Economic recession and export market entry : some empirical results

Abstract

The periodical fluctuations in business cycles means that although one cannot be sure as to when a recession will strike, what is certain is that it will strike, resulting in the need for considerable adjustments to the firm's operations. The most recent recession was that of 1989 - 1991. For the firm, the best strategy will be the one which is situationally best, optimal in that it is a satisficing strategy which takes into consideration market competition, perceived risk, and established corporate policy (Root 1987). Contingency theory offers a theoretical justification for this situation. The effect of recession on export marketing has received limited attention in the export marketing literature. Initial empirical work in the U.S. suggests that a recession in the domestic market spurs domestic firms to consider entry into overseas markets that are less effected by recession (Cavusgil 1984; Pavord and Bogart 1975; Rao, Erramilli, and Ganesh 1989; Rao, Kreighbaum, and Hawes 1983; Kizilbash and Maile 1989). It has been argued that in securing export markets firms tend to rely on information gathered through private and business contacts rather than on public agencies (Bilkey 1978; Rao, Erramilli, and Ganesh 1989). This is unlikely to vary much in a recession. Exporting involves overcoming a number of barriers to entry in the form of insufficient finances, foreign government restrictions, inadequate overseas product distribution arrangements, lack of foreign market connections and foreign currency fluctuations (Cavusgil 1984; Pinney 1971; Rao, Erramilli, and Ganesh 1989). Recession in the domestic market is likely to make these barriers to entry more difficult to overcome. Moreover in a recession buyers have higher bargaining power that allows them to negotiate adjustments to the product offerings of suppliers. Very small firms tend not to export, while there is a "tendency for larger volume companies to have progressed more along the internationalization process" (Bilkey 1978; Cavusgil 1984). The size of an organization can provide an indication of the resources available to the firm and may influence its access to information, its ability to overcome barriers to entry as well as its capability to negotiate with buyers.