Although the creation of a Scottish Parliament with new policy making powers is focusing interest on the performance of the Scottish economy in general and Scottish exporting firms in particular, little has been published on the determinants of export performance of Scottish firms. From the existing literature on export performance this paper identifies key variables associated with export performance and investigates the characteristics associated with high performance amongst Scottish manufacturing exporters. The results indicate that export marketing strategy, management commitment, high technology products and a strong market position are associated with high export performance in the Scottish economy.
With the advent of Scottish devolution and the creation of the Scottish Parliament, new policy making powers now reside in Scotland. These changes have led to a new focus on all aspects of the Scottish economy including the export performance of Scottish firms. Exports are a vital part of any economy, perhaps more so in the case of Scotland whose per capita exports are among the highest in the world. Manufactured exports were £19.2 billion in 1997/98 with growth of 10.8% in 1997 .
Although the export performance literature is extensive much of the research has been undertaken in the USA and Europe and, to a certain extent the UK, with little published recently on the Scottish economy. Zou and Stan reviewed fifty studies of export performance published between 1987 and 1997. Of these only three were studies of UK exporters. Beamish, Craig and McLellan compared Canadian and UK firms, Diamantopoulos and Schlegmilch compared US, German and UK firms and Schlegelmilch and Ross investigated UK firms only. Styles and Ambler also studied winners of the Queen’s Award for Exporting. Aaby and Slater reviewed the export performance literature between 1978 and 1988 and identified a further four UK studies and one Scottish study by Diamantopoulos and Inglis which looked at high and low involvement exporters. It would seem then that with the dearth of recent studies on export performance in the Scottish economy there is little published research which might inform policy making in Scotland.
The research on export performance has continued to grow, with papers published on almost all aspects of the subject. In spite of the volume of research there are conflicting findings and consequently difficulties in interpreting results (Zou and Stan 1998). Part of the explanation for this is the variety of ways in which the determinants of export performance are conceptualised and part relates to the need to build upon developments in our understanding of export performance and integrate these in new studies. This will allow the stability and transferability of previous results to be tested in other country and industry settings (Diamantopoulos and Schlegelmilch 1994).
The purpose of this paper is two-fold: first, to understand more about the determinants of export performance in Scotland at a time of great political and economic change; second, to test the extent to which key findings in the export performance literature also explain export performance in Scotland.
The classification of determinants in this study follows that of Zou and Stan (1998), who identified the following categories of key determinants of export performance:
export marketing strategy
managers’ attitudes and perceptions
managers’ characteristics
firm characteristics and competencies
industry type
domestic market characteristics
foreign market characteristics
This classification is broadly similar to those used by Aaby and Slater (1989) and Da Rocha and Christensen .
Export marketing strategy is one of the most frequently studied determinants of export performance and there is a body of evidence that supports export marketing strategy as a determinant of success. Studies by Aaby and Slater (1989), Chetty and Hamilton , Madsen (1989), Cavusgil and Zou and Thirkell and Dau all sustain the view that export marketing strategy is a key determinant of export performance.
However findings for a link between export performance and individual elements of the marketing mix are not uniformly strong. The strongest support is for product adaptation (Donthu and Kim, 1993; Madsen, 1989; Walters and Samiee, 1990; and Diamantopoulos and Ingles, 1988). There is also strong support for the importance of the relationship with the intermediary. Many studies point to a close relationship being a key influence on performance and more recently Thirkell provided further evidence for the importance of channel support.
Evidence is less clear-cut for the adaptation of advertising and promotion including changes in product positioning. Cavusgil and Kirpalani reported that firms changing product positioning to suit foreign customers achieved greater success. Studies by Seifert and Ford , Namiki , Cavusgil and Zou (1994), Sriram and Manu and Zou, Andrus and Norvell give some support for advertising and promotion being linked with performance.
Research on pricing has produced mixed findings. Shoham found that successful exporters overall modified their pricing strategy for export markets, whereas Cavusgil and Zou (1994) found that competitive pricing strategies were used more often only in high technology industries. Styles and Ambler (1994) noted that pricing had a low priority with successful exporters. Overall there is some evidence linking pricing modification with export performance but there is not the weight of evidence for either pricing or advertising and promotion adaptation that exists for product adaptation and channel support.
