The survival of a company could become the ultimate goal of a business manager. Survival means helping the firm to continue moving on –‘being alive’- despite of the many difficult circumstances that may arise on its way.
Internationalization is a way firms have traditionally used to guarantee their survival and improve performance. Multiple research studies defend the existence of a direct relationship between exports and survival.
In general terms, exporting products to foreign markets facilitates increasing sales and improving company’s capabilities. Similarly, finding new markets to expand or secure sales volume, or obtaining cheaper resources in foreign markets to improve company’s efficiency, may also be relevant to ensure survival.
Among the main reasons for a company to internationalize we can find: the access to new customers, the development of new competences and capacities, the application of existing capacities in different ways, or risk management.
Access to new customers allows, on the one hand, to increase sales; on the other hand, to have additional and alternative markets in the case of a potential sales reduction in local markets.
In fact, scientific literature demonstrates that non-exporting firms are less efficient and less productive than those that export, or, a contrario sensu, that exporting firms are more productive than those that do not export.
The development of new competencies and new applications for existing competences facilitates consolidating the company’s position and improving its productivity; capacities that allow survival to increase.
Moreover, being present in different markets helps companies to manage risks, allowing firms to stabilize their sales through different economic cycle conditions -such as, for example, changes in seasonality-, or facilitating the entry into a different phase of the product life cycle.
In addition, internationalization protects companies from liquidity constraints -as there is a better access to domestic and international financial markets-, lower bankruptcy risks, and greater capacity to cover sunk costs.
Finally, those companies that export exhibit a better financial situation than those that do not, thus reducing business failure.
However, and before going international, companies have to know that there are some exceptions to this positive relationship between exports and survival. In some cases, when an industry increases its exports, exporters’ probability of survival is reduced, while that of non-exporters is not.
In this case, companies in the industry would find themselves competing for a limited amount of productive factors that would negatively end up affecting their profits. As a consequence, some exporters could see the benefits that exports generate being completely offset by this situation.
In conclusion, the arguments commented show that there are differences in performance between companies that export and those that do not. With very few exceptions, there is a positive relationship between exports and survival.
Consequently, companies should use internationalization to guarantee survival and improve performance.
Only one last thing: managers have to know if their companies, and even themselves, are ready for exporting. Successful exporting requires a long-term commitment on company strategy, time and resources.
Businesses must develop a solid export plan and adapt their products to foreign customers. A good preparation for the internationalization is necessary to avoid poor performance and to guarantee the ultimate goal of company survival.
*Dr. Pedro Mata, professor of MITB de Esic Business and Marketing School