- Email: [email protected]
Segmenting U.S. firms for export development
Segmenting U.S. Firms for Export Development Michael R. Czinkota, Georgetown University Wesley J. Johnston, The Ohio State University
In attempting to aid firms in their exporting efforts, various segmentation approaches have been developed by government agencies and research groups. Each of these segmentation schemes aims at the identification of specific export needs within different groups of firms. The four major approaches suggested in the literature propose to differentiate firms into groups based on the level of international activities, managerial attitudes, size, and service orientation of firms. The research presented in this article investigates these four segmentation approaches by applying them to common data collected from small and medium sized U.S. manufacturing firms and investigating their effectiveness in differentiating among groups of firms. The results indicate that the differentiation of firms according to their level of international activities is the most effective one of the four approaches investigated. Subsequently, various specific needs of exporting firms are presented and a redirection of current export promotion efforts is suggested.
The U.S. government is becoming increasingly concerned with the export performance of U. S . firms [ 181. The importance of exports to the U.S. economy as a counteracting measure to persistent trade deficits and increasing inflationary pressures of fossil fuel imports has apparently been “rediscovered.” To avoid the continuation of the trade deficit, export volume requires an expansion of at least 20% above current levels [4, p. 93. Such an increase, however, is not possible by simply increasing the volume of activities of current exporters. The number of firms exporting must be increased; that is, nonexporters must also be encouraged to participate actively in the international marketplace. The possibility of increasing the number of firms that export seems to have strong potential. Statistics show that 80% of all U.S. exports of manufactured goods are made by 250 companies and that 92% of all American firms sell only in the United States [ 10, 171. Although many of the larger firms export, most small and medium sized firms have never felt any compelling need to seek business beyond the national borders and are generally unwilling to export [ 15, 161. The needs of larger firms Address correspondence to Michael R. Czinkota, Faculty of Marketing, School of Business Administration, Georgetown University, Washington,DC 2005 7. JOURNAL OFBUSINESS RESEARCH 9, 353-365 (1981) 0 Elsevier North Holland, Inc., 1981 52 Vanderbilt
Ave., New York, NY 10017
0148-2963/81/04353-13$2.50
353
354
Michael R. Czinkota and Wesley J. Johnston
for export assistance are well met by private sector sources or through their own corporate contacts abroad. Smaller firms, on the other hand, are generally ignored by profit-oriented service organizations, which prefer the large firms as clients [ 161. However, the smaller firms are the ones most in need of help since they usually are less aware of the potential benefits of exporting, less confident about their ability to export. and less knowledgeable about how to do it and where to go for help. Also. since their staff and resources are limited, they cannot afford to pay as much for the assistance needed (as can larger firms) [ 191. The U .S . government has recognized the need for aiding small and medium sized firms in their exporting effort and has initiated several programs to provide assistance. These programs have, however, been hampered by a frequent lack of resources, by focusing on the wrong target audience, and, particularly, by not being sufficiently responsive to the needs of businesses [4]. The government now recognizes that firms need to be provided with better and more specific
information.
[they must be offered]
best suited to their needs and capabilities. to use.
the kinds ofservlces
that are
and which they would be most able and willing
[ 12. p. 12)
Since it would be unreasonable to assume that all exporters have the same needs, the government is attempting to segment exporting firms and to investigate and subsequently fulfill the needs of each segment. Investigations have attempted to identify ways of differentiating firms so that each segment would have needs independent from those of other segments. Several approaches to the segmentation of exporting firms have resulted from these investigations. All of these approaches are successful to some degree in differentiating exporting firms; however, the policymaker faces the dilemma of choosing the one approach that is most effective in differentiating firms. The usefulness of these approaches for segmenting exporters as an aid in the export promotion policy decision process was investigated. By identifying the best method for differentiating firms according to their export promotion needs, assistance requirements of these different groups of firms can be examined and strategies for delivering this assistance can be outlined. Current Approaches to Segmenting Exporting Firms Four approaches to differentiating or segmenting small and medium sized firms into homogeneous groups for export promotion purposes are suggested in the literature. Each segmentation scheme represents a different method and uses a different classification to separate firms into groups.
Export Segmentation
3.55
One approach which various research groups have suggested is the differentiation of firms according to their level of international activities. Through various empirical and theoretical studies, such different levels have been identified first in a general fashion [5, 81 and gradually in a more refined form [6]. Work by Bilkey and Tesar [2] finally identified six stages of firms’ international development with respect to export decision making, ranging from a complete disinterest in exporting to the exploration of export opportunities in psychologically distant countries. The study categorized 816 Wisconsin firms according to the above stages. The results indicated that firms in each stage were significantly different from firms in other stages in terms of their perception of exporting. Although this study was successful in differentiating among firms, the criteria according to which firms were classified were quite general in nature. For the purposes of this study, the international stages were modeled closely after the criteria used by Bilkey and Tesar [2], but were composed in more rigorous fashion by using quantitative cut-off values for relative and absolute export sales volume, length of export experience, types of countries exported to, number of export customers and export transactions, and manpower committed to exporting (see Tables l-4). In addition, the stages were slightly altered to encompass the following types of firms: 1. the unwilling firm
2. 3. 4. 5. 6.
