Canadian SME Exporters

5. Discussion of Findings

5.1 Summary

These findings indicate that only a small percentage of Canadians SMEs export goods and services – approximately 8 percent of the 1.3 million firms that correspond to the definition of SME used here. For almost half of these exporters, export revenues account for less than 25 percent of total sales. It is not clear why so few firms engage in export trade. It is also not evident why export sales account for such a small percentage of trade revenue. Both observations represent a significant opportunity to enhance Canada productivity and export performance.

The findings that were particularly noteworthy to the research team were: (a) the importance of the professional service sector among export-oriented firms (for example, professional service-based firms are as likely to export as manufacturers); (b) the presence of majority female-owned firms among INVs; and (c) differences in the production function (inputs to export performance) between service and good producing firms and the importance of management capacity to services exporters. One potential explanation for the relative obscurity of service-based exporters within the literature (and likely trade policy) is that the preponderance of Canadian studies are predicated on manufacturing and technology-based industries. Given the large absolute number of service-based enterprises across Canada, the professional service sector may represent an under-estimated economic opportunity. The comparatively high percentage of women among INV owners (for example, one-quarter of all INVs report 100 women ownership) suggests that these women owners are a new breed of high expectation and globally orientated women entrepreneur. Finally, the research team was also somewhat surprised to observe significant differences in the production function between good and service producing export firms. Consistent with traditional arguments about size threshold, the likelihood of exporting among goods producers jumped at around the 25 employee mark. This was not the case of service providers. Among service-based firms, it appears that management experience substitutes for labour and capital. These observations suggest that it is critical that export and economic performance models (for example, production functions) recognize and calibrate for "soft assets" such as management acumen, social and network capital.

With respect to the theoretical rationales presented at the outset of the paper, stage theory (assumptions about export propensity and firm tenure) were not supported empirically: findings confirm other studies where the firm size was found to be a weak predictor of international activities (Cavusgil, 1982; Reuber and Fisher, 1997). Resource-exchange theory was partially supported: multiple proxies for management acumen were associated in the increased likelihood of export. For example, owners with more than 5 years of business ownership experience that are growth-oriented with Canadian residency and foreign languages were significantly more likely to engage in export trade. It is not surprising to find growth-oriented managers among exporters due to the limited potential of the Canadian domestic market. As for residency status (immigrants) and language skills, owners with these characteristics may find it easier to do business with their countries of origin which, even if geographically distant are closer psychologically than the traditional Canadian export markets.

Network theory was used to rationalize the internationalization process among INVs. It was also posited that owners of INVs are more likely to be majority male-owned, growth oriented, innovative, demonstrate international networks and retain more years of business experience compared to owners of DNVs and EEs. Furthermore, it was expected that INVs are not restrained by size (labour, organizational assets and capital) and tend to operate in selected industry sectors (for example, technology and knowledge-based sectors) compared to DNVs and EEs. INVs were indeed innovative, growth-oriented and demonstrate international networks. Results also indicate that although INVs are significantly smaller than EEs (labour and revenue), INV size does not preclude performing in the international arena. INVs achieve similar levels of export intensity within three years of inception with a smaller work force, younger and less experienced owners and fewer assets compared to EEs. Strikingly, one-quarter of INVs are owned by women. This observation suggests these INV women entrepreneurs likely differ significantly from women business owners of DNVs and EEs. Furthermore, contrary to studies that portray INVs as technology- or knowledge-based, INVs were found to operate across all sectors. And while sector was indeed statistically associated with INV status (compared to DNVs), no statistically significant difference with respect to sector was noted between INVs and EEs. Years of management experiences was not a significant factor associated with INV status. These observations are consistent with Madsen and Servais (1997) who suggest that INVs accumulate resources in ways which are more efficient than what was intended in the stage model.

Feminist theory was presented as a rationale to explain gender differences in export propensity. Many gender differences identified in the literature (Ahl, 2006) are systemic across domestic and export-intensive firms. Having controlled for systemic sector, firm and owner level differences, majority female-owned firms were still significantly less likely to export. Differences in export propensity were, therefore, not fully explained by systemic differences in owner and business attributes. The findings lend support to social feminist arguments that the experiences of men and women (exporters) differ and help to illustrate the relevance of feminist thought within well received theories of SME growth and internationalization. The results provide the first large-scale evidence to support anecdotal comments about gender-related barriers to export (Orser et al., 1999, Riddle 2000).

