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Small Business Economics

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29-05-2019

The effects of innovation on the decisions of exporting and/or importing in SMEs: empirical evidence in the case of Spain

Authors: Alfonso Exposito, Juan A. Sanchis-Llopis

Published in: Small Business Economics | Issue 3/2020

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Abstract

This paper analyses the involvement of small firms in international trade activities by identifying the comprehensive impact of innovation. Specifically, we study how innovation introduced by these firms determines the entrepreneurial decision-making process regarding whether to engage in exporting and/or importing. Our results confirm the interrelation of firms’ exporting and importing decisions and consequently, these two decisions should be jointly estimated when analysing the influence incurred by the introduction of alternative types of innovation (product, process, and organizational/managerial innovation) on said decisions. Furthermore, findings show complementarity between types of innovation to be relevant in explaining export and import decisions made by SMEs. Specifically, cumulative effects as a result of combining product and process innovation, as well as of product, process and organizational innovation, are highly significant in explaining export decisions, while in the case of imports, the combination of product and organizational innovation is shown to be significant. These findings lead to major policy and managerial implications regarding the promotion of SMEs’ participation in international trade flows through alternative innovation strategies.

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Models based on product-life-cycle approaches usually consider that innovation implementation causes export decisions. However, we have to bear in mind that exports may also incentivize innovation activities as predicted by endogenous growth trade models (Añón Higón and Driffield 2011).

Similar classifications can be found in other studies, such as Huiban and Bouhsina (1998), Madrid-Guijarro et al. (2013) and Expósito and Sanchis-Llopis (2018).

The surveyed regions were Andalusia, Basque Country, Estremadura, Comunidad de Madrid, Murcia and Navarre. According to the criteria of the Central Directory of Firms of the Spanish Statistics Institute, the surveyed population was stratified in terms of size and productive sector. A 20.8% response rate was achieved and no bias between respondents and non-respondents was detected.

Empirical evidence shows that manager perceptions about implemented innovation outputs are highly correlated with alternative innovation indicators (Frishammar and Hörte 2005; Zahra and Covin 1993).

As regards the use of binary variables, many recent studies, such as those by Dosi et al. (2015), Halilem et al. (2014), Kasahara and Lapham (2013) and Ribau et al. (2017), among others, use these types of variables to account for business decisions (e.g., international trade participation and innovation). As shown by the distribution of these binary variables as reported in Table 1, we believe that the analysed sample sufficiently captures the relevant information (Dosi et al. 2015).

Firms that plan to export and/or import need to assume certain costs even before starting (and/or carrying out) these activities. Therefore, in order to export, a firm needs to study foreign markets, create adequate distribution and promotion channels, and most probably adapt its production to meet the quality and safety standards of the new markets. Furthermore, the importation of intermediate inputs requires a search for the best provider or incurs an investment to obtain a wider variety of external inputs, higher quality inputs, or foreign technology incorporated in imported intermediate inputs (Bustos 2011).

See also Campa (2004) and Máñez-Castillejo et al. (2008) for the case of Spain.

It is worth noting that the specified models do not suppose that export and import decisions are necessarily interrelated, but allows all possible decision combinations in the sense that some firms’ only export, some only import, and others decide to perform both activities.

In our case, given that our innovation variables capture firms’ innovation within the last 3 years, this allows to estimate the link between innovation and international activities, considering that innovation determines future participation in foreign markets.

We consider these new variables to be good instruments as these are correlated with the innovation variables we use and have low correlation with the trade variables (i.e. export and import).

For the export equation, the p values estimated for the tests are equal to 0.179, 0.001 and 0.749 for the product, process and managerial equations, respectively. The values of the same tests for the import equation are 0.797, 0.564 and 0.776, respectively.

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Title: The effects of innovation on the decisions of exporting and/or importing in SMEs: empirical evidence in the case of Spain
Authors: Alfonso Exposito
Juan A. Sanchis-Llopis
Publication date: 29-05-2019
Publisher: Springer US
Published in: Small Business Economics / Issue 3/2020
Print ISSN: 0921-898X
Electronic ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-019-00184-3

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