International Business Review 13 (2004) 383–400

www.elsevier.com/locate/ibusrev

Sources of export success in small-

and medium-sized enterprises: the impact of
public programs
Roberto Alvarez E.

Department of Economics, University of Chile, Santiago, Chile

Abstract

This paper analyzes differences in firm exporter performance for small- and medium-sized
enterprises (SMEs). Traditionally, it is argued that these firms face several disadvantages for
competing in international markets. Few studies, however, exploit the fact that successful
exporters exist within this group. Using data for Chilean firms, we study various explana-
tions for differences between sporadic and permanent exporters. Our results suggest that
greater effort in international business, process innovation, and the utilization of export pro-
motion programs contribute positively to export performance in SMEs. In addition, we find
that some forms of intervention are better than others: trade shows and trade missions do
not affect the probability of exporting permanently, but exporter committees show a positive
and significant impact.
# 2004 Elsevier Ltd. All rights reserved.

Keywords: Export performance; Export promotion; Small- and medium-sized enterprises

1. Introduction

International evidence suggests that firm size matters for exporter performance.
Several reasons have been provided to explain why larger firms perform better in
international markets. Advantages associated with scale economies and specializa-
tion, better access to financial resources in capital markets, and improved capabili-
ties to take risks are among these reasons (Wagner, 2001). Also, evidence in

Present address: The Anderson School of Management, University of California, Entrepreneurs Hall,
Suite C-525, 110 Westwood Plaza, Los Angeles, CA 90095-1481, USA. Tel.: +1-310-825-8207; fax: +1-
310-825-4011.
E-mail address: ralvarez@anderson.ucla.edu (R. Alvarez).

0969-5931/$ - see front matter # 2004 Elsevier Ltd. All rights reserved.
doi:10.1016/j.ibusrev.2004.01.002
 384 R. Alvarez / International Business Review 13 (2004) 383–400

Roberts and Tybout (1997) and Bernard and Jensen (1999) regarding the existence
of sunk costs to entering international markets implies that small- and medium-
sized enterprises (SMEs) face greater limitations than larger firms to be successful
exporters.
There are, however, firms within the group of SMEs that have been able to com-
pete successfully in international markets. Yet, few empirical studies exploit this
fact. This paper contributes to the discussion of firm exporter performance in four
ways. First, we compare exporter performance among firms of similar size. Second,
focusing only on exporters, we distinguish between sporadic and permanent expor-
ters. Third, we employ a detailed survey of 295 sporadic and permanent exporters.
This survey collects information about firm activities not traditionally included in
other empirical studies. Fourth, we study evidence in Chile, a country that has
experienced a huge increase in export diversification over the last several decades.
The Chilean experience is useful for other developing countries trying to improve
the international competitiveness of SMEs.
There are two empirical facts that motivate this paper. First, the probability of
exporting is lower for SMEs than it is for larger firms. This resembles evidence
found in other national economies. In the Chilean manufacturing industry, for
instance, only 14% of SMEs have exported goods over the period 1990–1996.
However, more than 74% of large firms have exported goods over the same period.
Second, a reduced number of firms are able to remain as exporters. Among all
exporter firms, only about 20% have exported every year of the period. The per-
centage of successful exporters for SMEs, however, is even lower: only about a 7%
can be classified as permanent exporters. Contrast this with large-sized firms, where
successful exporters represent more than 40% of the firms in this group (Table 1).
The main question we ask here is why some SMEs are more successful exporters
than others firms of a similar size. In the next section, we explore various explana-
tions through the use of special survey directed at sporadic and permanent exporter
firms. In the third section, a Probit model is estimated to identify empirically the
most important determinants of export performance. The fourth section concludes.

Table 1
Exporter status by size for the Chilean manufacturing industry 1990–1996
Export status Small Medium Large
N % N % N %
Non-exporter 4284 86.0 780 48.0 132 25.6
Sporadic exporter 650 13.1 659 40.6 220 42.6
Permanent exporter 47 0.9 185 11.4 164 31.8
Total 4981 100.0 1624 100.0 516 100.0
Sporadic/total exporters – 93.3 – 78.1 – 57.3
Source: Own calculation based on Nationwide Survey of Manufacturing Establishments (ENIA).
Non-exporters are those firms that did not export during any year of the period 1990–1996, sporadic
exporters are those that exported in some year of this period, and permanent exporters are those that
exported in every year of this period.
 R. Alvarez / International Business Review 13 (2004) 383–400 385

2. Possible explanations

In this section, we explore possible explanations for differences in firm exporter

performance. The approach aims to establish if there are significant differences in
firm activities that would explain why some SMEs are more successful than others.
First, we present the data source. Second, we test for the existence of statistical dif-
ferences over four aspects: (i) technological innovation, (ii) international business
management, (iii) manager’s perceptions about obstacles to exporter performance,
and (iv) utilization of public instruments available to SMEs for enhancing pro-
ductivity and technological capabilities, increasing exports, and improving access
to capital markets.
2.1. Data source