the the the the the
uninterested firm interested firm experimenting exporter semiexperienced small exporter experienced larger exporter
Another approach segments firms according to the prevalent managerial attitudes. Pavord and Bogart [9] distinguished firms actively seeking exports from those who do not, leading them to a framework of firms whose exporting efforts are characterized by (a) no activity, (b) passive activity, (c) minor activity, and (d) aggressive activity. Significant differences were found to exist between seekers and nonseekers of exports in regard to the perceived severity of exporting problems. Wiedersheim et al. [14] distinguished three groups of firms: active, passive, and domestic. These groups were analyzed under dimensions of (a) willingness to start exporting, (b) information collection activity, and (c) information transmission activity. Increases in the willingness to export were found to occur when new decision makers entered a firm, when existing decision makers experienced significant attitude changes, or when significant external changes occurred. An increase in the economic advantages of exporting through export promotion was not
0 Nofe: In applying qualified for a particular
>5
Experienced, larger scale
this categorization stage in all criteria
>100,000
<100,000
0
>2 yr
>2 yr
0
Length of Time Exporting
>I
0
Personnel Committed to Exporting
Europe Far East South America Africa
Europe Far East South America Africa
not applicable
Type of Countries Exporting to
to fiims, assignments to classes were made on the basis of meeting except one, it was classified as belonging in the next lower stage.)
>5
>5
>5
>5
>5
0 <5 >5 >5
0
<5 <5 >5
0
<5 <5
Uninterested Interested Experimenting Experienced, small scale
6)
(% sales)
Unwilling
Export Volume
Future Export Volume
Stagen
Present Export Volume (% sales)
by Stages of Export Activity
Past Export Volume (% sales)
Table 1: Classification
all criteria.
10 or more
10 or more
0
No. of Export Customers
(That
is, if a firm
20 or more
20 or more
0
No. of Export Transactions
E
2
z % z
3
B z
.?J 0 2.
_1
Reactive motivations
managerial urge
overproduction
exclusive information
competitive pressures
Factors
by Managerial Attitudes
Proactive = positive overall score. Reactive = negative overall score. Situational = overall score of zero.
+1
Attitudes
Proactive motivations
Managerial
Table 2: Classification
profit advantage
excess capacity
declining domestic sales
the Exporting
unique products
Motivating
saturated domestic market
marketing advantage
Effort
proximity to ports
technological advantage
DISC
other tax advantages
3.58
Michael I?. Czinkota
Table 3: Classification Size Medium Small
and Wesley J. Johnston
by Size Annual
Sales Volume
(millions
of dollars)
5<$<50 SC5
seen to be a sufficient condition to increase me interest of decision makers in passive and domestic firms in exporting. Cavusgil et al. [3], using AID Automatic Interaction Detector techniques, discovered that favorable expectations of exporting and high aspirations for the firm were major factors contributing to the export behavior of firms. The evidence identifying decision makers’ effect on export activities is quite strong. Knowledge of the specific variables that affect management’s attitude toward export decisions can make a contribution towards explaining export activity. The research identifying decisionmaker characteristics, however, is not fully developed. The final power of this approach is uncertain. Other areas of marketing research have realized only limited success in explanatory power in spite of vast amounts of psychologically oriented research (motivational research in buyer behavior, for instance). In the present study, management attitudes were assessed by measuring management’s perception of the firm’s competitive advantages. Firms were grouped as being proactive, situational, or reactive. Proactive and reactive motivations were identified through a combination of the approaches used by Pavord and Bogart 191and Bilkey and Tesar [2]. Proactive motivations included exclusive information, managerial urge, unique products, profit advantage, marketing advantage, technological advantage, the Domestic International Sales
Table 4: Classification Service Level High Medium Low
by Service Orientation Percent
of Service in Export >50 20-50 <20
Offering
Export
Segmentation
359
Corporation (DISC), and other tax advantages. Reactive motivations included competitive pressures, overproduction, declining domestic sales, excess capacity, and saturated domestic market, In order to classify the type of management behavior in the firm, these different motivations were aggregated. Paralleling the scoring approach of Bilkey and Tesar [2], a proactive motive was scored as + 1, a reactive motive as - 1. If the sum of the motives existing in a firm’s export decision was positive, the firm’s management was classified as being proactive. If the sum was negative, the classification was reactive. Management was classified as situational if the proactive and reactive motives were balanced. A third approach orients itself on the size of firms, hypothesizing that firms can be differentiated according to their sales volume. The issue of firms of smaller size requiring different types of export assistance was made clear throughout recent congressional hearings [ 121. Bilkey [I] suggests a possible correlation between the size of firms and the quality of management. The possibility that the propensity to export could vary directly with the size of the firm seems quite plausible. Bilkey and Tesar [2] found that firms obtaining their own initial export order were much larger than firms whose initial export order was unsolicited. Overall, however, the authors found size to be “relatively unimportant” in the export decision process. Other findings in this area of research were that firms most likely to export have sales volumes over one million dollars [3] and that