Exporting and Performance in SMEs

December 2016-May 2017

Jim LoveStephen RoperAreti Gkypali

Background

• It is widely recognized that internationalisation is important to fulfil and sustain growth potential, especially for SMEs.

• Yet, evidence suggests that for many SMEs, exporting is often a rather opportunistic and episodic activity, rather than a continuous process.

• Building on previous ERC work on the determinants of intermittent exporting and learning by exporting this project examines how different patterns in export volume, product and destination impact on SME performance (growth and productivity).

Recent ERC analysis

• Determinant of intermittent exporting (export exit and re-entry) French data

• Firms with a low exit probability also have a high likelihood of re-entry, and vice versa.

• smaller and less productive firms react much more strongly to changes in both domestic and foreign market growth than larger firms in terms of exit.

• Conditions in domestic and foreign markets around the time of re-entry have little effect on the probability of re-entry.

• BUT market conditions at the time of exit – and how the firm reacted to these – matter greatly in determining the likelihood of re-entry.

• So strategic rationale for exit greatly affect re-entry .

Recent ERC analysis

• Determinants of duration of exporting spells(Spanish data)

• Cumulative export experience lengthens subsequent exporting spells• This is compromised by ‘punctuated learning’ arising from sporadic exporting

experience• Largely an SME effect

Links to previous analysis on export exit and re-entry :• firms with a history of repeated entry and exit from exporting will tend to have

shorter exporting spells in the future than identical firms with accumulated experience arising from continuous exporting

• intermittent exporting in the past leads to intermittent exporting in the future because of the different pattern of accumulated previous learning

What we want to know

1. How different patterns of exporting affect firm performance

• How does sporadic/intermittent exporting affect growth and productivity?

• Is ‘learning-by-exporting’ different for intermittent exporters? Does it matter where you export to?

• What role does early internationalisation play here?

What we want to know

2. Exporting, innovation and productivity

• How do innovation and exporting work together to promote sales and productivity growth in UK small businesses?

• How does these relationships differ between sub-groups of businesses defined by age, ownership type (e.g. women-owned, family-owned)?

• What influence does public support for innovation and exporting have on these relationships? What are the relative rates of return from supporting innovation and exporting?

Analysis 1: Longitudinal Small Business Survey (waves 1 & 2)

• The LSBS provides a rich source of both innovation and exporting data in Year1 and longitudinal performance data for Year 1 and Year 2.

• The LSBS therefore creates the potential to generate new insights into howinnovation and exporting combine to enable firms to growth their sales orproductivity.

• The breadth of sectoral, geographical and size coverage in the LSBS alongwith the ability to focus on sub-groups of businesses defined by age,ownership type (e.g. women-owned, family-owned) will also allow us to explorethese relationships for sub-groups of businesses.

• From a policy perspective the LSBS survey also provides information onwhether firms received both innovation and export support. This will enable usto model directly whether the receipt of support in Year 1 influences innovationand exporting and subsequently growth and productivity performance.

Analysis 2: HMRC export data + Business Structure Database

• Building export histories This phase of the project will focus on building export histories of UK SMEs using the customs and trade databases. For each firm this will involve data on product category, value, year and national market. This will provide new insights into the nature of export development in SMEs and whether there is evidence of learning effects as firms move from local to more challenging distant export markets. Questions of intermittent and persistent exporting can also be considered.

• Comparing exporting and performance time series Export histories will be combined with performance data from the HMRC Corporation Tax dataset and VAT datasets to examine the timing and causal influence of exporting on performance. This will allow us to consider issues such as early internationalisation and intermittent exporting.

Comments and questions?