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Export Commitment and Its Impact on Firm-level Export Performance: Evidence from SMEs Cluster of Ahmedabad, India

Pawan K. Chugan, Shivangi Singh*

Institute of Management, Nirma University, Ahmedabad

Abstract: Fast changing economic environment has led exporting to be evolved as one of the fastest growing economic activities in the recent times. However, in this highly competitive global era exporting firms have to overcome several barriers in achieving superior performance in the international markets. Enhancing firms’ commitment towards exporting is one such step towards ensuring successful international ventures by them. It is essential for the firms to build their commitment towards exporting so that they can ensure effective and profitable actions. In this regard, the role played by firm’s management is crucial as successful international operations require experienced and motivated personnel. The study therefore, focuses on the performance of exporting firms from the angle of commitment towards exporting exhibited by them, along with studying the moderating role of the phenomenon of clustering of firms in this relationship. The study draws its sample from small and medium sized exporting firms belonging to drugs and pharmaceutical industry of Ahmedabad city of the Gujarat State of India. On the commitment side it is found that a high degree of managerial commitment, which comes mostly from the owners, is a key to achieve better export performance. Looking at this direct relationship, it is also found that the SMEs benefit from clustering in the form of linkages, common supply chain network, labour pooling, information and knowledge sharing, etc. and therefore, the variables in the study act as competitive advantage for firms’ better export performance.

Keywords: export commitment, firm-level export performance, clustering, small and medium sized firms

Citation: Pawan K. Chugan, Shivangi Singh, Export Commitment and Its Impact on Firm-level Export Performance: Evidence from SMEs Cluster of Ahmedabad, India. Journal of Behavioural Economics Finance Entrepreneurship Accounting and Transport, 3 (3). 90-95. January 2015. doi:10.12691/jbe-3-3-1

1. Introduction

Exporting has been one of the fastest growing economic activities in the world especially over the past two decades. It is important as it accelerates the pace of growth, creates new jobs and improves living standards of the people on the macro-level, as well as increases the profitability and competitiveness of the firms at the micro-level. Interest in exporting is largely credited to changing economic conditions across the world viz. growing liberalization, integration and global competition. However, exporting firms have to face several barriers in achieving a superior performance in international markets. Over the years, several determinants of firms’ export performance have been studied by the researchers. These determinants impact the performance of firms in international markets and hence, exert a significant influence on the firm-level export performance{1}. Hence, firms have to retain and enhance their commitment towards exporting in order to ensure effective and profitable actions, and the role played by firms’ management is crucial in this regard as successful international operations require experienced and motivated personnel.

Therefore, the present study attempts to examine the role of export commitment as an antecedent of export performance at the firm-level, along with looking at moderating impact of clustering phenomena in this relationship. It also aims to throw light on the exporting firms’ awareness regarding the usefulness of committed management in shaping better opportunities for the firms operations in global markets. Sample for the study is drawn from small and medium sized (SMEs) exporting firms operational in the drugs and pharmaceutical cluster of the Ahmedabad region of Gujarat, India.

2. Literature Review

The three main constructs used in the study includes: firm-level export performance (dependent variable), export commitment (independent variable), and firms’ clustering (moderator). The subsequent paragraphs discuss each of these constructs in that order.

(i). Success in exporting is determined by the performance of firms in international markets. Firm-level export performance can be defined as - “the extent to which a firm’s objectives (both economic and strategic) for exporting a product into a foreign market are achieved through the planning and execution of export strategy” [7]. Firm-level export performance constitutes the key dependent variable in this study. Several studies have tried to measure export performance of firms in different ways (For a detailed review of measures of firm-level export performance see [13]) like the use of such indicators as export sales, export sales growth [9,10,11,22], export profits [20], export intensity [3], accomplishment of strategic goals [6], composite scales [33], perceived export success [32], etc. Other measures, such as return on investment, quality of distributor relationship, customer satisfaction, and satisfaction with product/service quality compared to competitors were also examined in few studies [31]. The present study adopts a composite measure of firm-level export performance inclusive of two variables namely – export intensity and export profitability, measured subjectively on a five-point Likert scale.

(ii). Firm’s commitment towards exporting refers to –“the degree to which organisational and managerial resources are allocated to exporting ventures” [21]. Export commitment, in the context of this study, denotes the amount of various resources devoted by the firm towards exporting activities. It has been conceptualized as a behavior, focusing on manifestations of the construct. Past studies have captured export commitment as the amount of planning, financial, and managerial resources the firm allocates to exporting [7] and the extent to which the manager exercises considerable efforts [26] to support the firm’s exporting activity. International marketing research suggests that the more committed firms allocate more resources to the exporting activity [21]. These additional resources facilitate companies to improve planning measures allowing the managers to implement strategies that are conducive for success in foreign markets [7]. According to Makrini and Chaibi [23] research on exporting frequently point the role of management commitment in the export performance of the firm.

