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5  Conclusions

A number of challenges face governments that are looking to support overseas income generation. One of these is how to focus attention between policy measures aimed at allowing existing exporters to maintain and increase their overseas earnings, and strategies to assist new firms into exporting. While many policies (such as those aimed at reducing tariffs and transport costs) will affect both types of firms, others (such as information provision and supported trade missions) may be more relevant as firms first look to expand beyond New Zealand or attempt to expand into new countries and activities.

This paper examines the differences in perceived barriers across groups of firms according to their current level of involvement or interest in overseas income generation. Among firms that are not already generating overseas income, there is little appetite to move towards greater international engagement. Over 90 percent of non-engaged firms state that they are either not interested in, or not suitable for, overseas income generation. Common reasons cited for this lack of interest are a need for physical proximity to customers, or satisfaction with the opportunities available in the domestic market.

Despite this, the absolute number of firms with no current overseas income that are either actively seeking or are interested in exploring the possibilities for overseas income generation is sizeable compared to the current stock of engaged firms. Moreover, a sizeable number of those firms that expressed an interest, and particularly those that were actively exploring the options for overseas income generation, appear to have successfully entered at least one export market in the three years following the surveys. However, that leaves a lot of room for disappointment - even among firms which reported that they were actively working towards earning overseas income and expecting to see some result within the next twelve months, over 40 percent reported no exports or significant tourism earnings in the following three years.

Reported barriers to overseas income generation differ both by firms' level of experience and their level of interest. Among non-engaged firms, the most commonly reported barriers relate to a lack of experience in expanding beyond New Zealand, a lack of knowledge about specific markets and difficulty accessing finance for expansion. Firms that are interested in overseas income but are not actively considering it report a lower number of barriers overall, but are more inclined to cite “other” barriers, which may include a lack of managerial resources to devote to expansion. Similarly, among current exporters, level of interest in further expansion is positively correlated with the probability of reporting barriers, with the exception of “other” barriers. Consistent with the greater level of experience that these firms have already gained, factors such as experience and market knowledge are less commonly reported by this group, with exchange rate levels and volatility coming to the fore alongside distance to markets and a lack of demand or strong competition in overseas markets.

These barriers are also reflected in firms' reported reasons for exiting from specific overseas markets, with nearly half of the firms that had left one or more markets citing falling market demand or increased competition as a reason for exit. Lower than expected profitability and exchange rate conditions were also common reasons for market exit. In contrast, relatively few firms cited exchange rate conditions as a factor in their decision to exit foreign markets altogether. Although it is difficult to draw conclusions about the motivation of firms which exited completely due to high non-response rates, to the extent that information is available, complete exits appear to have been driven more by changes in demand conditions or strategic direction, or occur because firms have completed a specific order or job.

Looking ahead at future entry propensity, there is no apparent relationship between the types of barriers reported by firms with no overseas income and the probability that they will successfully enter exporting or tourism in the three years following the survey. Factors which were significantly related to future export propensity included the level of interest in overseas income generation, a perception of having reached the potential of the domestic market, and having new contacts or alliances opening up new market opportunities. Among firms with current overseas income, a number of barriers and strategies are significantly associated with the probability of entering additional markets in future, with market expansion more likely among firms which were concerned about exchange rate volatility, that offered innovative or unique goods or services, or that took a strategy of entering one market in order to access another, and less likely among firms that were concerned about a lack of experience in expanding beyond New Zealand, or about low market demand or increased competition in overseas markets.

This paper draws primarily on cross-sectional data from BOS2011, providing a descriptive account of the barriers and motivations reported by firms with respect to generating overseas income. It also includes a simple analysis of realised outcomes, showing that intentions do not always come to fruition. Complementary research completed by researchers at the New Zealand Centre for Small and Medium Enterprise Research at Massey University (Deakins et al., 2013), draws out qualitative background to the empirical patterns presented here based on in-depth interviews with 98 selected firms. These qualitative results help to provide a more nuanced picture of the specific factors which underlie the quantitative results, including insights into how firms are addressing the challenges of entering international markets.

Future research could expand the empirical analysis presented in this paper by utilising linked Overseas Merchandise Trade data within the LBD to provide further detail on the timing, destinations and value of firms' goods exports. With two comparable observations of the international module available, further analysis could also consider the role of factors external to the firm, such as exchange rate fluctuations and international market conditions, in explaining reported barriers and realised outcomes. Finally, a substantially reworked International Engagement module was included in BOS 2015, sponsored by Treasury, the Ministry of Foreign Affairs and Trade, and the Ministry of Business, Innovation and Employment. While the revisions make the 2015 module largely incomparable with previous modules, they address some of the weaknesses of the 2007 and 2011 modules discussed in section 2 of this paper and present new opportunities for research on firms' international engagement activities.

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