Factors Motivating Exports: The Canadian Evidence

Peter Yannopoulos, Faculty of Business, Brock University, Canada

ABSTRACT Exports is an important economic activity and vital to the health and dynamism of modern economies. Exports benefits an economy and business organizations in several ways. Exporting is one of the most established forms of international involvement for firms and has been recognized as a viable strategy by firms looking for growth opportunities. There are other forms of getting involved in foreign markets, but exporting is the most traditional and well-established form of operating internationally. Despite its benefits, businesses in different countries do not realize the potential of exports. In this paper we investigate the factors that motivate small and medium sized entrepreneurial firms in Canada to get involved in exporting activities. We also look at differences in the importance of motivating factors for firms in different stages of export development, size, and percentage of revenues from exports. Our results are useful to governments, public agencies, and businesses. Keywords: Export motivation; Canadian exporters; Stage of export development INTRODUCTION Exports are important to the health and dynamism of modern economies (Dosoglu-Guner 1999). Exporting contributes to an economy in a number of ways including improvement in the balance of payments and the standard of living, employment, and increased revenues in the form of profits and taxes. Business firms also benefit from exports through increased capacity utilization, increasing economies of scale, diversification and smoothing out of business cycles. It is for these reasons that increasing export activity is a goal of many national governments (Gripsrud 1990). There are other forms of getting involved in foreign markets, but exporting is one of the most established forms of international involvement for firms (Hansen, Gillespie, and Gencturk 1994; Keegan and Seringhaus 1996). Exports has been recognized as a viable strategy by firms looking for growth opportunities (Mayes and Soteri 1994). About twothirds of Canadian companies doing business in foreign markets use some type of exporting while about one-quarter of Canadian exporters export to their foreign subsidiaries (Keegan and Seringhaus 1996). These statistics are indicative of the importance of the export sector to the Canadian economy. The Canadian government has initiated export support programs designed to facilitate the export efforts of Canadian-based firms. This program is primarily a federal government responsibility and with the exception of certain programs is non-strategic in terms of its overall approach (Seringhaus and Botschen 1991). Provincial governments and the private sector also provide some export assistance according to regional needs and rather complimentary to federal support. There have been dramatic changes in international trade including growing liberalization of trading systems, regional economic integration, and major advances in information, communication, and transportation technologies (Czinkota, Ronkainen, Farell, and McTavish 2009; Keegan 2002). Customers and companies have been brought closer together as a result of these major advances. Furthermore, the business environment is becoming more globalized and interconnected, providing firms with increased opportunities to get involved internationally (Czinkota, Ronkainen, Farell, and McTavish 2009; Leonidou 2004). It is widely recognized that small and medium sized firms are important contributors to the vitality of an economy by being risk takers, innovative and quick to adapt to change. For instance, Germanys main engine of growth is its small and medium sized firms, the so-called mittelstand (Simon 1996). It is also known that these powerful small and medium sized German firms are heavily involved in exporting from which they draw a large part of their revenues. Despite their advantages and benefits of exporting, however, small firms in different countries of the world do not seem to realize this potential with involvement in exporting falling far short of expectations (Gripsrud 1990).

