Publication: SAM Advanced Management Journal
Publication Date: 22-JUN-06
Delivery: Immediate Online Access
Author: Kazem, Amira ; van der Heijden, Beatrice
Article Excerpt
Does pursuing exports result in higher sales and profits for small and medium-sized enterprises (SMEs)? Are successful exporters more entrepreneurial than less successful ones? SMEs are important to the developing Egyptian economy, but a study of factors affecting their success or lack of success has implications for SMEs everywhere. A standard questionnaire was submitted in face-to-face interviews with 23 randomly chosen SMEs in Egypt's food processing sector, of which 18 were exporters. Much interesting data emerged regarding reasons for exporting and the effects of marketing strategies on export decisions as well as the bottom line. Overall, exporting firms appeared to select more successful marketing and business strategies than nonexporters, and successful exporters were more entrepreneurial.
Introduction
In both developing and developed countries, promoting small and medium-sized enterprises (SMEs) is one of the most viable strategies for achieving national development goals such as economic development, strengthening the industrial base, and local production structure (Hallberg, 2000). However, scholarly interest in SMEs is fairly recent, and at international conferences the topic is still receiving marginal attention (Chanaron, 1998). Moreover, almost all academic literature and empirical studies relating to organizational behavior in SMEs are based upon data gathered in developed countries. Previous research outcomes ought to be cross-validated and put into another perspective when studying SMEs in a developing country (Liargovas, 1998).
SMEs are depicted as the engine of growth in the Egyptian economy since the economic reform in 1991. They have acquired an international reputation for tackling unemployment and being able to contribute significantly to economic growth. Over the years, globalization has expanded the market boundaries within which a firm operates, irrespective of its size or target market and segment. Currently, all firms must compete in the international market against the same rules of efficiency and innovation if they wish to survive and to grow.
Export orientation has a direct impact on SMEs' growth and profitability (Ibeh, 2004; Namiki, 1988; Roper, 1999; Storey, 1998). In turn, certain strategies, such as niche operations, and the combination of differentiation and cost leadership strategy (Porter's generic strategies, Porter, 1985) have been associated with higher levels of competitiveness and export orientation. These strategies are over and above a balanced set of functional strategies aligned with the firm's structure and performance (Dess and Davis, 1984; Sharma and Fisher, 1997; Storey, 1998).
In this article we consider an organizational behavior paradigm, specifically, the so-called strategic choice school of thought. This school of thought argues that strategies adopted by entrepreneurs influence a firm's growth, as opposed to the so-called industry structure school of thought that favors industry structure as the key element affecting growth (O'Gorman, 2001). Drawing upon international literature, exporters are likely to be more competitive than non-exporters. Hence, it is assumed that attributes related to exporters are closer to those of "best practice."
Government efforts to improve the business environment and make it more investment-friendly are acknowledged as well. Still, considering the economic growth rate and these firms' potential, SMEs' performance remains less than satisfactory. This article aims to investigate the difference between exporters and non-exporters in terms of entrepreneurial orientation, decision-making style, and strategies. Our study should insights to both exporters and nonexporters, as well as to decision makers that may enhance performance at the firm level and may be reflected in the nation's macro-economic profile.
Entrepreneurial Qualities and Competitiveness
Previous research has indicated that competitive strategies adopted by SMEs comprise the following: production, export, follower, and differentiation through marketing, innovation, or product quality and service (Borch et al., 1999; Hallberg, 2000; Namiki, 1988; O'Gormon, 2001; Sharma and Fisher, 1997). It makes sense to presume that to achieve and sustain competitiveness, a firm should employ a number of functional or operational strategies in a balanced manner (Sharma and Fisher, 1997). Literature suggests that firms in a certain industry may pursue different strategies, but that there might be a pattern among strategies adopted by more growth-oriented firms. Classically, firms that adopt an overall combination of Porter's differentiation and cost-leadership strategy, or the socalled prospector's strategy (Miles and Snow, 1978) are supposed to outperform their competitors (Dess and Davis, 1984; Namiki, 1988; Porter, 1985).
Three paradigms have been associated with export: (1) a resource-based, (2) a contingency-based, and (3) a relational-based (Francis and Collins-Dodd, 2000). Research outcomes indicate the positive impact of a proactive export orientation upon export performance. Most findings are based on manufacturing firms in stable environments, so the current study might help close the gap in the literature on export orientation in different environmental settings.
An export strategy is perceived as a vehicle for growth and enhanced profitability for SMEs. Firms may export to avoid stagnating because of limitations inherent in the local market. Limitations may include saturation, intensified competition, or a perceived lack of opportunities. In the context of globalization, firms that fail to export may hurt their chance to survive, which may have a negative effect on the overall economy. Decisions to export may relate to a firm's size, competitive advantage, managerial characteristics, the amount of strategic opportunities abroad, outlook for domestic sales, and perceived ability to acquire information, to mention a few factors. Firms may also wish to acquire new skills and knowledge by exporting. The perception of this learning opportunity may increase a firm's tolerance of the lag in sales and profits that may occur in the early exporting stages. However, for some firms this lag, together with the uncertainties of new markets, drives them away from exporting (Burpitt and Rondinelli, 2000; Namiki, 1988).
A part from the competitive advantages of an export strategy, empirical research also indicates a positive correlation between a higher level of entrepreneurial orientation and the corresponding export performance (Covin and Slevin, 1991; Ibeh, 2004; Marino and Weaver, 2002). The entrepreneurial orientation of the owner or manager has been found to have a sustainable positive relationship with performance and competitiveness (Entrialgo et al., 2001; Hult, Snow and Kandemir, 2003; Ibeh, 2004; Kickul and Gundry, 2002; Wiklund, 1999).
A firm's ownership, regardless of size, business sector, or ownership structure, is characterized by a particular entrepreneurial orientation, by a certain decision-making style, and by a set of operational strategies. The entrepreneurial orientation might not translate into a formalized or structured form of strategic planning but it exists in the head of the owner and might influence the owner's leadership style and behavior of the firm's members. Especially in SMEs, the owner probably has a significant share of control over most or all decisions and actions. We suggest that SME entrepreneurs' possible tendency to lead a one-man show, without calling in needed expertise might result in a poor decision-making process (see De Carolis and Saparito, 2006). After all, a firm's overall performance is largely the result of multiple coherent working departments in which competent employees display their...
NOTE: All illustrations and photos have been removed from this article.
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