1. Introduction
When firms are unable to carry out export activities due to their lack of experience, limited resources or other perceived or real obstacles, Export Promotion Programs (EPPs) may play an important role underpinning SMEs in their path to markets and networks abroad (
Kang 2011). In addition, firms with different degrees of international involvement have different needs and face different obstacles (
Francis and Collins-Dodd 2004).
Although several theories have been put down to explain the process of internationalization (
Ribau et al. 2015;
Paul and Sánchez-Morcilio 2019), one can claim that behavioral theories have become the most common ones in explaining the internationalization of SMEs. However, there is no single theory that can be exclusively used to explain the international path SMEs follow (
Furtado et al. 2019;
Paul and Sánchez-Morcilio 2019;
Ribau et al. 2018a). Another factor affecting internationalization is fixed costs of exporting and the fact that SMEs typically cannot shoulder such fixed costs, which is explained by the standard
Melitz (
2003) model of international trade and heterogeneous firms. Despite the path, the internationalization process necessarily involves the commitment of human and financial resources, and this capacity increases according to the size of the firms.
SMEs’ participation in export activities can be encouraged by internal and external change agents. The former emerges within the organization, such as resources and capabilities (
Barney 1991). The latter are related to forces outside the organization, such as Export Promotion Programs (EPPs), organized, for example, by public entities (
Ayob and Freixanet 2014;
Comi and Resmini 2020;
Malca et al. 2020) aiming at increasing the export intensity of SMEs.
It is essential to know whether and to what extent these EPPs are effective or not. In other words, it is necessary to assess the involvement of the firms in the processes of development of internationalization and to assess what are the main results achieved. Additionally, the effect of EPPs on firms export performance is still an under-researched topic, especially in Portugal, which is a European economy with some particular development standards vis-à-vis other European economies, with little literature on EPPs and internationalization. Furthermore, the mainstream research has analyzed EPPs promoted by national programs, and to the best of our knowledge there are a few studies analyzing programs proposed by regional development agencies that seek to promote the international intensity of their business associates. One important aspect of the EPPs programs is that they support SMEs the lack of information most of them have about foreign markets. For regional development associations it is a unique opportunity to support their associates, especially SMEs, exploring new markets that otherwise would not be able to with the limited resources they have.
Thus, studying this theme is relevant and pertinent since there is always a need for organizations that finance export promotion programs to improve and adapt their design and create better procedures for their implementation. On the other hand, the study is also important to provide business managers with pertinent information about the role and effect that these programs can play in their firms, increasing the credibility of these programs both in the eyes of public opinion and public entities that, regularly, finance them. As such, the main research question of this paper is the following one: Does the participation of firms in EPPs favor export performance? Thus, this paper has as main objective to assess whether the participation in EPPs positively affects export performance of Portuguese firms.
The study uses a sample of 198 Portuguese firms that participated in at least one export promotion program intermediated by a Portuguese Regional Association for Development on Trade and Industry, in the years 2011, 2013, 2014, and 2015 using a quantitative methodology based on the definition of two panel data econometric models. Primary data were drawn from this Portuguese Regional Association for Development on Trade and Industry, and secondary data were collected through the SABI Database (Iberian Balance Sheet Analysis System). Two empirical models, using different specifications for the variables under study, were estimated using panel data methodologies.
This paper is structured as follows: after this introduction,
Section 2 presents the literature review.
Section 3 presents the data used, the empirical specification, and the research method.
Section 4 presents the empirical results.
Section 5 presents Robustness Checks. Finally,
Section 6 presents the conclusions and limitations of the study.
2. Literature Review
The international environment is quite complex, since firms adopt many internationalization strategies aimed at serving global markets, taking on the associated challenges and risks, developing new products, or adapting their brands to international widely competitive environments. Moreover, the firms’ internationalization process presupposes entering foreign markets, and embracing a growing international involvement and exposure. As such, firms can choose between various modes of entry in international markets, which implies the existence of different levels of commitment, control, and risk for the firm (
Lu and Beamish 2001;
Duygulu et al. 2016;
Osland et al. 2001;
Ribau et al. 2015).
