Export patterns: Typology development and application to Estonian data

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Export patterns: Typology development and application to Estonian data Tiia Vissak *, Jaan Masso 1 University of Tartu, Narva Rd 4-A308, 51009, Tartu Estonia

A R T I C L E I N F O

A B S T R A C T

Article history: Received 10 February 2014 Received in revised form 14 November 2014 Accepted 24 November 2014 Available online xxx

As exporting is the most common internationalization form, previous studies have tried categorizing export patterns but without using a full population of a particular country’s firms for finding out how often every pattern occurs. We aim to develop a typology of 13 main export patterns and 11 sub-patterns and identify the frequency of each export pattern using detailed firm- and market-level export data for the population of Estonian firms. We conclude that 69% of Estonian exporters (excluding 1st-year exporters) reduced or stopped exporting to at least one market, 58% exported only for 1 year and that true born globals and traditional (slow) internationalizers were rare: many firms started exporting soon after foundation but had a low export share and/or a small number of export markets. ß 2014 Elsevier Ltd. All rights reserved.

Keywords: De-internationalization Exports Internationalization Nonlinear internationalization Re-internationalization

1. Introduction During the last five decades, internationalization studies have mostly focused on ‘‘the process of firms increasing their involvement in international markets’’ (Freeman, Deligonul, & Cavusgil, 2013: 157) in the form of (1) slow, concentrated/focused internationalization starting from a few closest countries (Bilkey, 1978; Johanson & Vahlne, 1977; Johanson & Vahlne, 1990) and (2) fast, diversified, ‘born-global’-style internationalization starting from several markets – some very distant – soon after foundation (Madsen, 2013; Oviatt & McDougall, 1994). Still, internationalization is more complex and other patterns also need attention. For instance, Prange and Verdier (2011: 132) claimed that ‘‘firms differ in their internationalization processes, both within the group of incremental and within accelerated internationalizers’’ and Hadjikhani, Hadjikhani, and Thilenius (2014: 156) stated: ‘‘firms may behave in an irregular/non-incremental manner in some markets and can display regular/incremental behaviour in other markets‘‘. Moreover, Welch and Paavilainen-Ma¨ntyma¨ki (2014: 15) found: ‘‘existing research is dominated by variance-based questions in the form of ‘what are the determinants of..?’. Consequently,/. . ./‘how’ questions – how does internationalization evolve over time? – still provide much scope for further research’’.

* Corresponding author. Tel.: +372 7 376322; fax: +372 7 376327. E-mail addresses: [email protected], [email protected] (T. Vissak), [email protected] (J. Masso). 1 Jaan Masso. Tel.: +372 7 376395; fax: +372 7 376327.

From the above, it is evident that it is necessary to study other internationalizers besides born globals and slow internationalizers: to identify more internationalization patterns and explain how to distinguish between them. Such a typology should encompass export growth periods, but also decline/exitand their combinations. Moreover, large samples covering long time periods – not only foreign market entry but also subsequent exits/re-entries – are necessary for finding out how many firms internationalize according to each pattern. We agree with Lawless (2009) (245) that firms’ ‘‘involvement in individual export markets is/. . ./much more dynamic than export status’’ and with Brenton, Saborowski, and von Uexkull (2010: 497) that ‘‘focus only on entry into exporting will miss a fundamental aspect of the dynamics of exporting’’. This paper focuses on exporters as exporting is the most common internationalization form and as, due to data limitations, we cannot encompass other operation modes. Although this is a limitation of this study, evidence on the frequency of export patterns can still be useful for policy-makers: they can understand how many firms internationalize slowly/fast and how many exit and re-enter, and design suitable policy measures as, for instance, if most exporters exit soon, more attention should be paid to the supporting of existing exporters instead of encouraging all firms to start exporting. For managers, such information could be also useful: they would develop a more realistic understanding of the variety of export patterns and not expect all firms to follow only a few mostly researched patterns. Moreover, they would understand that in reality, foreign market exits and re-entries are frequent; thus, they could become more flexible and realistic in their internationalization plans but also in evaluating their potential

http://dx.doi.org/10.1016/j.ibusrev.2014.11.004 0969-5931/ß 2014 Elsevier Ltd. All rights reserved.

Please cite this article in press as: Vissak, T., & Masso, J. Export patterns: Typology development and application to Estonian data. International Business Review (2014), http://dx.doi.org/10.1016/j.ibusrev.2014.11.004