The information utilized in this paper was provided by a special survey of

exporter SMEs carried out between June and August of 2001. The sample of SMEs
was chosen from the Annual Nationwide Survey of Manufacturing Establishments
(ENIA) undertaken by the Chilean National Institute of Statistics over the period
1990–1996. Out of all manufacturing plants, this survey concerned exporters classi-
fied as small-sized firms (10–50 workers) and medium-sized firms (50–200 workers).
The sample selection was based on three criteria. First, non-exporter firms were
not incorporated because this significantly raised the cost of the survey. Also, it
would not contribute to the objective of studying why some firms become perma-
nent exporters and why others fail to remain as exporters. Second, micro-
enterprises (i.e. firms with less than 10 workers) were not included since they have
a very low probability of exporting. Third, manufacturing firms were separated
into two main sectors according to comparative advantages of the Chilean econ-
omy. The exporter sector includes firms from food and beverages (311 and 313),1
wood and furniture (331 and 332), pulp, paper and printing (341 and 342), and
chemical products (351 and 352). The other sector includes firms from textiles and
apparel (321–322), and metallic products (381), for which Chile does not possess a
comparative advantage. Export possibilities for these goods still exist, however,
particularly to other developing countries.
The universe of firms is provided for by the Annual Nationwide Survey of
Manufacturing Establishments (ENIA), which we stratified into six groups corre-
sponding to the sectors defined above. For each group, the number of surveyed
firms was chosen from the ENIA universe through a simple random sample with a
margin of error of 5%. This guarantees adequate representation of SMEs.2 Under
these considerations, the total sample was 295 firms, 138 of which corresponded to

1
The figures in parentheses correspond to three-digit sectors of the International Standard Industrial
Classification (ISIC).
2
In statistical terms, 5% means that under the sampling assumptions the sample size was chosen so
that deviations in observed values are no larger than 5% from the ‘‘assumed’’ true parameter, where the
true parameter is the population proportion with an uninformative expected value of 0.5.
386 R. Alvarez / International Business Review 13 (2004) 383–400

sporadic exporters and 157 to permanent exporters. This survey collected infor-
mation on firm characteristics and activities. Firm characteristics were taken for
two years, 1996 and 1999.3
To identify the objective group, exporters were chosen using the information
provided by ENIA for exports over the period 1990–1996.4 Thus, permanent
exporters were defined as those firms that had exported every year in this period.
Sporadic exporters were those that had exported for some year during this period.
In order to update this information, a filter question was included at the beginning
of the questionnaire. This filter question is important because a firm may be classi-
fied as permanent exporter in our database 1990–1996, though it may exit from
international markets after 1996. Thus, the filter question concerned export per-
formance after this year. If the firm exported in the three following years (i.e.
1996–1999), then it was considered a permanent exporter. Otherwise, the firm was
considered a sporadic exporter. Thus, it becomes possible to obtain greater consist-
ency in exporter status. This is defined over the longer period 1990–1999, even
though the survey only provides information for 1996 and 1999.
2.2. Preliminary evidence

In order to test for the existence of significant differences among types of

exporter firms, we estimate the following model:
Inti ¼ a þ bExpi þ dExpi  Seci þ ei ð1Þ
where Int measures the intensity of some action carried out by the firm. This vari-
able corresponds to the answer given by the firm’s owner or manager. The intensity
is measured on a scale as follows5:

0: null intensity
1: low intensity
2: slightly low intensity
3: slightly high intensity
4: high intensity.

Exp is a categorical variable that defines the exporting status of the firm (1 if the
firm is a permanent exporter, 0 otherwise). The interaction between this variable
and a categorical variable for sector (Sec ¼ 1 if the firm belongs to an exporting

3
The non-response rate was higher (43%) in sporadic exporters than permanent exporters (26%). This
is associated with the fact that sporadic exporters were more likely to exit. Both non-response rates are
very similar after correcting for exit.
4
This period is chosen exclusively for data availability. More recent data were not accessible at the
time of the survey. Nevertheless, this is not a problem since exports status was checked again at the
beginning of the interview.
5
This measurement of activity intensity closely follows the Oslo Manual, a commonly used source in
surveys regarding technological innovation by firms. Even this type of measurement is subjective, arising
potential methodological problems, Section 3 shows that our results are not sensible to corrections for
this problem.
 R. Alvarez / International Business Review 13 (2004) 383–400 387

sector, 0 otherwise) allows us to analyze if differences between both groups of firms

depend on sector.
Given that the dependent variable is discrete and ordered, the equation is esti-
mated using an ordered Probit model. A categorical variable by sector to the three-
digit ISIC is also added to capture potential differences in the level of intensity
undertaken by the firms across sectors.

2.2.1. Technological innovation

Technological innovation may affect the export status of a firm by increasing
productivity (and reducing costs) and/or by developing new goods for inter-
national markets. This may be analyzed in the context of firms that compete in dif-
ferentiated product markets. Firms may sell low-quality goods in domestic
markets, but they must upgrade to technologies that produce high-quality goods if
they wish to sell abroad then.
We test for differences in three types of innovative activities: product innovation,
process innovation, and organizational innovation. The results are shown in
Table 2, and suggest that there are differences between both groups of exporters.
Though permanent exporters engage product innovation in greater intensity than
do sporadic exporters, this difference is not significant. However, significant differ-
ences exist for process and organizational innovation. The results show that perma-
nent exporters innovate more than sporadic exporters in outsourcing and the
computer-based modernization of productive processes. With respect to the

Table 2
Technological innovation
Type of innovation Differencea Difference by sectorb
Product innovation
Technological improvements 0.11 0.15
New products 0.51 0.16
Changes in design 0.10 0.10
Changes in packaging 0.43 0.11

Process innovation
Purchases of specialized machinery 0.17 0.09
Introduction of quality control 0.38 0.05
Outsourcing 0.93
0.22
Introduction of information technologies 0.77
0.28

Innovation in management
Introduction of strategic planning 0.60 0.16
Introduction of re-engineering 0.90
0.38
Introduction of total quality 0.69

0.27
Introduction of specialization and role definition 0.54 0.09
a
Corresponds to parameter b in Eq. (1).
b
Corresponds to parameter d in Eq. (1).


