Estonian evidence on exporters’ nonlinear internationalization
International business scholars have mostly studied exporters’ linear internationalization defined as achieving slowly or quickly increasing involvement in export activities.
Nonlinear internation alization can be defined as ”experiencing substantial changes in export shares (including the shares of some markets) or the pace – of internationalization” (Vissak 2014: 232)1. A nonlinear internationalizer can de-internationalize – exit some markets completely and/or reduce exports to some others but still continue exporting there – and also re-internationalize: re-enter some markets fully or partially. These “jumps” can occur once or several times (Vissak 2010).2 Such an internationalization path is depicted on Figure 1.
Figure 1. A hypothetical example of nonlinear internationalization, thousand EUR
According to Vissak and Masso (2015)3 who used firm-level data of all Estonian exporters, 69% of Estonian exporters can be considered nonlinear internationalizers as they have reduced and/or stopped exporting to at least one foreign market. Moreover, a majority of these exporters only tried exporting for a year and, thereafter, some continued selling only on their home market and some were closed down. Exporting for 10 consecutive years or more is very rare: less than 8% of Estonian exporters manage to achieve this. Vissak and Masso (2015) also stated that exporting is more risky than only focusing on local activities as in Estonia, non-exporters’ survival rates are about two times higher than exporters’ survival rates.
According to Statistics Estonia’s foreign trade data4, Estonia’s overall exports have also developed nonlinearly: although the general trend is positive, in several years, exports to some countries have decreased. The country’s exports to its four main trade partners are depicted on Figure 2.
It shows that Estonian exports to these countries have fluctuated considerably and in recent years, these “jumps” are especially evident in trading with Russia and Finland.
Figure 2. Estonia’s exports to its four main target countries, million EUR (based on Statistics Estonia)
Estonian exporters’ nonlinear internationalization has been caused and influenced by several factors. Some of them can be regarded external like changed business/industry or political environment (in terms of production costs, competition, demand, exchange rates, tariffs, entry restrictions or export quotas). On the other hand, owners’ or business partners’ problems (especially as many firms only have a few foreign customers and they only export to a couple of foreign markets), unstable foreign orders or changes in exporters’ strategies can also result in full or partial exits and/or re-entries (Vissak 2010; Vissak 2014; Vissak and Masso 2015).
Nonlinear internationalization is not only an Estonian phenomenon. It has been also observed in other countries: for instance, in Italy (Bonaccorsi 1992, Vissak and Francioni 2013)5, Hungary (Halpern and Muraközy 2011)6, Germany (Wagner 2012)7 and Chile (Álvarez and López 2008)8. Thus, it needs more attention from researchers, policy-makers and business people as they cannot expect that all firms’ export growth can continue forever. Moreover, they should understand that “jumps” in exporters’ international involvement can be completely normal and sometimes managers cannot do much to achieve a more linear export growth.
by TIIA VISSAK ,
Senior Researcher University of Tartu Estonia