On the Relationship between

Firm Size and Export

Intensity
Andrea Bonaccorsi

Peter Ng
 What is this article about?
• The purpose of this article is to compare
research finding on the relationship between
firm size and export behavior with findings
from selected Italian export studies.
• These findings are summarized and
discussed.
• The article then presents the arguments in
favour of a positive relationship between firm
size and export intensity.
#
Firm Size and Export Behavior in
the International Literature
• Table 1 (pg 273) reports the major
findings of 5 studies based on an
extensive review of existing literature.
This results in 2 propositions;
 The probability of being an exporter
increases with firm size, and
 Export intensity is positively correlated
with firm size.

#
What does the propositions mean
1?
• Small firms may grow in the domestic
market and to avoid undertaking a risky
activity like exporting, while large firms
have to export if they are to increase
their sales. In general, in large and
mature industries, P1 is a good
description of export behavior.

#
 What about proposition 2?
• There is less agreement on P2.
• E.g. Gemunden (1991) comments “Up
to a certain minimum size, the
probability of exporting in industries with
export potential rises with increasing
size, but beyond this limit, there is only
a weak association between size and
exporting”.
#
 So what are the findings?
• In the manufacturing sector as a whole, firm
size does not have a significant impact on the
export intensity of individual firms. Firm size
may have an impact on export intensity at the
sector level, but not at the manufacturing
industry, cross-sectoral level. This is an
important results against P2.
• Mistri (1989a,b) shows that the correlation
between export intensity and the mid-value of
each size class holds only in some industrial
sectors.

#
 The findings leads to …
• Selected findings from studies on Italian
small exporters have lead the writer to
support P1, but to reject P2.
• Hence, the writer focus on the
discussion on P2.

#
 Shortcoming of Existing
Literature
• The researchers usually hypothesize that
small firms export a lower sales because of
company and managerial factors such as:
2. Limited resources
3. Scale economies in manufacturing and
scale economies in exporting marketing
management
4. High risk perception in international activity
and lesser export orientation of managers.

#
The Limited Resources Argument
• The writer argues that the relationship between firm
resources and export behavior and performance is
not direct but mediated by strategy, at the function
level (export strategy) and at the business level
(competitive strategy).
• The writer also argues that any model trying to
explain export behavior and performance using
internal resources as the only independent variables
is incomplete. Organizations have access to external
specialized resources, so that their strategies are not
based only on their internal resources, strengths and
weaknesses, but on external resources as well.
#
 The Scale Economies Argument
1
• In analysing data from samples of exporting and non-
exporting firms, the writers actually do not know
whether small firms that do not export are willing to
do so but constrained by their small scale, or simply
do not want to export.
• Varaldo (1985) and Mazzia-Pecci (1979) found that
the main reason for staying at home is that all
production is absorbed by the domestic market.
• Therefore the major problem for small exporters is
not entry, but the stability of operations and the
marketing orientation of their export activity.

#
The Scale Economies Argument
2
• The writer argues that for many small
firms whose competitiveness is strictly
related to their product, exporting has
been a rather easy way to expand, as
an alternative to more resource-
consuming strategies. Hence, exporting
might be the least resistance path to
company growth for small firms instead.
#
 The Managerial Orientation and
Risk Perception Argument 1
• In industrial districts, the perception of export
risk by small firms is greatly reduced because
first-hand information is available about
opportunities in foreign markets, the trends of
demand, and major problems in exporting.
• The writer also argues that interpersonal
communication in the industrial district
reduces the perceived risk (Abdel-Malek
1978; Roy and Simpson 1981; Withey 1980).
#
 The Managerial Orientation and
Risk Perception Argument 2
• Small firms reduce the risk involved in
export activity is through ensuring they
can exist with little cost from a particular
foreign market when demand goes
down. They can exist from foreign
markets relatively easily. Hence,
country mobility reduces the risk
associated with exporting.
#
• The End ….