects his motivations, perceptions, skills and
knowledge. Other factors also include genetic factors, family influences, education, and
previous career experiences (Birley, 1988:4). The exporting of products requires
37
management and personnel that have international trade experience and specialised skills in
logistics, dealing with custom clearance, experience in foreign sales, and fluency in the
foreign language of the host country (Sull, 2003:82). Skills have two dimensions with regards
to export readiness – the observable amount of human capital employed by the emerging
exporters and the unobservable part that reflects the efficiency with which the emerging
exporter operates. An emerging exporter with higher skill levels also has lower adjustment
costs in the foreign country (Söderbom & Teal, 2000:7).
Business experience and formal education are important factors to consider in determining
the business‟s success or failure. Successful entrepreneurs have higher levels of education
compared to that of unsuccessful entrepreneurs (Chiliya & Roberts, 2012:466). Education
facilitates a higher quality of business performance and export readiness. The results of the
study are consistent with this view, as it was also noted that 96% of the emerging exporters
that took part in the survey had passed matric. In both the Uppsala and Innovation models,
the emerging exporter will make incremental commitment decisions on whether to invest in
management skills based on the opportunities that have been identified.
The relationship between financial resources and export readiness is significant. The
research found that financial resources and export readiness are positively correlated, and
therefore, the emerging exporter‟s management should identify main sources of exporting
finance and key items to be financed in order to become export ready
(Lindemane, 2011:963). For an emerging exporter to be export ready and successful,
enough funding must be available to acquire assets, to pay for production costs,
warehousing and logistics, and to use for working capital and other overheads.
If the company‟s internal funds are not enough to support export activities, external funds
can be sourced from commercial banks and other financial service providers. The lack of
export finance hinders the export readiness of the emerging exporter. Engaging in the
international export market can require substantial funding in the initial stages and later on –
to finance working capital, product alterations, logistics and daily operations (University of
Western Sydney, n.d.). In both the Uppsala and Innovation models, the emerging exporter
will make incremental commitment decisions on whether to source more funds to invest in
export readiness based on the opportunities that have been identified.
Emerging exporters should avoid running into financial constraints that hinder them from
achieving their export objectives. The financial constraints may be due to characteristics
that are specific to either the emerging exporter or the specific sector. Exporter-specific
38
constraints include the emerging exporter‟s customer structure that could result in liquidity
problems. Secondly, the quality of the emerging exporter‟s management and the ability of
external investors to extract financial information and creditworthiness from the company
may also pose problems. The availability and quality of fixed assets that can be used to
secure loans also determine the ability of the emerging exporter to raise finance for its export
activities (Buch et al., 2010:19). However, lack of trade finance is a general problem that
faces many businesses. There are serious concerns regarding the trade finance for
developing and low-income countries because such countries are the first victims in the
general reassessment of risks and liquidity shortages (WTO, 2013).
The research found that the relationship between technical knowledge and export readiness
is significant and positive. The emerging exporter should ensure that the business has
expertise in terms of product design, function, product packaging and after-sales service
(Valos & Baker, 1996:13). Emerging exporters in the emerging economies follow a similar
export approach as the one mentioned above, where they start by establishing their products
in domestic markets, then export into foreign markets, and as they gain knowledge and
experience, make long term investments in the foreign markets (Vernon, 1966:194). The
majority of emerging exporters from emerging markets are still in the early stages of the
product life cycle with exporting being the main form of entry into the foreign market
(Rahman & Tantu, 2011:342). Companies seeking to be export ready should ensure that
their entities are able to manufacture extra products for the foreign market without
compromising the supply for the local market (SA dti, the, Business ready to export?, n.d.).
Emerging exporters should ensure that the management of the business has access to the
technical expertise required to create a product suitable for international markets in terms of
design, quality and function. If the emerging exporter entering a foreign market has a
technological advantage over its competition, it may facilitate their success in the foreign
market. Superior product quality and good technical knowledge can give the emerging
exporter an advantage over the competition, which may not have such attributes. The
emerging exporter has to choose which attributes to capitalise on, whether it be product
packaging, after-sales service, delivery, or pricing (Van Eldik, 2003:13). In both the Uppsala
and Innovation models, the emerging exporter will make incremental commitment decisions
on whether to invest in product packaging, after-sales service, delivery and pricing based on
the opportunities that have been identified.
