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4.3  Barriers among firms with current overseas income

This section turns attention to the barriers reported by those firms that are currently involved in overseas income generation. We tend to think of these as “non-binding” barriers - that is, as factors that are affecting firms' ability to generate overseas income but that have not prevented them from doing so. In some cases, however, the reported barriers may be binding, preventing firms from entering, or causing them to exit from, particular international markets or activities. As noted above, firms are asked to report on factors that made it difficult for the firm to generate overseas income over the last three financial years. In some cases, this may mean that firms are reporting issues that they have faced in earlier years but no longer see as a difficulty. This may occur either because the situation has changed (eg, exchange rates have fallen), because the firm has adjusted its behaviour to mitigate the difficulties (eg, they have started hedging against exchange rate volatility) or because they have adjusted the mix of activities they are involved in (eg, shifting export sales to countries with a favourable bilateral exchange rate or focusing on differentiated goods where competition is driven by factors other than price). Similarly, firms may also report barriers that they are currently facing in relation to activities they are considering for the future - for example, if a firm is already exporting goods but looking to move into providing supporting services, the barriers they report may be related to the new activity rather than the current one. However, if respondents consider the barriers question with reference to the factors that are currently uppermost in their minds, these responses seem likely to primarily reflect their current activities.

Figure 6 summarises the prevalence of reported barriers by predominant source of overseas income. While there are some differences in the patterns, the same four barriers come through as the most common in almost all activities: exchange rate levels, exchange rate volatility, distance from markets, and low market demand or increased competition in overseas markets.[29]

Figure 6: Reported barriers by current source of overseas income
Figure 6: Reported barriers by current source of overseas income - Business and consumer goods  .
Figure 6: Reported barriers by current source of overseas income - raw and overseas goods  .
Figure 6: Reported barriers by current source of overseas income - services and multiple goods.
Figure 6: Reported barriers by current source of overseas income   .

Proportions based on weighted counts random rounded base three in accordance with Statistics New Zealand confidentiality requirements. Dotted vertical lines represent 95 percent confidence intervals. Item non-response: 4%.

Table 10 reports the marginal effect of four explanatory variables from each of 13 separate regressions for the probability that a firm will report a given barrier. Firms that are relatively intensive exporters are less inclined to report a lack of knowledge or experience as a barrier, and also less likely to be concerned about access to distribution networks. However, they are more likely to identify exchange rates as a barrier, perhaps because changes in exchange rates have a larger impact on their total revenues than is the case for firms where exports are a relatively minor part of their business.[30] The pattern for years of export experience is similar, with firms that have a longer history of overseas income generation less likely to report barriers due to a lack of experience, but more likely to mention exchange rates levels and volatility.

Table 10: Marginal effects of firm characteristics on reported barriers,
firms with current overseas income
onshore
industry
high export
intensity
log
employment
log years
of experience
limited experience in expanding
beyond New Zealand
0.130 -0.185*** -0.018 -0.031*
  [0.095] [0.046] [0.016] [0.018]
limited knowledge about specific markets 0.279*** -0.120*** 0.000 0.005
[0.096] [0.039] [0.016] [0.022]
limited access to finance for expansion
beyond New Zealand
0.027 -0.009 -0.047** -0.001
  [0.096] [0.050] [0.021] [0.016]
limited access to distribution networks 0.065 -0.137*** -0.020 0.003
[0.108] [0.053] [0.017] [0.019]
exchange rate volatility 0.243*** 0.247*** -0.001 0.071***
[0.085] [0.043] [0.016] [0.027]
exchange rate level 0.311*** 0.250*** -0.021 0.076***
[0.091] [0.043] [0.017] [0.026]
distance from markets 0.059 0.038 0.004 0.036
[0.108] [0.050] [0.017] [0.025]
language and cultural differences -0.013 0.007 0.003 0.019
[0.064] [0.032] [0.011] [0.015]
low market demand and/or increased
competition in overseas markets
0.145 0.009 0.027* 0.004
  [0.115] [0.054] [0.016] [0.025]
overseas government regulations or tariffs 0.049 0.032 0.037*** 0.013
[0.082] [0.025] [0.007] [0.016]
inability to rapidly increase supply 0.018 0.079*** 0.013* 0.011
[0.071] [0.026] [0.007] [0.012]
other -0.021 -0.089* -0.006 -0.015
[0.082] [0.048] [0.017] [0.018]
none reported 0.020 0.027 -0.022 -0.034**
[0.038] [0.022] [0.016] [0.013]

Standard errors in brackets. *,**,***: significant at 10%, 5%, 1% level. Each row reports results from a separate regression.