Perhaps the best substantiated finding is the link between management characteristics, especially management commitment and export performance. Studies over the last thirty years have pointed to a strong relationship between commitment and performance. Bijmolt and Zwart identified groups of exporters with differing levels of success and linked management commitment with the more successful groups of exporters. Cavusgil and Kirpalani (1993) found that high management commitment was essential for long term success, and this was confirmed by Diamantopoulos and Schlegelmilch (1993). Reviews of the literature by Zou and Stan (1998), Chetty and Hamilton (1993), Aaby and Slater (1989) and Madsen , all point to the conclusion that management commitment, however measured, is a key determinant of export performance. Management’s international experience is associated with export performance and, as Zou and Stan (1998) note in their review of research on export performance over a ten year period, only one study out of 12 has not linked international experience and performance.
In their analysis of the research on performance Zou and Stan (1998) found that aspects of firm characteristics and competencies linked with performance include a strong market position, human resources and functional capabilities. They also noted some support for the level of technology or manufacturing complexity within industries influencing performance. Studies by Cavusgil and Zou (1994), Holtzmuller and Stottinger , Ito and Pucik , are all of this view. However the attractiveness of export markets has mixed support as does the competitiveness of the export market. Also the extent of legal and regulatory barriers does not seem to discriminate between high and low performing exporters (Diamantopolous and Shlegelmilch 1994). The effects of domestic market conditions are unclear with conflicting findings from a small number of studies.
We wanted to look at the characteristics of exporters associated with high export performance. We were aware of the arguments in the literature for multiple measures of export performance and the use of objective and subjective measures. However, from a policy perspective there is interest in the presence of exporters who are successful in the sense of a substantial proportion of sales being exported and who, in relative terms, are making a significant contribution to the performance of the Scottish economy. Consequently, in this paper, we used the percentage of sales exported and the percentage of profits earned from exporting as indicators of high performance in the context of the Scottish economy.
We are mindful, in studying Scottish exporters, of the volume of previous research on export performance, and the need to build upon previous research. We were particularly interested in the role of export marketing strategy and management characteristics, and have used items tested by Cavusgil and Zou in 1994, with some alterations, as the basis of our study. Data was gathered at the product/market venture level. This paper is part of a wider investigation of export marketing strategy and export performance and the results reported here concern the characteristics associated with higher performing exporters.
Using items tested by Cavusgil and Zou in 1994, a questionnaire was designed for a mail survey combined with telephone follow up. The mailing list was drawn from a database of Scottish exporters maintained by the Scottish Council for Development and Industry. The questionnaire was mailed to a sample of 330 Scottish exporters in the summer of 1998. A reminder was sent and later data was checked using a telephone follow up. Data was collected from 154 Scottish exporters, representing a response rate of 51%.
The majority of respondents were involved either in textiles (35), food (33) or metals (17). Nine of the respondent firms were in the chemicals industry, 38 in a number of aspects of engineering, and 22 in other manufacturing sectors. Just over 40 percent of responses came from chief executives, 28 percent from other directors, and 31 percent came from other executives. The average respondent employed 425, and had sales of some £35 millions (of which about a third were exports). It currently dealt with customers in 18 countries, and had been exporting for about 30 years.
T-tests were performed to investigate the relationship between export sales and export profits with the independent variables. High and low success categories were established by dichotomising the dependent variables around their means. High performing firms had export sales and profits of 25% or more. Low performing firms had export sales and profits of less than 25%.
Overall most of the variables associated with export performance in Tables 1 to 4 are highly significant with p values at or close to .000. In Table 1 there is a very clear pattern of associations between export sales and profits and particular elements of strategy. There is support for Hypothesis 1, which stated that export marketing strategy is associated with higher performing exporters. Firms in this category tended to plan more carefully; change their product positioning more; use sales targets and set them at higher levels in comparison with the domestic market than lower performing companies. There was also partial support for higher performing firms specifying their target markets more often. There was support for Hypothesis 2 that higher performing exporters adapt their products more, both before and after market entry and that higher performing firms give more support and training to their intermediaries (Hypothesis 3). There was no support for hypotheses 4 and 5 that higher performing firms adapt their advertising and promotion and adapt their pricing.
Table 1: Export Marketing Strategy
|
export sales 25%+ |
export profit 25%+ |
||
Variable |
t-value |
P-level |
t-value |
P-level |
Extent of careful planning |
-4.77 |
.000 |
-4.59 |
.000 |
Extent of target market specification |
-2.15 |
.033 |
-1.93 |
.056 |
Sales targets set |
2.60 |
.010 |
2.40 |
.017 |
Sales targets compared with home market |
-4.50 |
.000 |
-2.91 |
.005 |
Unique product |
-1.77 |
.079 |
-1.46 |
.146 |
Product adaptation prior to entry |
-3.68 |
.000 |
-3.12 |
.002 |
Product adaptation subsequent to entry |
-3.83 |
.000 |
-3.44 |
.001 |
Change in product
positioning
|
-3.45 |
.000 |
-4.16 |
.000 |
Adaptation of advertising and promotion |
-1.57 |
.118 |
-1.12 |
.267 |
Support for intermediary |
-3.13 |
.002 |
-2.40 |
.018 |
Training provided for intermediary |
-5.12 |
.000 |
-3.66 |
.000 |
Degree of price competition |
0.15 |
.879 |
0.34 |
.733 |
As Table 2 shows, there is support for hypothesis 6 that management commitment is associated with higher performance and for hypothesis 7 that the extent of resources committed to the product/market and to export development within the firm as a whole, are associated with higher export performance. International experience was also associated with higher performance (Hypothesis 8).