The relationship between the manufacturing capacity of a company and export readiness is
significant. Emerging exporters seeking to be export ready should ensure that their entities
39
are able to manufacture extra products for the foreign market without compromising the
supply for the local market. The emerging exporters engaging in the foreign market should
have additional manufacturing capacity, including additional space, raw material,
warehousing and personnel. The emerging exporters who do not have the additional
manufacturing capacity run the risk of losing either local or foreign customers. The
management of the emerging exporter has to do proper capacity planning in advance to
ensure that they are able to produce the required products on demand (Vollmann et al.,
1997:141). In both the Uppsala and Innovation models, the emerging exporter will make
incremental commitment decisions on whether to increase or decrease manufacturing
capacity based on capacity planning and opportunities that have been identified.
The research findings supported the positive relationship between international marketing
intelligence and export readiness. Emerging exporters in the developing economies are in
competition with emerging exporters from developed economies in the local and foreign
markets; hence it is important to understand the export marketing strategies from both
developed and developing economies (Aulakh et al., 2000:358). Emerging exporters need to
focus their energies and resources on sound marketing expertise that can deal with
planning, market analysis and niche targeting, which are the important factors relating to
export readiness.
Emerging exporters seeking to expand into foreign developed countries face immense
difficulties in setting up distribution networks, mastering industrial norms and safety
standards, and building up a new product image suitable for the international market
(Blomström, 1990:7). The lack of such skills constitutes a key barrier with regards to the
company‟s entry into the foreign market and therefore to export readiness. The globalisation
of trade has made it necessary for South African emerging exporters to look for foreign
market opportunities in order to gain and sustain a competitive advantage through learning,
resource allocation and decision making during the stage in which it is becoming ready to
export. Therefore, it is necessary for the dti to spend money on programmes aimed at
getting the emerging exporter export ready (Aulakh et al., 2000:344). According to both the
Uppsala and Innovation models, the emerging exporter will make incremental decisions on
whether to set up distribution networks, mastering industry norms and safety standards, and
building up a new product image suitable for the international market.
The NEDP is supportive of both the Uppsala and Innovative models in that information must
be accumulated before commitment is made on the types of interventions to be taken for the
export-ready initiatives. The NEDP proposes that the South African government as a
40
developmental state provides funding for export development and promotion, information,
training and mentoring, make export information available on a regular basis, develop an
export culture, look for new exporters to grow the export pool, continuously look for new
export markets. These initiatives will promote export readiness, increased exports, increased
diversification of products and export markets.
The proposal of the NEDP is supported by this research for a number of reasons. The
funding does not seem to be a major factor for EMIA based on the current export readiness
initiatives; however, should the dti decide to implement all the factors of export readiness,
more funds will be needed. Secondly, the dti offers export information through the export
help desk; however, the extent to which the information is usable could not be verified. For
information to be useful, it must be understandable, reliable, relevant, timely, comparable,
and consistent (Jones, 1992). It was established through the survey that there are currently
no training and mentoring for emerging exporters, and neither is there a clear tool of
monitoring and evaluation. This makes it difficult to make timeous interventions that will help
emerging exporters to become export ready.
Although the results of the survey support the hypotheses, it must be noted that emerging
exporters must have firm specific advantages that allow them to operate in foreign countries,
whether they be in product or process technology, management, marketing intelligence, or
access to cheaper capital (Blomström, 2013:8).