managers in smaller businesses tend to believe that only large enterprises can successfully handle the technical details of exporting [131. An obvious problem of causality exists here. Do exporting activities increase size or does size lead to exporting? Actually there is probably a complex interaction between the two variables. For the differentiation according to size of firm, various criteria had been suggested in past studies. Based on testimony in congressional hearings [ 11, 161, previous empirical findings [7], and interviews with company executives, it was decided to use a total annual sales volume of 5 million dollars as the cut-off value for small sized firms and 50 million dollars as the cut-off value for medium sized firms. A fourth segmentation approach suggested is based on the service orientation of firms. Here, firms that view their export effort as purely “shipping of the product” are distinguished from those that view exporting as providing products coupled with services. WiedersheimPaul et al. hypothesized that the lower the need for service support of a product. the higher the chances for a potential seller to be exposed to export stimuli [ 141. In a study involving Swedish firms, however. Khan
360
Michael R. Czinkota and Wesley J. Johnston
[6] discovered that emphasis of presale service was positively related to success in exporting. In this research the service orientation of firms was measured by partitioning the export offering. Firms were classified according to the share that nonproduct variables, such as advertising, communication, financing, had in the export product offering. These nonproduct variables have been referred to as software [ 141 in analogy with the computer industry. The service orientation groupings used were thus: high, medium, and low. The partitioning was achieved by allocating percentages to the product and service export efforts of firms, and grouping firms along the natural breaks in a frequency distribution. Tables l-4 give an overview of the operationalization of each segmentation approach for purposes of this study. (The reader wishing more insight into the quantification of these approaches may refer to Czinkota [4] .) The Investigation After all four segmentation approaches were defined by using the criteria described above, several areas were identified as representing possible differences between firms with respect to the exporting decision and process. 1. Background of firms: demographic characteristics of firms, such as size and age, the export distribution, the beginning of export activities, and the motivation for exporting; also, the event oriented background of the firm such as receipt of an unsolicited order and threshold points for the change of behavior. 2. Importance of exporting tasks: variables relevant to the export effort of firms, such as advertising, sales effort, and information gathering, and their impact on the firm. 3. Problems posed by exporting tasks: dealing with the same variables as above and the extent to which their performance in exporting presented a problem to the firm. 4. Perceived customer value: how the exporting firm perceives that the customer will benefit from the variables which are of relevance to the exporter. 5. Internal improvement: the improvement in export performance the firm believes it could obtain if the firm was to place more emphasis on the issues relevant to exporting. 6. Governmental assistance: the improvement in export performance the firm believes it could obtain if the U.S. Department of Commerce was to perform exporting tasks for the firm.
Export Segmentation
361
7. Export perceptions: the attitudes management displays toward exporting and their impact on the firm. 8. Product orientation: the extent to which the export offering of the firm consists of the physical product-the opposite of service orientation. 9. Decision makers: the amount of input various people in the firm have into the export decision process. Subsequently four sets of nine similar hypotheses were formulated. The hypotheses were stated in the following way: H 1: There are no differences among any of the background group means of the firms in each international stage (situational, proactive, and reactive firms; small and medium sized firms; high, medium, and low service oriented firms). A questionnaire pretested for clarity, difficulty, and response was then mailed to 10 19 small and medium sized U .S . manufacturing firms in the materials handling industry (SIC 353), avionics and aviation suport industry (SIC 372), and industrial instruments industry (SIC 382). The response rate to the mail questionnaire was 30%, yielding 237 usable responses. It was the objective of this research to determine the power of four existing segmentation approaches in differentiating between groups of firms in terms of their exporting behavior. Therefore, analysis of variance (ANOVA) was used to compare the mean group scores for the group configuration of each segmentation approach. Both MANOVA and ANOVA were carried out. The hypotheses were tested with help of the Hotelling and Duncan test statistic.
Findings Four proposed segmentation approaches were applied to a common data base in an investigation to determine the effectiveness of each approach in differentiating among types of exporting firms. An approach was deemed “successful” in segmenting firms if the mean score of firms in a group was significantly different from the mean scores of the other group(s) when using the particular method of differentiation. To obtain such significant data points, the groups were compared on export dimensions comprising up to 20 individual variables using MANOVA, and on individual export issues using ANOVA. The number of most significant data points obtained in the testing of each set of hypotheses was utilized as decision criterion for the determination of the most helpful and informative method of differentiating among firms.