Finally, immigrant entrepreneurs (new Canadians) were disproportionately exporters, even having controlled for sector, firm and other owner attributes. It is not clear if the propensity of export is a function of differences in growth orientation and values (Morris and Schindehutte, 2005; Morris, Miyasaki, Watters, and Coombes, 2006), "pull factors" such as cultural, geographic and market knowledge or "push factors" such as a lack of domestic opportunities (for example, double or triple jeopardy for visible minority / immigrant women managers in corporate settings). These results lend empirical support to network theory, where immigrants capitalize on contacts abroad to make a living in Canada. Moreover, dealing with individuals who are cultural or psychologically similar (although geographically distant), may facilitate or speed the establishment of ventures and thus serve as a survival strategy.

5.2 Questions of Research, Trade Policy Makers and Export Training Officers

The underlying purpose of this work is to encourage further discussion about the means through which research, policy and training can further stimulate international trade. Unfortunately, the review of literature found few available evaluations of Canadian trade or export-stimulation programs. It is impossible therefore to ascertain the extent to which existing export policies and programs meet the needs of Canadian SME exporters. These findings nevertheless provide insights and hence, food for thought for such discussion.

To provide a preliminary list of ideas for such a discussion, the following questions are presented for reader consideration:

1. To what extent does the participation and usage of export stimulation programs reflect the profile of growth-oriented Canadian SMEs? What are the means used to monitor the impacts of current programs to ensure maximum economic impact for such programs? To what extent do they meet the needs of both men and women and of new Canadians?
   
   
2. To what extent do the support needs of goods producers differ from service-based firms? How well do current policies and program address these differences?
   
   
3. How can federal policy and export stimulation programs encourage more new ventures from entering international markets? To what extent (if any) is current export program eligibility biased towards larger, goods producing and more established firms?
   
   
4. To what extent does the traditional division of policy and programs between Industry Canada and Foreign Affairs and International Trade inhibit exporting, particularly among new ventures (for example, "border in" versus "border out" responsibilities, assumptions about requisite firm size)?
   
   
5. To what extent do export promotion materials and case studies recognize minority groups such as new Canadian and women exporters, micro-businesses and/or professional service firms?

5.3 Limitations and Implications for Future Research

Six study limitations are noted. First, while the study reflects data representative of the Canadian SMEs, the sampling frame accounted for export incidences as opposed to other forms of internationalization (for example, importing, joint ventures), a limitation identified in related studies (Coviello and Jones, 2003). Second, the sub-group of firms (established exporters) was an aggregation of all firms that had been exporting for three years or more. This classification does not distinguish between gradual growth exporters and those that may have been INVs from inception. This aggregation of data means that both potentially high growth and low growth exporters are considered as one group.

Third, the questionnaire was based on self-reported data from a single informant (firm owner). However, since in SMEs, especially the smaller ones, entrepreneurs are the heart and soul of the firm, no one else may have been able to fully answer the survey or may have answered in the same way. Fourth, a more refined measure of management experience is required in order to capture accurately the complexity of achieving performance in a network economy. Since one of the most important resources for these firms is their relationships with other actors in the network (Håkansson and Snehota, 1989), further studies should help determine how to capture the important variables in effective international relationships.

Fifth, the unit of measure of the research was the firm owner. It is recognized that owner self-report data may be biased towards favourable owner attributes. The study also used cross-sectional data with its obvious shortcomings. Ideally, longitudinal data best captures the accumulation of owner and firm resources associated with firm growth and export. Finally, the nature of questions used to examine export is note worthy. The primary question posed was: "Did the business sell or export any of its goods and services outside Canada during the past 12 months?" However, Foreign Affairs and International Canada identifies four modalities of international trade: goods or services that cross the Canadian border, including transportation and travel; customers who cross the border into Canada such as tourists; firms that establish a commercial presence abroad; and revenue generated when Canadian personnel cross the border to do business abroad. As such, the current work likely under-estimates the incidence rate of SME export.