Table 2
|
export sales 25%+ |
export profit 25%+ |
||
Firm and Management Characteristics |
t-value |
P-level |
t-value |
P-level |
Extent of management commitment |
-5.81 |
.000 |
-5.86 |
.000 |
Extent of resources committed to pdt/mkt |
-4.63 |
.000 |
-5.47 |
.000 |
Extent of firm’s international experience |
-6.41 |
.000 |
-5.70 |
.000 |
Resources for export development |
-4.37 |
.000 |
-4.76 |
.000 |
As Table 3 reveals there is evidence that higher performing firms export higher technology products which require more sales training and servicing. In short the higher performing firms sold more complex products (Hypothesis 9).
Table 3
|
export sales 25% |
export profit 25%+ |
||
Product Complexity |
t-value |
P-level |
t-value |
P-level |
Technology orientation of product |
-3.84 |
.000 |
-4.06 |
.000 |
Sales training required |
-3.14 |
.002 |
-3.16 |
.002 |
Product’s service requirements |
-3.96 |
.000 |
-3.09 |
.002 |
There was little support for Hypothesis 10 that higher performing firms adapt their export marketing strategy in response to export market characteristics. Of the export market characteristics set out in Table 4 the strength of the higher performing firms’ position in the export market is striking, as is their relatively higher market share compared with their leading competitors. In keeping with this, the level of product exposure in the market is higher for these firms as well. There is some support for the higher performing firms selling to markets which have greater potential demand but this item was significant on only one of the dependent variables. Cavusgil and Zou (1994) hypothesised that export market conditions shown in Table 4 would affect marketing strategy adaptation decisions but the variables associated with the high performing exporters are more about the position of the companies in the export market. There was support for the Hypothesis 11 that higher performing firms are no more aware of legal and regulatory barriers than lower performing exporters.
Table 4
|
export sales 25%+ |
export profit 25%+ |
||
Export Market Characteristics |
t-value |
P-level |
t-value |
P-level |
Cultural similarity of the market |
0.85 |
.399 |
0.64 |
.521 |
Potential demand in the export market |
-2.31 |
.022 |
-1.35 |
.180 |
Strength of position in export market |
-6.19 |
.000 |
-5.64 |
.000 |
Market share compared with leading domestic competitor |
-4.86 |
.000 |
-4.14 |
.000 |
Market share compared with leading foreign competitor |
-5.26 |
.000 |
-3.94 |
.000 |
Competitive intensity |
0.66 |
.51 |
0.59 |
0.559 |
Degree of product exposure |
-3.75 |
.000 |
-3.38 |
.001 |
Legal barriers in export market |
-0.22 |
.829 |
0.08 |
.937 |
Regulatory barriers in export market |
-0.34 |
.733 |
-0.56 |
.576 |
Looking through the results the level of significance of most of the variables in each of the groups of determinants, export marketing strategy, firm and management characteristics and export market and product/industry characteristics is striking. There is a very clear set of characteristics associated with the higher performing companies.
Export marketing strategy is associated with higher performing exporters which is consistent with the literature, particularly studies by Thirkell and Dau (1998), Cavusgil and Zou (1994), Aaby and Slater (1989) and Cavusgil and Kirpalani (1985). Export planning is consistently found to be a predictor of success and is characteristically associated with higher performing exporters in the Scottish sample. Product adaptation, both before and after entry, and support and training representing a close relationship with the intermediary, are also important determinants, identified in a number of studies, Thirkell and Dau (1998), Nakos et al , Zou and Stan (1998) and Madsen (1989). With Scotland situated on the periphery of Europe and therefore relatively remote from markets in the European Union it could be expected that the better exporters would support their intermediaries well.
Where a market is not seen as price competitive, it could be argued that pricing is not used for competitive advantage. That higher performing exporters in the sample did not differ significantly in this respect could be interpreted as a response to the pressure of a high pound at the time the survey was carried out, making competitive pricing more difficult and therefore encouraging firms to compete more on non-price elements of strategy.