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Despite the presence of these opportunities, many small and medium size firms fail to take advantage of these foreign opportunities and benefit from exporting (Gripsrud 1990). Studies show that when companies are confronted with the decision whether or not to export, they are generally reluctant to decide in favor of expanding and often decide to retain their non-exporting status (Morgan 1997). The motivation for writing this article stems from our desire to contribute to the literature that is concerned with factors motivating exports. The main objective of this study is to investigate the factors that motivate small entrepreneurial firms in Canada to get involved in exporting activities. A further objective is to examine if there are differences in the importance of motivating factors for firms in different stages of export development, size, and percentage of revenues from exports. This research should be of interest to both governments and public agencies who seek to understand what motivates Canadian firms to get involved in exporting activities. Individual firms should also be interested in understanding their motivations for exporting and address those factors that negatively impede their efforts to get involved in foreign markets. LITERATURE REVIEW The field of exporting has been extensively researched in recent years generating a considerable body of empirical and theoretical output. Among the areas that have attracted a lot of interest are government export support programs (Czinkota 1982; Seringhaus 1986; Seringhaus 1987; Seringhaus and Rosson 1990; Crick and Czinkota 1995), motivation to export, and export barriers and (Barker and Kaynak 1992; Bauerschmidt, Sullivan, and Gillespie 1985; Christensen, da Rocha, and Gertner 1987; Katsikeas 1996; Leonidou 1995a, 1995b). The factors motivating companies to export is an area that has received some attention by researchers in recent years (Barker and Kaynak 1992; Bilkey 1978; Ford and Leonidou 1991; Katsikeas 1996). The thrust of the research effort is to explain why some firms are involved in exporting while others refrain from such activity. According to Katsikeas (1996) there are two parallel streams of research in the area of export motivation. The first stream differentiates between external and internal export stimuli (Brooks and Rosson 1982; Cavusgil 1980; Kaynak and Stevenson 1982; Miesenbock 1988). Some of the most important external motivating factors are unsolicited orders, profit potential, large market size, physical proximity of the foreign market, and offer of representation by foreign distributor. Some of the most important internal factors are diversification, utilize excess capacity, increase the growth rate of the business, and help smooth out the growth rate of the business. On the basis of this distinction between internal and external factors, ORourke (1985) found that larger firms are motivated by internal stimuli while smaller firms are motivated by external factors. The second stream of research looks at the behavioral pattern exhibited by firms in their approach to export markets and operations. It makes the distinction between proactive and reactive export stimuli (Johnson and Czinkota 1982; Leonidou 1988). Proactive or pull factors are those stimuli that are associated with the firms deliberate search for export opportunities. Reactive or push stimuli are those factors that indicate a passive attitude in the search for market opportunities. A number of export researchers have proposed several stages in the internationalization process of the firm (Bilkey and Tesar 1977; Cavusgil 1980; Czinkota and Johnston 1981). Although the exact number of these stages differs, it is generally agreed that there are different stages in a firms export development. For example, the distinction between regular and sporadic exporting activity that was proposed by Samiee and Walters (1991) has been validated empirically by Rao and Naidu (1992). It has been argued that the importance of motivating factors differs depending on the stage of export development of the firm. For instance, regular exporters are more dependent on exports and as such they have better organized export departments as well as they commit more resources to export operations (Rao and Naidou 1992). As a result, regular exporters are in a better position to look and exploit export opportunities than sporadic exporters. This implies that regular exporters are more proactive in their search as opposed to sporadic exporters who are motivated by reactive motives.

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METHODOLOGY The Sample The data were collected by mailing a questionnaire to a number of firms operating in the Niagara Region of Canada. The questionnaire contained questions related to their exporting activities. A cover letter was included that explained the purpose of the study and encouraged recipients of the letter to participate in the survey. Further, respondents were asked if they wished to receive a copy of the summary of the report. A total of 448 questionnaires were mailed to the target population of firms. Respondents who hadnt responded after a period of two weeks were reminded by telephone and were requested to complete the questionnaire. The number of returned questionnaires was 137 for a response rate of 30.6 percent. This response rate is roughly close to response rates of similar studies reported in the exporting literature. We also found out that some firms did not respond because they had quit their exporting activities. If the number of firms who are no longer involved in exporting activities were excluded from the population, the response rate would have been higher. The questionnaire included nine statements thought to represent the factors that motivate firms to export (Barker and Kaynak 1992; Doole, Lowe, and Hall 1996). Respondents were asked to indicate the importance of each of these factors by using a rating scale from very important to unimportant. Among the other questions included in the questionnaire were number of years exporting, size of the firm in terms of employees, approach to exporting, percentage of revenues from exports, number of countries exporting regularly, barriers to trade and others. The majority of participating firms employed fewer than 200 employees. In terms of number of years involved in exporting, firms ranged from 1 to 85 years, with the majority of them having been in the exporting business for less than ten years. Given its proximity to Canada, it is not a surprise that U.S.A. was ranked first in terms of importance as a trading partner to these firms. Mexico and Western Europe were ranked second and third most important trading partners respectively. RESULTS Overall Differences Table 1 presents the frequency distribution of the responses of Canadian exporters regarding the importance of the factors motivating exports. Table 1 also presents the mean values of each of the factors and the significance levels of the chi-square test of each factor. The first observation is that all factors motivating exports are statistically significant at the .00 level. This means that to managers of Canadian firms participating in the study all factors assumed to motivate exports apply in their case. This finding is consistent with previous studies which found similar results (see Barker and Kaynak 1992). Most important factors are large market size, increased stability through diversification, greater profit potential, and to increase the growth rate of the business. Least important factors are offers of representation by foreign distributors, unsolicited orders, and to utilize excess capacity. The list of most and least important factors includes both internal and external factors. This result suggests that there is no particular pattern that either internal or external factors are more important motivators to export. Table 1: Factors Motivating Exports Minor Unimportant Factor Important % % % 3.7 7.5 39.6 2.3 3.7 23.7 14.3 21.9 15.3 11.1 51.8 19.0 32.0 45.0 48.9 17.5 34.9 33.6

