The Impact of Export Facilitation Programs Usage on Firms' Export Performance

Abstract

Exporting is a crucial economic activity which impacts strategic areas such as foreign currency reserves, trade balance, investments, competitiveness, employment and economic development at the macro-level. Similarly, at the firm level (or the micro-level), exporting is a vital business activity that impacts costs, sales, risk, and competitiveness of the exporting units. Over the past two decades, exporting has been one of the fastest growing economic activities. Interest in exporting is mostly driven by the changing economic conditions across the world including growing liberalization, integration and competition amongst global economies, etc. which in turn are responsible for increased engagement of firms in exporting. These reasons have contributed to the growth in research interest in field of export performance at the firm-level. One of the key factors influencing firms‘ performance in international markets is the country‘s foreign trade policy and the facilitation provided by it to the exporters.

Many attempts have been made in the past to establish an association between export facilitation programs provided by the respective governments and the resultant export growth using macro level data (e.g., Coughlin and Cartwright 1987; Kaiser et al. 2003; Lederman et al. 2010; Wilkinson and Brouthers, 2006; Wilkinson and Brouthers 2000a and b; Sharma et al. 2001,among others). However, there is a recent shift in attention towards micro or firm-level export performance, which focuses on the usage of export facilitation by firms and its role in improving firms‘ export performance. In this light, the present study attempts to make an inquiry on the impact of the usage of governmental export facilitation programs on the firm-level export performance of specific exporting units operational in Gujarat State of India. Accordingly it focuses on research on ‗firm-level export performance‘ with key independent variable being the ‗firm‘s usage of export facilitation programs‘. Data used in the study is primary in nature collected specifically for the research questions at hand, drawing sample from selected MSME (Micro, Small and Medium Enterprises) industrial clusters operational in Gujarat state of India. MSMEs are playing a pivotal role in the development of Indian economy by not only producing a wide range of products & services but also by providing substantial employment its population and enhancing balanced regional growth within the country. For most of these MSMEs, the preferred mode of internationalization is direct exporting. However, in their internationalization process they face several constraints both at the firm- and macro-level (constituting the business environment). Since, the MSMEs are not able to compete effectively with multinationals and large firms on price and quantity; they need to explore their strengths in other ways. For this, the government of India has come up with suitable export facilitation programs as part of its foreign trade policy to assist the exporters and to accelerate their rate of exports.

However, apart from external trade facilitation measures provided by the government, there are also other firm and management specific characteristics that influence the performance of firms in exporting. Therefore, the study looked at the export performance of sample MSMEs as explained by: first, the extent of export facilitation programs‘ usage by them which constitutes a part of domestic business environment and second, by the influence of micro- level firm-specific characteristics (viz. export commitment, export expertise, firm size, international experience and the impact of clustering), along with studying the interrelationships between the aforementioned variables. The findings of the study indicate that MSMEs benefit positively from the use of available export assistance as well as from developing in-house strengths via managerial commitment and expertise in exporting. Further, the clustered MSMEs (as used in the sample) also benefit from different features of clustering like linkages, common supply chain networks, labour pooling, information sharing, etc. The MSMEs should hence, build upon and use these factors to their advantage in establishing their networks globally and derive superior export performance with their limited financial and man-power resources.