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business partners’ suitability. Creating such a typology and finding the frequency of each type would also help to discover further research opportunities: for instance, if, according to the results, most firms internationalize according to some less-researched types, these should be studied more. Taking into account the above-mentioned research needs, we aim to develop a typology of 13 main export patterns and 11 subpatterns and identify the frequency of each export pattern using detailed firm- and market-level export data for the population of Estonian firms. Our typology encompasses continuously increasing exports, export decreases/market exits, and re-entries. We acknowledge that in other countries the frequency of various export patterns may differ but we believe that our study could be a useful starting point for future investigations. We start from developing a typology of export patterns. Following Freeman et al. (2013), Jones and Coviello (2005), Kuivalainen, Saarenketo, and Puumalainen (2012), Leonidou and Samiee (2012), Olejnik and Swoboda (2012) and Oviatt and McDougall (1994), we mainly discuss firms’ internationalization along geographic scope (number and location of foreign markets), internationalization scale (export share in turnover) and the timing of initial/subsequent export activities. Thereafter, we will apply this typology to the full population data of Estonian exporters from 1995 to 2012 to identify the frequency of each export pattern and, finally, give suggestions for future research. 2. Development of the typology of export patterns We developed the following classification (see also Appendixes A and B) based on the patterns identified in the literature. We searched for studies identifying one or more internationalization patterns/types/pathways and/or focusing on slow or fast internationalization, exits and/or re-entries. In this article, we did not aim to give an overview of all studies defining one or more types, but to encompass enough to identify their characteristic features. Based on these studies and our knowledge of some Estonian firms’ internationalization, we also added a reborn international pattern and some sub-patterns to improve the understanding of internationalization processes. We acknowledge that different authors have not always agreed how to define some types – for instance, born globals – but we will explain why we selected particular features to distinguish between them. We also acknowledge that some authors have studied exceptions to some patterns but we will not give an overview of such studies except when we can classify such exceptions as a separate pattern. Moreover, we will not give a long overview of external and internal (f)actors affecting exports as we aimed to develop a classification of export patterns, not their causes, and as studies on (f)actors affecting some types are already dominating the literature (Welch & Paavilainen-Ma¨ntyma¨ki, 2014). All studies we cite below identified at least a few (f)actors, thus we only composed Fig. 1 with a short overview. Finally, as we focus on exports, we will not integrate the use of other foreign entry/ operation modes and inward operations (Freeman et al., 2013) to our typology although we acknowledge that firms belonging to all types may use them during their internationalization, and that some firms may also replace some modes with others. 2.1. Slow internationalizers The Uppsala model (Johanson & Vahlne, 1977; Johanson & Vahlne, 1990; Johanson & Vahlne, 2009 and Johanson & Wiedersheim-Paul, 1975) and innovation-related internationalization models (Bilkey, 1978; Morgan & Katsikeas, 1997) have described such firms. They focus on their domestic market for a long time – according to Baum, Schwens, and Kabst (2011), Burgel

and Murray (2000), Pla-Barber and Escriba´-Esteve (2006) and Vissak (2010), for 10 years or more1 – and then enter similar (closest, comparatively well-known) markets, often ‘‘one market at a time’’ (Bell, McNaughton, Young, & Crick, 2003: 348). Thereafter, they will proceed to more different2 markets (Johanson & Vahlne, 1990). In addition, they have a narrow market scope (Kuivalainen et al., 2012) and they should not achieve a significant export share very fast: otherwise they cannot be clearly distinguished from late starters (see types 4 and 5). In our classification, we used a 25% export share threshold as this is a common criterion representing a low export share (Kuivalainen et al., 2012). To follow the narrow market scope and slow internationalization criteria, we also stated that they should enter one to two markets on their first internationalization year and only enter closest or similar markets in the first three years since starting internationalization. 2.2. Born globals Born globals are more proactive than slow internationalizers (Oviatt & McDougall, 1994): some even do not generate local sales before foreign entry (Chetty & Campbell-Hunt, 2004; Madsen, 2013). Although this research stream has been very popular since the 1990s, consensus about exact definitions is still missing. We agree with Knight and Cavusgil (1996), Kuivalainen, Sundqvist, and Servais (2007), Kuivalainen et al. (2012) and Madsen (2013) that born globals should achieve a 25% or higher export share and enter distant foreign countries in maximum three years since establishment. Moreover, we agree with Madsen and Servais (1997: 579) that they should ‘‘seek to derive significant advantages from/. . ./ the sale of outputs to multiple countries/continents right from their legal birth’’. Thus, a born global should enter at least three markets – including one or more outside its home continent – in three years or less since establishment3. 2.3. Born internationals According to Kuivalainen et al. (2007) (254), born internationals are ‘‘exporting only to close markets with an export ratio close to the arbitrary 25% cut-off rate’’ while Kuivalainen et al. (2012) (375) defined geographically focused born internationals as firms that ‘‘operate in a highly focused geographical market area, although more than 25% of their turnover comes from abroad’’; moreover, they stated that such firms should internationalize in maximum three years since establishment. Gabrielsson, Sasi, and Darling (2004) stated that born internationals should internationalize within their home continent. Combining these definitions and also following the logic of defining born globals, we state that born internationals should reach a 25% or higher export share within three years since establishment and enter at least three markets during this period without entering other continents4. 1 Some authors have also preferred different time periods: 3 (Kuivalainen et al., 2012), 5 (Dib et al., 2010), 6 (Dimitratos et al., 2010; Sleuwaegen & Onkelinx, 2014), 8 (Leonidou & Samiee, 2012; Madsen, 2013), 14 (De Clercq et al., 2012) and 15 (Gabrielsson et al., 2004) years. 2 Johanson and Vahlne (1977: 24) stated that psychic distance means ‘‘differences in language, education, business practices, culture, and industrial development.’’ 3 Some authors have been more strict – for example, required a 75% export share (Chetty & Campbell-Hunt, 2004), a 50% export share from outside the firm’s own continent (Gabrielsson et al., 2004), having activities in Europe, America and Asia (Crick, 2009) or exporting to at least 5 countries (Sleuwaegen & Onkelinx, 2014) – but most authors have ignored these suggestions. 4 Some authors have used different criteria – Gabrielsson et al. (2004) required born internationals to reach a 50% export share within 15 years since foundation while Kundu and Katz (2003) expected them to start exporting within 2 years – but we selected the export share and other criteria following the logic of distinguishing born globals. Also, some authors – for instance, Trudgen and Freeman (2014) – do not distinguish between born globals and born internationals.