362
Michael R. Czinkota and Wesley J. Johnston
For both the export dimensions and the individual export issue comparisons, the international stages yielded the highest number of significant data points (47 out of a possible 110) when compared with all other grouping methods. This also held true when permitting for a 5% error rate, i.e. the emergence of a group difference as significant when, in fact, this was due to chance. Therefore, the international stages emerged as the best of the four investigated segmentation approaches in differentiating exporting firms. An additional point of importance for the actual usefulness of an approach, however, is the determination of the amount of information that is required for the application of the various classification methods. The number of measurements needed to successfully carry out each classification varies. The differentiation according to size requires the least amount of information. In addition, the information for the size classification is most readily obtainable since it is mostly accessible through public sources and does not require any contact with the firm. Export promotion approaches. however, frequently do require contact and cooperation with firms. Once this contact is made, the number of initial questions asked is not thought to play a major role as long as they are kept to a reasonable amount, which is the case for all differentiations used here. For unilateral assistance or operations not entailing contact with firms, the size criterion may be somewhat useful. In spite of the greater ease of obtaining the information regarding a firm’s size, the best differentiation for export assistance is the one that groups firms into the international stages. Implications One main result of this research is the identification of the segmentation approach that groups firms according to stages of international development as the one which differentiates firms the best. Policy makers planning export promotion programs at the national and regional level should therefore gather information about firms that permits their classification into the international stages, and they should determine in terms of export assistance the needs of the firms in each stage. Subsequently, export promotion programs should attempt to satisfy these group needs by aiming at individual segments of firms rather than at the total economy. The present study has indicated several areas where segmentation would be beneficial. For instance, since other data collected with this study show that the positive perception of exporting grows across the
Export Segmentation
363
international stages, all communication expounding the value of exporting should be directed at firms in the early stages, positioning exporting as the popular direction for small businesses to take. Such communication to the firms in the early stages must also be carried out on an unsolicited basis since these firms indicated that they would not actively explore export possibilities. Factors motivating firms to engage in export activities were also found to increase in number as firms progress through the international stages. Export promotion attempts should, therefore, mainly provide awareness incentives to firms in the early stages since firms in later stages appear sufficiently motivated. Case studies could emphasize the intangible managerial benefits. Tax legislation could encourage foreign fact-finding travel by executives. Firms in stages 1-3 might be encouraged to initially export to a physically and psychologically close country, such as Canada. To ensure that firms move into higher stages, however, opportunities in other countries must be communicated and taken advantage of. Beginning exporters must also be aided mainly with the mechanics of exporting, such as funds transfer, documentation, and general market information. More experienced exporters need help with issues such as financing and customer service. Warehousing also emerged as a greater concern to larger exporters. Future research should be directed at verifying the extent to which firms in the six stages of international development differ in terms of support needs, information sources used, and services required and used from private and public agencies. Researchers may also wish to embark on refining the segmentation approaches which have been shown to be less effective than the international stages. Perhaps the treatment of size, product orientation, and managerial attitudes as continuous variables will make these approaches more useful in the future. Overall, investigations dealing with segmentation of exporting and nonexporting firms must continue. The needs of firms in the exporting area must be responded to if U.S. export performance is to improve. In these times of import pressures, such an improvement is not only an economic goal but also a geostrategic one.
References 1.
Bilkey, Warren J., An Attempted Integration of the Literature on the Export havior of Firms, J. Int. Bus. Studies 9 (Spring/Summer 1978): 34-46.
Be-
2.
Bilkey, Warren J., and Tesar, George, The Export Behavior of Smaller Sized Wisconsin Manufacturing Firms, J. Znt. Bus. Studies 8 (Spring/Summer 1977): 93-98.
364
Michael
R. Czinkota
and Wesley J. Johnston
3.
Cavusgil, Tanner S., Bilkey, Warren J., and Tesar, George, A Note on the Export Behavior of Firms: Exporter Profiles, J. Inf. Bus. Studies 10 (Spring/Summer 1979): 91-97.
4.
Czinkota, Michael R., An Analysis of Export Development Strategies in Selected U.S. Industries, doctoral dissertation, The Ohio State University, 1979.
5.
Johanson, .I., and Vahlne, J., The Internationalization Process of the Firm-A Model of Knowledge Development and Increasing Foreign Market Commitments, J. Int. Bus. Studies 8 (Spring/Summer 1977): 23-32.
6.
Kahn, Sikander M., A Study of Success and Failure the annual meeting of the European International ber 14-16, 1978.
7.
Lee, Woo-Young, and Brasch, John J., The Adoption of Export Strategy, J. Inr. Bus. Studies 9 (Spring/Summer 1978): 85-93.
as an Innovative
8.
Olson, J. C., Studies in Export Promotion: Attempts tion Measures for the Swedish Textiles and Clothing Studia Oeconomiae Negotioriom 10, 1975.
Export StimulaActa Univ. Ups.
9.
