Advertisement

Import-based market experience and firms’ exit from export markets

  • Eliane Choquette
Article

Abstract

Empirical evidence shows that firms’ internationalization process can be non-linear and often includes de-internationalization events. This study focuses on one type of de-internationalization event – a firm’s decision to exit an export market – and asks how international experience affects its probability of occurrence. In particular, this study complements existing literature by looking at the effect of import-based market experience – considered as a source of market-specific knowledge prior to export market entry – on the probability of a firm exiting an export market. Conceptually, this study contrasts two views on the consequences of increased market knowledge and hypothesizes that, from a learning perspective, import-based market experience ought to reduce export market exit, whereas, from a sunk cost logic, it ought to increase export market exit. Using duration analysis of detailed data on the internationalization history of 1920 Danish firms, I find that the sunk cost logic primarily explains the relationship between import-based market experience and a firm’s probability to exit an export market, and that the effect is strongest for exports to similar destinations. Further analysis shows that this result is partly driven by experimentation-like export behavior by firms with import-based market experience.

Keywords

experiential knowledge learning sunk costs export market exit duration models experimentation 

Résumé

Des preuves empiriques montrent que le processus d’internationalisation des entreprises peut être non-linéaire et qu’il inclut souvent des événements de désinternationalisation. Cette étude se concentre sur un type d’événement de désinternationalisation - la décision d’une entreprise de quitter un marché d’exportation - et demande comment l’expérience internationale influence sa probabilité de réalisation. En particulier, cette étude complète la littérature existante en examinant l’effet de l’expérience des marchés d’importation - considérée comme une source de connaissances spécifiques du marché avant l’entrée sur le marché d’exportation - sur la probabilité qu’une entreprise quitte un marché d’exportation. Sur le plan conceptuel, cette étude oppose deux points de vue sur les conséquences d’une connaissance accrue des marchés et émet l’hypothèse selon laquelle, du point de vue de la perspective d’apprentissage, l’expérience des marchés des importations devrait réduire les sorties des marchés d’exportation, tandis que, dans une logique de coûts irrécupérables, elle devrait augmenter les sorties des marchés d’exportation. En utilisant l’analyse de la durée des données détaillées sur l’historique d’internationalisation de 1920 entreprises danoises, je trouve que la logique des coûts irrécupérables explique principalement la relation entre l’expérience du marché d’importation et la probabilité pour une entreprise de sortir d’un marché d’exportation, et que l’effet est plus fort pour les exportations vers des destinations similaires. Une analyse plus poussée montre que ce résultat est en partie dû au comportement à l’exportation des entreprises expérimentées dans le marché d’importation.

Resumen

La evidencia empírica muestra que el proceso de internacionalización de las empresas puede ser no linear y con frecuencia incluye eventos de des-internacionalización. Este estudio se enfoca en un tipo de evento de des-internacionalización (la decisión de una empresa de salir de un mercado de exportación) y pregunta cómo la experiencia internacional afecta su probabilidad de ocurrencia. En particular, este estudio complementa la literatura existente al observar el efecto de la experiencia de mercado basada en importaciones (considera como una fuente de conocimiento específico del mercado antes de la entrada al mercado de exportación). Conceptualmente, este estudio contraste dos puntos de vista de las consecuencias de un mayor conocimiento del mercado y plantea la hipótesis que, desde una perspectiva de aprendizaje, la experiencia de mercado basada en importaciones debería reducir la salida del mercado de exportaciones, mientras que, desde una lógica de costos hundidos, esto debería aumentar la salida del mercado de exportación. Usando un análisis de duración de los datos de detallados de la historia de internacionalización de 1920 empresas danesas, encuentro que la lógica de los costos hundidos principalmente explica la relación entre la experiencia del mercado basado en importaciones, y la probabilidad de una empresa de salir del mercado de exportación, y que el efecto es más fuerte para las exportaciones a destinos similares. Un análisis posterior muestra que este resultado se debe en parte a un comportamiento de exportación similar a la experimentación de empresas con experiencia en el mercado basado en importaciones.