There are several motivating factors that trigger firms’ decisions to start and develop export activities. These stimuli can be classified as internal or external stimuli. On one side, internal stimulus are endogenous to the firm and can include for example, accumulation of unsold stock, interest in corporate growth, or possession of a unique product. Alternatively, external stimuli result from the environment in which the firm operates (for example, unsolicited orders from abroad, favorable exchange rates, incentives by government agencies) (
Leonidou et al. 2007).
Additionally, the factors that stimulate exports can be classified as proactive or reactive. When firms react to contextual changes and understand internationalization as a response to those changes, they follow a reactive stimulus (e.g., seasonal effects of demand and saturation of the domestic market). If firms start their internationalization path seeking market opportunities or based on their own internal skills and competences, they follow a proactive stimulus (
Ribau et al. 2018b;
Westhead et al. 2004). Firms motivated by internal factors are usually described as more rational and objective in their export behavior, compared to those stimulated by external factors. Moreover, proactively stimulated firms are seen as more aggressive and strategic in relation to its export intensity, whereas when followed by reactive factors they adopt a much more passive and opportunistic approach to enter the foreign market (
Ribau et al. 2018b;
Westhead et al. 2004).
The resources and capabilities are important to explain how companies achieve competitive advantage and are able to serve national and international markets (
Barney 1991). The importance of resources for firms is explained by the resource-based view (RBV) of the firm (
Barney 1991). The RBV is an influential theoretical perspective that helps to understand the importance of resources and capabilities for firms to successfully explore international markets. Moreover, the lack of resources jeopardizes firms to effectively and efficiently achieve a competitive advantage and achieve superior customer value (
Grant 1991;
Peteraf and Barney 2003).
Many firms, especially SMEs, do not take full advantage of the potential of the foreign market due to their lack of motivation, capacity, and/or human and financial resources (
Freixanet 2012). Compared to large firms, SMEs are more limited in terms of resources and capacities for acquiring information, which makes them less likely to start an unsupported export process (
Leonidou et al. 2007).
When SMEs decide to start exporting to a specific country, their focus is on having representatives or establishing contacts with local distributors. This effort is challenging due to the asymmetry of information and geographical distance with foreign partners (
Ayob and Freixanet 2014).
The literature indicates that the complexity of the international business environment, the lack of motivation, information, and human and financial resources, puts SMEs at a disadvantage when competing internationally, not taking advantage of the potential of the foreign market. Compared to large firms, SMEs have less competent management and less skills to perform (
Leonidou et al. 2007,
2011;
Freixanet 2012;
Wilkinson and Brouthers 2006): international marketing tasks; limited availability of financial, human and production resources; low market competitiveness due to lack of economies of scale; and a lower risk attitude when approaching the export business. These limitations end up conditioning the export intensity levels of SMEs (
Wilkinson et al. 2009).
Exporting tends to be difficult as there are several barriers or inhibitors that hinder export performance (
Wilkinson et al. 2009). Export barriers are treated in literature as attitudinal, structural, and operational restrictions that impede or hinder the firm’s ability to initiate, expand, or maintain export operations. These restrictions can be found by the firm at any stage of the internationalization process (
Morgan 1997). Export barriers, often (
Leonidou et al. 2011) prevent potential exporters from engaging in export operations; interrupt exporters at an early stage to continue their activities abroad; undermine the performance of established exporters; and limit the expansion of “mature” exporters to more advanced forms of internationalization. Understanding how these barriers or inhibitors impede the export process is vitally important when trying to understand why and how firms engage in foreign markets, which can mitigate some of these export inhibitors (
Wilkinson and Brouthers 2006).
Export promotion programs (EPPs) are programs implemented by public entities, trade associations, and other organizations to help firms, especially SMEs, overcome limitations on internationalization and reduce the negative effects of export barriers (
Francis and Collins-Dodd 2004;
Leonidou et al. 2011). Taking into account that most SMEs have limited resources, those programs must be structured with clear objectives, low bureaucracy, and strong public-private partnership orientation so that SMEs can capture the full advantages of those programs (
Ayob and Freixanet 2014).
