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Foreign market experience, learning by hiring and firm export performance

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Abstract

Export experience of managers and other top specialists is among the key drivers of export decisions in firms. We show evidence of this regularity based on employer-employee level data from the manufacturing industry in Estonia. We find that hiring managers and other high-wage employees with prior experience in exporting to a specific geographical region is associated with a higher probability of export entry to that region. Experience matters only if it is region specific and it is especially important for entry to neighbouring markets (the 1st markets of entry). However, there is less evidence of effects on export intensity. Notably, the relationship between export experience and a firm’s export entry decisions is stronger if the export experience is recent and if it comes from an exporter that is located nearby in the product space.

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Notes

  1. However, we note that the evidence is not fully conclusive about the role of prior experience and presence of employees with export experience. For example, a small cross-section survey that provides descriptive evidence of rapidly internationalizing Chinese firms by Vissak et al. (2012) suggests no significant role of prior experience with foreign markets in the rapid expansion of Chinese international new ventures.

  2. However, papers that investigate specifically the effects of mobility of export experienced managers (e.g. Mion and Opromolla 2014) have not yet investigated the likely different effects of their recent experience on export decisions compared to the older experience.

  3. Still such a classification will result in some errors as some non-managers are expected to earn more than some managers. However, in the Estonian data such an approximation should result in a relatively low error rate given the relatively high wage inequality and high relative returns to managerial occupations (as compared to countries like Sweden with much more compressed wage distribution). For example, in 2010 according to the structure of earnings survey in Estonia, the ratio of the 90th to the 10th wage percentile was 4.1 versus 3.7 in the old EU members (EU15). Concerning occupations, while in Estonia managers (ISCO category 1) earned 3.1 times more than the lowest paid occupational group, in the UK (which does not have a low level of wage inequality) just 2.4 times more and in Ireland 1.9 times more (based on Eurostat data). Therefore, in the case of Estonia, wages differ relatively more across occupations, and that should provide some support to our wage-based proxy for occupation.

  4. For example, the share of firms exporting to group 4 is just 23 % among the firms exporting for the first year, but 41 % among those exporting for the 7th year.

  5. We thank Martti Randveer and Tiia Vissak for pointing out this issue.

  6. However, we note that for a more detailed study of this issue one has to look also into the relationship between the loss of human capital in terms of export experienced employees leaving the firm and firm’s propensity of exit.

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Acknowledgments

We are grateful to Statistics Estonia for granting access to the data used in the paper. The datasets have been processed in accordance with the confidentiality requirements of Statistics Estonia. The authors acknowledge financial support from the Estonian Science Foundation project No. 8311, the Ministry of Education and Research of the Republic of Estonia target financed project No. SF0180037s08 and Estonian Research Agency project No. IUT20-49 “Structural Change as the Factor of Productivity Growth in the Case of Catching up Economies”. We thank the participants of the MEIDE 2013 conference, Estonian Economic Association 2014 conference, seminar at the University of Sheffield and F. Requena-Silvente, Professor J. Love, O. Toomet and A. Võrk for useful comments.

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Authors and Affiliations

  1. Faculty of Economics and Business Administration, University of Tartu, Narva Rd. 4 – A115, 51009, Tartu, Estonia

    Jaan Masso, Kärt Rõigas & Priit Vahter

Authors
  1. Jaan Masso
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  2. Kärt Rõigas
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  3. Priit Vahter
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Corresponding author

Correspondence to Priit Vahter.

Appendices

Appendix 1: Descriptive statistics

See Table 8.

Table 8 Descriptive statistics of the estimation sample in export performance analysis
Full size table

Appendix 2: Tests of significance: Does the role of experience vary in different destination markets?

See Table 9.

Table 9 Test of difference of the ‘effects’ of experience in different destination markets
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Appendix 3: Different types of export experience and firm’s export decisions

See Table 10.

Table 10 The role of region-specific and outside-region export experience as drivers of propensity to export, standard probit model
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Appendix 4: Wage premium of prior export experience

See Table 11.

Table 11 Wage equations augmented with export experience variables (dependent variable: log real monthly wages)
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Masso, J., Rõigas, K. & Vahter, P. Foreign market experience, learning by hiring and firm export performance. Rev World Econ 151, 659–686 (2015). https://doi.org/10.1007/s10290-015-0224-y

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