Resumo

Evidências empíricas mostram que o processo de internacionalização de empresas pode ser não-linear e frequentemente inclui eventos de desinternacionalização. Este estudo enfoca um tipo de evento de desinternacionalização - a decisão da empresa sair de um mercado de exportação - e pergunta como a experiência internacional afeta a probabilidade de ocorrência. Em particular, este estudo complementa a literatura existente ao observar o efeito da experiência de mercado baseada em importações - considerada como uma fonte de conhecimento específico de mercado antes da entrada no mercado de exportação - na probabilidade da empresa sair de um mercado de exportação. Conceitualmente, este estudo contrasta duas visões sobre as consequências do aumento do conhecimento de mercado e hipotetisa que, do ponto de vista de aprendizado, a experiência de mercado baseada em importações deve reduzir a saída de mercados de exportação, enquanto que a partir de uma lógica de custos irrecuperáveis, deve aumentar a saída de mercados de exportação. Usando análise de duração de dados detalhados sobre o histórico de internacionalização de 1.920 empresas dinamarquesas, concluo que a lógica do custo irrecuperável explica principalmente a relação entre experiência de mercado baseada em importações e a probabilidade da empresa sair do mercado de exportação, e que o efeito é mais forte para exportações para destinos semelhantes. Uma análise mais aprofundada mostra que este resultado é em parte gerado pelo comportamento de exportação de experimentação por empresas com experiência de mercado baseada em importações.

摘要

实证证据表明, 公司的国际化进程可以是非线性的, 通常包括去国际化事件。本研究关注一种去国际化事件 – 一家公司退出出口市场的决定 – 并提问国际经验如何影响其发生概率。特别是, 本研究通过调查基于进口的市场经验 – 在进入出口市场之前被视为市场特定知识的来源 – 对公司退出出口市场的概率的影响来补充现有文献。从概念上讲, 这项研究把增加的市场知识的后果的两种观点进行对比, 并假设从学习的角度来看,基于进口的市场经验应该减少出口市场退出, 而从沉没成本逻辑来看, 它应该增加出口市场退出。我通过对1920家丹麦公司国际化历史详细数据的持续时间分析, 发现沉没成本逻辑主要解释了基于进口的市场经验与企业退出出口市场概率之间的关系, 并且对出口到类似目的地的影响是最大的。进一步分析表明, 这一结果部分是由具有基于进口的市场经验的公司的实验性出口行为所驱动的。

Notes

Acknowledgements

I am grateful to Editor Rebecca Reuber and three anonymous reviewers for their valuable comments, and to Poul Houman Andersen, Michael S. Dahl, Tor Erikson, Miriam Flickinger, Lars Frederiksen, Ingo Kleindienst, Yulia Muratova, Leo Sleuwaegen, and Valdemar Smith for their comments on earlier drafts of this paper. I am grateful to the Department of Economics and Business Economics at Aarhus University for providing data access and the Tuborg Foundation for providing financial support.

