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Factors Influencing Export Potentialof a Developi ng Coun t r y SMEs: A st ud yof Colombian FirmsFactor es que inf l uencian el pot encial export adorde la Pym e en u n p as en v as de desarr ol lo:

un estu dio de las em pr esas colom bian as.

Facultad de Administracin

Universidad de los Andes

Management Gall eys

en

ero

d

e

2007

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1

Luz Marina FerroDaniel la Laur eir oAlejandra MarnMiguel Ospi naVicent e Pin il la


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AbstractThe scarce participation of SMEs in exports pro-duces interest in developing and promoting them.SMEs exports promotion is of special need andinterest in developing countries where SMEsknowledge is low and where their development

rebounds in many social and economic positiveconsequences. Within this context, this studyconstructs a model that identifies potential exportersamong Colombian manufacturer SMEs. Acomparison between the exporting companies (intheir years prior to export) and non-exportingcompanies (that had no plans to export for the nextthree years) forms the basis of this study. Empiricalrepresentative evidence was obtained through 151companies of the Colombian small manufacturingpopulation. The results suggest that the

participation in training and export supportprograms has a strong positive relation to the firm'sexport potential. The increase in sales by a companyoutside its local area and the increase in its assetsbefore exporting demonstrate a greater capacity forinternational expansion. Colombian SMEs showedthat their knowledge increases as a result ofexperience in the markets, export intention andcommitment with the international operation.According to these results, managerial and policymaker implications are explored.

Minimum three key words:Export potential, Export intention, Developingcountries, Pre export stages, SMEs

Topic of Small Business Research themanuscript addresses:

1. Small Business Strategy

2. Internationalization Entrepreneurship

Factors influencing export potential ofa developing country SMEs: a study ofcolombian firms.

Luz Marina Ferro, assistant professor; DaniellaLaureiro, instructor; Alejandra Marn, instructor;

Jos Miguel Ospina, assistant professor andVicente Pinilla, full professor.Facultad de AdministracinUniversidad de los Andes

Factores que influencian el potencialexportador de la Pyme en un pas envas de desarrollo: un estudio de las

empresas colombianas.

ResumenLas polticas y programas de apoyo a las pymes sonparticularmente importantes en los pases en desarro-llo donde el conocimiento sobre estas empresas esmnimo y donde el desarrollo de las mismas tiene unenorme impacto social y econmico. La participacin

de las pymes en la economa es de reconocida impor-tancia en trminos de generacin de empleo, pero suparticipacin en las exportaciones es muy baja. En estecontexto, el presente estudio construye un modelo quepermite identificar a los exportadores potenciales den-tro de la poblacin de pymes manufactureras en Co-lombia. El modelo se basa en la comparacin de laspymes exportadoras (en los aos previos a iniciar laactividad exportadora) con las pymes no exportadoras(que no tienen planes de exportar en los prximos tresaos). El estudio obtuvo evidencia emprica basado en

una muestra representativa de 151 pymes manufactu-reras en las cinco principales ciudades de Colombia.

Los resultados del estudio sugieren que la participa-cin en los programas de promocin a las exportacio-nes tiene una relacin positiva con el potencialexportador. El crecimiento en las ventas de la empresafuera de la ciudad en la que sta se encuentra demues-tra una mayor capacidad de expansin internacional.Lo mismo sucede con el crecimiento en el valor de losactivos. Adicionalmente, el estudio encontr que las

pymes colombianas aumentan su conocimiento comoresultado de la experiencia en los mercados, su inten-cin exportadora y el compromiso con la operacininternacional. El artculo presenta el marco terico delestudio, la metodologa del mismo, los principaleshallazgos y una discusin sobre las implicaciones delos resultados para las instituciones y las empresas.

Palabras claves:Potencial exportador, intencin exportadora, pasesen desarrollo, etapas pre exportadoras, pymes


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2 Factors Influencing Export Potential of a Developing Country SMEs: A study of Colombian Firms

Factors Influencing Export Potential of a DevelopingCountry SMEs: A study of Colombian Firms

The phenomenon of globalization has affected indifferent ways the markets and economies over the

world; Latin American countries and other lessdeveloped countries being no exception. For example,in Latin America during the economic integrationprocesses started in the nineties manufacturing exportsincreased almost 13 percent (between 1995 and 2000,WTO 2003). However, the broad picture for Latin-American Small and Medium Sized Enterprises (SMEs)in international markets is one of low-level ofinvolvement, since at best, they export 15 percent onaverage (Moori et al., 2001).

This situation demands more attention since SMEsincorporation in the international markets is extremelyimportant not only because SMEs create and support themajority of jobs in these countries (two-thirds ofemployments and 95 percent of manufacturing firms) butalso because their internationalization rebounds in greatergeneration of foreign currency, employment and income,and improves SMEs productivity as they enter new markets(OCDE, 2005). Internationalization fosters thesecompanies' permanence and growth, both domesticallyand internationally, factors that are particularly important

for developing countries (Czinkota and Wesley, 1983;Lefebvre and Lefebvre, 2001; OECD, 2004).