Significant at 5%.



Significant at 10%.
388 R. Alvarez / International Business Review 13 (2004) 383–400

introduction of organizational innovation, permanent exporters are more innova-

tive in terms of introducing re-engineering into administrative processes and for
total quality development.

2.2.2. Effort in international business

Differences in export performance may be explained by different degrees of effort
by internationalizing firms. These differences are attributable to firm heterogeneity
in access to information and management capability, among other possibilities.
Kumcu, Harcar, and Kumcu (1995) show that, for Turkish companies, manager
motivation helps to explain awareness of export incentives. Moreover, Spence
(2003) shows that the success of UK overseas trade missions is positively affected
by manager language proficiency.
In the survey, managers were asked about the action intensity of several activi-
ties, such as strategic alliances with foreign and domestic firms, training of workers
in export operations, and promotion of goods abroad. The results are shown in
Table 3. The estimates suggest that permanent exporters are more active than spor-
adic exporters in only two activities: personnel training in exports operations and
obtaining funds for working capital in activity-related exports.

2.2.3. Manager perception regarding obstacles to exporting

One possible explanation for differences in exporter performance is that sporadic
exporters face greater difficulties in their international operations. Some firms may
have good export projects, for instance, but if they face credit access problems in
the financial market, then it is more likely that they will leave international mar-
kets. In addition, some firms may exit due to protectionist barriers established in
foreign markets. These kinds of obstacles have been divided into three types: inter-
nal to firms, internal to country, and external. Results are shown in Table 4.

Table 3
International business management
Activity Differencea Difference by sectorb
Strategic alliances with domestic firms 0.12 0.27
Strategic alliances with foreign firms 0.57 0.002
Hiring of staff qualified in international business 0.49 0.12
Training of workers in export operations 0.88
0.02
Promotion of goods abroad 0.37 0.35
Improvement in information systems for external markets 0.04 0.45
Improvements in negotiation abilities for foreign clients 0.49 0.12
Improvements in external distribution networks 0.10 0.44
Obtaining information and new technologies from 0.20 0.21
foreign clients
Obtaining loans for financing work capital 0.91
0.29
Obtaining loans for financing investment 0.25 0.05
Obtaining loans for exporting 0.30 0.22
a
Corresponds to parameter b in Eq. (1).
b
Corresponds to parameter d in Eq. (1).


Significant at 5%.
 R. Alvarez / International Business Review 13 (2004) 383–400 389

Table 4
Obstacles to exporting
Obstacle Differencea Difference by sectorb
Internal to firm
Shortage of funds for financing investment in work 0.16 0.06
capital
Shortage of funds for financing physical capital 0.37 0.32
Shortage of funds for financing export operations 0.29 0.12
Low-skilled production workers 0.27 0.31
Low-skilled management workers 0.60 0.44
Scarce information about export markets 0.08 0.03
Scarce information about external demand 0.10 0.03
Low-scale production 0.23 0.30
Shortage of funds for promoting goods abroad 0.31 0.16
Internal to country
Low real exchange rate 0.87
0.85

Real exchange rate instability 0.63

0.52


Little availability of export promotion instruments 0.02 0.04
Scarce information regarding export promotion 0.03 0.01
instruments
Scarce information regarding productivity enhancing 0.45 0.27
instruments
Scarce information regarding new technologies 0.54 0.58

Difficulties with domestic input suppliers 0.16 0.23
Low credit access 0.70

0.42
Low associability with other domestic producers 0.15 0.06

External
High tariffs 0.45 0.40
Export quotas 0.29 0.26
Import licenses 0.22 0.27
Environmental barriers 0.71 0.44
Safeguards 0.33 0.44
Unfair competition 0.59 0.67

Subsidies 0.54 0.67


Competitors with preferential access 0.68

0.72

High external transportation costs 0.22 0.41
Changes in legislation in foreign markets 0.09 0.18
Difficulties with external clients 0.05 0.41
Competence in producing high-quality products 0.64 0.72

Low prices in external markets 0.26 0.41
a
Corresponds to parameter b in Eq. (1).
b
Corresponds to parameter d in Eq. (1).


Significant at 5%.



Significant at 10%.