Please cite this article in press as: Vissak, T., & Masso, J. Export patterns: Typology development and application to Estonian data. International Business Review (2014), http://dx.doi.org/10.1016/j.ibusrev.2014.11.004

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SLOW AND INCREMENTAL The main feature: entering closest or similar countries first and preferring exports as the first foreign entry mode; other modes will be used and more distant countries entered only after learning from initial foreign activities The main research streams: the Uppsala (U-) model (Johanson & Vahlne 1977, 1990, Johanson & Wiedersheim-Paul 1975) and innovation-related internationalization (I-) models (Bilkey 1978; Morgan & Katsikeas 1997) The main factors: firms need experiential knowledge to internationalize, but can mainly acquire it through their own foreign operations: thus, acquiring such knowledge takes time

INTERNATIONALIZATION

VERY FAST The main feature: entering culturally distant countries and achieving a high (for instance, in case of born globals and born internationals, 25% or higher) share of foreign turnover during the first 3 years since establishment; also entering other continents during this period and, in some cases, even skipping the exporting stage The main research streams: the literature on born globals, international new ventures and other fast internationalizers (Knight & Cavusgil 1996; Kuivalainen et al. 2007; Madsen & Servais 1997; Oviatt & McDougall 1994; Weerawardena et al. 2007) The main factors: firms can use their founders’ and/or local or foreign owners’ pre-existing knowledge, international experience and/or relationships and thus, they do not need to rely only on the experience gained through their own foreign activities

FLUCTUATING The main feature: international involvement does not grow continuously: firms (both slow and fast internationalizers) may temporarily or permanently exit some markets (de-internationationalize) but later also re-enter some (reinternationalize) or enter other markets, some – serial nonlinear internationalizers – may experience such fluctuations several times The main research streams: the literature on nonlinear internationalization (Benito & Welch 1997; Cuervo-Cazurra et al. 2007; Javalgi et al. 2011; Matthyssens & Pauwels 2004; Turner 2012; Vissak 2010; Vissak & Francioni 2013; Welch & Welch 2009) The main factors: both internal and external – changing external environment (competition, exchange rates, costs, export quotas), the firm’s access to resources, fluctuating foreign orders, changes in its business partners’ situation, changes in the firm’s strategy

Fig. 1. An overview of internationalization processes and some factors leading to/influencing them. (See refs. Cuervo-Cazurra, Maloney, & Manrakhan, 2007 and Weerawardena, Sullivan Mort, Liesch, & Knight, 2007).

2.4. Late global starters/born-again globals They have stayed domestic for a long time and then internationalized fast (Bell, McNaughton, & Young, 2001; Bell et al., 2003; Johanson & Mattsson, 1988; Kuivalainen et al., 2012). Compared to slow internationalizers, they enter more distant markets (Chetty & Blankenburg Holm, 2000). According to Olejnik and Swoboda (2012) (469) they should ‘‘target markets regardless of their psychic distance’’ and (p. 471) ‘‘seek growth by entering worldwide markets simultaneously’’; moreover, they should have high export shares. Kuivalainen et al. (2012) stated that in maximum three years since internationalization, born-again globals should resemble born globals by geographic scope. Jantunen, Nummela, Puumalainen, and Saarenketo (2008) and Sheppard and McNaughton (2012) suggested that in this period, they should reach a 25% or higher export share. Following the logic of defining slow internationalizers, we state that late global starters should be home-market-oriented for at least 10 years since establishment5. 5 Some authors have also preferred different time periods: 3 (Jantunen et al., 2008; Kuivalainen et al., 2012), 5 (Sleuwaegen & Onkelinx, 2014) and 28 years (Sheppard & McNaughton, 2012).

Moreover, following the definition of born globals and the suggestions by Jantunen et al. (2008), Kuivalainen et al. (2012) and Sheppard and McNaughton (2012) we emphasize that they should reach a substantial – 25% or higher – export share during the first three years since the beginning of internationalization and enter three or more markets; at least one of them in another continent. 2.5. Late international starters/born-again internationals According to Kuivalainen et al. (2012) born-again globals should not be active only in their neighboring countries while Olejnik and Swoboda (2012) stated that these firms should enter other continents. Kirpalani and Gabrielsson (2012) also noted that some firms develop some characteristics of born-again globals but only target their regional market, thus they should be studied separately. Following the logic of distinguishing between born globals and born internationals, we state that late international starters/born-again internationals should differ from the previous group by market selection. They should only focus on entering their home continent after a 10-year or longer period of purely domestic activities. Still, they should reach a 25% or higher export share during the first three years since the beginning of

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international activities and enter three or more foreign markets during this period (otherwise, they would not differ from slow internationalizers). 2.6. Moderate internationalizers They do not follow any of the above-described internationalization patterns. Scholars have not studied these firms considerably yet, although, according to our criteria, it is not possible to categorize all internationalizers without any export decreases to the previous five groups. Still, some authors seem to have identified such internationalizers. For example, Kuivalainen et al. (2012) (375) defined a ‘‘‘‘sporadic’’ born-international pattern: these firms have internationalized early but/. . ./the share of turnover is less than the Knight and Cavusgil cut-off rate of 25%’’ and a ‘‘‘‘failed’’ BG pattern: these firms have a high number of target countries but the turnover from international operations is small and does not reach Knight and Cavusgil’s cut-off rate’’6. Taking into account our and other authors’ classifications of internationalization patterns, we distinguish between four types of moderate internationalizers: (a) slower moderate internationalizers: firms that internationalized within 7–9 years since foundation7, (b) faster moderate internationalizers: firms that internationalized in 4–6 years since foundation8, (c) very fast moderate internationalizers: firms that internationalized in 3 years or less since foundation but are not born globals or born internationals due to a relatively low export share (less than 25%) and/or a small number (one to two) of export markets; (d) very slow moderate internationalizers: firms that internationalized in 10 years or more since foundation but are not slow internationalizers, late global or late international starters due to a large export share (25% or more) but a small number of foreign markets (one to two) or an export share of less than 25% but entering distant markets in 3 years since their initial foreign entry. 2.7. Complete de-internationalizers They have withdrawn completely from all foreign markets (Benito & Welch, 1997; Calof & Beamish, 1995; Fletcher, 2001; Welch & Welch, 2009). Both slow (Crick, 2004) and fast internationalizers (Mudambi & Zahra, 2007; Oviatt & McDougall, 1995) may de-internationalize at any internationalization stage (Matthyssens & Pauwels, 2000; Welch & Luostarinen, 1988, Welch & Wiedersheim-Paul, 1980). Thus, firms belonging to any of theone of the above six groups may later de-internationalize. We define complete de-internationalization as withdrawal from all previous export markets. A firm belongs to this group if it has not re-entered any previous markets or entered any other foreign markets. 2.8. Partial de-internationalizers Some firms have ceased or reduced operations in one/more foreign markets but retained some international activities (Benito & Welch, 1997; Calof & Beamish, 1995; Fletcher, 2001; Swoboda et al., 2011; Turner, 2012) or entered different countries after exiting previous ones (Blum, Claro, & Horstmann, 2013; Katsikeas, 1996; Lawless, 2009; Vissak, 2010). To encompass different forms of partial de-internationalization, we distinguish between firms that (a) did not export to at least one market for a year or more but retained some international activities in one or more other foreign