Large market size Increased stability through market diversification Greater profit potential Unsolicited orders Physical proximity of foreign market Utilize excess capacity

Very Important % 49.3 37.4 36.3 7.0 31.7 12.5

Mean 3.3 3.2 3.2 2.1 2.8 2.4

P-value 0.00 0.00 0.00 0.00 0.00 0.00

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Offers of representation by foreign distributors Increase the growth rate of the business Smooth out business cycles

34.1 2.3 8.5

38.9 13.1 22.5

23.0 43.1 34.1

4.0 41.5 34.9

2.0 3.2 3.0

0.00 0.00 0.00

Comparison by Stage of Export Development Participant firms were divided into three types, reactive, active and systematic exporters. Reactive are those exporters that receive occasional or regular export orders. Active exporters are those firms that are developing their export customer base or have an established export business in a number of countries. Systematic are those exporters who are committed to systematically researching and entering new markets or have a well developed international business strategy. Table 2 presents an analysis of variance of the factors motivating exports among reactive, passive and systematic exporters. Table 2 also shows the F-values of the analysis of variance and the level of statistical significance. According to Table 2, the three groups differ only in terms of physical proximity of foreign market and utilization of excess capacity in a statistically significant manner. Differences between the mean values of the other factors are not statistically significant. It should be also noted that physical proximity of the market appears to be more important for reactive rather than active or systematic exporters. A possible explanation for this finding is that it is very difficult for reactive exporters to export to distant foreign markets and it is easier for them to trade with nearby markets. For active and systematic exporters, however, the proximity of markets is not important as they probably have systems in place that enable them to deal with distant markets. Finally, utilization of excess capacity is more important to active than reactive or especially systematic exporters. This finding suggest that, to systematic exporters having more established foreign markets, utilization of excess capacity is not a particularly important motivating factor. Table 2: One-Way ANOVA of Factors Motivating Exports Among Reactive, Active, and Systematic Exporters Reactive Active Systematic F-value P-value Large market size 3.31 3.27 3.50 0.26 0.77 Increased stability through market diversification 3.15 3.12 3.63 1.46 0.24 Greater profit potential 3.18 2.96 3.38 1.17 0.32 Unsolicited orders 2.08 2.05 2.60 0.96 0.39 Physical proximity of foreign market 2.98 2.6 2.29 2.53 0.08 Utilize excess capacity 2.31 2.73 2.00 2.61 0.08 Offers of representation by foreign distributors 1.88 2.04 2.43 1.57 0.21 Increase the growth rate of the 3.16 3.33 3.67 1.96 0.15 business Smooth out business cycles 2.92 3.00 3.50 1.46 0.24 Comparison by Size Table 3 presents the analysis of variance results of the factors motivating exports among exporters of different sizes. Respondents have been divided into two categories: those firms that employ up to 25 employees and those firms that employ more than 25 employees. It is of interest to note that among the different motivating factors, respondents differ only in terms of utilizing excess capacity and because they receive offers of representation by foreign distributors. No one of the other factors motivating exports is statistically significant. This implies that firms of different sizes do not perceive any differences in the importance of factors that motivate firms to export except in the case of utilizing excess capacity and because they receive offers of representation by foreign distributors. This result is inconsistent with ORourke (1985) finding that larger firms are motivated by internal stimuli while smaller firms are motivated by external factors.