In general, the objective of these programs is to act as an external resource to improve the firms export performance. It can be achieved by improving the capacities, resources, knowledge, experience, strategies of the firms, and the general competitiveness, which in turn, positively influences export performance (
Francis and Collins-Dodd 2004;
Gençtürk and Kotabe 2001;
Leonidou et al. 2011).
The main roles of EPPs are to motivate firms, especially SMEs, to internationalize, reduce, or eliminate existing export barriers, assist in planning and preparing for export and providing financial and non-financial support (
Ayob and Freixanet 2014).
These programs also aim to create a more positive attitude in the minds of managers in relation to opportunities for profit and growth abroad, minimizing negative perceptions about risks, costs, and complexities associated with exports. Information is a highly important organizational resource, as it helps the firm to reduce the high level of uncertainty that characterizes the international business environment. Therefore, many export promotion programs provide useful assistance with information, usually focusing on foreign country profiles, international business practices, and contacts with potential foreign partners (
Leonidou et al. 2011).
There are several types of EPPs, which vary according to the particularities and needs of each country. In several developing countries, the focus is on promoting technological advancement and improving access to credit, while in developed countries, the most pertinent programs include establishing foreign trade offices, creating business, contacts, and providing a continuous flow of information for firms (
Coudounaris 2012,
2018;
Dominguez 2018;
Malca et al. 2020;
Comi and Resmini 2020).
For this reason, when designing EPPs, it is important to ensure that they provide specific assistance according to different needs and depending on the firm’s export stages (
Ayob and Freixanet 2014;
Haddoud et al. 2018;
Dominguez 2018). Furthermore, the need for export assistance also depends on the international experience of firms, as they face different obstacles (
Crick 1992;
Francis and Collins-Dodd 2004;
Malca et al. 2020). Globally, EPPs can range from training seminars, assistance with export procedures, and advice on exports, trade fairs and missions, agent and distributor identification programs, among others. Finally, although EPPs are available to all firms, regardless of their size, due to their limited resources and capabilities, SMEs are considered to need these programs the most (
Wilkinson et al. 2009;
Leonidou et al. 2011;
Quaye et al. 2017;
Sharma et al. 2018).
There is a wide variety of types of export assistance provided by public entities and other organizations. An important area is the provision of information, for example, about the export market, market research in foreign markets, and export marketing seminars (
Coudounaris 2012,
2018;
Sharma et al. 2018;
Comi and Resmini 2020).
Other programs are used in order to increase the firms’ motivation to export, through seminars, speeches, case studies, and other communication materials. Operational support, in turn, includes training in export logistics, marketing assistance, trade missions, financial support, visits by foreign buyers, provision of contacts, and regulatory assistance (
Francis and Collins-Dodd 2004).
Similarly,
Gençtürk and Kotabe (
2001) consider that export promotion assistance generally comprises export service programs, such as seminars for potential exporters, export advice, export instruction manuals, export financing, and market development programs, such as sales dissemination, firm visits, participation in trade fairs, preparation of market analyses and export newsletters. The availability of export financing is also crucial. This financial assistance can be made through capital loans, direct and indirect subsidies, such as exchange rate, tax incentives, and exemption from value added taxes due to the consequences on the capital structure during the internationalization process (
Ayob and Freixanet 2014;
Mota and Moreira 2017).
The literature focused on the economic evaluation of internationalization programs is generally based on surveys that request the evaluation by the recipients or on studies focused on a quantitative approach, in particular, cost-benefit analyses. Experts in this area value the amount of information obtained from surveys, but they doubt its reliability, noting that these assessments may be unsatisfactory for several reasons, such as the reluctance of firms to criticize the promotion program that, in many cases, did not have costs or had relatively modest costs (
Cansino et al. 2013;
Quaye et al. 2017;
Haddoud et al. 2018;
Sharma et al. 2018;
Malca et al. 2020).
There are several indicators of export performance of firms that are divided between:
Economic measures based on: sales (proportion of export sales and growth in export sales), profits (export profitability and growth in export profitability), and market share (e.g.,
Comi and Resmini 2020);
Non-economic measures related to products, export markets (such as country of export and penetration in export markets) and other factors, such as number of years of exporting activities (e.g.,
Sharma et al. 2018;
Malca et al. 2020);
Although there are a large number of export performance measures, only a few are used frequently, such as export sales intensity, export sales growth, export profitability, export sales volume, and growth in export sales intensity (
Katsikeas et al. 2000).
