Exporting is undeniably advantageous. At a macro level, trade openness is pivotal for economic growth, offering significant contributions to the country’s overall welfare. From a micro perspective, exporting can elevate firms’ sales and drive innovation, productivity, and resilience, particularly for small and medium enterprises. Consequently, national governments and business support organisations are diligently working to boost export participation. However, it is important for us to understand the factors that affect businesses in making their export decision in the very first place.
Based on a recent publication from the Enterprise Research Centre, here are the factors that affect business export decisions.
It all comes down to one word: Leadership
The role of leadership in firms’ export decisions cannot be overstated. Certain qualities in the leadership of firms, usually in owners or managers, are linked to a higher chance of entering a market for the first time. These qualities include knowledge and experience, such as years of education or having a university degree, work experience in management or entrepreneurship, including at multinational companies, experience in exporting to different markets, and experience of working, living or travelling for work abroad.
Another factor that significantly influences firms’ exporting is the demographics of their leadership. Studies have shown that foreign-born or immigrant business leaders, as well as foreign-born staff, can have a positive impact on a firm’s export activities. Their unique knowledge and connections in the export country can be instrumental in overcoming information barriers to trade.
Various business leaders’ attitudes and actions are linked to increased export participation. These factors include being proactive, willing to take risks, innovative, focused on international markets, and desiring to become successful exporters. Evidence shows that business leaders’ perceptions of the economic benefits of exporting influence their decision to start exporting. This includes seeing exporting as advantageous, viewing export markets as profitable, expecting financial gains, seeking profits, diversifying risks, and maximising production capacity. Business leaders should consider these benefits, along with their perception of export feasibility, barriers, potential risks, the size and opportunities of the domestic market, and domestic
Let’s talk about money
When companies decide to expand into export markets, they are making a significant financial commitment. Various studies have consistently shown that firms with more substantial financial health and fewer financial constraints are more likely to pursue export opportunities. Companies with higher total assets, greater profitability, more liquidity, lower debt ratios, better solvency, and easier access to external finance tend to demonstrate a higher propensity to initiate export activities.
Business connections can be a catalyst
Research has shown that a company’s relationships and networks have a positive impact on its decision to start exporting. The focus has been on the benefits of importing and establishing connections with foreign suppliers, as these can lead to improvements in the company’s productivity and competitiveness and provide valuable insights into export markets. Even smaller and less productive companies heavily involved in the supply chain can benefit from reduced entry costs and economies of scale, increasing their likelihood of entering the export market.
It has also been found that other connections can also influence the decision to start exporting. These connections include strategic partnerships, alliances, commercial intermediaries, business partners, etc. They are believed to encourage or highlight market opportunities, provide advice on specific markets, facilitate knowledge and information sharing, help build capacity, and signal demand in export markets.
Equipped oneself with digital tools
There is evidence that the adoption of ICT and digital technology, especially having a website, has a positive impact on export entry. This is presumably due to the decreased costs of trade. Additionally, having a greater absorptive capacity, such as scientific knowledge and international cooperation, reduces entry barriers into export markets.
It may seem complicated to begin exporting overseas. However, it is actually more straightforward than you think. Business leaders in Greater Manchester who aspire to expand their business internationally can contact us at GM Business Growth Hub for advice and guidance. Our experienced business advisors are here to guide you step by step through the process.
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