The Correlation Between Export Rate And Firm Size

Background

Question:

Is there any correlation between export rate and size of the business firm?

Export of goods and services is very important for economic development of a country. This is the reason that export business has always been an important point in the yearly financial strategy of a country. It helps a country to maintain foreign exchange reserves which are important for getting essential imports (Balassa, 2014). The relationship between export and size of the firm is one of the most research topics in export business research topics. In the majority of the researchers, it has been concluded that there is a significant and direct relationship between the size of the firm and export intensity of that firm. This is majorly because a large scale firm has more resources as compared to small-scale industry (Bernard et.al, 2014). In this research proposal, we will try to find a concrete evidence of such relationship. We will also try to evaluate any other factors that have an impact on the export rate of a company. For this purpose, we will conduct a literature review of various papers published in this subject matter.        

The main objective of this research proposal is to evaluate what is the relationship between the size of the firm and rate of export by such firm. We will also evaluate that it is the only factor or there are other factors that affect export activities in a firm. For this purpose, we will critically analyze various research papers published in this subject matter.    

The scope of this project is not limited to export business in Australia. We have evaluated research papers and statistics of export from different countries to answer our research question. Therefore we can say that scope of this research proposal is wide.    

Export business requires a lot of human resources and financial resources to deal with the procedures and policies implemented by the particular government in export. It can be understood by the economies of scale theory which states that average cost incurred on a large number of the similar transaction will be lower as compared to a single transaction. A small organization cannot get a large number of export orders at its initial stage of operation as it requires payment of export duty even before payment in relation to such export is received by the exports. Financial resources available to a large exporter are way higher as compared to a small scale exporter. Hence such large exporter can gain the advantage of economies of scale (Arteaga-Ortiz et.al, 2013).

The Relationship Between Export Activities and Firm Size

Export is considered as an easy method for access to foreign market business for an organization. But it is not that simple as it involves a lot of cost in the export process from getting an export order to fulfilling such export order. This kind of finance may or may not be available to a small scale company. Even if a small company has such kind of finance, they might not be successful in export business as the allocation of cost in such company may not be effective. In this case, a large-scale company enjoys economies of scale and better allocation of common expenses. The common expense in process of exporting products and services includes marketing cost, transportation cost, insurance cost and in addition to these costs the associated financial and operational risk is also very high. Hence we can say that there is a positive relationship between the size of firm and export activities (Monteiro, 2013).

Other factors that give an advantage to large companies as compared to small companies are research and development, price reduction, risk-taking abilities etc. A small scale company cannot reduce the cost of export, therefore, they cannot even think about reduction of prices of export orders. The same orders can be provided by the large companies at lower prices due to the allocation of common costs. Any default in the payment of a large export order of small export company can have large financial repercussions on such company, hence the risk-taking ability of such companies are very low. On the other hand, large-scale companies can take such risk which helps them in internal growth and development (Monteiro et.al, 2013). All of these factors indicate that a large-scale company has an upper hand on small scale companies in case of export business.

Another theory that gives the indication that size of a company has a positive impact on export activities economies of scope. Economies of scope state that some companies will be able to produce a wider variety of products and services as compared to other companies due to their resource availability. This principle can be applied to export business. A large scale company can easily fulfill the demand for various products and services as they have better resource availability. This will enable the company to gain customer loyalty as all their all needs and requirements will be fulfilled under same room. This advantage is not available to the small-scale industry as they can only provide those products and services with which they are dealing. Hence in such situation, a customer will prefer a large export as compared to the small company due to the availability of wider range of products and services (Gabbitas & Gretton, 2003).

Economies of Scale and Export Activities

Resource available to an organization that contributes to competitive advantage can be divided into three categories i.e. organizational, technological and entrepreneurial resources. Availability of all these resources is better in case of a large-scale company as compared to a small scale exports. A large sale company can hire more and more employees with better quality as they have finances and workload to justify their recruitment; hence we can say that entrepreneurship resources are better in case of large company. In today’s business environment every business organization needs the support of technology to grow and develop irrespective of nature of the business. These technological developments require a lot of money and research activities. These kinds of resources are not available to small-scale exports. Hence we can say that large-scale companies have a competitive advantage over small companies in the export industry due to their size of operation (Dalsgaard & Choquette, 2015).