In this context, the participation of Colombian SMEs ininternational markets is not very different from that ofother countries. Colombia is the fifth largest economyin Latin America (IMEDE (Institut) et al., 2005). In 2005,it had a population of 41 million and an annual incomeper capita of US$ 2,130. In 2003, SMEs contributed to11 percent of Colombia's total non-traditional exports,far below the 30 percent average that the Organization

for Economic Co-Operation and Development (OECD)remarked as a low average for its countries (OECD, 2004).

The scarce participation of SMEs in exports producesinterest in developing and promoting them. This

concern is expressed in studies that recognize thepeculiarities of these organizations and the limitations

of internationalization theories to explain and supportSMEs internationalization processes and strategies(Etemad, 2004).

The purpose of the present research is to construct amodel that identifies potential exporters amongColombian manufacturer SMEs. A comparisonbetween the exporting companies (in their years priorto export) and non-exporting companies (that hadno plans to export for the next three years) forms thebasis of this study. The results of this comparison are

used to construct the model.

This article begins with a review of the literature aboutexport behavior, especially among SMEs; this reviewhelps us in formulating our hypotheses. Subsequently,we obtain the variables that provide significant differencesbetween the two groups of companies according toexport intention and export experience. With these va-riables, two methodologies are used to test if it is possibleto build a predictive model for export potential (logisticregression and classification trees). Then, we develop

two models that in most cases correctly classify the firmsbetween potential and non potential exporters. Finally,we explore managerial and policy maker implications.

Literature Review and Conceptual Framework

Interest in studying SMEs1 with regard tointernationalization has grown in recent decades (Fillis,2001; Etemad, 2004; Allali, 2005), although we havefound very few studies that analyze these companiesin the pre-export stages (Wiedersheim-Paul et al.,

1978; Yang et al., 1992). Between 1990 and 2005ABI/INFORM Global2 recorded 466 works inscientific magazines and newspapers that were relatedto internationalization or entrepreneurship; this

1 There are two research streams - one quantitative and the other qualitative - that academics and governments use for SMEs (Julien1997). In Colombia, the legal definition of a small SME (Law 905 of 2004) reflects the quantitative method: the level of assets and thenumber of fixed employees. As of 2005 small businesses were those with assets between $191 and $1,908 million and between 11 and50 employees. Medium-sized businesses have up to $11,450 millions in assets and up to 250 employees. The law does not distinguishaccording to sector. "Within industrial Colombian SMEs there are 1,958 medium businesses and 8,414 small businesses" (DANE 2001).

2 Search using key words "SME" or "small business" or "entrepreneurship" and "internationalization" or "internationalization" or"entrepreneurship".


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number represented 82 percent of the studiescatalogued on the subject since 1974. This greatdynamism is consistent with the emphasis oninternationalization and market globalization since thenineties and with the recognition of the SMEsimportance in the economic and social development

of their respective countries (Kuwayama, 2001).Yang, Leone, and Alden (1992) developed a modelfor predicting the export potential of manufacturerSMEs in the United States. They integrated numerousvariables identified in the literature as descriptive ofexport behavior and they used export intention as thedependent variable. This model classified thecompanies into those with and without exportintention and validated the results in a sample ofexporting companies.

Despite the arguable relevance of these results, thescientific literature appears to lack studies that providemodels for predicting export potential in developingcountries. At the methodological level, procedures andsamples of the studies that we analyzed did notprovide sufficient arguments to generalize their results(Javalgi et al., 2000). Additionally, few studies hadlongitudinal designs (Yang et al., 1992) and no studieshave conclusions for developing countries.

Based on the findings of Yang, Leone, and Alden (1992),and on the literature reviewed, we design a model forthe Colombian case that predicts potential exportersovercoming previous identified limitations. The exportpotential of SMEs in this study is defined as the capacitythat a non-exporting or occasional exporter has to exportin the future on a regular basis, in other words to becomea regular exporter. Export potential is inferred from theperformance of the company in certain internal andexternal variables that can influence its future exportbehavior. These variables take into account the company'sbehavior in previous years, in the current year and themanagers' perceptions about export activities.

Our dependent variable is export potential and ourpredictor variables are several organizational variablesand managers' beliefs about exports that we willexplain further. We take into account the evolution ofthe exporting companies in the three years prior totheir first exportation. For the non-exportingcompanies we assume that export intention is ameasure of export potential (Yang et al., 1992; Morganand Katsikeas, 1997). Therefore, the research focuseson the differences between the two extreme groups inthe sample: the exporting companies in the yearspreceding the first exportation and the non-exportersthat have no current export intention.

1. Dependent variable: export potential

According to the literature (Gankema et al., 2000)companies can be classified into different types ofexporters. However, some of these articles recognize thatit is possible to aggregate some of these types; for examplenon exporters and occasional or the intermittent exportersbehave similarly and companies with high level ofinvolvement in international activities (the export/sales ratio

varies from 10-39 percent (Gankema et al., 2000)) butrelatively new in these markets, exhibit similar attitudestoward exporting than regular exporters. With thisinformation and because binary models were used toconstruct our model, this research used a dichotomousvariable that divides companies into two groups: exportersand non-exporters without export intention. First, toclassify companies as exporters we took into account thenumber of years exporting (at least two years continuallyexporting) and the participation of the exports as part oftotal income (more than five percent).