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Table 3: One-Way ANOVA of Factors Motivating Exports Among Firms of Different Size Firm Size 1-25 >25 F-value Large market size 3.32 3.38 1.64 Increased stability through market diversification 3.13 3.21 0.39 Greater profit potential 3.25 3.10 1.31 Unsolicited orders 2.17 1.96 1.77 Physical proximity of foreign market 2.81 2.91 0.26 Utilize excess capacity 2.26 2.54 2.62 Offers of representation by foreign distributors 2.08 1.83 2.71 Increase the growth rate of the business 3.25 3.20 0.13 Smooth out business cycles 2.93 3.00 0.16

P-value 0.69 0.53 0.26 0.19 0.61 0.10 0.10 0.72 0.69

Comparison by Percentage of Revenues from Exports Table 4 presents the analysis of variance results involving the means of motivating factors for various categories of firms earning different percentage of revenues from exports. According to Table 4, large market size, greater profit potential, and increasing the growth rate of the business are the factors that differentiate the two groups. This finding suggests that firms that derive a greater percentage of their sales from exports are more motivated than other firms by their desire to look for large foreign markets with greater growth potential and their objective is to increase the growth rate of the business. It appears that export oriented firms seem to look at export opportunities as a way to achieve their growth objectives more than firms with less involvement in exporting activities. Table 4: One-Way ANOVA of Factors Motivating Exports Among Firms Earning a Different Percentage of Revenues from Exports Percentage of Revenues from Exports 1-50 >50 F-value P-value Large market size 3.25 3.53 4.21 0.04 Increased stability through market diversification 3.17 3.19 0.03 0.87 Greater profit potential 3.06 3.39 5.34 0.02 Unsolicited orders 2.14 1.95 1.27 0.26 Physical proximity of foreign market 2.93 2.65 1.92 0.17 Utilize excess capacity 2.38 2.40 0.01 0.92 Offers of representation by foreign distributors 2.00 1.93 0.20 0.66 Increase the growth rate of the business 3.07 3.56 12.00 0.00 Smooth out business cycles 2.88 3.07 1.15 0.29 CONCLUSIONS AND IMPLICATIONS Exporting is a field of research that has been extensively researched in recent years. As a result of this research, a fairly large body of export research has been published. Among the areas that have attracted considerable interest are export barriers, export assistance programs and factors motivating research (Bauerschmidt, Sullivan, and Gillespi 1985; Christensen, da Rocha, and Gertner 1987; Czinkota 1982; Seringhaus 1986; Seringhaus 1987; Seringhaus and Rosson 1990; Crick and Czinkota 1995). This study examines the importance of various factors motivating exports by small, entrepreneurial firms in Canada. The results are consistent with other studies in that all of the motivating factors were found to be important to respondents to this study. However, some of these factors were found to be more important than others. More specifically, large market size, stability through diversification, greater profit potential and increasing the growth rate are rated as the most important factors motivating firms to export. Offers of representation by foreign distributors,

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unsolicited orders and to utilize excess capacity are, on the other hand, stated as the least important export motivators. These finding indicates that for Canadian firms the allure of large foreign markets with high growth potential and opportunities for diversification weigh more in their decision to export than other factors. The present analysis shows no differences among reactive, active, and systematic exporters in motivating factors except in the area of physical proximity which is deemed more important to reactive exporters and utilization of excess capacity is more important to active exporters. This result indicates that physical proximity is a stronger motivator to export to firms that have not established solid export bases and lack a systematic approach to exporting. Given that the majority of firms included in this survey are classified as reactive exporters, this finding reveals the crucial role of the physical proximity of a large market like the U.S. market for the success of the efforts of small Canadian exporters. More active and systematic exporters appear to be driven by their desire to utilize excess capacity. This study also revealed that there are differences in the factors motivating exports among exporters of different sizes. Specifically, utilization of excess capacity was more important to larger firms while offers of representation by foreign distributors were more important to smaller exporters. It appears that larger exporters face more problems with regard to unused capacity and they seek exports to fill it. On the other hand, smaller exporters, find offers of representation by foreign distributors important because, due to their small size they, apparently, have fewer contacts in the foreign country, and they find such offers desirable. This study also highlighted the importance of large size foreign markets, greater growth potential and opportunities for growth through diversification for exporters who derive a large percentage of their revenues from exports. This result is to be expected as firms heavily involved in exporting need large markets with great profit potential to satisfy their sales and profit objectives as well as the diversification opportunities provided by these markets to offset the lagging sales of their existing markets. In conclusion, this study focused on the factors motivating the exporting activities of small and medium sized entrepreneurial firms in Canada. Obviously more studies are needed to confirm or falsify the present findings. For example, a fruitful area of research would be to compare the present findings with studies that involve factors motivating export activities of large Canadian firms. Indeed, the field of export motivating factors provides us with many research questions to pursue. REFERENCES
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