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4.2  Barriers and motivations among the non-engaged

This section focuses attention on the pool of firms that state that they are interested in earning overseas income but are not currently active, examining the factors that drive their interest and, conversely, those they perceive as barriers to their success. Among firms that are not currently generating overseas income but are interested in doing so in future, over half report that their interest is based on a “strategic decision to grow [their] existing business into new markets” (table 7). New opportunities are also an important reason given by firms for their interest in overseas markets, with around 34 percent of respondents noting new contacts or alliances and 17 percent noting new technologies as being a factor in opening up new market opportunities. A substantial number (around 20 percent) of firms also noted that they wanted to expand into foreign markets in order to benefit from economies of scale, expecting that increasing their sales volume would lead to cost savings.[23]

Table 7: Motivation for considering overseas income among interested firms
with no current or past overseas income
Motivation Proportion Std error
no domestic market for goods and services 0.028 [0.007]
reached maximum potential of domestic market 0.145 [0.028]
strategic decision to grow existing business into new markets 0.570 [0.043]
to obtain cost savings from increasing volume of sales 0.216 [0.034]
able to obtain higher prices overseas 0.134 [0.024]
new technologies have opened up new market opportunities 0.171 [0.031]
new business contacts or alliances have opened up new market opportunities 0.339 [0.040]
existing New Zealand customers moved offshore 0.038 [0.011]
none of the above 0.129 [0.033]

Standard errors in brackets. Proportions based on weighted counts, random rounded base therein accordance with Statistics New Zealand confidentiality requirements. Firms may give multiple responses. Item non-response: 11%. Excludes firms with past overseas income.

Figure 5 reports the perceived barriers to overseas income generation among firms that are interested, but have no past or current overseas income. Firms are encouraged to mark all barriers that apply. Proportions across all industries are compared with those from the two sectors with the largest population of interested non-exporters: manufacturing and professional services. Across respondents as a whole (lower panel), around half report barriers due to a lack of experience with expanding beyond New Zealand and 35 percent report difficulties due to a lack of knowledge about specific overseas markets. In contrast, very few firms report that they anticipate difficulties with rapid expansion.[24] Response patterns differ somewhat between manufacturing and professional services firms, with manufacturing firms showing a higher tendency to report knowledge and experience related barriers (top panel) and services firms more likely to report barriers associated with distance (middle panel).

Figure 5: Proportion of firms reporting barriers, firms with no current or past overseas income
Figure 5: Proportion of firms reporting barriers, firms with no current or past overseas income - Manufacturing (C)  .
Figure 5: Proportion of firms reporting barriers, firms with no current or past overseas income - Professional Services (K,L,M,N)  .
Figure 5: Proportion of firms reporting barriers, firms with no current or past overseas income   .

Point estimates of proportion of firms reporting a given barrier. Dotted vertical lines represent 95% confidence intervals. Item non-response: 15%. Differences between Manufacturing and Professional services are significant at 10% level or less for: experience, market knowledge, distribution, FX volatility, FX level. Excludes firms with past overseas income.

Table 8 compares perceived barriers according to the degree of interest that firms show in overseas income generation. This shows up three areas where those firms that have already been looking into overseas income generation differ significantly from those that are only mildly interested - firms that are actively looking are around 20 percent more likely to report difficulties due to a lack of experience, and 22 percent more likely to report linguistic and cultural barriers. In contrast, those firms that have not yet started exploring the options are more likely to report “other” barriers. This may reflect either increasing knowledge of actual barriers as firms begin to take a more active stance towards overseas engagement or selection into the “active” group. In particular, “other” barriers may include a lack of management resource to devote to exploring the possibilities of international engagement (alongside a range of other possible difficulties).[25] The 2015 International Engagement module specifically included an option of “limited managerial time or resources”. This was the second-most common response among firms looking to commence or expand sales to overseas markets, selected by around 37 percent of firms.[26]

Table 8: Perceived barriers among firms with no current or past
overseas income, by level of interest
Actively exploringt Interested in exploring
limited experience in expanding beyond New Zealand 0.631 [0.071]  0.431 [0.061]**
limited knowledge about specific markets 0.418 [0.079]  0.326 [0.057]
limited access to finance for expansion beyond New Zealand 0.402 [0.076]  0.311 [0.060]
limited access to distribution networks 0.393 [0.078]  0.232 [0.063]
exchange rate volatility 0.246 [0.074]  0.237 [0.067]
exchange rate level 0.164 [0.075]  0.169 [0.063]
distance from markets 0.295 [0.066]  0.192 [0.042]
language and cultural differences 0.307 [0.081]  0.084 [0.028]***
low demand or increased competition in overseas markets 0.176 [0.052]  0.150 [0.041]
overseas government regulations or tariffs 0.234 [0.067]  0.141 [0.054]
inability to rapidly increase supply 0.094 [0.035]  0.056 [0.022]
other 0.094 [0.041]  0.237 [0.054]***

Standard errors in brackets. Proportions based on weighted counts, random rounded base three in accordance with Statistics New Zealand confidentiality requirements. Firms may give multiple responses. Results are qualitatively similar after controlling for industry and firm size. Item non-response: 15%. Proportions for Active and Inactive interest are significantly different at the *** 1%; ** 5% level. Definitions: Actively exploring: initiatives underway and overseas income anticipated within the next 12 months or/ actively exploring the options. Interested in exploring: no action currently, but interested in exploring options.