In addition to export experience, we considered exportintention for the non-exporting group. Export intentionrelates to the vision that the manager has about thecompany in the future (Filion, 1991). Some researchers(Yang et al., 1992; Andersen and Rynning, 1994; Morganand Katsikeas, 1997; Gankema et al., 2000) focus on thestudy of export intention based on the concrete export

plans of management dividing non-exporting companiesinto those with export intention and those without it, andcomparing them with current exporters that already havedemonstrated their export intention. (Allali, 2005) confirmthat there is a positive relationship between the existenceof an exporting vision and the exporting behavior.

Therefore, excluding companies with export intentionfrom the analysis seeks to clarify distinctions between thetwo groups of companies. Thus, in this research we onlyincluded non-exporting companies without exportintention. (See the description of the dependent variable)


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2. Independent variables

The construction of an integral model for estimatingexport potential must consider other causal

relationships between export behavior and acompany's internal and external variables that werenot included in the study of Yang, Leone, and Alden(1992) (for example decision maker profile). In ourinvestigation these variables are grouped in fourcategories (see appendix one).

a. Category One: Company Characteri sti cs. Manyinvestigations have sought to determine whether sizeis an obstacle to export (Bonaccorsi, 1992; Yang etal., 1992; Calof, 1994; Lefebvre and Lefebvre, 2001).

The conclusions of these studies do not show aconsensus among the authors. Some affirm that thesize of the company influences the tendency to export:in other words, larger companies have more exportcapacity than small enterprises (Burton andSchiegelmich, 1987; Mittelstaedt et al., 2003).Nevertheless, some studies conclude that size doesnot represent an obstacle to export (Czinkota andWesley, 1983; Ali and Swiercz, 1991), and that thereis no relationship between exporting intensity(exports/sales) and size of the firm (Bonaccorsi, 1992).

Calof (1994) concludes that size does not indicatethe propensity to export although it could affect thenumber of international markets the company wouldserve. To analyze the size's effect on export propensityin the Colombian case, we took different sizemeasurements such as number of employees, valueof assets and sales. We sought to prove if there is acorrelation between size and export activities in theColombian case.

The second variable in this group was the age of the

company. Some authors link the age of the firm withexport activity in the view that internationalization isa learning process that requires time and preparation(Bilkey, 1976; Johanson and Vahlne, 1977). Laterstudies conclude that the greater the age, the greaterthe exporting tendency of the business (Javalgi et al.,2000). Nevertheless, more recent studies have foundthat the age of the firm does not influence its exportingactivity, but it does acquire importance in the growthof exports in later stages. This shows that a firm'sexperience could facilitate international growth (Moen

and Servais, 2002). The effects of globalization areamong the justifications supporting the early

internationalization of companies (Oviatt andMcDougall, 1994; Moen and Servais, 2002). Despitethese justifications, for the Colombian case we wantedto prove whether there is a relation between age andexport potential. Based on the foregoing: Hypothesisone: a company's export potential is related to its size.Hypothesis two: a company's export potential isrelated to its age.

b. Category Two: Decision Maker.Julien (2000) statesthat micro, small and medium sized businesses

personalize and centralize power in management. Thepropensity for international activity is no exception.Some researchers (Louter et al., 1991; Burpitt andRondinelli, 2000) have asserted that management'sattitudes and commitment regarding internationalactivities are critical variables in a firm's exportpropensity. Significant differences show up frequentlyin the perception of barriers on the part of non-exporting and exporting managers, the former tendingto perceive greater barriers compared to the latter(Bilkey, 1976; Ali and Swiercz, 1991; Leonidou,

1995; Pett and Wolff, 2003). Studies divide the typesof decision makers' perceived barriers into internaland external with respect to the firm: internal beingrelated to the organization's resources and externalwith its environment (Leonidou, 1995; Campbell,1996; Leonidou, 2004).

In addition to the manager's perceptions, his level ofeducation, age, abilities in foreign languages and timespent in foreign countries can all influence thecompany's exporting behavior (Bilkey, 1976;

Wiedersheim-Paul et al., 1978; Burton andSchiegelmich, 1987; Ali and Swiercz, 1991; Louteret al., 1991; Andersen and Rynning, 1994).Apparently, some of these variables also have greateror less prevalence depending on the company's stagein the internationalization process.

Finally, a manager's cosmopolitanism evidently exertsan influence on a company's export propensity. Thiscosmopolitanism encompasses formal and informalrelations that the manager cultivates (Holmlund and


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Kock, 1998; Coviello and McAuley, 1999; Ellis andPecotich, 2001). These relationships are by their naturebusiness networks (formal relationships that sometimesare derived from the value chain to which the companybelongs or from participation in training programs)and social networks (relationships arising from infor-

mal interchange among individuals, based onconfidence engendered by the social capital amongcompanies) (Holmlund and Kock, 1998). Therefore:Hypothesis three: a company's export potential has aninverse relationship to its manager's perceptions ofexport barriers. Hypothesis four: a company's exportpotential depends on its manager's demographicprofile. Hypothesis five: a company's export potentialdepends on its manager's contact networks.