(iii). Clustering is the phenomena of –“geographically proximate group of interconnected companies and associated institutions in a particular field, getting linked by commonalities and complementarities” [14]. An industrial cluster is a local agglomeration of enterprises (mostly SMEs, but could include some large enterprises too) which are producing and selling a range of related and complementary products and services. However, a cluster is not merely a collection of firms at a place but also reflects the linkages and relationships that get established between its members over a period of time. The phenomena of clustering of firms leads to considerable economic advantages as the interrelated companies, specialized suppliers, service providers and the associated institutions compete as well as cooperate within a cluster [25,26].

Figure 1. The Research Framework

Figure 1 shows the research framework comprising of the above mentioned constructs, i.e., firm’s export performance, export commitment and clustering, to be tested empirically.

2.1. Export Commitment (EC) and Firm-level Export Performance (FEP)

Export commitment has emerged as one of the key determinants of success in exporting, despite of the performance dimension chosen. Higher commitment allows a firm to aggressively go after the export market opportunities and pursue effective export marketing strategies that improve export performance [7,19]. Empirical studies suggest a significant positive relationship between export commitment of the firm and its export performance [4,7,18,21,29]. Studies have also demonstrated that export commitment exerts a positive effect especially on the financial performance outcomes such as intensity and profitability [7,15]. Thus, the following hypothesis is generated:

H 1: Export commitment exerts a positive impact on firm-level export performance.

2.2. Firm-level Export Performance (FEP) and Clustering (C)

Firms are able to enhance their competitiveness via agglomeration effects as clustering helps in generating increasing returns due to locational proximities to the supply chain elements [1]. Apart from this, the exchange of information between clustered firms allows exploiting the knowledge resources [1]. Furthermore, clustering also leads to innovation [27] as the external environment of highly clustered localities facing rigorous competition encourages generation of new ideas conducive for innovative activities than those that are characterized by monopoly [2,16], which in turn promote formers export performance and enhances its trade competitiveness. To the extent that clustering delivers superior economic advantages via help in exchange of knowledge, sharing of skills and technology, and leads to innovation by the firms, it is expected that firms operating within industrial clusters have higher potential to compete effectively in international markets and are able to achieve superior performance. Hence, the following hypothesis is generated:

H 2: Firms’ clustering exerts a positive impact on firm-level export performance.

2.3. Clustering (C) and Export Commitment (EC)

The relationship between these two constructs has not been empirically tested in the reviewed literature. However, it is expected that the healthy competition and cooperation co-existing within the clusters provides a platform for enhanced commitment by the firm towards exporting activities. Hence, the following hypothesis is put to test:

H 3: Firms’ clustering exerts a positive impact on firms’ export commitment.

Finally, to test the moderating influence of clustering on the relationship between export commitment and firm’s export success, the following hypothesis is formulated:

H 4: Firms’ clustering acts as a moderator in the relationship between export commitment and firm-level export performance.

3. Research Methodology

3.1. Data Collection Procedure

The research setting is Gujarat State of India with data drawn from small and medium sized exporters belonging to drugs and pharmaceutical cluster of Ahmedabad region. A cross-sectional single source design is used where the unit of analysis is firm’s latest export activity. Data was collected from the individual responsible for international marketing activities in the firm, namely the export manager or the owner. The final sample size used in the study includes 72 firms. Scales used in the questionnaire are shown in Table 1.

Table 1. Operationalization of Variables

Characteristics of the firms included in the sample are described in Table 2. The firms were separated into three groups on the basis of the limits in investment on plant and machinery defined by the Reserve Bank of India. These groups are micro, small and medium-sized firms. In total, 53.19 per cent of firms were found to be small-sized enterprises; 40.42 per cent of firms have been involved in international operations for six to ten years and 57.44 per cent of firms were exporting to two to three countries.

Table 2. Characteristics of firms in the sample

3.2. Data Analysis

Confirmatory factor analysis (CFA) was used to examine the validity of the constructs. In the situations where constructs adopted from past research are used, CFA should be utilized as a means of factor analysis [28]. Given the fact that constructs used in this study have been widely accepted in the literature concerning firm-level export performance, the present work chose to use the factor analysis (for validity and reliability) in a confirmatory fashion. The reliability and convergent validity indices are shown in Table 3.

Table 3. Reliability and Validity Indices

Further, for testing the earlier proposed hypotheses, a series of regression analyses were run using the constructs FEP (Firm-level Export Performance), Export Commitment (EC) and Clustering (C). The results of the analyses are depicted in Table 4.

Table 4. Regression Analyses Results

The moderation effect i.e. hypothesis H4 was tested by creating an interaction term (EC*C). If the addition of the new variable EC*C results in a significant increase in R², it can be said that a moderating effect of ‘Clustering’ on the relationship between ‘Export Commitment’ and ‘Firm’s Export Performance’ has been confirmed. The new variable EC*C, was generated in accordance with the centring and standardising procedure to guard against the risk of multicollinearity. The regression model for testing the moderation effect is shown in Table 5.