The literature suggests that management skills in international business are central to export
readiness. It is important that the emerging exporter‟s management ensure that the core
skills needed in the foreign market are decentralised in the emerging exporter and easily
accessible in the foreign business to ensure export readiness. Emerging exporters in the
developing economies are in competition with emerging exporters from developed
economies in the local and foreign markets; hence it is important to understand the export
marketing strategies from both developed and developing economies, (Aulakh et al.,
2000:358). Emerging exporters would excel in their export endeavours if they had additional
funds and marketing skills (Valos & Baker, 1996:15). However, emerging exporters
generally fail in their marketing attitudes and practices. One of the major contributors with
regards to export failure is that companies lack international marketing skills. According to
the report, there are many cases of products that failed in the foreign market because of a
lack of attention to the needs and preferences of the local markets, and the failure to
integrate market research with the production process at an early stage Valos & Baker
(1996:13).
41
A strong and sustainable commitment from management is required to successfully compete
internationally. Management commitment to exports requires that a substantial amount of
time and resources be committed to develop and manage the export programme effectively.
A long term commitment from management can facilitate market ingression and expansion,
and therefore enable export readiness (University of Western Sydney, n.d.). The emerging
exporter‟s management should identify main sources of exporting finance and key items to
be financed to achieve export readiness (Wrigley, 2000:960). The lead times between
different stages of the export process, such as production, distribution, and receipt of
payment are normally longer for international transactions. The ability to take calculated risks
and to make financial commitments should be intrinsic to the characteristics of the export-
ready emerging exporter (Van Eldik, 2003:10).
Emerging exporters seeking to be export ready should ensure that their entities are able to
manufacture extra products for the foreign market, without compromising the supply for the
local market. Secondly, the entity should be able to produce at a short notice and without
and major capital investment (SA dti, the, Ready to export?, n.d.). Emerging exporters
should have an understanding of how cultural differences and consumer behaviour affect
marketing decisions in an emerging exporter‟s external and international operations. The
understanding can be used to predict the strategic moves and responses of competitors and
to design effective competitive strategies (Tse et al., 1988:81). Knowledge of the impact of
cultural and consumer behaviour of foreign customers promotes better internal coordination
of management decisions. The better understanding of the consumers promotes better
responsive strategies to satisfy consumer needs.
5.2 Conclusions
The study set out to discover the factors that would facilitate the export readiness of
emerging exporters benefitting from the EMIA scheme. It was hypothesised that
management commitment, management skills, financial resources, technical knowledge,
manufacturing capacity and international marketing intelligence are the factors that have a
positive relationship with export readiness. The results concluded that the six factors
mentioned above are significantly correlated to export readiness. Furthermore, it was found
that there is no relationship between the family background of the emerging exporters and
export readiness. The correlation between the education of an emerging exporter and
management commitment, financial resources, manufacturing capacity and international
marketing intelligence is highly significant for the emerging exporters benefitting from the
EMIA scheme. The conclusion is made
42
that the dti should invest in trade and export-ready initiatives linked to these six factors.
Secondly, emerging exporters‟ export readiness is positively related to education, and
therefore emerging exporters who at least have matric should be supported.
5.3 Recommended future research
Other factors might have been left out of this study, because the arguments were developed
from a limited existing literature base grounded on empirical findings in developed countries.
These findings were tested in SA, a developing country, and the 6 hypotheses found to be
applicable here might not be applicable in developed countries. There were not enough
sources in the literature from South Africa or other developing countries – hence the findings
cannot be generalised. The main source of literature used in this study was based on the
study conducted by Van Eldik (2003). It is important that more research on export readiness
is conducted in South Africa in order to allow for a better understanding of the six factors of
export readiness. The researcher should focus on a different sample than that of the dti that
will be more representative of South African exporters.
The literature for this study came from various sources such as published academic journals
and the internet. The hypotheses were then developed from the theory, only focussing on
the export readiness of the emerging exporter and not including product readiness. Further
research can be conducted to focus on export readiness and product readiness. The
previous research on companies‟ export readiness was conducted by Van Eldik and Viviers
(2005). It only had a sample of 30 participants, and was not enough to provide a meaningful
understanding of export readiness. The researchers recommended that a bigger sample be
selected for future research, which has been done in this study. However, Van Eldik and
Viviers (2005), helped to develop a useful export readiness questionnaire, which could be
used as a starting point in this research.