c. Category Three: Past Expansion Behavior. Empiricalresearch in previous studies has asserted that positivechanges in domestic market coverage influencecompanies' preparation for export activity(Wiedersheim-Paul et al., 1978; Burton andSchiegelmich, 1987; Yang et al., 1992; Andersen andRynning, 1994). This process of expansion is a formof "domestic internationalization" (Wiedersheim-Paulet al., 1978) in which the firm becomes oriented toovercoming barriers in its domestic environment. Pastexpansion behavior takes into account domesticmarket coverage, changes in the size of the firm and

modifications in the property structure (Yang et al.,1992; Laureiro and Marin, 2004). Hypothesis six:export potential is positively related to past expansionbehavior.

d.Category four : Competi ti ve capacit y. A firm'scompetitive capacities, viewed as competitiveadvantages, positively relate to the export behavior ofcompanies (Louter et al., 1991; Mehran and Moini,1999). Sources of competitive advantage are: anefficient distribution system, management availability,

technological capacity, breadth in the product andservice lines and a strategic market mix (Burton andSchiegelmich, 1987; Louter et al., 1991; Yang et al.,1992; Mehran and Moini, 1999). One of thecompetitive factors identified as a determinant whenundertaking export activities is innovation in productsand services (Yang et al., 1992; Atuahene-Gima,1995). A study by Moori et al. (2006) about

Colombian exporting firms found that most of thecompanies which initiated export activities hadundertaken a number of adaptive and improvementmeasures to compete in the international market. Thesefocused on product, design and service improvement,marketing and commercialization. Consequently,

hypothesis seven: a company's export potential ispositively related to its competitive capacities.

As shown in graphic one, the companies fell intotwo groups: exporters (black), non-exporters withoutintention (white). Data from non-exporters with exportintention were not included in the analysis because,as explained, having export intention could translatein the future into having export potential. To discoverwhich variables accounted for differences in exportpotential, we compared exporters (black) with non-

exporters without export intention (white) in the fourdimensions previously described: characteristics,decision maker, past expansion behavior, andcompetitive capacities. Graphic one. Conceptualmodel.

Methodology

Our study focused on Colombian SMEs more thanthree years old3 in those sectors where the shares ofSMEs in total production and in total exports of eachmanufacturing sector were significant (See appendixtwo). Additionally, we only selected those companiesthat had not begun to export before 1991. The studysought to be regionally representative. To select thecities to study, we took into account regionaldistribution of SMEs and the participation of each cityin total Colombian exports. We included the cities ofMedellin, Barranquilla, Cali, Bucaramanga and Bogota.Also, we wanted to be representative of the mostimportant manufacturing sectors of SMEs in Bogota.We chose eight manufacturing sectors: 1)tanning anddressing of leather and manufacture of leather products,2)manufacture of rubber and plastics products, 3)ma-nufacture of apparel, 4)manufacture of food productsand beverages, 5)manufacture of fabricated metalproducts and manufacture of machinery, 6)publishing,printing and reproduction of recorded media, 7)ma-nufacture of wood and of products of wood and cork,8)manufacture of chemicals and chemical products.

3 Since the rate of disappearance of newly created firms in developing countries is high (between 50 percent and 75 percent in the firstthree years), firms with less than three years of existence were excluded. (Marcelo and Echevarra 1999 ).


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In Colombia as in many other developing countriesinformation about SMEs is very scarce, so we had togroup various databases together and we obtained atotal universe of 4,168 establishments with more thanthree years doing business, classified as SMEs; ofthese, 1,940 were classified as manufacturing

companies. A stratified random procedure was usedin the five largest cities in Colombia to select the firmsfor the study from 1,940 small to midsized businesses.We defined a quantity of surveys in each city with anunrestrictive random sample method. Sectorstratification was applied only in Bogota where 50percent of SMEs are located (Rodrguez, 2003).

We designed two types of questionnaires: one forcompanies with export experience and one forcompanies without export experience. The surveys

were answered by the manager and required specificinformation from different sources within thecompany (the financial and production areas). Fieldwork began with a pilot test with the twoquestionnaires and lasted for seven months. A totalof 182 surveys came back, the margin of error is 6.91percent and the response rate 18 percent. Similarstudies have had lower or equal response rates (15percent in the case of Dhanaraj and Beamish (2003),17 percent in Pett and Wolf (2003) and 19 percent inthe case of Kalantaridis (2004)).

Descriptive results

In our sample, 49.7 percent of firms are located inthe capital city Bogota, 17.2 percent in Cali, 16.6percent in Medellin, 8.6 percent in Bucaramanga and7.9 percent in Barranquilla. These percentages areapproximated to the national location of the SMEs.By sector, 22.5 percent are apparel companies, 22.0percent are metal products and machinery companiesand 12.6 percent are food products and beverages

companies. The mean year of opening is 1987, withaverage years in business of 16.50 (s.d. 11.73 years).In 66.91 percent of the companies there is a familygroup that controls more than 51 percent of the equity.In 62.09 percent of the firms the current manager wasthe founder of the firm.

Of the 182 manufacturing companies, 68.83 percent(118 firms) were classified as non-exporters and 35.16percent (64 firms) as exporters with an average export/sales ratio of 27.85 percent. The major destinations

for exports were NAFTA countries, accounting for 49.1percent, followed by the Andean Community, CAN(31.6 percent), Central America (12.8 percent) andEurope (5.9 percent). Only 0.1 percent of the exportswent to Mercosur, and 0.4 percent of the exports goto other countries. These percentages are similar to

those in a study about the profile of the Colombianexporter SMEs made by FUNDES (Moori et al., 2006)in which - for 2003- NAFTA was the main destination.