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BG is an abbreviation of ‘born global’. Leonidou and Samiee (2012), Madsen (2013) and Pla-Barber and Escriba´-Esteve (2006) would classify such firms of as slow internationalizers. 8 Dib et al. (2010) and Dimitratos et al. (2010) would classify such firms as fast internationalizers.

countries, (b) experienced export decrease of 25% or more in at least one foreign market but did not exit any markets completely and (c) exported to one or more markets, exited all and later entered one or more other markets. We propose the 25% threshold to exclude minor fluctuations in foreign involvement—for instance, due to variations in quarterly shipments/payments or fluctuations in exchange rates. 2.9. Complete re-internationalizers Welch and Welch (2009) (568) stated that for re-internationalizers, after the exit from international operations, a time-out period should follow, and then, international re-entry should start from ‘‘successfully renewed international operations’’. Javalgi, Deligonul, Dixit, and Cavusgil (2011) claimed that some firms re-enter the same markets that they previously exited from. If the firm has managed to restore its previous export volume and re-enter all previous markets, it should be categorized as a complete re-internationalizer (Vissak, 2010). Based on the main types of de-internationalization, we distinguish between two types of complete re-internationalizers: (a) firms that re-internationalized completely after a complete exit (to exclude minor fluctuations due to the above explained reasons, we also use a 25% threshold here, thus, a firm should reach at least 75% of its previous export volume on all re-entered markets) and (b) firms that re-internationalized completely – reached 100% or more of their previous export volume – after a partial exit (we use a 100% threshold here to exclude minor fluctuations: for instance, a 2% export increase in 2014 following a 26% export decrease in 2013 compared to 2012). 2.10. Partial re-internationalizers Some firms have re-internationalized, but not completely. This group has not received considerable research attention. Crick (2004), Javalgi et al. (2011), Vissak and Francioni (2013) and Welch and Welch (2009) stated that some firms may decide to enter different markets after de-internationalization without re-entering all their previous markets and Vissak (2010) concluded that after partial reinternationalization some firms may become less international than before de-internationalization. Following the conclusions of these authors, and our 25% threshold for significant export decrease used in the above two sections, we distinguish between two types of partial re-internationalizers: (a) firms that did not re-enter all previous markets after exiting at least two foreign markets completely9 and (b) firms that that did not re-enter all previous markets after exiting at least two foreign markets partially. 2.11. Reborn globals According to Bell et al. (2001) and Bell et al. (2003), some firms have been international, but then ceased international activities for 10 years or more without planning to internationalize again. However, they have suddenly begun to internationalize fast: in a way resembling born globals. Following the logic of defining born globals, we state that reborn globals should enter three or more markets – at least one of these outside their home continent – and reach a 25% or higher export share in 3 years or less since re-entry (following a 10-year or longer period of domestic activities after complete de-internationalization). Such internationalization can be also regarded as a sub-pattern of type 9 or 10, depending on the extent and nature of re-internationalization. If after re-internationalization their exports equal or exceed initial exports and if

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9 For instance, if a German firm exported at first to France and Italy, then exited both and thereafter, re-entered only France (reaching 75% or more of its previous export value), it belongs to this group.

Please cite this article in press as: Vissak, T., & Masso, J. Export patterns: Typology development and application to Estonian data. International Business Review (2014), http://dx.doi.org/10.1016/j.ibusrev.2014.11.004

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Table 1 Selected indicators of Estonian exporters. Average number of foreign markets

Number of

Number of firms that

Year

Firmsa

Exporters

New (1st-time) exporters

Per firm

Per new exporters

Stopped exporting to all markets

Stopped exporting to at least one market but not all

Reduced exports to at least one market by 25% or moreb

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

17081 21887 26101 28973 32060 33849 36509 38038 41845 47645 53972 58704 61043 69894 69880 77882 82725

5788 5691 5637 5606 5904 6256 6369 6550 5646 4654 5202 4896 5313 5553 5976 10150 7021

1979 1983 1808 1724 1916 1966 1835 1821 1309 1594 2383 1981 2195 2576 2708 6315 2870

2.30 2.34 2.38 2.48 2.48 2.53 2.65 2.64 2.77 2.91 2.72 2.88 2.84 2.81 2.80 2.39 2.74

1.41 1.39 1.40 1.44 1.42 1.35 1.39 1.34 1.36 1.42 1.36 1.27 1.22 1.29 1.27 1.46 1.23

653 551 620 597 544 607 638 674 696 404 294 258 263 273 241 291 308

1304 1309 1227 1256 1238 1404 1499 1589 1565 1263 1067 1059 1071 1079 1059 1130 1259

779 744 782 904 851 944 1050 1056 1230 587 692 638 777 936 673 849 1037

a b

all firms reporting at least >0 turnover, exports or employees. without stopping exporting to any markets.

they re-enter all previous markets, they should be classified as complete re-internationalizers. If they re-enter only some previous markets and/or export less, then they are partial re-internationalizers.