Even the sign of the difference indicates that permanent exporters assign smaller
importance to firm-internal obstacles; the difference between both groups of firms
is not statistically significant. Significant differences regarding the evolution of the
real exchange rate and difficulties in access to financial resources exist, however, for
390 R. Alvarez / International Business Review 13 (2004) 383–400

the case of country-internal obstacles. This implies that a lower and/or unstable
real exchange rate more greatly affects sporadic exporters than permanent expor-
ters. One interesting result is that the interactive variable between status and sector
is positive and significant. This reveals that in sectors of the economy without a
comparative advantage, real exchange fluctuations tend to be a more important
obstacle for sporadic exporters.
With regard to credit access, the evidence indicates that liquidity constraints are
more relevant for sporadic exporters. This finding in and of itself, however, is not
conclusive with respect to a causality relationship. One interpretation is that credit
constraints limit the possibility to remain as an exporter. This is plausible for small
firms that are traditionally more restricted than larger firms. An alternative interpret-
ation is that capital markets associate greater business risk with sporadic exporters,
and lower access to credit may be due to poor export performance in the past.
With respect to external obstacles, there are not important differences between
permanent and sporadic exporters. Permanent exporters associate lower levels of
incidence with almost every obstacle, especially for tariff and no-tariff barriers, but
differences with sporadic exporters are not statistically significant. This implies that
explanations about why some firms are not able to export permanently are not
associated with the existence of trade barriers in foreign markets.

2.2.4. Utilization of public instruments

There are several public instruments that Chilean firms can use to enhance their
productivity and international competitiveness. It can be argued that differences in
export performance are associated with the fact that permanent exporter firms
have used these instruments with greater intensity than have sporadic exporters.
The Chilean public instruments are classified into three groups. First, there are
instruments designed to enhance productivity and technological capability in small
firms. Second, there are export promotion instruments whose objective is to
increase international competitiveness. Third, there are financial instruments estab-
lished to improve credit access for small firms.
In Fig. 1, we show the results for differences in the utilization of these instru-
ments by firm group. The evidence shows that permanent exporters have used
every public instrument more intensively. The most used public instruments have
been the export promotion instruments and those specifically administered by the
National Export Promotion Agency (ProChile). In the case of export promotion,
about 35% of permanent exporters have used this kind of public support. This per-
centage is only about 19% for sporadic exporters. With regard to ProChile instru-
ments, firm participation has been 26.9% for permanent exporters, and 14.5% for
sporadic exporters.

3. Empirical approach

The evidence in the previous section suggests that there are significant differences
in the firm behavior according to exporter status. In this section, we study whether
these factors do in fact explain the differences in exporter status. To do so, we
 R. Alvarez / International Business Review 13 (2004) 383–400 391

Fig. 1. Utilization of public instruments.

define a dependent variable that takes the value 1 if the firm has been a permanent
exporter over the period 1996–1999, and 0 if the firm has been a sporadic exporter.
For the econometric estimation, the following Probit model is used:
PrðYi ¼ 1Þ ¼ Uðb0 Xi Þ þ ei ð2Þ
where U is a normal c.d.f. and X is a vector of covariates.
The explanatory variables used in this estimation regard technological inno-
vation, efforts related to international business, and the utilization of public instru-
ments aimed to increase the competitiveness of SMEs.
Though using a similar methodology, previous empirical studies only distinguish
between exporters and non-exporters. Bernard and Jensen (1999) and Roberts and
Tybout (1997), among others, have found that the probability of exporting is posi-
tively affected by firm characteristics such as age, productivity, worker skill levels,
technological innovation, and foreign capital participation. An important differ-
ence between these studies and ours is the way in which we define export success.
The empirical approach in this paper explores the differences between those firms
that export permanently and those firms that only export sporadically. In addition,
we emphasize the role of three potential explanations for differences between
exporters: technological innovation, efforts in international business, and the utili-
zation of public instruments.
Several papers have addressed the question about how technological innovation
can affect export performance. Roper and Love (2002) find that product inno-
vation has a positive effect on the probability and propensity of exporting in Brit-
ish and German manufacturing plants. Basile (2001) obtains similar results for
Italian manufacturing firms, concluding that the introduction of product and/or
392 R. Alvarez / International Business Review 13 (2004) 383–400

process innovation increases the probability of exporting. Bernard and Jensen

(1999), Wakelin (1998), Kumar and Siddhartan (1994), and Hirsch and Bijaoui
(1985) also find evidence regarding the positive impact of innovation on export
performance.
Export promotion instruments may also have a positive impact on export per-
formance. Evidence on this positive effects is provided by Wilkinson and Brouthers
(2000), Cavusgil and Naor (1987), and Coughlin and Cartwright (1987) for state
programs in the US. In terms of specific export promotion instruments, Spence
(2003) evaluates the impact of overseas trade missions in the UK showing that this
instrument has contributed positively to the generation of incremental sales in
foreign markets. The impact of trade shows has been analyzed by Blythe (1996),
Pfeiffer, Burgemeister, Hibbert, and Spence (1998), and Shipley, Egan, and Wong
(1993). For developing countries, however, there is scarce evidence about the
impact of export promotion instruments.6
There are two potential methodological problems associated with this approach.
First, in our case, it may be argued that some of the explanatory variables are also
affected by the firm’s export status. In fact, firms that export permanently may be
not only more likely to carry out technological innovation, but also to put greater
effort into international business. Our dataset is not detailed enough to explore this
bi-causality phenomenon. Instead, firm panel data would illuminate the impact of
export performance on firm behavior. Our approach, however, explores the impact
of a firm’s decisions on export performance. This is consistent with related inter-
national trade literature that suggests a positive relationship between exports and
firm performance is better explained in an empirical sense by a self-selection
phenomenon (i.e. better firms are able to export), and not by the effect of learning-
by-exporting (i.e. the idea that exporters improve their performance by accessing
new technologies or taking advantages of scale economies).7
The second, and the most important problem, is the endogenous nature of the
utilization of public programs. Following the program evaluation literature, this is
the case of non-experimental design where the treatment variable (i.e. participation
in a program) is not exogenous. We should expect that some firm characteristics
determine a higher or lower probability of participation, and that these variables
may also affect export status. Indeed, it may be the case that export promotion
agencies select firms based on some implicit or explicit criteria. If better firms self-
select themselves or if they are selected by export programs, then the parameter
associated with this variable would capture the impact of unobserved firm char-
acteristics and not a causal effect from promotion to export performance.