Variables that Define Export Potential

1.Dependent Variable: Export Potential.

Initially the firms were divided into two groups:exporters and non-exporters. Next, we divided non-exporters into companies with export intention andcompanies without intention. For this purpose, we

asked non-exporters about their export expectationsover the coming years in terms of: (1) the percentageof participation expected from foreign sales as part oftotal sales, (2) the countries to which they plan toexport and (3) the distribution channels they shouldemploy to gain access to these new markets. Thirty-one companies (26.3 percent) precisely answered thesequestions, showing they have a concrete exportintention; the remaining 87 (73.7 percent) wereclassified without intention or vision to export andwere included as such in subsequent analysis. A total

of 151 firms were included in the construction of themodel (with a margin of error of 7.66 percent). Fromthese, 87 (57.6 percent) were non-exportingcompanies with no export intention and 64 (42.4percent) exporting companies qualified. Consequently,a dichotomous variable emerged to classify thecompanies into two categories: with export potential(EP) and without export potential (NEP).

2. Independent variables

Using ANOVA and CHI-SQUARE tests, we identifiedthose variables that showed significant differencesbetween the two types of companies previouslyidentified (EP and NEP).

a. Company Characteristics.Variables such as size bynumber of assets (p=0.01), number of employees(p=0.002) and sales (p=0.008) differentiated thecompanies according to their export potential.Companies with export potential had more years inbusiness (although not significant p=0.635) and


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greater size before exporting, supporting the theorythat companies internationalize gradually (Johansonand Vahlne, 1977). These results show thathypothesis one is proven: export potential ispositively related to the size of the company.Hypothesis two was not proven: it was not possible

to conclude about the relation between the age of thecompany and the export propensity.

b. Decision Maker.The manager's data was used totest three hypotheses:

1. Management's perceptions about exporting. Severalitems representing perceived export barriers wereidentified from the literature review (Bilkey, 1976;Ali and Swiercz, 1991; Yang et al., 1992;Leonidou, 1995; Campbell, 1996; Pett and Wolff,2003; Leonidou, 2004). After this review process,

26 items were selected for the two questionnaires.These variables were operationalized throughinterval scales, taking values between one and five(five being the most relevant) as in Yang, Alden,and Leone (1992). These variables fell into twogroups: internal and external barriers (Leonidou,1995; Campbell, 1996; Leonidou, 2004). Foreach group we performed a factorial analysis withvarimax rotation, using the criterion of suitablevalues greater than one.

For the group of 17 internal barriers, five factors explainedthe 62.046 percent variance. These were: (1)management resources; (2) financial resources; (3)strategy for entering international markets withemphasis on price; (4) product competitiveness; and(5) market information (see table one). To obtainthe score in each of the resulting factors we calculatedthe arithmetic average of the variables belonging toeach factor. Three of the five factors providedsignificant differences between the EP and NEP firms:(1) aspects related to management resources

(p=0.032); (2) market resources (p=0.046) and (3)international strategies for entering markets(p=0.028). In the three cases, the EP firms perceivedfewer barriers to export (see table three). Table one.Factorial analysis of internal barriers.

In the group of nine external barriers two factorsexplained 59.72 percent of the variance: (1)logistical control, and (2) tariff and non-tariffbarriers (see table two). As Table three illustrates,the logistical control factor (p=0.018) and the tariff

and non-tariff barriers factors (p=0,065) providedsignificant differences between the companiesaccording to the export potential type. The resultssupported the conclusion proposed in hypothesisthree: the greater the international experience thesmaller the perception of risks in export activity.

Table two. Factorial analysis of external barriers2. Demographic profile: there were no statistically

significant differences between decision maker'sdemographic variables and the export potential.

Thus we can not conclude about the validation ofhypothesis four.

3. Contact networks. The fact that the manager hadfamily roots in foreign countries providedsignificant differences according to the type of exportpotential (p=0.066). These family ties are one of

the components of the personal networks or infor-mal contact (Julien et al., 2006). Also, we askedthe firms whether or not they had participated intraining and export support programs (binary va-riable). This program was organized by theColombian public agency that promotes exports.

The participating SMEs worked with regionaluniversities which provided support for thedevelopment of the firm's export plan. Our resultsshowed that participating in that training and exportsupport programs have a strong positive relation

to whether the company exports (p=0.000)(Carrier, 1999). While most of the exportersparticipated in such program (88.9 percent), asignificant percentage of non-exporters (54.2percent) have participated in it as well. Therefore,hypothesis five was proven: export potentialdepends on the contact network of the company'smanager (Ellis and Pecotich, 2001). Theparticipation in this kind of training programs is anecessary condition that might give the companythe possibility to establish formal and informal

relationships, which combined with other factorsstimulate the company's internationalization.

c. Past Expansion Behavi or. One of the majordifferences between the two questionnaires was thatwe asked exporters about their performance in thenational market in the years preceding the firstexportation. To measure the changes in the size of thecompany, we also asked in the exporters' questionnairefor the sales, assets and the number of employees inthe year 2003, in the year of their first exportation


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and in the two years previous to that first exportation.From the non-exporters we requested data for the years2000, 2001, 2002 and 2003. This was one of thesections where we had the most missing data4. Withthese changes we calculated an average. The averageof the variations in the amount of assets was the onlyvariable that showed significant differences among thecompanies according to their export potential(p=0.01), indicating that the companies withexporting experience showed greater growth in assetsprior to exporting. This is a result that can becompared with what Moori et al. (2006) found:exporters presented higher positive changes in theirsize indicators than non-successful exporters.Although they did not use that variable to predictexport potential, they also found significantdifferences in sales and size of work force.