Pavord, William C., and Bogart, Raymond G., The Dynamics Export,Akron Bus. Econ. Rev. 6 (Spring 1975): 6-11.
in Exports, paper presented at Business Association, Decem-
to Evaluate Industries,
the World, Handling
of the Decision
to
ShippingManage. 20
10.
Redding, Bob, Doing Business (March 1979): 62.
11.
Shaw, R. G., Testimony of the Acting Secretary for International Commerce, Department of Commerce, Commerce and State Department Export Promotion Programs, Hearings before a Subcommittee of the Committee on Government Operations, House of Representatives, 95th Congress, March 1977, U.S. Government Printing Office, Washington DC, 1977.
12.
Weil, Frank A., Statement Finance of the Committee Part 3, U.S. Senate, 95th ton, DC.
13.
Weinrauch, D. J., Rao, C. P., and Harrison, M. C., An Empirical Investigation of External and Internal Inhibitors to Developing Foreign Export Business by Small Business Enterprise, presented at the National Business Conference, San Antonio, 197s.
14.
Wiedersheim-Paul F., Olson, H. C., and Welch, L. S., Pre-Export Activity: The First Step in Internationalization, J. Inf. Bus. Studies, 9 (Spring/Summer 1978): 47-58.
15.
-, An Evaluation of the Commercial Function: Joint Evaluation Report of the U.S. Department of Commerce and the U.S. Department of State, Washington, D. C., February 1977.
16.
-, Commerce and State Departments Export Promotion Programs, Hearings Before a Subcommittee of the Committee on Government Operations, House of Representatives, 95th Congress, March 22 and 23, 1977, U.S. Government Printing Office, Washington, DC, 1977.
17.
-, Seven SurprisingFacts About Exporting, dustry and Trade Administration, n.d.
Around
at Hearings Before the Subcommittee on International on Banking, Housing and Urban Affairs, Export Policy, Congress, Second Session, February 23, 1978, Washing-
U.S. Department
of Commerce,
In-
Export
Segmentation
365
18.
-, Statement by the President, tember 26, 1978.
Office
of the White House Press Secretary,
19.
-, Export Promotion Strategy Department of Commerce, 1978.
and Programs,
Office
of Market
Planning,
Sep-
U.S.
In attempting to aid firms in their exporting efforts, various segmentation approaches have been developed by government agencies and research groups. Each of these segmentation schemes aims at the identification of specific export needs within different groups of firms. The four major approaches suggested in the literature propose to differentiate firms into groups based on the level of international activities, managerial attitudes, size, and service orientation of firms. The research presented in this article investigates these four segmentation approaches by applying them to common data collected from small and medium sized U.S. manufacturing firms and investigating their effectiveness in differentiating among groups of firms. The results indicate that the differentiation of firms according to their level of international activities is the most effective one of the four approaches investigated. Subsequently, various specific needs of exporting firms are presented and a redirection of current export promotion efforts is suggested.
The U.S. government is becoming increasingly concerned with the export performance of U. S . firms [ 181. The importance of exports to the U.S. economy as a counteracting measure to persistent trade deficits and increasing inflationary pressures of fossil fuel imports has apparently been “rediscovered.” To avoid the continuation of the trade deficit, export volume requires an expansion of at least 20% above current levels [4, p. 93. Such an increase, however, is not possible by simply increasing the volume of activities of current exporters. The number of firms exporting must be increased; that is, nonexporters must also be encouraged to participate actively in the international marketplace. The possibility of increasing the number of firms that export seems to have strong potential. Statistics show that 80% of all U.S. exports of manufactured goods are made by 250 companies and that 92% of all American firms sell only in the United States [ 10, 171. Although many of the larger firms export, most small and medium sized firms have never felt any compelling need to seek business beyond the national borders and are generally unwilling to export [ 15, 161. The needs of larger firms Address correspondence to Michael R. Czinkota, Faculty of Marketing, School of Business Administration, Georgetown University, Washington,DC 2005 7. JOURNAL OFBUSINESS RESEARCH 9, 353-365 (1981) 0 Elsevier North Holland, Inc., 1981 52 Vanderbilt
Ave., New York, NY 10017
0148-2963/81/04353-13$2.50
353
354
Michael R. Czinkota and Wesley J. Johnston
for export assistance are well met by private sector sources or through their own corporate contacts abroad. Smaller firms, on the other hand, are generally ignored by profit-oriented service organizations, which prefer the large firms as clients [ 161. However, the smaller firms are the ones most in need of help since they usually are less aware of the potential benefits of exporting, less confident about their ability to export. and less knowledgeable about how to do it and where to go for help. Also. since their staff and resources are limited, they cannot afford to pay as much for the assistance needed (as can larger firms) [ 191. The U .S . government has recognized the need for aiding small and medium sized firms in their exporting effort and has initiated several programs to provide assistance. These programs have, however, been hampered by a frequent lack of resources, by focusing on the wrong target audience, and, particularly, by not being sufficiently responsive to the needs of businesses [4]. The government now recognizes that firms need to be provided with better and more specific
information.