Adaptation of advertising and promotion also did not differentiate between high and low performers in the sample. In the literature the evidence linking advertising and promotion with performance is not clear-cut, Zou and Stan (1998). There could be a number of reasons for this. Amongst small and medium-sized exporters, the advertising and promotional element of export marketing strategy may not be as well developed as in larger firms, and so is an aspect of strategy which management believe there is less need to adapt. Also advertising and promotion budgets for export markets may be less than for the domestic market even though the advertising task in the export market is greater. Distributors and agents may contribute to advertising and promotional costs but the firm still attaches less importance to the export markets, Seifert and Ford (1989). Another possible explanation is that the importance of advertising and promotion varies by industry and product, with some products and some industries not requiring the level of advertising and promotion that consumer products do. Hence, the advertising and promotion adaptation decision in this instance is not an issue.
The extent of management commitment is possibly the factor most clearly shown in the literature to be a key determinant of export performance and the associations between commitment and performance in this study are highly significant. Studies by Thirkell and Dau (1998) and many others support this notion.
There is also some support for higher performance being associated with more technology intensive products and this seems to be the case with the sample, as higher performing exporters have a higher technology product with higher service and training requirements.
Cavusgil and Zou (1994) hypothesised that export market conditions shown in Table 4 would affect marketing strategy adaptation decisions but the variables associated with the high performing exporters are more about the position of the companies in the export market. One interpretation of the data is that the high performing exporters with their international experience and better market position have the knowledge to adapt their marketing strategies to their markets. The less experienced exporters are not in such a favourable position and perform less well.
This study has several implications for managers. Firstly it is vital that managers are committed to exporting. The nature of commitment will vary from firm to firm but comments from respondents in the survey highlighted willingness to spend significant amounts of time managing the export business, travelling abroad and willingness to allocate non-managerial resources for the development of exporting. Secondly, managers should plan carefully and be willing to develop strategies for individual markets. In developing export marketing strategy managers are assessing the extent to which adaptation should take place. In this study product adaptation was associated with higher performance, although the adaptation of promotion and pricing was not associated with the higher performance. However this does not rule out the adaptation of promotion and pricing in all circumstances, for instance, a weak Pound, would provide more opportunities to compete on price. Clearly close support and training for the intermediary is an important issue. Obviously with the intermediary being the only or main source of representation in the foreign market a close working relationship is likely to be the most productive. Thirdly, with the accumulation of international experience comes the ability to develop markets more successfully. Finally, firms should aim to build a strong market position in their export markets.
Policymakers have put in place a comprehensive programme of support for exporters in Scotland. Aspects of the support programme encourage firms to plan their activities and develop export marketing strategies. We would strongly encourage the further development of support mechanisms that help individual exporters to develop export marketing strategies. Specifically, forms of one to one advice such as the use of professional export advisors together with workshops, seminars, and export development programmes designed to increase the export marketing capability of the individual firm.
The high performance of firms exporting relatively complex high technology products reflects the development of the Scottish economy and from a policy perspective there are grounds for suggesting that export support agencies should consider selective support for new and developing exporters of relatively high technology products. To qualify for this assistance though, these firms should also exhibit other characteristics of high export performance like the commitment of the firm’s management to exporting.
From an academic standpoint there is a consensus that studies ought to be carried out in different countries and across different industries (Diamantopolous and Schlegelmilch 1994). With the lack of research on export performance in the Scottish economy, this paper provides some evidence confirming the importance of export marketing strategy, management and resource commitment, international experience and market position as key determinants of export performance.
The aims of this paper were to understand more about the determinants of export performance amongst manufacturing firms in Scotland and see to what extent determinants identified in the literature are also associated with high performing Scottish exporters.
The findings from this study seem to confirm some of the key determinants of export performance identified in the literature. Once again, the role of management commitment is associated with higher performing exporters and there is clear evidence that export marketing strategy and within that, the importance of product adaptation, and of managing relationships with the exporter’s intermediary well, are clearly associated with high export performance. Also higher performing firms exported more complex higher technology products.
The impact of the strong pound was a problem for many firms and this may be one reason why higher performing exporters in the sample did not see their export market as particularly price competitive, as they did not and could not in many cases compete on price. In other respects market conditions were not strongly associated with the higher performing exporters however strength of position in the market was associated with higher performance.
This study set out to provide a view of the characteristics associated with high performing exporters and to see to what key extent determinants identified in studies in other countries were also evident in Scotland using, with some changes, the variables tested by Cavusgil and Zou (1994). The findings have shown that key determinants of export performance identified in the literature, namely aspects of marketing strategy, management, commitment product characteristics and market position are associated with high performing Scottish exporters.
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