One of the difficulties in measuring the effect of EPPs stems from the fact that export promotion is not a business activity itself. Instead, it facilitates business activities in a variety of ways. Moreover, many factors, of which EPPs are just one, influence the behavior and performance of firms’ exports. As such, it becomes difficult to separate the effect of export promotion from the effect of other factors (
Francis and Collins-Dodd 2004).
The diversity of factors that affect the success or failure of EPPs makes it unlikely that the results of a program can be directly linked to a single variable. With this, these factors must be considered and controlled in some way (
Cansino et al. 2013). Moreover, the size of the firms significantly moderates the effect of EPPs, in particular, the programs related to information and training (
Leonidou et al. 2011).
Tiago et al. (
2008) conclude that the age of the firm reveals its stability, maturity, and the accumulation of knowledge necessary to carry out initial export activities and may explain the expansion of the export activities of the firms.
Malca et al. (
2020) also defend that previous experience in international markets, as well as previous year export performance affect the export performance of the current year. As such, there is a need for some maturation and organizational development for a firm to engage in export activities and, consequently, the propensity and intensity of exports is expected to be greater in older firms as they are expected to have more international (export) experience.
Cansino et al. (
2013) demonstrate that firms that participate in EPPs have a higher proportion of exports than those that do not. They conclude that these programs are favorable to firms that decide to export by improving their knowledge of the entire export procedure, helping firms to eliminate or mitigate the initial difficulties associated with exports. However, if the participation in EPPs is important,
Sharma et al. (
2018) claim that EPPs support industrial SMEs with information and knowledge mitigating negative perceptions of foreign markets. Moreover, they claim that the attractiveness of foreign markets should not be overlooked, as it is an important mediator enhancing export performance.
Similarly,
Alvarez (
2004) concludes that certain types of export promotion programs, such as exporter committees, have a positive and significant impact on export performance.
Comi and Resmini (
2020), assessing EPPs among micro and small-sized firms in Lombardy, also conclude that EPPs increase both the export propensity and the export intensity of the firms that use them when compared to the results obtained by non-assisted firms. If participating in EPPs is important, high commitment entry modes are also important as
Dominguez (
2018) claims that risk-seeking firms seek operational and financial support whereas risk averse firms seek informational and motivational support, which not only differentiates those two different behaviors, but also their results. This supports
Crick’s (
1992) assertions that claim that exporting firms should not be understood as an homogenous pack as their needs depend, on one side, on their level of resources, internationalization, information of international markets and, on the other hand, on their level of success.
The participation in EPPs sometimes displays contradictory results. For example,
Malca et al. (
2020) show that EPPs’ information-, education-, and training-related programs do not affect export-related organizational resources. As such, in order to support Peruvian decision-makers to overcome their export-related mental barriers, EPPs needed to improve proactive approach to internationalization. Based on national EPPs programs in Ghana,
Quaye et al. (
2017) conclude that trade shows and trade missions achieve different results. In the same token,
Haddoud et al. (
2018), based on a survey questionnaire regarding the support of the Algerian Chamber of Commerce, report that trade shows and trade fairs may have positive and negative outcomes. As such, not all EPPs are successful in achieving better export promotion results, which might be explained by the resource endowments, information and knowledge of international markets, and proactive commitment of the SMEs involved in those programs. Clearly, the results obtained by at national level are not uniform.
Thus, although there are some contradictory results in the literature, previous research indicates that EPPs can be fruitful for firms under a variety of conditions. However, how productive they will be depends on the activities carried out and the ability and/or willingness of firms to take advantage of these programs (
Wilkinson and Brouthers 2006;
Dominguez 2018).
4. Econometric Analysis and Discussion of Results
Table 2 documents the participation of the firms studied in the four EPPs of 2011, 2013, 2014, and 2015. It can be seen that the number of firms that participated in EPPs increased significantly during the third program (P2014), having been the program with the highest numbers of participating firms. Of the 198 firms analyzed, 162 participated in one EPP, 24 participated in two, 8 participated in three, and 4 participated in four EPPs.