6
Exceptions are Alvarez and Crespi (2000), Arslan and van Wijnbergen (1993), and Low (1982).
7
See Clerides, Lach, and Tybout (1998) and Bernard and Jensen (1999) for empirical evidence regard-
ing self-selection. Alvarez and López (2003) find similar evidence in Chilean manufacturing plants. They
argue, consistent with our approach, that the self-selection phenomenon is endogenous; firms entering
international markets have taken previous decisions in order to improve their performance. After
exporting, there are no additional gains in performance.
 R. Alvarez / International Business Review 13 (2004) 383–400 393

There are two methodologies available to face this problem, depending on the
assumption about the selection (or participation) mechanism. One can assume that
the participation decision is carried out over either unobservable or observable
variables by the econometrician. When a rich dataset is available, the second
assumption is more valid. It may be argued that is the case here. In general, certain
aspects of firm decisions, such as efforts in international business and barriers faced
by exporters, are unobservable in databases available to researchers. In this survey,
however, there are a large number of variables that can be used to control for tra-
ditionally unobservable effects.8
Assuming selection on observables, the econometric approach consists of two
steps. In the first step, we estimate a participation equation that aims to identify
which variables influence the utilization of public programs. In the second step,
these variables are included as additional regressors in the outcome equation (or
export status).
The first-step regressions are shown in Table 5. We estimate a Probit model for
two programs: (i) promotion instruments managed by the National Agency for
Export Promotion (ProChile), and (ii) other export promotion instruments avail-
able for firms (FomExp). In the latter category, we have grouped instruments
designed to reduce anti-export bias due to tariffs (such as drawbacks) and those
destined to minimize costs associated with export activity (such as exports credit
insurance).9
To identify which variables to include in this estimation, we ask why firms par-
ticipate in export promotion programs. First, we hypothesize that initial export
performance by firms affects the probability of participating in these programs. It
may be argued that firms exporting few products or selling products to a reduced
number of markets are more likely to participate in export promotion programs.
For these firms, the participation is more useful for opening new markets and for
introducing new products that it is for other firms that are exporting many pro-
ducts to many markets. On the other hand, it may be argued that only firms with
some degree of experience in international markets are aware of the benefits asso-
ciated with export promotion programs. In this case, a better previous performance
increases the probability of participation. Thus, the relationship between partici-
pation and initial export performance is ambiguous. We study the effect of initial
export performance, including export value, the number of exported products, and
markets at the beginning of the period (1996). We also include other firm char-
acteristics such as size and labor skills.
Second, we exploit our dataset by looking for other variables that explain the
utilization of export promotion instruments. We hypothesize that greater effort in

8
For a discussion of these issues, see Angrist and Krueger (1998).
9
Two reasons prevent us from studying the impact of each of these instruments. First, the sample size
is too small to obtain robust results with the scarce number of firms that use each instrument individu-
ally. Second, our objective is more modest. We wish to study whether a system of promotion instru-
ments have a chance of improving export performance in general. Future research may be more directly
aimed at evaluating the impact of different instruments.
Table 5 394
Probit: participation equation
(1) (2) (3) (4) (5) (6)
ProChile ProChile ProChile FomExp FomExp FomExp
Alliance_dom 0.075 (2.19)
0.061 (1.86) 0.061 (1.81) 0.004 (0.14) 0.004 (0.13) 0.011 (0.38)
Alliance_for 0.016 (0.55) 0.021 (0.78) 0.029 (1.04) 0.021 (0.88) 0.021 (0.97) 0.023 (1.02)
Qualified_staff 0.007 (0.21) 0.012 (0.41) 0.024 (0.80) 0.035 (1.25) 0.039 (1.53) 0.042 (1.60)
Training 0.028 (0.96) 0.020 (0.68) 0.017 (0.57) 0.040 (1.57) 0.027 (1.13) 0.025 (1.00)
Promotion_abroad 0.128 (4.06)

0.106 (3.46)

0.102 (3.40)