In last decade the export in Australian market has increased over the period of time. According to Australian Bureau of Statistics (ABS), 29 percent of the large-scale companies in Australia had more than 250 employees is indulged in export business. This ratio decrease to 15 percent in case of medium size company. This ration falls to 7 to 8 percent in case small companies. From this data collected by ABS, we can say that size of a company has a positive impact on its export activities (Thirlwell, 2017).

Majority of researchers have concluded that there is a direct and positive relationship between sizes of the firm. But there are other researchers that have accepted the impact of the size of form on export activities but they have said that it is not the only factor that affects export. There are various other factors in play which could affect the export activity of a business organization.

A large number of studies have indicated that foreign investment in a company can be one of the important factor affecting export activities. These foreign partners in business organization bring a link to the international market for such business. They also can provide the business with easy access to transportation and distribution facilities. Their foreign investors can also contribute towards technological developments in the business which is essential for cost efficiency in export business. This factor is not dependent upon the size of the firm as foreign investors usually for partnership with medium and small scale companies (Jongwanich and Kohpaiboon, 2008).

Other Factors Affecting Export Activities in a Firm

Location of the export business can also be an important factor in increasing export activities in a business. The major cost in export business is transportation cost.  Business near exports ports can save a lot of transportation cost. In such a case they can offer export products and services at a lower cost as compared to other business. Such prominent business location of a small business can give them a competitive advantage even over large-scale exporters. Export incentives form local authorities and governments can also be a decisive factor in giving a competitive advantage to the small-scale exporter (Amornkitvikai et.al, 2012). This government assistance is generally provided to small-scale exporters to promote export activities for certain goods and services. On the other hand, the tax rates on large companies can be higher as compared to small export firms.

From this literature review, we can say that size of a firm is an important factor but it is not the only factor in boosting export activities in an organization.   

Primary question

Is there any correlation between export rate and size of the business firm?

Secondary question

1. Are there any other factors that can affect export rate?
2. With how much intensity would other factors would affect export rate?
3. What is the main factor affecting export rate?
4. What are the statistics to support the conclusion

Data collection methods- Export business is distributed all over the world and performed on large scale. In such case, it is very difficult to collect data from primary sources of information. Hence, in this case, we will collect information from secondary sources of information such as statistical information, public reports, government statistics etc.

Sampling technique- In this research proposal, we will select sample as per random sampling.

Sample size- for the purpose of evaluating the subject under consideration we will analyze data of 20 large scale exporters and 30 small-scale exporters (Liamputtong, 2013).

Research limitations are the factors that can have a negative impact on the final analysis of the results of a research proposal. Research limitations of this research proposal are as follows-

1. Time allowed to complete this research proposal is limited.
2. Such large research requires a lot of efforts and money which is limited in our hand.
3. A major focus is done of Australian exporters only.      

Milestone chart

Gantt chart

References

Amornkitvikai, Y., Harvie, C., & Charoenrat, T. (2012, January). Factors affecting the export participation and performance of Thai manufacturing small and medium sized enterprises (SMEs). In ICSB World Conference Proceedings(Vol. 2, No. 1, p. 1). International Council for Small business (ICSB).

Arteaga-Ortiz, J., San Emeterio, M. C., & Fernández-Ortiz, R. (2013). On the Relationship between Export Activity and Size. Innovative Journal of Business and Management, 1(3).

Balassa, B. (2014). Development Strategies’. International Economics and Development: Essays in Honor of Raúl Prebisch, 159.

Bernard, A. B., Massari, R., Reyes, J. D., & Taglioni, D. (2014). Exporter dynamics, firm size and growth, and partial year effects (No. w19865). National Bureau of Economic Research.

Best, J. W., & Kahn, J. V. (2016). Research in education. Pearson Education India.

Dalsgaard, M. T., & Choquette, E. (2015). An Investigation of the Relationship between Firm Size and Export Performance.

Gabbitas, O., & Gretton, P. (2003). Firm size and export performance: some empirical evidence.

Jongwanich, J., & Kohpaiboon, A. (2008). Export performance, foreign ownership, and trade policy regime: Evidence from Thai Manufacturing.

Liamputtong, P. (2013). Qualitative research methods.

Monteiro, T. M. C. (2013). Relationship between Firm Size and Export Performance: overtaking inconsistencies.

Monteiro, T. M., Maria do Rosário, A. M., & Sousa, P. S. (2013). Relationship between Firm Size and Export Performance: An Exploratory Analysis. Economics and Management Research Projects: An International Journal, 3(1), 9-23.

Thirlwell, M. (2017), An update on Australian businesses’ export propensity.

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