[they must be offered]
best suited to their needs and capabilities. to use.
the kinds ofservlces
that are
and which they would be most able and willing
[ 12. p. 12)
Since it would be unreasonable to assume that all exporters have the same needs, the government is attempting to segment exporting firms and to investigate and subsequently fulfill the needs of each segment. Investigations have attempted to identify ways of differentiating firms so that each segment would have needs independent from those of other segments. Several approaches to the segmentation of exporting firms have resulted from these investigations. All of these approaches are successful to some degree in differentiating exporting firms; however, the policymaker faces the dilemma of choosing the one approach that is most effective in differentiating firms. The usefulness of these approaches for segmenting exporters as an aid in the export promotion policy decision process was investigated. By identifying the best method for differentiating firms according to their export promotion needs, assistance requirements of these different groups of firms can be examined and strategies for delivering this assistance can be outlined. Current Approaches to Segmenting Exporting Firms Four approaches to differentiating or segmenting small and medium sized firms into homogeneous groups for export promotion purposes are suggested in the literature. Each segmentation scheme represents a different method and uses a different classification to separate firms into groups.
Export Segmentation
3.55
One approach which various research groups have suggested is the differentiation of firms according to their level of international activities. Through various empirical and theoretical studies, such different levels have been identified first in a general fashion [5, 81 and gradually in a more refined form [6]. Work by Bilkey and Tesar [2] finally identified six stages of firms’ international development with respect to export decision making, ranging from a complete disinterest in exporting to the exploration of export opportunities in psychologically distant countries. The study categorized 816 Wisconsin firms according to the above stages. The results indicated that firms in each stage were significantly different from firms in other stages in terms of their perception of exporting. Although this study was successful in differentiating among firms, the criteria according to which firms were classified were quite general in nature. For the purposes of this study, the international stages were modeled closely after the criteria used by Bilkey and Tesar [2], but were composed in more rigorous fashion by using quantitative cut-off values for relative and absolute export sales volume, length of export experience, types of countries exported to, number of export customers and export transactions, and manpower committed to exporting (see Tables l-4). In addition, the stages were slightly altered to encompass the following types of firms: 1. the unwilling firm
2. 3. 4. 5. 6.
the the the the the
uninterested firm interested firm experimenting exporter semiexperienced small exporter experienced larger exporter
Another approach segments firms according to the prevalent managerial attitudes. Pavord and Bogart [9] distinguished firms actively seeking exports from those who do not, leading them to a framework of firms whose exporting efforts are characterized by (a) no activity, (b) passive activity, (c) minor activity, and (d) aggressive activity. Significant differences were found to exist between seekers and nonseekers of exports in regard to the perceived severity of exporting problems. Wiedersheim et al. [14] distinguished three groups of firms: active, passive, and domestic. These groups were analyzed under dimensions of (a) willingness to start exporting, (b) information collection activity, and (c) information transmission activity. Increases in the willingness to export were found to occur when new decision makers entered a firm, when existing decision makers experienced significant attitude changes, or when significant external changes occurred. An increase in the economic advantages of exporting through export promotion was not
0 Nofe: In applying qualified for a particular
>5
Experienced, larger scale
this categorization stage in all criteria
>100,000
<100,000
0
>2 yr
>2 yr
0
Length of Time Exporting
>I
0
Personnel Committed to Exporting
Europe Far East South America Africa
Europe Far East South America Africa
not applicable
Type of Countries Exporting to
to fiims, assignments to classes were made on the basis of meeting except one, it was classified as belonging in the next lower stage.)
>5
>5
>5
>5
>5
0 <5 >5 >5
0
<5 <5 >5
0
<5 <5
Uninterested Interested Experimenting Experienced, small scale
6)
(% sales)
Unwilling
Export Volume
Future Export Volume
Stagen
Present Export Volume (% sales)
by Stages of Export Activity
Past Export Volume (% sales)
Table 1: Classification
all criteria.
10 or more
10 or more
0
No. of Export Customers
(That
is, if a firm
20 or more
20 or more
0
No. of Export Transactions
E
2
z % z
3
B z
.?J 0 2.
_1
Reactive motivations
managerial urge
overproduction
exclusive information
competitive pressures
Factors
by Managerial Attitudes
Proactive = positive overall score. Reactive = negative overall score. Situational = overall score of zero.