To measure domestic market coverage we asked thefirms' percentage of sales concentrated in the localmarket (the region surrounding the company's princi-pal office). This variable could be of particular interestfor the Colombian context because this country ischaracterized for having high concentration in distanturban centers. There are five such urban centers andon average it takes 15 hours to travel among them.

The results showed that prior to exporting the EPcompanies concentrated a smaller proportion of their

sales in the local market, in comparison to the NEPcompanies (p=0.093). This shows that companiesthat exhibit major national sales coverage have marketexpansion abilities and therefore are more preparedto assume international activities than those whoconcentrate their sales locally. Our results show thathypothesis six is proven: export potential is positivelyrelated to the expansion capacity of the company.

d. Competitive Capacities.The EP companies showedgreater competitive capabilities in comparison with the

NEP companies. The former had developed a highernumber of products prior to export (p=0.059); morefrequently had a marketing department (p=0.092) andhad better training of marketing staff in marketing relatedaspects (p=0.049) and in foreign languages (p=0.004).

This reinforces the idea of Moori et al. (2006): successfulexporters have stronger commercial competence thannon-successful exporters. The EP companies showedless need for training in foreign business prior toexporting than the non-exporting companies in 2003(p=0.003). Thus, hypothesis 7 was confirmed: export

potential is positively related to the company'scompetitive capacities.

Generally, of the seven hypotheses five were assessedand confirmed. Thus, the export potential of SMEsrelates to the size of the company; the management'snetworks and its perception of barriers to exporting;the expansion ability of the company; the number ofnew products; having a marketing department; mar-keting staff with better training in languages and inmarketing and better training in subjects related to

exports.Export Potential Model

We employed two techniques to operationalize thepredictive model of export potential: logisticalregression and CHAID classification trees.

1. Logistical Regression Model5

Because our primary objective was to identify potentialexporters based on a comparison between two groups

of firms (EP and NEP), a logistic regression model wasadopted. In the model, the independent variables werethose that showed significant differences between EPand NEP companies without intention, and that wereunrelated to each other. Since three variables related tothe size of the firm showed a positive correlation (sa-les, assets and employees), only sales6was part of themodeling process. Consequently, fifteen of theseventeen variables that showed significant differencescomplied with these conditions and were involved inthe construction of the model (see table three).

The resulting model included only five significantvariables besides the independent term: sales level,assets variation, percentage of local sales, marketingstaff knowledge of foreign languages, and whether or

4 Three strategies compensated for the missing data: (1) to contact the companies again to request this information; (2) when thecompany did not respond we decided to fill the missing information with available data from previous years (Yang et al., 1992); wherethese two strategies did not work we used the sales value of each company to proportionally complete the information.

5 In this type of model, Pi is established as the probability that the i-th company exports in the following year. This probability meets thefollowing formula: b0+b1*Xi,1+b2*Xi,2+.........+bkXi,k = ln [Pi/(1-Pi)]

6 We chose the sales variable -instead employees or assets- since we believe it better represents the market size of the company.


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not the company had participated in training andexport support program (see table four). With thesevariables, the R2 of Nagelkerke was acceptable (0.325)but lower than in similar studies (in Yang, Leone,and Alden (1992) it was 0.498). Table four. Varia-bles in the final equation (step 11).

The model that resulted correctly classified the 81.5percent of the NEP companies and 64.5 percent ofthe EP companies. Globally it correctly classified74.1percent of the companies. These percentages aresimilar to those found in Yang, Leone and Alden(1992) study (80 percent of the cases were correctlyclassified). All the coefficients had the expected sign.We used the omnibus test in order to measure howwell the model performs. The p-value, for the modelin the last step was 0.0000 which was lower than the

critical value of 0.01. Thus, the model was statisticallysignificant. (See table five) Table five: Omnibus Testof Model Coefficients

2. CHAID Classification Tree

Alternatively, with the same 15 identified variables weperformed a classification method of trees called CHAID(Chi-squared Automatic Interaction Detector). Thismethod yielded a series of criteria that separate the EPfrom the NEP firms (see graphic three and its explanation):

The tree graphic correctly classified 87.7 percent ofthe non-exporting companies and 53.2 percent of theexporting companies. Globally it correctly classified72.72 percent of the companies. For the exporters,the tree was not a good predictor since it led to wrongclassifications in almost half of the cases. Graphicthree. Classification tree.

The same variables that resulted in the logisticalregression method were obtained in the classificationtree (except for the percentage of local sales that was

present in the regression and not in the tree). As inprevious studies, both models do a better job inclassifying non-exporter firms (Yang et al., 1992).