Based on our definitions in Appendixes A and B, we also developed a classification tree (see Appendix C) for identifying different types of internationalizers. In Section 4, we will show how many Estonian exporters belonged to each type.

2.12. Reborn internationals

3. Data

We created this type following the logic of distinguishing between born globals and born internationals. Thus, reborn internationals should reach a 25% or higher export share and enter three or more markets in three years or less after re-entry. These firms differ from reborn globals by their market selection: reborn internationals are not supposed to (re-)enter other continents. Such internationalization can be also regarded as a sub-pattern of type 9 or 10.

According to Banalieva and Dhanaraj (2013: 99), a ‘‘10-year period is sufficiently long to capture the evolutionary nature of internationalization’’. For this study we use Estonian firms’ market level export data for 1995–2012 (see Table 1). The data are based on customs declarations. The dataset encompasses information of all Estonian firms’ exports by destination country/market. To obtain information about the firms’ foundation years, the export data were merged with firmlevel data of the Estonian Business’ registry database. Such kind of detailed exports data have not been used enough in international business studies despite their usefulness for studying internationalization processes10. Moreover, compared to some previous studies, the Estonian data have better coverage: small exporters – even those with one to two employees – and those that have exported only for a year to one country are also encompassed11. Most firms are young and small and they do not have wide export geography. The average age of exporters is 5.1 years and they have, on the average, 35.8 employees and 2.6 export markets. In 2012, the data encompassed 7021 exporters that had on the average 2.7 export markets. The distribution of total exports across firms was highly concentrated: in 2012, 88.1% of total exports came from 10% of exporters while 52.3% of exports from 1% of exporters12.

2.13. Serial nonlinear internationalizers Vissak and Francioni (2013) (952) defined serial nonlinear internationalization as ‘‘de- and re-internationalizing several times in terms of market/. . ./selection’’ and (p. 961) stated that ‘‘the length of periods of no/reduced activities on specific markets may vary. Some may be re-entered, some exited permanently’’. Bell et al. (2003) (177) concluded that ‘‘firms may experience ‘epochs’ of rapid internationalization, followed by periods of consolidation or retrenchment’’. According to Bonaccorsi (1992) (631), ‘‘even small companies with a stable exporting activity seem to be able to switch frequently from one target country to another’’ and ‘‘many small firms/. . ./begin and stop exporting several times during their life’’. Wagner (2012) (171) found that many German exporters ‘‘stepped out and back into exporting/. . ./ many of them more than once’’ and Blum et al. (2013) (65) concluded that a third of Chilean firms ‘‘enter into and exit (entirely) from exporting multiple times with at least one year between exit and subsequent re-entry’’ and that (Ibid.: 66) ‘‘Among firms that export for more than 1 year, about 70% exit and re-enter exporting to a given country one or more times’’. These firms are typical serial nonlinear internationalizers. According to our definition, exporters should belong to this group if they have de- and re-internationalized at least twice.

10 Some authors have used exporters’ population samples – see, for example, A´lvarez et al., 2013; Cies´lik et al., 2012, Deng et al., 2014, Sui et al., 2012 and Wagner, 2012 – but their aims have differed from ours. 11 Still, it has to be taken into account that the data have some limitations: for instance, the drop in the number of exporters in 2004 partially resulted from changes in foreign trade statistics collection after joining the EU: since then statistical authorities collect firm-level intra-EU export data only if a firm’s annual export value exceeds 100 000 EUR. Moreover, it is not possible to find out in how many cases the owners transferred their firm’s activities into a new legal entity and closed down the previous one because of accumulated liabilities. 12 Such shares are also characteristic to Belgium, France and Norway (Helpman, 2011).

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100

Export survival of all firms Survival of all firms Survival of exporters

90 80 70 60 50 40 30 20 10

15

16

16

14

13

12

11

10

9

8

7

6

15

100

5

4

3

2

1

0

Export survival of 1979 firms that started exporting in 1996 Overall survival of 6124 firms that were founded in 1996 Overall survival of 1405 exporters that were founded in 1996

90 80 70 60 50 40 30 20 10

14

13

12

11

10

9

8

7

6

5

4

3

2

1

0 Fig. 2. Survival rates (% of firms that still exported/existed in their 1st,. . ., 16th year)13.

4. Results and discussion Firm-level exports have been unstable: for instance, about 53.1% of all exporters founded in 1996 exported only for one year, only 18.2% for 5 years, 7.7% for 10 years and 3.3% for 16 years while from all exporters, these shares are 58.0, 14.9, 6.8 and 3.3%, respectively (see Fig. 2). Halpern & Murako¨zy, 2011 found that in Hungary, many firms also had a small number of foreign markets and many stopped exporting every year, but the share of Hungarian 1-year exporters was around 10% while the share of firms that stopped exporting fluctuated between 10% and 15%. So,

our results are more similar to the finding of Bonaccorsi (1992) that only 14.3% of Italian firms exported for 5 consecutive years and to the conclusion of A´lvarez and Lo´pez (2008) that only 12.3% of Chilean exporters exported for 10 years or more. Also, based on Fig. 2, we can conclude that export survival rates are lower than exporters’ overall survival rates. Thus, many firms quit exporting and only focus on the local market (Halpern & Murako¨zy, 2011). Moreover, exporters’ survival is lower than non-exporters’ survival: consequently, exporting is 13

In some years, survival rates increased due to re-internationalization.

