Firm Size and Export Behavior: Lessons from the Midwest

Abstract

In the last three decades the number of American companies involved in international commerce has increased dramatically. Ojile (1986), for example, indicates that more than 6,000 U.S. organizations have some sort of operation abroad and about one-third of all U.S. corporate profits result from international activity. By 1984, the internationalization of trade had created 5.8 million jobs in the U.S., and in 1990 it was expected to have generated no fewer than 7.4 million employment opportunities (Young et al. 1986). Nevertheless, the U.S. ranks last among the Organization for Economic Cooperation and Development (OECD) countries in exports as a percentage of Gross National Product. This low ranking is explained in part by the skewed distribution of export activity. The Department of Commerce estimates that a mere 1 percent of U.S. manufacturing firms account for 80 percent of U.S. manufactured exports (Edfelt 1986). Given the large size of the foreign market and this low participation rate, small and medium-sized firms have the potential to reap large gains from export activities. Although it may increase cost and uncertainty, exporting can help smaller organizations increase profits, prolong product life cycles, and open new distribution channels. Furthermore, small firms have been shown to be less severely affected by adverse external shifts than their larger counterparts. They have been shown to be less sensitive to currency fluctuations, in part, because they can usually make quick price adjustments (Holden 1986). Nations which achieve highly competitive positions in world markets tend to have small and medium-sized firms actively involved in international trade. For example, in Germany and Japan small and medium-sized enterprises account for a large percentage of each country's exports (Dichtle et al. 1984, Edmunds and Sarkis 1986). Unfortunately, this is not the case in the U.S., despite research indicating immense potential. America's small and medium-sized firms are producing products desired in the world market; yet, their enthusiasm for internationalization is tempered by their inability to gather market information and maintain a continuous flow of communication with foreign clients, and by their lack of experience in planning and targeting export sales in world markets (Kaynak and Kothari 1984). Given this mix of positive and negative forces acting upon a given manufacturing firm, export participation is largely a function of size, experience, and managerial interest. Firms headed by managers who perceive global marketing as an opportunity and challenge rather than an undesirable burden are much more likely to respond favorably to foreign market opportunities. The research reported here examines the relationship between firm size, as measured by sales volume, export experience, and export attitudes. Four hypotheses are tested using data from 195 midwestern manufacturing firms. SIZE AND FIRM EXPORT BEHAVIOR In their review of the literature, Kaynak, Ghauri, and Oloffesson-Bredenlow (1987) indicate that small and medium-sized firms display similar behavioral and operational characteristics. That is, most of them are either passive or reactive exporters. This observation is consistent with other research. Studies suggest lack of knowledge about foreign markets, inability to assess market conditions in a changing international environment, and inability to target export sales are the major problems inhibiting small and medium-sized organizations from exporting (Czinkota and Johnston 1983, Edmunds and Sarkis 1986, Green and Larsen 1987, Kaynak and Kothari 1984, Kinsey 1987). On the other hand, export success seems to be facilitated by patience, flexibility, and a willingness to take on additional risk (Holden 1986, Posner 1984). The federal government has launched numerous promotional programs to encourage non-exporter interest in global markets. …

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