Returning to the population of firms that were interested in, but not currently earning, overseas income at the time of the 2007 and 2011 surveys, we see some differences in the probability of entry according to firms' reported motivations for entry. Table 9 reports predicted marginal effects from a logit model of the probability of observing either exports or significant income from tourism over the following three years, based on firms' responses to the 2007 and 2011 surveys.[27] As expected, the degree of interest in earning overseas income was strongly related to future export success, with firms reporting only an interest in exploring the options being 25 percentage points less likely to be observed exporting over the following three years. Overall economic conditions also seem to have affected entry rates, with respondents to the 2011 survey being 10 percentage points more likely to enter than those from the 2007 survey, for which the follow-up period coincided with the height of the Global Financial Crisis. With respect to motivations for exporting, firms were more likely to enter export markets if they reported that they had already reached the potential of the domestic market, or if new contacts or alliances had opened up new market opportunities. In contrast, there seems to be no systematic relationship between perceived barriers to overseas income generation and the probability of future entry (at least after controlling for the overall level of interest that firms had in future overseas income). This may reflect the uncertainties that firms face in predicting in advance what factors are likely to impede their ability to enter overseas markets.[28]

Table 9: Average marginal effects on probability of observing exports or significant tourism
in following three years, firms with no current or past overseas income in 2007 and/or 2011
dy/dx Std Err
Level of interest*
actively exploring the options -0.065 0.101
interested in exploring the options -0.250*** 0.085
Year
2011 0.109** 0.053
Reported barriers
limited experience expanding beyond New Zealand -0.076 0.070
limited knowledge of specific markets 0.055 0.070
limited access to finance for expansion beyond New Zealand -0.064 0.075
limited access to distribution networks 0.068 0.069
exchange rate volatility -0.014 0.088
exchange rate level 0.120 0.138
distance from markets -0.010 0.066
language and cultural differences 0.003 0.122
low market demand or increased competition in overseas markets -0.063 0.075
overseas government regulations or tariffs 0.026 0.079
inability to rapidly increase supply -0.057 0.106
other -0.001 0.076
barriers missing -0.102 0.104
Motivations for entry
no domestic market for goods and services 0.180 0.177
reached potential of domestic market 0.134* 0.077
strategic decision to grow existing business into new markets 0.066 0.079
to obtain cost savings from increasing volume of sales 0.020 0.072
able to command higher prices overseas 0.130 0.085
new technologies opened up new market opportunities -0.022 0.080
new business contacts or alliances opened up new market opportunities 0.145** 0.065
existing NZ customers moved offshore 0.169 0.120
none of the above 0.052 0.130
motivation missing 0.134 0.116
N(unweighted) 303

*Excluded category: initiatives underway and overseas income anticipated within the next 12 months. Average marginal effects are calculated as the average difference across individuals in the estimated probability of future exporting or tourism when hypothetically setting each response item to be positive or negative, while controlling for their other observed characteristics and responses to other questions. Regressions also include controls for 1 digit industry, firm size, capital intensity and multifactor productivity (not shown). In 2007 the response item “to obtain cost savings from increasing volume of sales” was worded as “to obtain economies of scale from existing capacity”. Firm counts random rounded base three in accordance with Statistics New Zealand confidentiality requirements. Significant at: *** 1%; ** 5%; * 10%.

Notes

  • [23] Comparison of non-exporting firms' motivations according to whether they are actively pursuing overseas income or just interested in the possibility shows only one significant difference in motivations, with a strategic decision to expand being more commonly mentioned among those firms that are actively pursuing overseas income.
  • [24] This response may not be well correlated with actual experiences if firms are “surprised” by their success in international markets.
  • [25] Response rates to the barriers question were substantially higher among firms that were actively interested in pursuing overseas earnings, suggesting that until firms are thinking seriously about the issue they may not have a good idea about where the challenges lie.
  • [27] In the aggregate data released by Statistics New Zealand through Infoshare it is not possible to distinguish between non-exporters that are looking to enter overseas markets and current exporters who are looking to expand. Future work using the 2015 microdata would enable this comparison to be examined.
  • [27] This regression includes all firms that responded to the relevant questions, had appropriate performance data to use as controls, and could be tracked in the BOS survey in the three following years, not just to the representative cross-sectional sample. Regressions are unweighted but control for other key firm characteristics known to be associated with export entry - firm size, industry, capital intensity and multi-facto rproductivity.
  • [28] A number of alternative specifications were estimated, using alternative sets of controls for firm characteristics and differences in the estimation sample. The results were largely insensitive to these variations.
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