Discussion

Even when this was a first approach to identifypotential exporters in a developing country, the maincontribution of this study is to propose and validatetwo models that serve in estimating the exportpotential of small manufacturing companies in a

developing country. Though literature has notdeepened on the study of pre-export stages and theidentification of potential exporters in developingcountries, we used different variables to figure out amethodology that worked on prioritizing the varia-bles that give export potential to non-exporter firms

in our particular context.Based on empirical evidence obtained through 151representative companies of the Colombian smallmanufacturing population, we validated two modelsthat combine five variables that specifically affect afirms export potential. Two of the five variables thatwere included in the regression model and the decisiontree (marketing staff knowledge of foreign languagesand participation in training and export supportprograms) were new among the reviewed studies that

constructed a model for SME in pre-export stages(Wiedersheim-Paulet al., 1978; Yanget al., 1992;Caughey and Chetty, 1994). From the models we canconclude that it is more common for a medium-sizedcompany to export than for a small company. Theparticipation in training and export support programshas a strong positive relation to the firms exportpotential. This variable not only reflects the importanceof the managers networks on acquiring information,but also the need to stimulate the interaction amongthe firms, the universities and the institutions that

promote entrepreneurial development. The increasein sales by a company outside its local area and theincrease in its assets before exporting demonstrate agreater capacity for international expansion(Yanget al.,1992). In our case, Colombian SMEs showed thattheir knowledge increases as a result of experience inthe markets, export intention and commitment withthe international operation. This agrees with the modelsof incremental learning (Johanson and Vahlne, 1977)and with the idea of domestic internationalization(Wiedersheim-Paulet al., 1978; Caughey and Chetty,

1994). The marketing competitive capacities reflectedin having marketing staff with knowledge of foreignlanguages influence the companies export potential.We emphasize the importance that the knowledge of aforeign language has, particularly in developingcountries where it helps in lowering many culturalbarriers and becomes a key support for internationalmarketing activities.

Another major contribution of our study is theidentification of 17 variables that discriminate potential


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exporters from non potential exporters. Besidesparticipation in training and export support programs,we found the managers familiar networks in foreigncountries which appear to facilitate the beginning ofexport activities(Ellis and Pecotich, 2001). Theperception of internal and external barriers concerning

international activities has a negative relationship toexport potential. Some of these subjective variablesacquire particular importance in developing countrieswhere for example the firms usually have a precariouslogistical control. In summary, each one of the fourpre-defined categories has an implication in the exportpotential.

Among the 17 variables, there were five competitivecapacities related to the market orientation of the firm(see table six). These variables reflected the highimportance of innovation, of having a marketingdepartment and of having marketing staff withknowledge of market subjects and foreign languages.Also, having a stronger market orientation diminishesthe barriers perception. Though only five of the 17variables resulted in the regression model and four ofthem in the decision tree, we believe that all the 17variables indicate important issues that must take intoaccount to improve a firms export potential.

Since information about SMEs is particularly scarcein developing countries, the last contribution of ourstudy is having a representative sample which resultsmight be generalized with a low error level (7.66%).

Managerial and policy maker implications

Although no list can be assembled whichrecommendations will lead inexorably to exportactivities, alternatively and based on the proofs of allthe stated hypotheses, there is a set of basiccharacteristics that to a great degree are exhibited bythose engaged in exports (see table six). This research

can serve as a guide for institutions that work topromote the growth of exports among SMEs. Theseinstitutions can have greater clarity on specific areasof the firms that need strengthening in order to achieve

consolidation in the domestic market. Also, themodels described before can serve as a tool in targetingnon-exporter firms for export support.

Companies must be aware of the variables identifiedin our study. A firms major consciousness about theimportance of the strengthening of these variables canfacilitate the internationalization of the firm (Julian,2003)

Limitations and future works

The conclusions of our study are limited to the SMEspopulation in the five main cities in Colombia and inthe eight manufacturing sectors. It was not possibleto do inferences by sectors neither by regions. Thelack of secondary information about the expansionbehavior of the companies over time (one of the most

relevant difficulties in a developing country) hamperedthe field work. Institutions that seek to support thedevelopment of SMEs must work on the creation ofupdated data bases with information from thecompanies over time; also, it is necessary to work inthe organization of the data in each one of thecompanies to access precise and reliable information.

This is particularly necessary in developing countriessuch as Colombia. The identification in this study ofthe 17 variables could serve as a guide to collect thisinformation.

Future research on this subject could focus on makingan analysis of these results over time to monitor themodel here obtained. The foregoing requires betterdata bases and an open entrepreneurial culture to giveexact information. Another option for future researchcould be to deepen the analysis of variables such asthe market orientation level of the companies, theirinnovative capacity and the competitiveness ofmanagement resources in developing countries. Alsorecommended is more in-depth analysis of specific

sectors within the manufacturing sector and in thosesub-sectors of exportable services. Table six.Conclusions regarding the variables that define exportpotential in Colombian SMEs.


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Graphic 1. Methodology framework

Table 1. Factorial analysis of internal barriers.


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Table 2. Factorial analysis of external barriers

Table 3. Variables that show significant differences according to export potential


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*The new products categorical variable was obtained according to the sector's average of new products. The firms in the 4th category are those in the higher 25percent, those in the 3rd categorydeveloped a number of new products that are among the highest 50-75percent compared to their sector, and so on.