0.044 (1.50) 0.024 (0.85) 0.007 (0.26)
Inf_system 0.089 (2.37)
0.070 (2.04)
0.056 (1.61) 0.068 (1.98)
0.053 (1.66) 0.039 (1.19)
Negotiation 0.071 (1.88) 0.071 (1.89) 0.067 (1.77) 0.001 (0.02) 0.004 (0.11) 0.008 (0.24)
Ext_distrib 0.039 (1.05) 0.035 (0.98) 0.038 (1.06) 0.002 (0.07) 0.011 (0.36) 0.001 (0.05)
Inf_newtech 0.066 (2.13)
0.072 (2.34)
0.072 (2.38)
0.015 (0.51) 0.019 (0.67) 0.006 (0.22)
Work-capital 0.057 (1.79) 0.058 (1.82) 0.061 (1.80) 0.015 (0.53) 0.010 (0.36) 0.000 (0.00)
Loans_investment 0.048 (1.47) 0.041 (1.23) 0.050 (1.52) 0.019 (0.64) 0.027 (0.93) 0.036 (1.23)
Loans_exporting 0.010 (0.23) 0.015 (0.34) 0.015 (0.34) 0.025 (0.63) 0.011 (0.31) 0.007 (0.20)
Market_inf 0.003 (0.09) 0.002 (0.05) 0.002 (0.06) 0.020 (0.60) 0.021 (0.64) 0.018 (0.57)
Demand_inf 0.053 (1.46) 0.050 (1.35) 0.051 (1.40) 0.005 (0.15) 0.008 (0.25) 0.015 (0.46)
Fund_prom 0.017 (0.65) 0.018 (0.77) 0.023 (0.94) 0.015 (0.67) 0.016 (0.76) 0.020 (0.92)
Sector 0.049 (0.78) 0.034 (0.55) 0.002 (0.03) 0.130 (2.33)
0.110 (1.99)
0.103 (1.86)
Products_1996 0.005 (1.51) 0.005 (1.33) 0.003 (1.73) 0.002 (1.30)
Markets_1996 0.024 (1.90) 0.017 (1.45) 0.037 (2.79)

0.034 (2.59)


Exports_1996 0.000 (2.49)
0.000 (2.90)

0.000 (0.84) 0.000 (1.32)
Size_1996 0.030 (0.97) 0.035 (1.10) 0.003 (0.12) 0.004 (0.13)
Labor_skils_1996 0.384 (1.49) 0.485 (1.86) 0.175 (1.00) 0.253 (1.47)
ProChile 0.202 (3.20)


FomExp 0.241 (3.43)


R. Alvarez / International Business Review 13 (2004) 383–400

Observations 296 296 296 296 296 296

Notes: Reported estimates represent the change in the probability of an infinitesimal change for each independent continuous variable and, by default, the
discrete change in the probability for dummy variables.
Absolute value of z statistics in parentheses.


Significant at 5%.



Significant at 1%.
 R. Alvarez / International Business Review 13 (2004) 383–400 395

international business positively affects the probability of participation; thus, all of

the variables regarding international business management, presented in Table 3,
are included in the estimation.
Third, we test whether firms facing significant obstacles in international markets
tend to use these instruments more widely. We look for the kind of obstacles that
promotion instruments are designed to deal with to identify the relevant ones. Thus,
we include three measures of firm perceptions of obstacles regarding scarce infor-
mation about export markets (Market_inf), scarce information about external
demand (Demand_inf), and the shortage of funds for promoting goods abroad
(Fund_prom). A reduction in these difficulties towards better export performance is
explicitly present in the objectives of export promotion instruments. Particularly,
ProChile’s programs are designed to improve access to information about inter-
national markets and to carry out joint actions by firms, thereby reducing the amount
of resources that each firm would spend individually to promote its products abroad.
The results of this first-step regression, shown in Table 5, suggest that we should
control for three variables related to efforts in international business in the second
step: (i) promoting goods abroad (Promotion_abroad), (ii) the improvement of
information systems for external markets (Inf_System), and (iii) obtaining infor-
mation and new technologies from external clients (Inf_newtech).
The results are mixed with regard to previous export performance. They show
that exports are negatively associated with participation in ProChile, but exported
products are positively associated with the utilization of other promotion instru-
ments. Fist-step estimation also suggests that, in general, both types of instruments
are used in a complementary manner. The probability of using one type of instru-
ments is affected positively by the utilization of the other instrument. We find that
other variables, like size and labor skills, do not affect the probability of using
exports promotion instruments.
In the second-step regression, in addition to control variables identified in the
first-step, we have included as regressors those activities that have been found to be
significant different between both groups as documented in the previous section.10
With regard to technological innovation, we consider the effect of process inno-
vation through outsourcing (Outsourcing), the introduction of information tech-
nologies (Information), and innovation in management through the introduction of
total quality (Quality). To analyze the role of effort in international business, we
include the training of workers in export operations (Training) and obtaining loans
for financing capital work (Work_capital).
The sector-specific effects are controlled for by including a dummy variable if the
firm produces in a sector of comparative advantage (Sector).
The results of using different specifications to estimate the outcome equation
(exporter status) are shown in Table 6. In the second column, we add as a control
firm size (measured as the log of employment) and labor skills (measured as the
proportion of graduate college workers on total employment). The third column

10
I thank both anonymous referees for this recommendation.
396 R. Alvarez / International Business Review 13 (2004) 383–400

Table 6
Probit: exporter status equation
(1) (2) (3) (4) (5)
ProChile 0.055 (0.72) 0.052 (0.69) 0.056 (0.74) 0.116 (1.52)
FomExp 0.270 (3.29)

0.267 (3.22)

0.282 (3.38)

0.295 (3.54)


Outsourcing 0.082 (2.92)

0.082 (2.91)

0.105 (3.43)

0.105 (3.42)

0.100 (3.30)