Larger firms are somewhat more likely to report difficulties due to a lack of demand or high competition and foreign regulations or tariffs, and less likely to report difficulties associated with financing their expansion. Finally, firms in onshore industries are more likely to report limited knowledge of specific markets, and challenges associated with exchange rate levels and volatility. While the latter may imply that industries such as tourism feel exposed to the impact of exchange rate fluctuations on tourist numbers, a particular concern with market knowledge could reflect concerns about country-specific marketing, or a desire to become more involved in offshore activities (eg, in the education sector).

Comparison of figures 5 and 6 suggests that perceived barriers differ substantially between firms that are currently earning overseas income and those that are interested in doing so in the future. Figure 7 provides a more formal comparison between the two groups. As discussed above, among non-engaged firms, the most commonly reported barriers relate to informational gaps (limited experience in expanding beyond New Zealand and limited knowledge about specific markets), financial constraints (limited access to finance for expansion beyond New Zealand), and limited access to distribution networks. These barriers can largely be thought of as affecting the costs of entry into new markets, rather than the ongoing returns. In contrast, those firms that are currently engaged tend to report barriers that affect either the returns to, or the ongoing costs of, dealing with foreign customers.[31]

Figure 7: Barriers by overseas income status
Figure 7: Barriers by overseas income status - current overseas income  .
Figure 7: Barriers by overseas income status - no overseas income  .

Proportions for current overseas income earners differ slightly from those reported in figure 6 as: (1) no adjustment is made for item non-response; (2) all sources of income are included, as we do not have information about the type of income non-exporters are interested in pursuing. Population for “no overseas income” refers to firms with no current or past overseas income.

We also consider the difference in reported barriers across firms that are already involved in income generation according to their level of interest in further expansion. Table 11 provides the results, which show a similar pattern to those observed for non-exporters in table 8. For most barriers, the proportion of responses is positively correlated with the level of interest in expanding overseas income.[2] The main exception is “other” barriers, where the relationship is reversed.

Table 11: Reported barriers among firms with current overseas income, by intentions to expand
(1)
initiatives
underway
(2)
actively
exploring
(3)
interested,
no action
(4)
not currently
interested
limited experience in expanding beyond New Zealand 0.188 [0.032] 0.169 [0.034] 0.222 [0.041] 0.158 [0.047]
limited knowledge about specific markets 0.2712,4 [0.044] 0.1451 [0.031] 0.1974 [0.035] 0.0711,3 [0.036]
limited access to finance for expansion beyond New Zealand 0.169 [0.033] 0.125 [0.031] 0.164 [0.036] 0.099 [0.041]
limited access to distribution networks 0.153 [0.028] 0.221 [0.045] 0.147 [0.030] 0.135 [0.047]
exchange rate volatility 0.5163,4 [0.049] 0.4163,4 [0.053] 0.2361,2 [0.049] 0.2541,2 [0.042]
exchange rate level 0.4313,4 [0.051] 0.3744 [0.054] 0.2781 [0.056] 0.2391,2 [0.043]
distance from markets 0.4014 [0.049] 0.304 [0.045] 0.297 [0.043] 0.2401 [0.042]
language and cultural differences 0.1852,3,4 [0.034] 0.1061 [0.029] 0.0971 [0.036] 0.0611 [0.026]
low market demand and/or increased competition in overseas markets 0.317 [0.049] 0.351 [0.047] 0.325 [0.045] 0.347 [0.050]
overseas government regulations or tariffs 0.1623,4 [0.032] 0.1323 [0.029] 0.0671,2 [0.017] 0.0801 [0.025]
inability to rapidly increase supply 0.110 [0.031] 0.099 [0.029] 0.064 [0.029] 0.055 [0.018]
other 0.1033,4 [0.024] 0.1193,4 [0.031] 0.2061,2 [0.041] 0.3091,2 [0.052]

Standard errors in brackets. Superscripts indicate group proportions that are significantly different at the ten percent level or below. For example, in row 2, column1, there is a statistically significant difference in the probability of reporting a lack of knowledge of specific markets between firms with initiatives underway (column1) and those that are actively exploring or not currently interested in earning overseas income (columns 2 and 4).