+1
Attitudes
Proactive motivations
Managerial
Table 2: Classification
profit advantage
excess capacity
declining domestic sales
the Exporting
unique products
Motivating
saturated domestic market
marketing advantage
Effort
proximity to ports
technological advantage
DISC
other tax advantages
3.58
Michael I?. Czinkota
Table 3: Classification Size Medium Small
and Wesley J. Johnston
by Size Annual
Sales Volume
(millions
of dollars)
5<$<50 SC5
seen to be a sufficient condition to increase me interest of decision makers in passive and domestic firms in exporting. Cavusgil et al. [3], using AID Automatic Interaction Detector techniques, discovered that favorable expectations of exporting and high aspirations for the firm were major factors contributing to the export behavior of firms. The evidence identifying decision makers’ effect on export activities is quite strong. Knowledge of the specific variables that affect management’s attitude toward export decisions can make a contribution towards explaining export activity. The research identifying decisionmaker characteristics, however, is not fully developed. The final power of this approach is uncertain. Other areas of marketing research have realized only limited success in explanatory power in spite of vast amounts of psychologically oriented research (motivational research in buyer behavior, for instance). In the present study, management attitudes were assessed by measuring management’s perception of the firm’s competitive advantages. Firms were grouped as being proactive, situational, or reactive. Proactive and reactive motivations were identified through a combination of the approaches used by Pavord and Bogart 191and Bilkey and Tesar [2]. Proactive motivations included exclusive information, managerial urge, unique products, profit advantage, marketing advantage, technological advantage, the Domestic International Sales
Table 4: Classification Service Level High Medium Low
by Service Orientation Percent
of Service in Export >50 20-50 <20
Offering
Export
Segmentation
359
Corporation (DISC), and other tax advantages. Reactive motivations included competitive pressures, overproduction, declining domestic sales, excess capacity, and saturated domestic market, In order to classify the type of management behavior in the firm, these different motivations were aggregated. Paralleling the scoring approach of Bilkey and Tesar [2], a proactive motive was scored as + 1, a reactive motive as - 1. If the sum of the motives existing in a firm’s export decision was positive, the firm’s management was classified as being proactive. If the sum was negative, the classification was reactive. Management was classified as situational if the proactive and reactive motives were balanced. A third approach orients itself on the size of firms, hypothesizing that firms can be differentiated according to their sales volume. The issue of firms of smaller size requiring different types of export assistance was made clear throughout recent congressional hearings [ 121. Bilkey [I] suggests a possible correlation between the size of firms and the quality of management. The possibility that the propensity to export could vary directly with the size of the firm seems quite plausible. Bilkey and Tesar [2] found that firms obtaining their own initial export order were much larger than firms whose initial export order was unsolicited. Overall, however, the authors found size to be “relatively unimportant” in the export decision process. Other findings in this area of research were that firms most likely to export have sales volumes over one million dollars [3] and that managers in smaller businesses tend to believe that only large enterprises can successfully handle the technical details of exporting [131. An obvious problem of causality exists here. Do exporting activities increase size or does size lead to exporting? Actually there is probably a complex interaction between the two variables. For the differentiation according to size of firm, various criteria had been suggested in past studies. Based on testimony in congressional hearings [ 11, 161, previous empirical findings [7], and interviews with company executives, it was decided to use a total annual sales volume of 5 million dollars as the cut-off value for small sized firms and 50 million dollars as the cut-off value for medium sized firms. A fourth segmentation approach suggested is based on the service orientation of firms. Here, firms that view their export effort as purely “shipping of the product” are distinguished from those that view exporting as providing products coupled with services. WiedersheimPaul et al. hypothesized that the lower the need for service support of a product. the higher the chances for a potential seller to be exposed to export stimuli [ 141. In a study involving Swedish firms, however. Khan
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[6] discovered that emphasis of presale service was positively related to success in exporting. In this research the service orientation of firms was measured by partitioning the export offering. Firms were classified according to the share that nonproduct variables, such as advertising, communication, financing, had in the export product offering. These nonproduct variables have been referred to as software [ 141 in analogy with the computer industry. The service orientation groupings used were thus: high, medium, and low. The partitioning was achieved by allocating percentages to the product and service export efforts of firms, and grouping firms along the natural breaks in a frequency distribution. Tables l-4 give an overview of the operationalization of each segmentation approach for purposes of this study. (The reader wishing more insight into the quantification of these approaches may refer to Czinkota [4] .) The Investigation After all four segmentation approaches were defined by using the criteria described above, several areas were identified as representing possible differences between firms with respect to the exporting decision and process. 1. Background of firms: demographic characteristics of firms, such as size and age, the export distribution, the beginning of export activities, and the motivation for exporting; also, the event oriented background of the firm such as receipt of an unsolicited order and threshold points for the change of behavior. 2. Importance of exporting tasks: variables relevant to the export effort of firms, such as advertising, sales effort, and information gathering, and their impact on the firm. 3. Problems posed by exporting tasks: dealing with the same variables as above and the extent to which their performance in exporting presented a problem to the firm. 4. Perceived customer value: how the exporting firm perceives that the customer will benefit from the variables which are of relevance to the exporter. 5. Internal improvement: the improvement in export performance the firm believes it could obtain if the firm was to place more emphasis on the issues relevant to exporting. 6. Governmental assistance: the improvement in export performance the firm believes it could obtain if the U.S. Department of Commerce was to perform exporting tasks for the firm.