Information 0.052 (1.72) 0.059 (1.89) 0.030 (0.87) 0.030 (0.86) 0.047 (1.39)
Re-engineering 0.020 (0.58) 0.005 (0.14) 0.027 (0.68) 0.025 (0.63) 0.011 (0.28)
Quality 0.012 (0.43) 0.011 (0.38) 0.012 (0.37) 0.013 (0.40) 0.018 (0.55)
Training 0.097 (2.93)

0.085 (2.57)
0.091 (2.42)
0.094 (2.51)
0.086 (2.24)

Work-capital 0.031 (0.96) 0.030 (0.93) 0.040 (1.03) 0.042 (1.08) 0.033 (0.81)
Promotion_ 0.067 (1.95) 0.067 (1.93) 0.078 (2.02)
0.082 (2.13)
0.067 (1.78)
abroad
Inf_system 0.082 (2.06)
0.078 (1.93) 0.065 (1.47) 0.063 (1.44) 0.047 (1.06)
Inf_newtech 0.028 (0.98) 0.019 (0.63) 0.002 (0.05) 0.002 (0.05) 0.003 (0.08)
Sector 0.139 (1.91) 0.136 (1.83) 0.131 (1.75) 0.132 (1.77) 0.147 (1.98)

Exports_1996 0.000 (2.46)
0.000 (2.15)
0.000 (2.14)
0.000 (2.13)
0.000 (1.88)
Markets_1996 0.061 (3.27)

0.064 (3.28)

0.065 (3.36)

0.066 (3.39)

0.070 (3.49)


Size_1996 0.065 (1.53) 0.074 (1.73) 0.074 (1.76) 0.078 (1.88)
Labor_s- 0.173 (0.68) 0.199 (0.76) 0.215 (0.84) 0.095 (0.37)
kils_1996
Innovation 0.130 (1.62) 0.127 (1.61) 0.100 (1.34)
mean
Effort mean 0.047 (0.37) 0.055 (0.44) 0.020 (0.16)
Observations 296 296 296 296 296
Notes: Reported estimates represent the change in the probability of an infinitesimal change for each
independent continuous variable and, by default, the discrete change in the probability for dummy vari-
ables.
Absolute value of z statistics in parentheses.


Significant at 5%.



Significant at 1%.

adds mean firm intensity for two of the activities considered in the estimation:
technological innovation and effort in international business.11 When doing so, we
control for potential measurement error in the ranking of individual activity inten-
sities. As this ranking is subjective, some firms may overestimate or underestimate
their efforts. The mean by firm plays a similar role to that of a fixed effect in longi-
tudinal or panel data.12 Finally, given that both instruments may be strongly corre-
lated both are included individually in the fourth and fifth equations.

11
For each firm, we calculate the average intensity of 12 innovation indicators (Innovation_mean) and
12 international business indicators (Effort_mean).
12
I thank one anonymous referee for calling attention to this problem. Levin (1988) and Cohen and
Levinthal (1989), for example, have found that including industry means for the qualitative variables
reduces the problem of using subjective measures. This is valid, however, under the assumption that the
bias in the answers has an industry component. If the component is firm-specific, we think that our pro-
cedure is more accurate.
 R. Alvarez / International Business Review 13 (2004) 383–400 397

The results suggest that two activities explain differences in export performance:
processes innovation, through outsourcing, and the training of workers in export
operations. Both positively and significantly affect the probability of exporting per-
manently in each specification. The other forms of innovation, such as the introduc-
tion of information technologies, re-engineering, and total quality, do not impact
on exporter success.13 How do we explain this result, which differs so greatly from
previous studies? First, it may be argued that small firms, especially in developing
countries, are specialized in market niches that do not require large innovative
effort. Second, though previous studies have found a positive impact on the prob-
ability of exporting, they do not explore the effects on being a permanent exporter.
Consistent with previous literature, our findings imply that technological innovation
may be useful to enter international markets. Yet, posterior performance requires
higher innovative action in processes, such as those related to outsourcing.
Other significant variables are firm size and initial export performance. Both posi-
tively and significantly affect the probability of exporting permanently. Within the
SMEs, larger firms have an advantage entering and staying in international mar-
kets, which is consistent with previous empirical evidence (see Wagner, 2001). Inter-
estingly, initial export performance is correlated with posterior exporter success. As
suggested by our results, firms that initially export more and to more markets have
a higher probability of being a permanent exporter. This may reflect the fact that
their exports are more diversified. Thus, they would be less likely to exit from
foreign markets if negative shocks affect their exports to some market in particular.
In terms of ProChile’s instruments, our results differ slightly from previous stu-
dies of Chilean firms. Alvarez and Crespi (2000) have found a positive impact for
such instruments on exports and exported products. In this case, however, the evi-
dence suggests that ProChile instruments do not enable firms to achieve permanent
exporter status. In contrast, these results show that the utilization of other export
promotion instruments help to generate success in international markets. These
two results are robust to different specifications, particularly when both are
included separately in the estimation.
With regard to this finding, we explore the impact of specific instruments mana-
ged by ProChile. In fact, as suggested by Wilkinson and Brouthers (2000) for state-
sponsored US programs, the impact of each instrument on export performance
may differ. In this case, we identify the impact of three different instruments: (i)
trade shows that take place at fixed overseas locations and are designed to estab-
lish contact between exporters and potential foreign clients (Trade_shows),
(ii) trade missions, aimed to improve firm learning about the exporting process
(Trade_missions), and (iii) exporter committees, composed of a group of firms
with common objectives in international business. The main activities for export