Table 5. Regression Results for Moderation Effect of Clustering (C)

Under Change Statistics, it is found that R² Change is 0.045 (increase in R2 of 14%) when the interaction variable, EC*C is added (Model 2) to the predictor (EC) and moderator (C) variables. This change is significant with Sig F-Change <0.05.The change statistics tell us that adding the interaction term in Model 2 significantly improved the model fit. The significant interaction tells us that our presumed moderator, ‘Clustering’ leads the export commitment to more strongly impact the firm’s export performance.

4. Results of the Analysis

The first hypothesis, H1 dealt with the impact of export commitment on firm-level export performance. The result in this case provides rather strong evidence of positive association between ‘export commitment’ and ‘firm-level export performance’. Earlier studies in this field have also supported that the firm’s export performance is positively influenced by the level of export commitment thereby indicating that higher managerial commitment enables the firm to continuously pour in efforts towards venturing successfully in foreign markets e.g. [9,10,11,22].

The second hypothesis H2, also gave significant empirical support to the relationship between clustering and export performance of firms. Given that clustering offers advantages such as information sharing, pooling of labour, skills, and technology, innovative practises, etc., it is obvious that the firms operating within industrial clusters are able to achieve superior performance. Similar results were obtained in earlier empirical works [1,8].

The third hypothesis H3, dealt with the impact of clustering on the level of export commitment, again revealing a positive link between the two variables. This relationship hasn’t been studied much in the past empirical work in this field. The result shows that owing to the fact that clustered firms compete as well as co-operate amongst themselves, there tends to be a healthy competitive environment prevailing between the member units. As a consequence, on the part of each firm’s management there exists a higher level of commitment to exceed in the export endeavours.

Finally, H4 empirically supports the view that the entire framework comprising of the impact of export commitment on firm-level export performance is more strongly influenced under the presence of the phenomenon of clustering of the firms. This follows from the earlier mentioned benefits the clustered firms accrue in the form of strong linkages, efficient supply chain networks, flow of knowledge, sharing of resources, etc.

5. Conclusion

The study looked at the export performance of sample SMEs as explained by: first, the impact of ‘export commitment’ and second, by the influence of ‘clustering’, along with studying the inter-relationships between these variables. Results reveal that the strength of firms lies in its commitment along with their ability to adapt to the strategies suiting the needs of foreign markets. Most of the SMEs, when once get involved in exporting, tend to exhibit a high degree of managerial commitment (mostly from the owner), which is a key to achieve better performance and acts as a competitive advantage.

‘Export commitment’ also helps in enhancing the scale of planning related to financial and human resources allocated towards exporting activity and keeps the personnel motivated to exercise considerable efforts towards supporting international market ventures of the firm. This is so because committed managers are more prepared to carry out demanding tasks in exporting such as market research analysis, gathering trade leads, and policy formulation, etc., thereby improving the firm’s performance in global markets. Hence, the firm should focus on building upon the management’s commitment for exporting to achieve superior performance in foreign markets. They could do so by providing either in-house training facility to the management for imparting export knowledge and best practices or by sponsoring them to attend various national and international seminars and training programs related to exporting.

Apart from looking at the direct relationship between export commitment and firms’ export performance{2}, the study also included the moderating impact of clustering phenomenon on firms’ export performance. The results indicate that SMEs benefit from the phenomena of clustering in the form of linkages, common supply chain networks, labour pooling, information and knowledge sharing, etc. When the members of the cluster work together, especially those of the SME clusters with higher level of vulnerabilities, they develop synergetic associations with each other and contribute to their growth as well as that of the cluster without the apprehension of being taken over by larger firms. The underlying implication here is that, the firms within clusters should strive to develop trust and build associations within the industrial region, thereby ensuring their own sustainability as well as that of the cluster as a whole. SMEs should hence, build upon and develop these factors to their advantage in establishing their networks globally subsequently deriving superior export performance.

Note

This paper is a modified version of the authors’ earlier paper titled “Impact of Organisational Commitment on Firm’s Export Performance: Evidence from Drugs and Pharmaceutical Industry of Ahmedabad”, which was presented at NICOM 2015, organised by Nirma University, Ahmedabad during Jan. 2015. Therefore, some of the data, literature review and references included in this paper have been taken from the authors’ earlier paper for which the permission has been taken from the Nirma University. Based on the suggestions received from the participants of the conference, in this modified paper, one more variable i.e. clustering has been included to study its moderating impact on firms’ export performance. This revised paper, therefore, analyses the impact on firm level export performance from the two angles: namely export commitment and the phenomenon of clustering taken together.

Notes

1. For the review of literature on determinants of firm-level export performance see [12].

2. See [30] Impact of Organisational Commitment on Firm’s Export Performance: Evidence from Drugs and Pharmaceutical Industry of Ahmedabad, Presented at NICOM 2015, Nirma University, Published in Transforming HR Creating a Culture for Change and CSR, Eds. Anamika Sinha, Reena Shah, Nina Muncherji, Excel India Publishers, New Delhi

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