As usual, however, interpretation of these barriers is somewhat complicated by the general nature of the questions asked. It is tempting to infer that firms that have an underlying desire to expand tend to put themselves further beyond their comfort zone, and hence encounter barriers that are not relevant for those firms that are less active in developing new markets. For example, factors such as lack of market knowledge, unfamiliarity with the language and culture of potential trade partners, and restrictions due to foreign regulations and tariffs are likely to become more significant once firms are actively exploring options to enter additional markets. However, it is also possible to conclude that firms that experience these barriers in their existing markets feel that these are impeding their current international activities, with their desire to expand driven by a sense of frustration.

Finally, we relate reported barriers (and other firm characteristics) among firms with current overseas income to the probability of additional export market entry in future, analogous to the regression reported in table 9 for firms with no overseas income. Market entry is identified using the Module A question “Over the last financial year, did this business enter any new export markets?”. As such, it is a very partial proxy for whether firms have expanded their overseas income, as the latter should also include expansions of income from existing overseas markets and onshore earnings from activities such as tourism and export education. However, estimates of the actual dollar value of overseas earnings are likely to be noisy, as they would be based on combining the firms' estimate of the proportion of sales that came from exports in Module A with an external measure of the value of total sales. We therefore use the simpler proxy of new market entry, despite its limited scope.

Table 12 reports attrition rates and new entry market rates for firms with current overseas income, comparable to those in table 6. Attrition rates are roughly ten percent lower for firms with current overseas income, compared to those reporting no overseas income in the same year. This is likely a reflection of the larger average size of current exporters, associated with both higher survival rates and a higher sampling rate for the BOS survey. Of the firms which can be tracked, the proportion of firms which achieved their 2007 goal over the following three years was very similar for those looking to commence earning overseas income and those looking to expand their existing overseas income. In contrast, the probability of entering additional markets for firms in the 2011 survey was substantially lower than the probability of commencing export or significant tourism sales, for a given level of interest.

Table 12: Share of firms reporting current overseas exports in 2007
and/or 2011 surveys which report entering a new export market in following
three years, by reported interest - Firms reporting current overseas income in 2007
Proportion of firms Of which,
lost to attrition
Of remainder,
entrants
Proportion of
employment
Of which,
lost to attrition
Of remainder,
entrants
Initiative underway 0.306 0.412 0.566 0.388 0.149 0.641
Actively exploring 0.212 0.342 0.343 0.246 0.293 0.179
Interested in exploring 0.181 0.538 0.234 0.100 0.317 0.098
Not interested/suitable 0.301 0.426 0.059 0.265 0.187 0.124
N(weighted) 7,071 0.423
N(unweighted) 1,587 0.391 179,800 0.212
Table 12: Share of firms reporting current overseas exports in 2007
and/or 2011 surveys which report entering a new export market in following
three years, by reported interest - Firms reporting current overseas income in 2011
Proportion of firms Of which,
lost to attrition
Of remainder,
entrants
Proportion of
employment
Of which,
lost to attrition
Of remainder,
entrants
Initiative underway 0.321 0.308 0.454 0.456 0.115 0.512
Actively exploring 0.207 0.318 0.353 0.144 0.297 0.357
Interested in exploring 0.178 0.354 0.194 0.103 0.223 0.116
Not interested/suitable 0.295 0.347 0.135 0.297 0.256 0.144
N(weighted) 6,579 0.330
N(unweighted) 1,515 0.325 182,700 0.195

Firm counts random rounded base three in accordance with Statistics New Zealand confidentiality requirements. Columns 1-3 refer to the weighted proportion of firms reporting reporting a given level of interest in expanding their overseas income in future, the proportion of those firms lost to attrition in the following three years, and the proportion of those firms which were not lost to attrition that report entering a new export market in the BOS surveys of the following three years. Columns 4-6 present the same statistics, weighted by initial employment rather than sampling weights. Unweighted total firm counts and proportion lost to attrition are reported in the bottom row of each panel.