Table 4. Variables in final equation (step 11).

Table 5: Omnibus Test of Model Coefficients


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Graphic 2. Classification tree.

Explanation of the tree (see graphic 2):

1) Companies with high knowledge of foreign languages (marketing staff self-evaluated as two or three); withsales before exporting1higher than $182 thousand dollars and that have participated in training and exportsupport programs would have a greater probability of exporting (Probability (P=0.767).

2) Companies with low knowledge of foreign languages (marketing staff self-evaluated as one) and a change inthe assets lower than or equal to 14.41percent would have a greater probability of not exporting (P=0.926).

3) Companies with medium or high knowledge of foreign languages (marketing staff self-evaluated as two orthree) and with sales before exporting lower than $182 thousand dollars would have a greater probability of notexporting (P=0.778).

4) Companies with low knowledge of foreign languages (marketing staff self-evaluated as one) and a change in

the assets higher than 14.41 percent would have a greater probability of not exporting (P=0.594).

5) Companies with medium or high knowledge of foreign languages (marketing staff self-evaluated as two orthree) and with sales in 2003 higher than $182 thousand dollars that have not participated in training and exportsupport programs would have a greater probability of not exporting (P=0.565).

1 For NEP firms we used 2003 sales, and for the EP firms we used sales in year before they started exporting.


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Table 6. Conclusions regarding the variables that define export potential in Colombian SMEs

*p


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Este nmero de la serieGaleras de Administracin

se termin de imprimir en Enero de 2007.El texto est compuesto en fuente

Berkeley Book 11 puntos.Impresin y diagramacin: Guas de Impresin.


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9 7 7 1 9 0 0 1 6 0 0 0 2 01

ISSN 1900-1606

The scarce participat ion of SMEs in export s pro duces int erest in develop ing and p rom ot ingth em. SMEs export s pro mo tio n is of special need and interest in developi ng count riesw here SMEs know ledge is low and w here their d evelopm ent rebou nds in many social andeconom ic positive consequences. Wi th in th is cont ext, this stu dy constru cts a model t hatidenti f ies pot ential export ers among Colom bian m anufacturer SM Es. A comparisonbetw een the export ing companies (in their years prior t o export) and non -export ingcom panies (that had no plans to export for the n ext t hree years) form s the b asis of thisstu dy. Emp irical representat ive evidence w as obt ained thr oug h 151 comp anies of th eColom bian small manuf acturin g po pulat ion . The results suggest that the p art icipat ion in

training and export support program s has a stron g posit ive relat ion t o th e firm 's exportpot ent ial. The increase in sales by a com pany o ut side it s local area and th e increase in it sassets before export ing demon strat e a greater capacity for internat ional expansion.Colom bian SM Es show ed th at t heir kn ow ledge increases as a result of exp erience in themarkets, export in tent ion and comm itment w i th t he in ternat iona l operat ion. Accord ing t oth ese result s, managerial and po licy mak er imp lication s are explored.

10

Luz Marina Ferro, assistant professor; Daniel la Laureiro, instructor;Alejan dr a Marn , instr uctor ; Jos Migu el Ospi na, assistant pr ofessorand Vicent e Pin i l l a, ful l pr ofessor.

Factors Influencing Export Potentialof a Develop in g Coun t r y SMEs: A st ud yof Colom bi an Fir m sFactores que influencian el pot encial export adorde la Pym e en un pas en vas de desar rol lo:un estudio de las empresas colombianas.

Las polticas y prog ramas de apo yo a l as pym es son part icularmen te impor tan tes en lospases en desarro llo do nd e el cono cimien to sob re estas emp resas es mnim o y don de eldesarrollo de las mismas tien e un eno rm e imp acto social y econm ico. La part icipacin delas pym es en la econ oma es de reco no cida im po rt ancia en trm ino s de g eneracin deemp leo, pero su part icipacin en las expor taciones es mu y baja. En este cont exto, elpresente estud io constru ye un m odelo qu e permit e identi f icar a los export adorespot enciales dent ro de la pob lacin de pym es man uf actureras en Colomb ia. El mo delo se

basa en la comp aracin d e las pym es expo rt ado ras (en lo s aos previo s a iniciar l a activid adexport adora) con las pym es no expo rt adoras (que no t ienen planes de export ar en losprxi mos tres aos). El estud io o bt uvo eviden cia emprica basado en un a muestrarepresentativa de 151 pymes manufactureras en las cinco principales ciudades deColombia.

Los result ados del estu dio sugieren q ue la part icipacin en los progr amas de pro mo cin alas export aciones tien e una relacin positiva con el po ten cial expor tad or. El crecimi ent o enlas vent as de la empr esa fu era de la ciud ad en la q ue sta se encuent ra dem uestra u namayo r capacidad d e expansin int ernacional. Lo mismo sucede con el crecim ient o en elvalor de los activo s. Adicionalm ent e, el estu dio encon tr que las pym es colom bianasaument an su conocimien to com o result ado de la experiencia en los mer cados, su int encinexport adora y el com promiso con la op eracin inter nacional. El art culo pr esent a el marcoterico d el estu dio, la met odo loga del m ismo , los principales hallazgos y una di scusin

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