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Table 2 Dynamics of the number of internationalizers. 1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

234 184

199 158

190 134

183 151

162 135

139 120

19 124 71

225 537 1640

344 468 1569

285 603 660 194 105 267 573 312 55 83 330

297 664 739 213 93 276 619 370 55 83 300

24 116 58 3 5 116 168 1347 29 182 532 478 141 40 229 477 332 49 44 181

37 148 95 1 4 121 178 1939 77 162 464 328 175 52 220 464 334 85 55 151

30 127 73 3 3 121 200 1630 103 104 346 380 153 71 240 498 358 99 79 174

31 90 58 7 7 128 236 1905 112 125 389 368 165 82 269 538 361 99 82 163

10 88 62 6 6 97 211 2348 101 112 411 428 167 52 210 561 274 83 84 140

17 244 66 10 8 127 280 2371 140 95 344 454 210 51 232 544 356 111 110 135

22 427 82 9 18 155 355 5967 188 107 360 446 218 74 239 590 403 99 124 167

41 73 73 8 17 165 318 3031 170 134 399 538 200 117 173 680 441 56 75 169

a

1. Slow internationalizers 2. Born globals 3. Born internationals 4. Late global starters 5. Late international starters 6a. Slower moderate internationalizers 6b. Faster moderate internationalizers 6c. Very fast moderate internationalizers 6d. Very slow moderate internationalizers 7. Complete de-internationalizers 8a. Partial de-internationalizers with complete exits 8b. Partial de-internationalizers with partial exits 8c. Sporadic exporters 9a. Complete re-internationalizers after complete exit 9b. Complete re-internationalizers after partial exit 10a. Partial re-internationalizers after complete exit 10b. Partial re-internationalizers after partial exit 11. Reborn globals 12. Reborn internationals 13. Serial nonlinear internationalizers

237 2308

435 1918

598 1806

143 626 1749

259 726 482 45 83 71 296 119 16 17 177

303 691 548 88 95 94 372 149 30 51 199

279 609 571 148 86 176 465 227 56 78 265

269 601 584 204 95 227 516 271 54 78 293

1 196 315 1266 27 285 718 709 168 60 275 556 304 50 53 253

a Due to the classification criteria, we could not identify all types’ frequency since 1998. For categorizing slow internationalizers, we considered only Latvia, Lithuania, Russia, Finland and Sweden as closest markets as they are geographically close and are Estonia’s five main export markets (in 2013, their total share in Estonian exports was 60%).

still more risky than focusing on local activities (Bonaccorsi, 1992). There is also a lot of dynamics at the level of individual export markets: every year, 37.1–54.5% of exporters (excluding first-year exporters) stopped or ceased exporting either to one market or all while 19.2–31.4% of firms reduced exporting by 25% or more to at least one market without stopping/ceasing activities in any export markets (see Fig. 3). Overall, 69% of Estonian exporters were nonlinear internationalizers. These findings are similar to the conclusions of Bonaccorsi (1992), Blum et al. (2013), Deng, Guo, Zhang, & Wang (2014) and Wagner (2012) on Italian, Chilean, Chinese and German firms, respectively, that market exits and export decreases are common. The above results show that firms’ internationalization process is typically not straightforward or linear. In the Estonian case, such nonlinearities can be, to some extent, caused by the country’s smallness explaining the concentration of exports to a limited

90

Total (stopped+reduced+exited) Stopped in 1 or more markets Reduced in 1 or more markets Exited completely

80 70 60 50

40 30 20 10

2012

2011

2010

2008

2009

2006

2007

2004

2005

2002

2003

2001

1999

2000

1998

1997

1996

0

Fig. 3. The share of exporters that ceased/stopped or reduced export activities (% of exporters that had exported for minimum 2 years; every firm belongs only to one category).

number of markets or by its transition from a planned economy to a market economy and from a low-cost producer to a more advanced producer explaining high levels of export dynamics. On the other hand, studies conducted in some larger and/or more stable countries (see, for example, Bernard, Redding, & Schott, 2010 on USA, Mayer & Ottaviano, 2008 on Belgium, France, Germany, Hungary, Italy, Norway and the UK and Deng et al., 2014 on China) have also identified a high frequency of nonlinear internationalization patterns. Based on the logic of Appendix C, we also calculated fluctuations in the shares of different export patterns in 2005– 2012 (see Appendix D). Although international business literature has paid the most attention to slow internationalizers and born globals, according to our data (see also Table 2), their share is very small: less than 1% and 5%, respectively. In Estonia, moderate internationalizers form the dominant group of exporters in all time periods: in 1998–2012, their share fluctuated between 33.1% and 66.3%. Most firms enter only a few culturally and geographically similar markets (for instance, in 2012, new exporters entered 1.46 markets on average in their first year while more experienced exporters were active on 2.39 foreign markets; see Table 1)14, but, due to the small size of the Estonian market, most moderate internationalizers start exporting already in the first years of activity: thus, they can be categorized as very fast moderate internationalizers. We can also conclude that a downward trend is evident in the share of complete de-internationalizers, and somewhat less in case of partial de-internationalizers and serial nonlinear internationalizers. In addition, we found that partial de-internationalization is more frequent than complete and partial re-internationalization is also more frequent than complete. To some extent, business cycle developments could explain these dynamics, but also, it has to be taken into account that data from more recent years encompass many young exporters – for instance, 2870 firms started exporting in 2012 and 6315 in 2011 (see Table 1) – and these have not had time to de- (and re-) internationalize yet. Finally, the share of born internationals is on the average on a downward trend while the share of late global and international starters is increasing and the 14 Masso and Vahter (2015) found that among Estonian first-year exporters, the most common strategy was entering a single market with a single product.