Table 13 provides a comparison to table 9, but includes responses to a question on “strategies” the firm has used to generate overseas income, rather than the motivations they have for seeking overseas income in future. We also control for the share of overseas income in total income at the time of the survey. As seen for firms with no overseas income, the level of interest that firms have in expanding their overseas income is a significant predictor of future market entry. However, there is a noticeable contrast in terms of the predictive power of reported barriers. Four reported barriers show up as being significant predictors of future market expansion among those with current overseas income: Market entry is more likely among firms that are concerned by exchange rate volatility and language and cultural barriers, and less likely among firms concerned about having limited experience of expanding beyond New Zealand and those concerned about low market demand or increased competition in overseas markets. Only two reported strategies are significantly related to future export market entry: offering innovative or unique goods or services, and entering one market to access another market. While it is impossible to draw any strong conclusions regarding the barriers and strategies that may be holding firms back, these results point towards firms which are already succeeding in innovative or niche markets and which have definite plans for expansion having a higher chance of expanding further, even after controlling for their current level of overseas income, interest in expansion, and quantitative measures of firm performance such as size and productivity. In contrast, strategies which seem to rely on a degree of luck or path dependence (eg, use of existing contacts, or relying on specific opportunities or conditions) are neither positively or negatively associated with future market entry. Similarly, some of the barriers which might seem most amenable to government action, such as a lack of access to finance, overseas regulations or tariffs, or a lack of market specific knowledge also show no significant relationship with market expansion.

Table 13: Average marginal effects on probability of reporting new market entry in following
three years, firms with current overseas income in 2007 and/or 2011
dy/dx Std Err
Level of interest*
actively exploring the options -0.089*** 0.033
interested in exploring the options -0.212*** 0.037
Year
2011 0.007 0.027
Overseas share of total income 0.040 0.045
Barriers
limited experience expanding beyond New Zealand -0.114*** 0.042
limited knowledge of specific markets 0.025 0.037
limited access to finance for expansion beyond New Zealand 0.007 0.044
limited access to distribution networks 0.054 0.037
exchange rate volatility 0.072** 0.034
exchange rate level -0.029 0.036
distance from markets 0.043 0.030
language and cultural differences 0.075* 0.040
low market demand or increased competition in overseas markets -0.089*** 0.030
overseas government regulations or tariffs 0.022 0.037
inability to rapidly increase supply -0.016 0.040
other -0.007 0.049
barriers missing 0.042 0.069
Strategies
offering innovative or unique goods or services 0.052* 0.029
customising goods or services to specific customer requirements 0.013 0.031
customising advertising and promotion according to market 0.017 0.038
adopting a strategy of low prices 0.031 0.045
exporting or selling overseas only when external conditions are favourable 0.076 0.069
exporting or selling overseas only when specific opportunities arise 0.032 0.036
systems in place to manage exchange rate risks 0.045 0.032
entering one market to access another market 0.198*** 0.070
using pre-existing contacts or networks in overseas markets -0.021 0.028
N(unweighted) 1,080

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

Notes

  • [29] Controlling for compositional differences in firm size, export intensity, experience and whether the firm is in an industry which is likely to be earning income onshore (eg, tourism) across income sources has little effect on the estimated proportions. Previous firm-level research using merchandise trade data has explored exchange rate impacts on export values, export propensity, and unit values in detail (see, Fabling &Sanderson 2015b,a).
  • [30] Alternatively, it may simply be that firms implicitly rank the possible responses in order of importance, and select the top few categories as their responses. If experienced firms have largely “solved” the problems of knowledge and market access, exchange rate conditions are more likely to reach the threshold required to be reported.
  • [31] These differences do not simply reflect selection on observable characteristics. Controlling for industry and firm size has little impact on the estimated proportions. All significant differences remain.
  • [32] Controlling for onshore industries, firm size, years of experience and high share of overseas earnings affects estimated proportions but makes little qualitative difference. The exception is for the exchange rate level where controlling for these other firm characteristics negates the observed gradient between level of interest and probability of reporting a given barrier.
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