Export barriers and firm internationalisation from an emerging market perspective.

• Author: Ahmed, Zafar U.

INTRODUCTION

The economic capacity of an emerging market, particularly its industrial and agricultural capabilities, determines the trend that its exports follow. International Trade has always been important for the Malaysian economy. Its importance to the economy has grown stronger over the years. The composition and direction of trade flows have changed significantly, reflecting the dramatic transformation of the primary-producing economy into a rapidly industrialising one. Interestingly, structural changes in the Malaysian economy during the last three decades or so have enhanced the economic openness of the country so much so that Malaysia continues to project itself as one of the most open emerging markets in the world. Malaysia's export performance is a major determinant of the state of the economy. Rapid economic growth at the annual average rate of about 7.0 percent since the early 1980s, has much to do with Malaysia's export performance. Imports have also contributed much to the economic development of the country, by providing not only competitively priced consumer and capital goods, but also intermediate inputs for Malaysian manufactures that have rendered Malaysian-manufactured exports competitive in world markets (Central Bank of Malaysia, 1999).

Malaysia has mostly enjoyed a favourable trade balance in its balance of payments current account. More often than not, the surplus trade balance was large enough to finance the deficit in the services account and also to produce a sizeable current account surplus. However, in the 1990s Malaysia posted serious trade deficits. The large trade deficits incurred in these years were due to the low export prices of primary commodities, high priced imports as a result of the rapid industrialisation in the country, and the appreciation of major currencies especially the Japanese Yen, the Deutsch mark, the Korean Won and the New Taiwan Dollar. Imports of capital goods associated with foreign investment activities in the country have contributed much to the growing trade deficit. In other words, deficits have been financed largely by foreign capital inflows (Central Bank of Malaysia, 1999).

Imports have exceeded exports, despite export-oriented industrialisation in these years, because foreign direct investment in manufacturing activities generated imports of capital goods immediately where export output would begin to flow after a certain period of time. The trade balance should reverse itself, with deficit giving way to surplus once the export-oriented investment projects come onstream. However, the empirical evidence is inconclusive.

The relationship between imports and exports in recent times has been problematic for Malaysia. Malaysia's reliance on foreign direct investment to make up for the balance of trade deficit shows how fragile this relationship can be. There is a need for an action plan to correct the situation, especially when there are no guarantees that foreign direct investment in a receding global economy will be able to cover the deficit in the trade balance in the future. As such, the action plan needs to include what causes or prevents Malaysian firms from exporting i.e. the various barriers to export Malaysian firms face when entering the export market. This knowledge becomes of critical importance if Malaysia, as an emerging market, is going to start correcting its trade deficit and that is what has driven the need for this study. A common objective in most countries today is to find ways to increase exports. This can be achieved either by encouraging exporting firms to export more or by inducing non-exporters to begin exporting. In the case of Malaysia it would be beneficial to do both, that is, encourage the regular exporters to expand their export operations and export more of their output and also to encourage non-exporters to commence exporting. As such, the study's primary objectives are to examine both non-exporters and regular exporter's perceptions of the different barriers to export and also to determine if the percentage of output exported has an impact on how the different classifications of exporters view the different barriers to export. The remainder of the article is organized as follows. First, a thorough review of the literature is conducted, then the study's methodology is reported, followed by a comprehensive data analysis, then a discussion of the different managerial and public policy implications is provided together with the directions for future research followed, finally, by the study's limitations.

LITERATURE REVIEW

Exporting has been one of the fastest growing economic activities in emerging markets, consistently exceeding the rate of growth in world economic output over the past two decades (IMF, 1995). A common objective of most countries is to find ways to increase exports.

Reid (1981) defined export intention as the motivation, attitude, beliefs, and expectancy about export contribution to the firm's growth. According to Sharkey, Lim and Kim (1989) non-exporters are those who have never exported. Non-exporters have very little knowledge about the process of exporting and have no experience with obstacles to exporting. Occasional exporters refer to those who are exploring exporting and may have filled some unsolicited orders. Occasional exporters have learned the basics of the export process, but their low level of commitment may also be coupled with frustration that lead to the perception of more export barriers. Regular exporters have mastered the technicalities of exporting and have learned that exporting is an important mechanism for achieving organizational goals. Regular exporters have learned to cope with perceived export barriers (Sharkey, Lim and Kim, 1989).

According to Czinkota, Rivoli and Ronkainen (1992) export development is highly regarded by both public and corporate policymakers, due mainly to the substantial macroeconomic and microeconomic benefits derived from external trade. From a macroeconomic perspective, exporting can enable national economies to enrich their foreign exchange reserves, provide employment, create backward and forward linkages, and ultimately, lead to a higher standard of living. Terpstra and Sarathy (1994) clarified the benefit of exporting to an economy in terms of its microeconomic gains. Exporting can give individual firms a competitive advantage, improve their financial position, increase capacity utilisation, and raise technological standards (Terpstra and Sarathy, 1994).

In general the expansion of a nation's exports has positive effects on the growth of the economy as a whole as well as on individual firms (Julian and O'Cass, 2004). Exporting is of vital economic importance to trading nations and their firms. Exports boost profitability, improve capacity utilization, provide employment, and improve trade balances (Barker and Kaynak, 1992). According to Gripsrud (1990) the increasing globalisation of the world economy and the widespread opinion that increased exports benefit society has stimulated research in this area. In the U.S., the growing trade deficit is the most immediate factor behind the interest in this topic. A common objective in most countries today is to find ways to increase exports.

This can be achieved either by encouraging exporting firms to export more or by inducing non-exporters to begin exporting. In 1998, the exports-GNP ratio for Malaysia was 84.3 percent indicating how much the Malaysian economy relied on its exports (Central Bank of Malaysia, 1999). "In this globalized world, industries do not survive if they are not export oriented" (Tenbelian, 2003: 23).

Sharkey, Lim and Kim (1989) proposed a three-stage model in export development, moving from non-exporters to occasional exporters to regular exporters. Non-exporters are those who have never exported before and thus have very little knowledge about exporting processes and, therefore, have no experience with the barriers to export. Occasional exporters are those who are exploring exporting opportunities and may have filled some unsolicited orders (Sharkey, Lim and Kim, 1989). Occasional exporters have learnt the basics of exporting, however, their low level of commitment to exporting could also lead to perceiving more barriers to export than what actually exists (Bilkey, 1978). According to Sharkey, Lim and Kim (1989) regular exporters have mastered the technicalities of exporting, have learnt that exporting is an important means for achieving organizational goals, and have learnt to cope with the various export barriers.

Leonidas (1995) suggests the most common mode of participation in the international marketplace is exporting, because it involves minimum business risk, requires low commitment of resources and offers high flexibility of movements. For firms from emerging markets these reasons are important because of their limited resources. According to Johansson (2000), for a firm new to international marketing, the exporting option is often the most attractive means of market entry. When unsolicited orders start flowing in from abroad, the firm begins to pay more attention to foreign market potential, and exporting becomes the obvious first step. A large number of studies have dealt with the issue of what factors influence the export performance of firms and the different perceptions of regular exporters and non-exporters (Bijmolt and Zwart, 1994). For example, Westhead (1995) found that the non-exporting firms are extremely dependent on a small number of suppliers, whereas exporting firms that export regularly, in order to maintain their competitive position (with regard to price, quality and speed of delivery) have adopted a strategy of purchasing from a larger number of suppliers which are generally not located in the same region.

One of the most important research questions in international business is why some firms export and others do not (Sharkey, Lim, and...