As can be seen in
Table 3, firms represent broad sectors of the economy. Firms from the manufacturing industry are highly represented, with 67% of the sample. Next, follows firms from the wholesale and retail trade sector.
Table 4 reports the descriptive statistics of the variables under analysis in the two specified models. We can see that the average age of the firms analyzed is 27 years and the oldest firm is 110 years old. Additionally, firms exhibit an average size of 46 employees, and the largest firm has 403 employees. Moreover, the average of the firms’ total external sales is approximately 2232 thousand euros. The firms documenting total external sales equal to zero were the ones without export experience. Firms reporting size and age equal to zero were the ones that did not exist at the beginning of the sample period, or that ceased to exist at the end of the sample period, thus contributing to mitigate survivorship bias problems.
Table 5 reports the correlations between the original variables used in model 1. The correlation between size and total external sales (0.7534) is the one that exhibits the highest value. The correlation between the remaining pairs of variables documents positive and statistically significant relationships.
Results reported in
Table 6 for models 1 and 2 were estimated using generalized least squares (GLS) regression of random effects (RE). The Hausman test was conducted to ascertain which estimators, the fixed or random effects, were more efficient (
Hausman 1978). Under the Hausman test specification, the hypothesis that the individual-level effects are adequately modeled by a random-effects model is not rejected (Hausman test statistic 9.38 and
p-value 0.4969–model 1; Hausman test statistic 9.20 and
p-value 0.6033–model 2). Therefore, henceforward we only report the random effects estimates. The regressions were carried out to test the effect of the use of the EPPs on firms’ exports.
Approximately 57.42% of the variation in total external sales can be explained by the variables of size, age, and participation in EPPs (model 1) whereas only 7.33% of the variation in the difference between total external sales and total sales can be explained by model 2.
In
Table 6, model 1, it is possible to verify that the variables size and age are statistically significant at 1% and 5%, respectively. As such, size positively affects (β = 71.17) the dependent variable. This result shows that the larger the firm the larger their exports, which can be explained by the fact that larger firms have more resources and capacities to face internationalization (
Freixanet 2012). However, age influences negatively (β = −23.9) the export performance, which means that younger firms tend to use EPPs rather than older firms. This can be justified by cultural inertia, inflexibility, and inability to change strategies and/or behaviors that increase with the age, i.e., older firms may be slower to respond to changes than younger firms. Thus, since export activities require extensive changes in firms’ operational activities, the older ones may have more difficulty in responding to this need than the younger ones (
Kirpalani and Macintosh 1980;
Love et al. 2016). Another possible explanation is that as this was a voluntary participation, some older firms with less international experience that need assistance from EPPs also participated.
The variables size and participation in EPPs are statistically significant at 1% and 5%, in model 2. These results demonstrate that both variables positively affect the dependent variable. On the other hand, age is not statistically significant and does not influence export performance.
The variable participation in EPPs is statistically significant in the two models. The results demonstrate that the participation on EPPs is associated with firms’ exports in the two specified models, given an affirmative answer to the research question initially raised.
Given that the manufacturing industry is the most prominent sector in the sample analyzed in this paper (see
Table 3), we tested the existence of differences between this industry and the whole sample. Thus, the estimates of the two defined models were carried out again, but this time, considering the manufacturing industries. The results of the estimates are shown in
Table 7.
In relation to the regressions carried out taking into account the manufacturing industries, all signs remained the same (both positive and negative) and, in general, the statistical significance did not change.
Table 7, model 1, shows that all variables are statistically significant, with size and participation in EPP positively affecting the dependent variable, while age affecting negatively, with similar coefficient values as those obtained with the whole sample, shown in
Table 7.
The results for model 2 again demonstrate that the variables size and participation in EPPs are positive and statistically significant, but age is not statistically significant. Similar results were obtained from model 2 in
Table 7.
All of the main results are in line with those obtained previously when performing the regressions for the whole sample. As such, it is possible to conclude that, to a large extent, the signs of the coefficients and the statistical significance do not change between the initial regressions and the new regressions carried out for the manufacturing industries.
The global results of the regressions carried out for the two models suggest that participation in EPPs positively influences the export performance of firms, as shown in
Table 8.