13
To check the robustness of our results in the presence of possible high correlation among innovation
activities, we estimate the specification in column 3 including each type of innovation separately. The
results remained unchanged. To save space, here we report the individual coefficients and t-test (in par-
entheses) for each variable; outsourcing: 0.128 (3.59), information: 0.059 (1.52), re-engineering: 0.028
(0.69), and quality: 0.029 (0.86).
398 R. Alvarez / International Business Review 13 (2004) 383–400

Table 7
Probit: exporter status equation
(1) (2) (3)
Trade shows 0.151 (1.82)
Committee 0.143 (2.01)

Trade mission 0.052 (0.65)
FomExp 0.289 (3.46)

0.293 (3.51)

0.280 (3.31)


Outsourcing 0.114 (3.69)

0.108 (3.51)

0.108 (3.44)


Information 0.029 (0.82) 0.033 (0.94) 0.037 (1.04)
Re-engineering 0.023 (0.60) 0.026 (0.65) 0.030 (0.77)
Quality 0.014 (0.41) 0.015 (0.47) 0.016 (0.48)
Training 0.096 (2.57)
0.091 (2.40)
0.092 (2.45)

Work-capital 0.040 (1.02) 0.041 (1.04) 0.040 (1.03)
Promotion_abroad 0.075 (1.98)
0.078 (2.04)
0.069 (1.80)
Inf_system 0.067 (1.52) 0.066 (1.49) 0.069 (1.58)
Inf_newtech 0.005 (0.15) 0.002 (0.05) 0.001 (0.03)
Sector 0.134 (1.78) 0.131 (1.76) 0.133 (1.75)
Exports_1996 0.000 (2.12)
0.000 (2.11)
0.000 (2.13)

Markets_1996 0.064 (3.35)

0.065 (3.34)

0.067 (3.42)


Size_1996 0.072 (1.72) 0.075 (1.78) 0.078 (1.81)
Labor_skills_1996 0.225 (0.87) 0.202 (0.80) 0.161 (0.60)
Innovation_mean 0.140 (1.75) 0.131 (1.64) 0.144 (1.78)
Effort_mean 0.054 (0.43) 0.042 (0.34) 0.046 (0.37)
Observations 296 296 296
Notes: Reported estimates represent the change in the probability of an infinitesimal change for each
independent continuous variable and, by default, the discrete change in the probability for dummy vari-
ables.
Absolute value of z statistics in parentheses.


Significant at 5%.



Significant at 1%.

committees are trade missions, international marketing research, external pro-

motion, participation in international fairs and events, market studies, and invita-
tions to clients, authorities, and experts (Committees). ProChile’s activities aimed
to improve the international competitiveness of Chilean exporters are carried out
largely through these exporter committees.
The results in Table 7 show that differentiation by type of instrument matters to
a proper assessment of the impact of ProChile’s instruments. As suggested by these
results, trade missions and trade shows do not increase the probability of being a
successful exporter. Participation in exporter committees, however, has an impor-
tant quantitative impact: firms that use this instrument have a 14% higher prob-
ability of being a permanent exporter.

4. Conclusion

In this paper, we have analyzed why some SMEs are more successful than
others in international markets. Starting from international evidence about the
 R. Alvarez / International Business Review 13 (2004) 383–400 399

disadvantages associated with size to export performance, we focus on the fact that
some Chilean firms within the SME segment show a superior performance in inter-
national markets.
In the first part, various hypotheses were analyzed in order to estimate an
empirical model that accounts for differences in export performance. The main dif-
ference with previous studies concerns the definition of successful exporters. In this
paper, we are concerned with exporters only, and distinguishing between them as
permanent and sporadic exporters.
In the second part, the econometric results indicate that certain hypotheses are
more plausible as explanation of firm export success. Our estimates show that
effort in international business, particularly with regard to the training of workers,
process innovation such as outsourcing, and the utilization of export promotion
instruments are important sources of success.
The results are significant in terms of public policies formulated to increase inter-
national competitiveness among SMEs. First, it is worth emphasizing that internal
efforts aimed to improve export performance are required to be a successful
exporter. There is a self-selection phenomenon that public agencies should keep in
mind when designing optimal programs. Second, some types of programs work
better than others. In this paper, we find that trade shows and trade missions do
not affect the probability of exporting permanently, but exporter committees show
a positive and significant impact.

Acknowledgements

The author thanks Gustavo Crespi, José Miguel Banavente, Julio Cáceres, Mark
Dincecco, Bernardita Escobar, Ronald Fischer, Pablo Gonzalez, Dominique
Hachette, Gonzalo Islas, Ricardo Lopez, Victor Macias, Patricia Noda, Alejandra
Sanhueza, two anonymous referees, and attendees of seminars at the Department
of Economics, University of Chile, for their valuable comments and suggestions.
This research was funded by the Fondo para el Estudio de las Politicas Publicas
and the National Agency for Export Promotion (ProChile). Erwin Hansen pro-
vided able research assistance. The usual disclaimers apply.

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