References

  1. Albornoz, F., Fanelli, S., & Hallak, J. C. 2016. Survival in export markets. Journal of International Economics, 102(September): 262–281.Google Scholar
  2. Albornoz, F., Pardo, H. F. C., Corcos, G., & Ornelas, E. 2012. Sequential exporting. Journal of International Economics, 88(1): 17–31.Google Scholar
  3. Bas, M., & Strauss-Kahn, V. 2014. Does importing more inputs raise exports? Firm-level evidence from France. Review of World Economics, 150(2): 241–275.Google Scholar
  4. Benito, G. R. G., & Welch, L. S. 1997. De-internationalization. Management International Review, 37(1997/2): 7–25.Google Scholar
  5. Bernard, A. B., & Jensen, J. B. 2004. Why some firms export. The Review of Economics and Statistics, 86(2): 561–569.Google Scholar
  6. Bernini, M., Du, J., & Love, J. H. 2016. Explaining intermittent exporting: Exit and conditional re-entry in export markets. Journal of International Business Studies, 47(9): 1058–1076.Google Scholar
  7. Bertrand, O. 2011. What goes around, comes around: Effects of offshore outsourcing on the export performance of firms. Journal of International Business Studies, 42(2): 334–344.Google Scholar
  8. Besedes, T., & Prusa, T. J. 2006. Ins, outs, and the duration of trade. Canadian Journal of Economics/Revue Canadienne D’économique, 39(1): 266–295.Google Scholar
  9. Bonaccorsi, A. 1992. On the relationship between firm size and export intensity. Journal of International Business Studies, 23(4): 605–635.Google Scholar
  10. Cadot, O., Iacovone, L., Pierola, M. D., & Rauch, F. 2013. Success and failure of African exporters. Journal of Development Economics, 101(March): 284–296.Google Scholar
  11. Cameron, A. C., & Trivedi, P. K. 2005. Microeconometrics: Methods and applications. New York: Cambridge University Press.Google Scholar
  12. Carrère, C., & Strauss-Kahn, V. 2017. Export survival and the dynamics of experience. Review of World Economics, 153(2): 271–300.Google Scholar
  13. Casillas, J. C., Barbero, J. L., & Sapienza, H. J. 2015. Knowledge acquisition, learning, and the initial pace of internationalization. International Business Review, 24(1): 102–114.Google Scholar
  14. Choquette, E., & Meinen, P. 2015. Export spillovers: Opening the black box. The World Economy, 38(12): 1912–1946.Google Scholar
  15. Choquette, E., Rask, M., Sala, D., & Schröder, P. 2017. Born globals – Is there fire behind the smoke? International Business Review, 26(3): 448–460.Google Scholar
  16. Di Gregorio, D., Musteen, M., & Thomas, D. E. 2009. Offshore outsourcing as a source of international competitiveness for SMEs. Journal of International Business Studies, 40(6): 969–988.Google Scholar
  17. Dixit, A. 1989. Entry and exit decisions under uncertainty. Journal of Political Economy, 97(3): 620–638.Google Scholar
  18. Dow, D., & Karunaratna, A. 2006. Developing a multidimensional instrument to measure psychic distance stimuli. Journal of International Business Studies, 37(5): 578–602.Google Scholar
  19. Ellis, P., & Pecotich, A. 2001. Social factors influencing export initiation in small and medium-sized enterprises. Journal of Marketing Research, 38(1): 119–130.Google Scholar
  20. Eriksson, K., Johanson, J., Majkgard, A., & Deo Sharma, D. 1997. Experiential knowledge and cost in the internationalization process. Journal of International Business Studies, 28(2): 337–360.Google Scholar
  21. Fletcher, M., & Harris, S. 2012. Knowledge acquisition for the internationalization of the smaller firm: Content and sources. International Business Review, 21(4): 631–647.Google Scholar
  22. Görg, H., Kneller, R., & Muraközy, B. 2012. What makes a successful export? Evidence from firm-product-level data. Canadian Journal of Economics/Revue Canadienne D’économique, 45(4): 1332–1368.Google Scholar
  23. Gullstrand, J., & Persson, M. 2015. How to combine high sunk costs of exporting and low export survival. Review of World Economics, 151(1): 23–51.Google Scholar
  24. Hess, W., & Persson, M. 2012. The duration of trade revisited. Empirical Economics, 43(3): 1083–1107.Google Scholar
  25. Hofstede, G. 2001. Culture’s consequences: Comparing values, behaviors, institutions, and organizations across nations. Thousand Oaks, CA: Sage Publications.Google Scholar
  26. Johanson, J., & Vahlne, J.-E. 1977. The internationalization process of the firm – A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1): 23–32.Google Scholar
  27. Johanson, J., & Vahlne, J.-E. 2009. The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40(9): 1411–1431.Google Scholar