The factors of export readiness need to be high for the EMIA beneficiaries to be export
ready. Currently, resources are being wasted on marketing these companies and resources
would be better spent improving the skills linked to each of the factors. The current EMIA
interventions are not enough to facilitate export readiness.
Kotabe et al. (2000:343) states that there are very few researchers who have made
conceptual advances regarding firms whose international participation are primarily through
export operations. The few studies that exist have examined the internationalisation process
of firms in developing countries. Export readiness needs further research to be conducted.
There have been few systematic studies of export readiness followed by firms from
43
emerging economies like South Africa (Kotabe et al., 2000:343). The few studies that exist
have examined the internationalisation process of developing companies, the relationship
between the organisational characteristics and export performance of the firms (Aulakh et
al., 2000:342).
44
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5. Addenda
Appendix A Research questionnaire
Company details
Name of company: _________________________________
Please mark the appropriate answer where necessary:
Background of the exporter
1. Did your family run any business prior to you opening your own business?
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
2. What is your level of education?
Below grade 12/matric
Matric
Degree or Diploma
Postgraduate (Honours, BTech etc)
3. What is your gender?
Male
Female
52
4. Did your family run any business prior to you opening your own?
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
Export readiness assessment
Answer the following questions with regards to your business.
5. The business is currently generating at least 25% of revenue from exports.
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
Management commitment to exports
6. Are you able to commit a substantial amount of time to developing an international market in
the initial stages?
H1
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
53
7. Are you convinced that exports are an important aspect of your future survival?
H1
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
8. Do you have a long-term view on developing your export market, meaning that, even if it took
time before you succeeded in winning your first order, would you still remain committed to
exporting?
H1
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
9. Are you prepared to rearrange the way your business operates, should it be required, to
become internationally competitive?
H1
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
54
Management skills in international business
10. Do you have any experience, or have access to available expertise, in selling products in
other countries?
H2
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
11. Do you have any experience, or have access to available expertise, in processing export
orders?
H2
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
12. Do you have any understanding of the export procedure and knowledge of the various
role-players involved in the export process?
H2
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
55
Financial resources
13. Do you have (or have access to) adequate financial resources over and above your local
needs to support an export market development programme? (International market
development is often more costly than development in the domestic market.)
H3
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
14. Can you afford to fund your export market development for at least 12 months without
receiving returns?
H3
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
15. Can you afford to invest in adapting your product or packaging to suit the international market,
if required?
H3
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
56
16. Does your business have a recent financial report (income statement and balance sheet?)
H3
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
Technical knowledge
17. Does your business (or do you) have access to the technical expertise required to ensure that
your product is suited to the international market in terms of design, quality and function?
H4
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
18. Does your business undertake research and development to improve your product?
H4
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
19. Are you familiar with the attributes of the products of potential international competitors?
H4
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
57
20. Does your business have an efficient system and sufficient resources to ensure timely
delivery of the product, product adaptations and excellent after sales service?
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
Manufacturing capacity
21. Do you have spare capacity to produce over and above your domestic market needs?
H5
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
22. Can you increase your capacity to produce at short notice without any major capital
investment?
H5
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
58
23. Does your business have the capacity to provide additional space, raw materials, warehousing
and personnel above your domestic market needs?
H5
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
International marketing intelligence and knowledge
24. We have a product or service that has been successfully sold in the South African market.
H6
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
25. Do you have any current knowledge of international competitors, their products or prices?
H6
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
26. Do you have information on the size of the world market for your product?
H6
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
59
27. Do you have any knowledge of potential buyers for your product?
H6
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
28. Our product(s) comply with the well-known and acknowledged South African Bureau of
Standards (SABS) and/or other international standards and/or specifications.
H6
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
29. We have an understanding of export procedures and the role of the EMIA scheme in export
marketing.
H6
Strongly Agree
Agree
Neutral
Disagree
Strongly disagree
We thank you and appreciate your time and effort to complete this questionnaire.
