UNIT 3

Unit 3 Planning to Determine Export Opportunities
Structure
3.1 Introduction
3.2 Export Constraints
3.3 Identifying export-oriented firms
3.4 Determinants of Export Performance
3.5 Research and Development (R&D) and Infrastructure

Learning objectives:
After studying this unit you will be able to
 Understand the importance of planning for international marketers so that
they can enter most potential country market.
 Understand the role of export constraints in planning determination of export
opportunities.
 Identify export-oriented firms.
 Understand the determinants used to measure export performance.
 Understand the necessity of studying R&D and infrastructure of various
country markets during planning to locate potential export markets.

3.1 Introduction
Because of limitations of trade theories, a trade theory should be considered as a
broad framework that merely describes trade in an ideal situation. For trade
theories to be useful to those who investigate export opportunities, the framework
must be modified to take into account more specific performance variables.
It is inappropriate for any policy makers to leave their country’s economic growth
to chance or to believe that luck is the only thing that matters. The fact that
several countries have performed well over the years means that they must have done something right. As an example, in 1965, Thailand was poorer than Ghana.
Subsequently, while Ghana discouraged foreign investment, Thailand pursued
economic policies that welcomed Japanese factories. Consequently, in 1993
more than half of Thailands exports were manufactured products and the
countrys gross domestic product per capita was 670 percent of Ghana’s.

Table 3.1 shows some international comparisons concerning the leading nations
share of world exports as percentage of G.D.P.

3.2 Export Constraints
A good starting point for the determination of export opportunities is the
identification of export barriers. Some export barriers are self-made in the sense
that some companies but not the others, create and impose those barriers upon
themselves. On the other hand, many export barriers are largely uncontrollable.
Such barriers include national export policy, tax systems, market distance and importing nations trade barriers.


3.3 Identifying export-oriented firms
It is useful to identify the characteristics that differentiate export-oriented firms
from those that are not so inclined. According to one study, systematic and nonsystematic
export firms differ in terms of organisational, export marketing and
managerial characteristics. In another study, sporadic exporters and regular
exporters are similar in terms of size, age and size of export orders. Differences
exist in the areas of initial market-entry influences, export profit margins, export
distribution channels and information use. In addition to deriving a much higher
proportion of their revenues in international markets, regular exporters have
greater management involvement in export marketing. Also regular exporters are
less likely than sporadic exporters to use domestic intermediaries and they are
more likely to exercise greater control in overseas marketing.

3.4 Determinants of Export Performance
A systematic plan provides a pragmatic approach for assessing the relative
opportunities for multiple products. Such a plan is especially helpful for
governments and companies with many product lines (e.g. Export trading
companies and big multinational firms). A systematic plan is also useful for
smaller companies in investigating the feasibility of exporting their products.
One approach involves looking at sales growth, whether absolute or relative, as
an indicator of trade opportunity. The value of their approach lies in its simplicity.
A problem, however, occurs when a base-year sales figure is small, since any
increase is almost certain to be magnified in terms of importance. The result is an
overstated opportunity for those products that are being considered with a small
base-year figure. Thus, a heavy reliance on a net change in sales in a period of a
single year can be misleading.
Shift-share analysis can remedy some of the problems associated with sales
growth method. A shift-share analysis emphasizes the changes in market share
over time for each member of the importing countries. The net shift represents the difference between each members actual growth and its expected growth
(i.e. whether or not a members growth rate had been equal to the entire groups
average growth)
Researchers have used different variables as measures of export performance.
Cavusgil and Zou, for example, have identified the following performance
measures: export sales level, export sales growth, export profits, ratio of export
sales to total sales ratio of export profits to total profits, increase of importance of
export to total business, overcoming barriers to export, propensity to export,
acceptance of product by export distributors, export involvement, exporter
internationalisation, and attitudes towards export.
Dominguez and Sequeira, likewise have identified the following measures of
performance: proportion of export to sales, sectorial and firm export growth and
profitability, continued or discontinued exporting, decision to commence
exporting, export volume and international involvement. The predictors of export
performance include: export strategy (e.g. Low competitive price, product quality,
product adaptation), export commitment and motivation, firm competencies and
organisational characteristics.
Although each of these approaches is useful in identifying export opportunities,
some caveats are in order. When possible, these approaches should be used in
conjunction with one another, since the convergent results will serve to increase
the confidence in the prediction of potential trade performance.

3.5 Research and Development (R&D) and Infrastructure
Policymakers should attempt to understand factors that affect trade performance.
One study found that export knowledge, commitment, and the technological
intensity of the exported product contribute to export success but that external
support programs are viewed as a negative influence. A study of 200 U.S.
manufacturing industries found that high labour productivity and skill positively effects trade performance and that high labour content adversly affects such
performance.
One study examined the relationship between levels of Research and
Development (R&D) investment and productivity growth rates and living
standards in some fifty-three countries from 1960 to 1985. According to the
analysis, the rate of return on such intangible investment actually exceeds the
return on expenditures for plant and equipment by a factor of as much as seven
to one. To put it the other way, a rupee of private R&D investment is seven times
more powerful in facilitating productivity growth and higher per capita income
than a rupee of conventional capital investment.
Matsushita Electric Industrial Co. decided against locating a $ 400 million
consumer electronics complex in Thailand because of the countrys poorly
developed infrastructure.
There is a positive relationship between public works expenditures and
productivity. Fig. 3.1 shows that countries sustaining a high level of public
investment relative to output experience higher productivity growth than countries
that do not invest in infrastructure. Japan has invested about 5.1 percent of
output in public facilities and was awarded with a productivity growth of 3.3
percent. The United States, at the other end of the spectrum, has had a low
public investment of 0.3 percent per year, which has been accompanied by a low
productivity growth of 0.6 percent per annum.

Thus, a root cause of the decline in the competitiveness of the United States in
the international economy may be found in the low rate at which it has chosen to
add to its stock of highways, port facilities, airports and other facilities which aid
in the production and distribution of goods and services.
Questions
1. What is the necessity of planning for international marketers ?
2. How does export oriented firms differ from non-exporting firms ?
3. What are the various measures to find out export performances ?
4. How does R&D and infrastructure affects the trade performance of a
country ?