  28. Johanson, J., & Wiedersheim-Paul, F. 1975. The internationalization of the firm – four Swedish cases. Journal of Management Studies, 12(3): 305–322.Google Scholar
  29. Karlsen, T., Silseth, P. R., Benito, G. R. G., & Welch, L. S. 2003. Knowledge, internationalization of the firm, and inward–outward connections. Industrial Marketing Management, 32(5): 385–396.Google Scholar
  30. Kogut, B., & Singh, H. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19(3): 411–432.Google Scholar
  31. Lawless, M. 2009. Firm export dynamics and the geography of trade. Journal of International Economics, 77(2): 245–254.Google Scholar
  32. Lawless, M. 2013. Marginal distance: Does export experience reduce firm trade costs? Open Economies Review, 24(5): 819–841.Google Scholar
  33. Li, H., Yi, X., & Cui, G. 2017. Emerging market firms’ internationalization: How do firms’ inward activities affect their outward activities? Strategic Management Journal, 38(13): 2704–2725.Google Scholar
  34. Mayer, T., Melitz, M. J., & Ottaviano, G. I. P. 2010. Geography and firm exports: New evidence on the nature of sunk costs. CEP discussion papers (Vol. 146). Springer.Google Scholar
  35. Mayer, T., Melitz, M. J., & Ottaviano, G. I. P. 2016. Product mix and firm productivity responses to trade competition (CEP discussion papers No. 1442).Google Scholar
  36. Meinen, P. 2015. Sunk costs of exporting and the role of experience in international trade. Canadian Journal of Economics/Revue Canadienne D’économique, 48(1): 335–367.Google Scholar
  37. Melitz, M. J. 2003. The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6): 1695–1725.Google Scholar
  38. Mohr, A., Batsakis, G., & Stone, Z. 2018. Explaining the effect of rapid internationalization on horizontal foreign divestment in the retail sector: An extended Penrosean perspective. Journal of International Business Studies, 49(7): 779–808.Google Scholar
  39. Nguyen, D. X. 2012. Demand uncertainty: Exporting delays and exporting failures. Journal of International Economics, 86(2): 336–344.Google Scholar
  40. O’Grady, S., & Lane, H. W. 1996. The psychic distance paradox. Journal of International Business Studies, 27(2): 309–333.Google Scholar
  41. Pellegrino, J. M., & McNaughton, R. B. 2017. Beyond learning by experience: The use of alternative learning processes by incrementally and rapidly internationalizing SMEs. International Business Review, 26(4): 614–627.Google Scholar
  42. Roberts, M. J., & Tybout, J. R. 1997. American economic association the decision to export in Colombia: An empirical model of entry with sunk costs. The American Economic Review, 87(4): 545–564.Google Scholar
  43. Sleuwaegen, L., & Onkelinx, J. 2014. International commitment, post-entry growth and survival of international new ventures. Journal of Business Venturing, 29(1): 106–120.Google Scholar
  44. Stirbat, L., Record, R., & Nghardsaysone, K. 2015. The experience of survival: Determinants of export survival in Lao PDR. World Development, 76(December): 82–94.Google Scholar
  45. Sui, S., & Baum, M. 2014. Internationalization strategy, firm resources and the survival of SMEs in the export market. Journal of International Business Studies, 45(7): 821–841.Google Scholar
  46. Surdu, I., Mellahi, K., & Glaister, K. W. 2018. Once bitten, not necessarily shy? Determinants of foreign market re-entry commitment strategies. Journal of International Business Studies, advance online publication July 13.  https://doi.org/10.1057/s41267-018-0167-3.
  47. Timoshenko, O. A. 2015. Learning versus sunk costs explanations of export persistence. European Economic Review, 79(October): 113–128.Google Scholar
  48. Vissak, T., & Francioni, B. 2013. Serial nonlinear internationalization in practice: A case study. International Business Review, 22(6): 951–962.Google Scholar
  49. Wagner, J. 2007. Exports and productivity: A survey of the evidence from firm-level data. The World Economy, 30(1v 60–82.Google Scholar
  50. Welch, L. S., & Luostarinen, R. K. 1993. Inward–outward connections in internationalization. Journal of International Marketing, 1(1): 44–56.Google Scholar
  51. Zaheer, S. 1995. Overcoming the liability of foreignness. Academy of Management Journal, 38(2): 341–363.Google Scholar

Copyright information

© Academy of International Business 2018

Authors and Affiliations

  1. 1.Department of ManagementAarhus UniversityAarhus VDenmark

Personalised recommendations