This result, based on EPPs carried out by a Portuguese Regional Association for Development on Trade and Industry is in line with mainstream literature that states that firms that participate in EPPs tend to have a greater propensity, intensity, and proportion of exports, being, therefore, programs favorable to firms that willingly seek to increase their international reach.
6. Conclusions and Limitations
The global economy, increasingly complex, has increased the importance of the internationalization of businesses, forcing them to increase competitiveness to face unpredictable changes. Thus, understanding the importance of internationalization support mechanisms is essential.
EPPs are intended to improve the businesses export performance, which in turn helps countries to exploit their full export potential. Thus, this paper sought to assess the influence of EPPs on the export performance of Portuguese firms.
In this sense, data were collected on a set of Portuguese firms that participated in at least one of four export promotion programs mediated by a regional development association. The data were collected from two different sources: the regional development association and the SABI database. The regional development association was important to obtain information on the firms that participated in the EPPs, as well as on the characteristics of the EPPs. The SABI database was important to obtain economic information of the firms that participated in the EPPs. Data for the period from 2010 to 2018 were considered and in total data were collected from 198 firms over these years to identify the effect of participation in EPPs on the export performance.
Two models were estimated to strengthen the results obtained. Alternative specifications were used, and in the two models it was found that the variable participation in EPPs has always remained relevant, regardless of the model.
It is possible to conclude that larger firms with more resources influence positively the export performance, whereas age effect on export performance is negative suggesting that the characteristics of older firms—e.g., cultural inertia, lower flexibility, or inability to deploy strategies to cope with new markets—slow their response to changes, namely the ones related with EPPs and export performance when compared with younger firms. In addition, it was also concluded that EPPs can be favorable to firms that intend to export or improve their export process and have a positive effect on their export activity, confirming the importance for businesses to participate on these programs. Moreover, this paper consolidates previous experiences of EPPs at national level, as it is expected that local and regional development associations have more proximity to the firms than national entities and could be more influential in involving SMEs in participating in export promotion programs than national entities or bodies that are normally quite distant from the regular SME.
The robustness checks also confirm the importance of the resources and capabilities. It is possible to conclude that the internal resources and capabilities are very important if firms want to properly explore EPPs as only firms with previous export experience seem to have a positive effect on firms’ exports. As such, one can claim that to succeed abroad using EPPs, firms need to invest and nurture their internal resources and capabilities. Furthermore, only those firms that participate in several EPPs seem to take full advantage of them. As such, it is possible to conclude that the participation in an EPP just for curiosity does not pay off. Clearly, firms will have to invest in their resources and capabilities and in knowledge gaining strategies—e.g., participating in a EPP, but will have also to internalize the knowledge gained in order to properly explore foreign markets through EPPs.
These results are favorable for business managers and owners who want to start or deepen their export process and need support in their internationalization path. Furthermore, it is important to understand more deeply the behavior of firms in these types of programs, in order to improve the efficiency and effectiveness when participating in EPPs.
In addition, it is advisable that policy-makers need to support and finance the use of these programs through local and regional development agencies and associations—normally closer to their local/regional associated firms—which not only leads to an improvement in the export performance of firms, but also to an improvement of the country’s economic well-being.
Although it was possible to answer the research question, this investigation has some limitations and, as such, its results should be treated with some caution since they cannot be generalized to the entire population. First, the sample is composed of firms that were supported by a regional development entity, which implies some contextual homogeneity. Second, the regional development association, although provided information about the export promotion programs organized, was relatively conservative in releasing information and data for the analysis of the firms. As such, it was only possible to work with the economic data obtained from the SABI database.
Other explanatory variables could have been used, such as resources and capacities related to the businesses export activity, the year the export activity started, the number of countries to which they exported and started to export, among others. It would also be interesting to make a distinction between types of export promotion programs, which would make the study more enriching. Unfortunately, these data have not been released.
A large sample would allow comparisons between the behavior of firms not only by size—small, medium and large—but also by type of program. Thus, in future research the analysis could be extended to other variables and distinctions and applied to a larger number of firms and with other characteristics. Additionally, it would be interesting to study how export barriers prevent firms from exporting, to facilitate their mitigation.