This study explores the exporting-performance (EP) relationship by analysing a sample of 1,231 Italian manufacturing SMEs for the period 2009-2011. Following recent developments in internationalization-performance (IP) relationship, based on the three-stage theory (Contractor, Kundu & Hsu 2003; Lu & Beamish 2004), we hypothesized a S-curve EP relationship; the data support this hypothesis, verified by an OLS regression in which we control for past performance, size, age, leverage and industry, but also, in light of Resource Based View (RBV), for firm’s specific tangible and intangible resources. The analysis shows that in the first stage of exporting, the costs of internationalisation exceed the benefits, which generates a negative effect on profitability (measured by Return on Sales, ROS); in the second stage increased export engagement improves profitability because, in this intermediate stage, the initial disadvantages of entering new foreign markets are overcome by the firm’s more established presence. This phase is characterised by economies of scale, but also on the exploitation of acquired knowledge, thus constituting the learning-by-exporting effect (Martins & Yang 2009). Finally, in the third stage, firms reach an excessive degree of internationalisation: new costs arise (e.g. further investments to adapt the products, higher costs of transportation, information and coordination costs) exceeding benefits. Our verified second hypothesis concerns the negative moderating effect of capital intensity on the relationship between exporting and profitability: for firms with a low level of capital intensity increasing exporting intensity is beneficial, while firms with a greater stock of technical assets (measured by the incidence of machinery, plant and equipment on total assets) do not experience a positive marginal “learning-by-exporting” effect; our results also showed that the relationship between intangible assets intensity and profitability is not significant, neither intangible moderate the relationship found between exporting and performance. The study contributes to extant literature by testing the S-curve hypothesis on a large sample of SMEs consistently focusing on exporting strategies and by studying a moderating effect not explored so far. As our managerial implication, we note that exporting strategies may be beneficial only after some delay, during the time the firm engages in establishing relationships in the foreign markets, gaining credibility for its products and itself; data also show that the learning effect of exporting depends on the level of technology intensity; a high level of technology intensity implies that the firm has not the possibility to further increase its learning by increasing exporting intensity.
Exporting and profitability of Italian SMEs in a downturn period: the S-curve hypothesis and moderating effects of technology investments
CANTELE, SILVIA
2014-01-01
Abstract
This study explores the exporting-performance (EP) relationship by analysing a sample of 1,231 Italian manufacturing SMEs for the period 2009-2011. Following recent developments in internationalization-performance (IP) relationship, based on the three-stage theory (Contractor, Kundu & Hsu 2003; Lu & Beamish 2004), we hypothesized a S-curve EP relationship; the data support this hypothesis, verified by an OLS regression in which we control for past performance, size, age, leverage and industry, but also, in light of Resource Based View (RBV), for firm’s specific tangible and intangible resources. The analysis shows that in the first stage of exporting, the costs of internationalisation exceed the benefits, which generates a negative effect on profitability (measured by Return on Sales, ROS); in the second stage increased export engagement improves profitability because, in this intermediate stage, the initial disadvantages of entering new foreign markets are overcome by the firm’s more established presence. This phase is characterised by economies of scale, but also on the exploitation of acquired knowledge, thus constituting the learning-by-exporting effect (Martins & Yang 2009). Finally, in the third stage, firms reach an excessive degree of internationalisation: new costs arise (e.g. further investments to adapt the products, higher costs of transportation, information and coordination costs) exceeding benefits. Our verified second hypothesis concerns the negative moderating effect of capital intensity on the relationship between exporting and profitability: for firms with a low level of capital intensity increasing exporting intensity is beneficial, while firms with a greater stock of technical assets (measured by the incidence of machinery, plant and equipment on total assets) do not experience a positive marginal “learning-by-exporting” effect; our results also showed that the relationship between intangible assets intensity and profitability is not significant, neither intangible moderate the relationship found between exporting and performance. The study contributes to extant literature by testing the S-curve hypothesis on a large sample of SMEs consistently focusing on exporting strategies and by studying a moderating effect not explored so far. As our managerial implication, we note that exporting strategies may be beneficial only after some delay, during the time the firm engages in establishing relationships in the foreign markets, gaining credibility for its products and itself; data also show that the learning effect of exporting depends on the level of technology intensity; a high level of technology intensity implies that the firm has not the possibility to further increase its learning by increasing exporting intensity.
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