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share of born globals, reborn globals and reborn internationals has fluctuated considerably but again, data from more years are needed to find out how these firms will develop in the future. In addition, preference of some internationalization patterns may be affected by managerial characteristics/preferences, but, due to data limitations, we could not check that.

5. Conclusions In this paper, we identified 13 main types of export patterns and 11 sub-patterns. Our classification contributed toward filling the research gap of internationalization process research in international business, entrepreneurship and marketing literature as so many internationalization patterns have not been identified before and it has not been found out how many firms belong to allthese types. We also developed a classification tree (see Appendix C) for identifying different types of internationalizers. This tree should be used regularly as a firm’s category may change: for instance, even if it is currently a slow internationalizer, born global or late international starter, it may de-internationalize, later re-internationalize either partially or completely; and, thereafter, de- and reinternationalize again and thus, become a serial nonlinear internationalizer. This is also an important implication for managers and policy-makers: they should understand that not all firms retain their status quo. Thus, they should adjust their strategies/policy measures according to changed circumstances and firm status: for instance, re-internationalizers might need different assistance and use different entry strategies than first-time internationalizers. In addition to developing a classification of export patterns, this paper also contributed to the internationalization process literature by studying nonlinear internationalization and showing that it is a prevalent type of internationalization in Estonia. Firms that have experienced export decline have not been studied as actively as other internationalizers although Vissak (2010) proposed that nonlinear internationalization could be the most frequent

internationalization form. Her study was based on four cases, while our study was based on a population of Estonian exporters and we confirmed that 69% of Estonian exporters (excluding 1styear exporters) reduced or stopped exporting to at least one market and that 58% of exporters only exported for a year. Thus, more attention should be paid to supporting existing exporters as encouraging all firms to start exporting will not guarantee that they will continue exporting for many years. We also found that true born globals and traditional (slow) internationalizers were relatively rare: many firms started exporting soon after foundation but had a low export share and/or a small number of export markets. Such firms need further research attention but, due to a large export concentration – in 2012, 88.1% of Estonian exports came from 10% of exporters – supporting them will not necessarily result in considerable export increase. In the future, researchers should also study how often different internationalization patterns occur in other countries and regions as well as in different sectors and industries, among smaller and larger, local and foreign-owned firms as this would provide helpful insights for policy-makers, managers and researchers. Future research should also pay more attention to the differences and similarities in these groups’ productivity and other financial indicators. Also, it needs more research attention how and why firms switch between different categories of internationalizers (for instance, why born globals de-internationalize and why some later become reborn globals or serial nonlinear internationalizers) and which foreign operation/entry modes they use, which markets they prefer for (re-)entry and which internal and external (f)actors – for example, cultural differences, logistics costs, the host country’s institutional environment or personnel changes – affect them. Acknowledgments The research was financed by the Estonian Science Foundation’s Grant No. 8546 and institutional research grant of the Estonian Ministry of Education and Research No. IUT20-49.

Appendix A. Criteria for classifying exporters: main types Type

Years from foundation before initial foreign entry

Number of foreign markets since initial internationalization (for types 2 and 3, since foundation)

Slow internationalizers

10 or more

1 or 2 in the 1st year, others later 3 or more in 3 years since foundation 3 or more in 3 years since foundation 3 or more in 3 years

Location of foreign markets

Closest or similar in first 3 years, others later 3 or less 1 or more outside home continent in 3 years 3 or less None outside home continent in 3 years 10 or more 1 or more outside home continent in 3 years 10 or more 3 or more in 3 years None outside home continent in 3 years Any combination that is not in accordance with types 1-5

Born globals Born internationals Late global starters Late international starters Moderate linear internationalizers Complete de-internationalizers

Partial de-internationalizers

Export share during 1st 3 years of internationalization

Any exits?

Any reentries?

Less than 25%

No

No

25% or more

No

No

25% or more

No

No

25% or more

No

No

25% or more

No

No

No

No

Yes, complete (no exports to any foreign markets after the exit) Yes, partial

No

Any

Any >0

Any

Any

Any

Any >0

Any

Any

No

Type

Years from foundation before initial foreign entry

Number of foreign markets

Location of foreign markets

Export share during 1st 3 years of internationalization

Any deinternationalization?

Any reinternationalization?

Complete re-internationalizers

Any

Any >0

Any

Any

Yes, any

Yes, complete (all previous markets are reentered)

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Appendix A (Continued ) Type

Years from foundation before initial foreign entry

Number of foreign markets

Location of foreign markets

Export share during 1st 3 years of internationalization

Any deinternationalization?

Any reinternationalization?

Partial re-internationalizers

Any

Any >0

Any

Any

Yes, any

Reborn globals

Any

Yes, complete

Any

Any >0 before, but 25% after re-entry

Yes, complete

Yes, after 10 years

Serial nonlinear internationalizers

Any

1 outside home continent after re-entry None outside home continent after re-entry Any

Any >0 before, but 25% after re-entry

Reborn internationals

Any >0; 3 after re-entry Any >0; 3 after re-entry

Yes, partial (not all previous markets are restored) Yes, after 10 years

Any

Yes, any (complete or partial) twice or more

Any >0

Appendix B. Criteria for classifying exporters: subtypes Subtype

Initial internationalization

Any exits?

Any re-entries?