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7. Export perceptions: the attitudes management displays toward exporting and their impact on the firm. 8. Product orientation: the extent to which the export offering of the firm consists of the physical product-the opposite of service orientation. 9. Decision makers: the amount of input various people in the firm have into the export decision process. Subsequently four sets of nine similar hypotheses were formulated. The hypotheses were stated in the following way: H 1: There are no differences among any of the background group means of the firms in each international stage (situational, proactive, and reactive firms; small and medium sized firms; high, medium, and low service oriented firms). A questionnaire pretested for clarity, difficulty, and response was then mailed to 10 19 small and medium sized U .S . manufacturing firms in the materials handling industry (SIC 353), avionics and aviation suport industry (SIC 372), and industrial instruments industry (SIC 382). The response rate to the mail questionnaire was 30%, yielding 237 usable responses. It was the objective of this research to determine the power of four existing segmentation approaches in differentiating between groups of firms in terms of their exporting behavior. Therefore, analysis of variance (ANOVA) was used to compare the mean group scores for the group configuration of each segmentation approach. Both MANOVA and ANOVA were carried out. The hypotheses were tested with help of the Hotelling and Duncan test statistic.
Findings Four proposed segmentation approaches were applied to a common data base in an investigation to determine the effectiveness of each approach in differentiating among types of exporting firms. An approach was deemed “successful” in segmenting firms if the mean score of firms in a group was significantly different from the mean scores of the other group(s) when using the particular method of differentiation. To obtain such significant data points, the groups were compared on export dimensions comprising up to 20 individual variables using MANOVA, and on individual export issues using ANOVA. The number of most significant data points obtained in the testing of each set of hypotheses was utilized as decision criterion for the determination of the most helpful and informative method of differentiating among firms.
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For both the export dimensions and the individual export issue comparisons, the international stages yielded the highest number of significant data points (47 out of a possible 110) when compared with all other grouping methods. This also held true when permitting for a 5% error rate, i.e. the emergence of a group difference as significant when, in fact, this was due to chance. Therefore, the international stages emerged as the best of the four investigated segmentation approaches in differentiating exporting firms. An additional point of importance for the actual usefulness of an approach, however, is the determination of the amount of information that is required for the application of the various classification methods. The number of measurements needed to successfully carry out each classification varies. The differentiation according to size requires the least amount of information. In addition, the information for the size classification is most readily obtainable since it is mostly accessible through public sources and does not require any contact with the firm. Export promotion approaches. however, frequently do require contact and cooperation with firms. Once this contact is made, the number of initial questions asked is not thought to play a major role as long as they are kept to a reasonable amount, which is the case for all differentiations used here. For unilateral assistance or operations not entailing contact with firms, the size criterion may be somewhat useful. In spite of the greater ease of obtaining the information regarding a firm’s size, the best differentiation for export assistance is the one that groups firms into the international stages. Implications One main result of this research is the identification of the segmentation approach that groups firms according to stages of international development as the one which differentiates firms the best. Policy makers planning export promotion programs at the national and regional level should therefore gather information about firms that permits their classification into the international stages, and they should determine in terms of export assistance the needs of the firms in each stage. Subsequently, export promotion programs should attempt to satisfy these group needs by aiming at individual segments of firms rather than at the total economy. The present study has indicated several areas where segmentation would be beneficial. For instance, since other data collected with this study show that the positive perception of exporting grows across the
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international stages, all communication expounding the value of exporting should be directed at firms in the early stages, positioning exporting as the popular direction for small businesses to take. Such communication to the firms in the early stages must also be carried out on an unsolicited basis since these firms indicated that they would not actively explore export possibilities. Factors motivating firms to engage in export activities were also found to increase in number as firms progress through the international stages. Export promotion attempts should, therefore, mainly provide awareness incentives to firms in the early stages since firms in later stages appear sufficiently motivated. Case studies could emphasize the intangible managerial benefits. Tax legislation could encourage foreign fact-finding travel by executives. Firms in stages 1-3 might be encouraged to initially export to a physically and psychologically close country, such as Canada. To ensure that firms move into higher stages, however, opportunities in other countries must be communicated and taken advantage of. Beginning exporters must also be aided mainly with the mechanics of exporting, such as funds transfer, documentation, and general market information. More experienced exporters need help with issues such as financing and customer service. Warehousing also emerged as a greater concern to larger exporters. Future research should be directed at verifying the extent to which firms in the six stages of international development differ in terms of support needs, information sources used, and services required and used from private and public agencies. Researchers may also wish to embark on refining the segmentation approaches which have been shown to be less effective than the international stages. Perhaps the treatment of size, product orientation, and managerial attitudes as continuous variables will make these approaches more useful in the future. Overall, investigations dealing with segmentation of exporting and nonexporting firms must continue. The needs of firms in the exporting area must be responded to if U.S. export performance is to improve. In these times of import pressures, such an improvement is not only an economic goal but also a geostrategic one.
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