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The impact of transport costs on new venture internationalisation

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Abstract

This paper investigates the importance of transport costs in new venture internationalisation, i.e. of firms that start exporting before they are 3 years of age. It does so by merging two large international datasets, on the firm level (covering 49,584 firms) as well as on the country level (covering 154 countries). It is found that transport costs matter significantly for new venture internationalisation, for older firms’ decision to export, as well as the extent of the latter’s subsequent exports. Export costs, the quality of transport infrastructure and domestic logistics costs affect new venture internationalisation even when controlling for a range of standard determinants. New international ventures behave differently from older firms in two important ways: (1) Transport costs affect the probability that they will export but not the extent of their subsequent exports and (2) their probability of exporting is affected negatively by their networking, domestic success and ISO status, whilst in the case of older firms, these factors have a positive impact. Various recommendations for policy and further research are made.

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Notes

  1. These firms have also been described as ‘born globals’, ‘infant multinationals’, ‘instant internationals’ and ‘global start-ups’ (McDougall and Oviatt 2003:9). Although there is no generally accepted definition of early internationalisation (Acedo and Jones 2007:237), it has been seen as taking place when a firm export at least 25% of its sales within a short period, often taken to be 3 years, or establish a foreign presence, for instance through outward FDI within that period (Zhou 2007; Zuchella et al. 2007).

  2. Transport costs are defined as all costs included in the transfer of physical goods from the exporter to the importer, such as the cost of handling, freight, insurance and tariffs (Brakman et al. 2001). Transport infrastructure includes the physical trade-related infrastructure such as ports, airports, roads and rail, as well as information and communication technologies used in trade transactions and in customs (Arvis et al. 2010).

  3. As pointed out by Arvis et al. (2010:3), globalisation has resulted in the growth and development of sophisticated logistic services in international trade that are currently dominated by only 25 large corporations.

  4. The ‘dynamic capabilities’ view of the firm extends the static resource-based view in being concerned with the ability of a firm to adjust to its environment. See also Teece et al. (1997).

  5. As discussed by Loane (2005), the Internet is an important tool for early internationalisation as is used in marketing, distribution, business processes, marketing intelligence and competitor analysis.

  6. Localisation economies refer to the benefits a firm receives from being with other firms in the same industry and is said to give rise to internal economies of scale. Urbanisation economies refer to the benefits of overall scale and diversity and is said to encourage external economies of scale (Henderson et al. 1995:1068). In addition to these static externalities, there are also two types of dynamic externalities, namely Jacobs externalities and the so-called Marshall–Arrow–Romer externalities, the latter resulting from knowledge sharing, learning and imitation in a particular area (Glaeser et al. 1992). In the endogenous growth literature, cities are important for economic growth precisely because they provide the dynamic information externalities important for innovation (Romer 1986; Lucas 1988).

  7. There are exceptions: For instance, Alon and Lerner (2008) find that in China, highly innovative firms do not necessarily engage in internationalisation. See also the lack of evidence in the case of the present paper.

  8. As pointed out by Busenitz et al. (2000), international differences in entrepreneurship are due to country-level differences in the institutions, including policies, social knowledge and value systems. Given that international entrepreneurship as field is concerned with international differences in entrepreneurs, it is appropriate to research the institutional determinants of entrepreneurship.

  9. If a firm is located far from its intended export market, it will face higher international transport costs (as measured for instance by its CIF/FOB ratio) than a firm situation in a country located close to its foreign markets. For example, Australia’s CIF/FOB ratio is 10.3, whereas Switzerland has a ratio of only 1.7 (Radelet and Sachs 1998).

  10. Use of sample selection estimators are advised in the present case since there are a large number of firms with no exports in a particular year: In our firm-level dataset, only 15,277 of 49,584 firms indicated that they exported. The cases of zero exports may not be random but due to some particular features of the individual firms so that using an OLS estimator could lead to biased estimates.

  11. Outcomes are observed only for firms that selected to export. If the factors that determine the choice/selection to export or not differ from those that determine the volume of exports, not taking the selection into account is tantamount to having the model subject to an omitted variable bias (Heckman 1979).

  12. We classify firms according to size following the World Bank, using number of employees. Thus, small firms are those with <20 employees, medium-sized firms those with between 20 and 99 employees, and large firms those with a 100 and more employees.

  13. See also Azam et al. (2000) who find that domestic competition in Côte D’Ivoire encourages firms to start exporting.

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Acknowledgement

We are grateful to the editor as well as to two anonymous referees for their useful comments and suggestions. The usual disclaimer applies.

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Authors and Affiliations

  1. World Institute for Development Economics Research, United Nations University, Katajanokanlaituri 6b, Helsinki, 00160, Finland

    Wim Naudé

  2. School of Economics, North-West University (Potchefstroom Campus), Potchefstroom, South Africa

    Marianne Matthee

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  1. Wim Naudé
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Correspondence to Wim Naudé.

Appendix

Appendix

Table 6 List of countries covered
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Table 7 Summary statistics of variables used
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Table 8 Transport cost indicators and internationalisation: correlation coefficients
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Naudé, W., Matthee, M. The impact of transport costs on new venture internationalisation. J Int Entrep 9, 62–89 (2011). https://doi.org/10.1007/s10843-010-0066-6

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