6a. Slower moderate internationalizers 6b. Faster moderate internationalizers 6c.Very fast moderate internationalizers

Internationalized within 7–9 years since establishment Internationalized within 4–6 years since establishment Internationalized in 3 years or less since establishment but is not a born global or a born international Internationalized in 10 years or more since establishment but is not a slow internationalizer or a late global or international starter Any

No No No

No No No

No

No

No exports to at least one market for at least 1 year but not all previous markets Export decrease by at least 25% in at least 1 year in at least one market Exported to > zero markets, then exited all and then entered > zero other markets

No

6d.Very slow moderate internationalizers

8a. Partial with 1 or more complete market exits 8b. Partial with 1 or more partial exits 8c. Sporadic exporters

Any Any

Subtype

Initial internationalization Any exits?

9a. Complete after complete exit

Any

9b. Complete after partial exit

Any

10a. Partial market re-entry after exiting Any (but initially at least two markets completely it has to enter at least two markets) 10b. Partial market re-entry after exiting Any (but initially at least one market partially it has to enter at least two markets)

No No

Any re-entries?

Yes, complete (no exports to any Exports in each market  75% of the previous foreign markets after the exit) maximum value on the re-entry year Yes, partial (see types 8a and 8b) Exports in each market  100% of the previous maximum value on the re-entry year Yes, no exports to Exports in one re-entered markets at least two markets (but not all previous markets) 75% of the previous max value Yes, export decrease by at least 25% in at least two markets

Exports in 1 re-entered markets (but not all previous markets) 100% of the previous max value

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Appendix C The classification tree of export patterns15

INTERNATIONA LIZATION Has the firm experienced any nonlinearities – market exit and/or export decrease from any market by 25% or more – during internationalization? Yes No NONLINEAR INTERNATIONALIZATION Did the firm de- and re-internationalize twice or more? No Yes ONE-TIME DE- AND/ 13. a serial nonlinear OR RE-INTERNAinternationalizer TIONALIZATION Did the firm de-internationalize completely?

OTHER INTERNATIONA LIZATION Did the firm internationalize during 3 years since establishment? Yes No FAST INTERNASLOWER INTERNATIONALIZATION TIONALIZATION Did the firm: 1) enter Did the firm internaother continents, 2) tionalize after 10 or enter 3 or more markets more years of and 3) reach a 25% domestic activities? export share in 3 years? Yes No Yes 1)-3) Yes 1)No, 2)-3)Yes No COMPLETE PARTIAL 2. a born 3. a born 1)-3) No, DE-INTERNATIODE-INTERNA TIOglobal international 1) Yes, 2)-3) No NALIZATION NALIZATION 6. a modeDid the firm re-internationalize? Did the firm rate interYes No Yes No 1) reach a 25% or natiohigher export share nalizer 7. a complete 8. a partial and 2) enter 3 or more de-internade-internamarkets within 3 years 1)Yes, 2) No or tionalizer tionalizer since initial foreign entry? 1) No but it is also not type 1

1) & 2) Yes Did the firm re-internationalize completely? Yes No 9. a complete 10. a partial re-internare-internationalizer tionalizer Was the firm completely local for 10 or more years before re-internationalization and then did it re-internationalize fast (enter 3 or more markets, reach a 25% or higher export share)? No Yes Type 9 or 10 (see above)

REBORN GLOBAL OR INTERNATIONAL TYPE INTERNATIONALIZATION Did the firm enter 1 or more other continents? Yes No 11. a reborn global

15

1) No; and it entered 1-2 markets LATE STARin the 1 st year TER TYPE and closest/ INTERNAsimilar markets in TIONALIthe first 3 years of ZATION internationalization Did the firm enter 1 or 1. a traditional more other continents (slow) internain 3 years? tionalizer Yes No 4. a late global starter (a bornagain global)

5. a late international starter (a born-again international)

12. a reborn international

Start from the box ‘‘INTERNATIONALIZATION’’ and answer the following ‘‘Yes’’-‘‘No’’ questions until identifying the right type.

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Appendix D The classification of export patterns: fluctuations in the frequency of all types in Estonia in 2005–2012 INTERNATIONALIZATION

NONLINEAR INTERNATIONALIZATION 28.1-59.0%

13. a serial nonlinear internationalizer 1.7-4.0%

COMPLETE DE-INTERNATIONALIZATION 7.7-15.4% *

ONE-TIME DE- AND/ OR RE-INTERNATIONALIZATION 26.5-55.0%

PARTIAL DE-INTERNATIONALIZATION 14.4-34.5%*

7. a complete de-internationalizer 1.1-4.0%

9. a complete re-internationalizer 2.9-6.7%

FAST INTERNATIONALIZATION 31.6-64.4%

SLOWER INTERNATIONALIZATION 7.2-10.0%

2. a born 3. a born global international 0.7-4.1% 0.7-1.9%

6. a moderate internationalizer 36.5-66.3%

8. a partial de-internationalizer 10.2-25.3%

10. a partial re-internationalizer 9.9-17.9%

Type 9 or 10 (see above) 13.0-24.4% REBORN GLOBAL OR INTERNATIONAL TYPE INTERNATIONALIZATION 1.3-3.7%

11. a reborn global 0.6-2.1%

OTHER INTERNATIONALIZATION 41.0-71.9%

LATE STARTER TYPE INTERNATIONALIZATION 0.1-0.3%

4. a late global starter (a bornagain global) 0.0-0.1%

1. a traditional (slow) internationalizer 0.2-0.7%

5. a late international starter (a born-again international) 0.1-0.2%

12. a reborn international 0.8-1.9%

*– These numbers do not fully match the numbers in the above box due to not finding out how many reborn globals and reborn internationals should be categorized as full/partial de-internationalizers.

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Please cite this article in press as: Vissak, T., & Masso, J. Export patterns: Typology development and application to Estonian data. International Business Review (2014), http://dx.doi.org/10.1016/j.ibusrev.2014.11.004