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The Direct or Indirect Exporting Decision in Agri-food Firms

Article  in  Agribusiness · March 2014

DOI: 10.1002/agr.21360

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The Direct or Indirect Exporting Decision in Agri-food Firms
Marta Fernández-Olmos
University of Zaragoza, Department of Business Administration, Gran Vı́a, 2, 50005 Zaragoza,
Spain. E-mail: maferno@unizar.es
Isabel Dı́ez-Vial
University Complutense of Madrid, Department of Business Administration, Campus de
Somosaguas, 28223 Madrid, Spain. E-mail: diezvial@ccee.ucm.es

ABSTRACT

Selecting an export channel is one of the most important strategic decisions for any exporting agri-food
firm. This paper presents a unified theoretical framework, integrating the two decisions (i.e., the export
decision itself and the export channel decision) by jointly examining the effects of 1) intangible resources,
2) product quality, 3) firm size, and 4) international experience on the probabilities of these decisions.
Our findings, obtained by analyzing the export behavior of 177 firms in the DOC Rioja (Spain) wine
industry, can help policy-makers understand how they should promote exports and the export channels
for agri-food firms. [JEL: Q170, M200].  C 2013 Wiley Periodicals, Inc.

1. INTRODUCTION

The rapid globalization of economic activity over recent years has greatly enhanced the op-
portunities for selling agri-food products abroad. Exporting is the most traditional and well-
established way for agri-food firms to operate in international markets. Even agri-food firms
with a long involvement in international business still export on a regular and ongoing basis.
The European Union is the world’s largest exporter of agri-food products and it exports high-
quality farm products and other processed agricultural goods. In 2010, the value of the EU’s
agri-food exports exceeded €90 billion, 21% higher than in 2009. This increase in the value of
exports was particularly marked for wine and vermouth (25%), which rose to almost €7 billion
(European Commission, 2010). European food exports to international markets are expected
to increase further as a result of increasing demand, accompanied by heightened interest in
food quality and health.
There has been growing interest in researching the internationalization process for agri-
food firms and over the last decade research on the export performance of agri-food firms
has accelerated (e.g., Fischer, 2010; Chevassus-Lozza & Latouche, 2011). However, there are
a number of significant gaps in the literature. First, compared to other industries, we have
little information about how agri-food firms behave in their international activities and their
export channels (Solana-Rosillo & Abbott, 1998). In addition to deciding to sell in international
markets, firms also have to choose the export channel they want to use for these markets. While
the decision to become an exporter is an important factor affecting a firm’s competitiveness,
the export channel chosen is even more important, as it affects the allocation of resources,
entails more difficulties than distribution channels in the domestic market, and may enhance
the firm’s competitive advantages (Johanson & Vahlne, 1977; Campa & Guillén, 1999; Hessels
& Terjesen, 2010). In addition, each export channel offers a varying level of control which will
affect a firm’s capacity to supply timely and good-quality agri-food products to international
customers and thereby protect their reputation.
The purpose of this paper is to improve our understanding of the export channel decision by
agri-food firms. We investigate which export channels agri-food firms opt for, and whether this is
influenced by differences in firm-specific factors. So we simultaneously consider the decision to
export and the decision about the export channel chosen. The first decision, related to whether
or not to become an exporter, has been strongly linked to a firm’s internal resources. The
international competitiveness of agri-food firms is affected by increasing supply, decreasing

Agribusiness, Vol. 30 (2) 148–164 (2014) 

C 2013 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com/journal/agr). DOI: 10.1002/agr.21360

148
 EXPORTING DECISION IN AGRI-FOOD FIRMS 149

domestic demand, declining public support, and the entry of new producer countries with
innovative production and trade strategies. In addition to the decision to export, firms have to
establish the channel to use for a particular export market, i.e., there is a decision regarding
the way they will export. The choice between direct exporting and the use of intermediaries is
of utmost managerial importance for companies in the wine sector. Agri-food firms therefore
face a difficult dilemma. On the one hand, they may be forced to increase their international
presence to help achieve a return on the expenditures made to establish their market position,
such as brand name, country of origin, and Designation of Origin. On the other hand, during
their early years they may lack the knowledge and resources required to operate viably in
international markets on their own. As a result, agri-food firms may hire export intermediaries
to reduce uncertainties and other risks associated with operating in foreign markets (Hessels &
Terjesen, 2010).
Past research has tended to concentrate either on the decision to export or on the export
mode, and it is rare to find both decisions investigated in the same research paper (Hessels &
Terjesen, 2010). So the existing literature has not paid much attention to evaluating the decision
to export and the decision on which export mode to use as interdependent actions. In order
to take into account the interdependency of these decisions, this study uses a Heckman probit
model to obtain information on the determinant factors in both decisions. This procedure
assumes that these two decisions are sequential but interrelated. So firms first consider whether
to become exporters. Then, and taking into account the reasons that underlie this first decision,
they establish the export mode.
We develop hypotheses that we test using empirical data on wine companies from DOC
Rioja (Spain). Despite the importance of this agri-food sector in international markets and the
growth of exports in this area over the last decade,1 research on this sector in relation to foreign
entry modes in an international context is still limited in comparison to the amount of research
carried out on other manufacturing sectors (see Zhao, Luo, & Suh, 2004; Canabal & White,
2008, for excellent reviews of this literature).
The rest of this paper is structured as follows. The next section reviews the relevant literature
used to develop the hypotheses. The third section sets out the area of research, the variables
used in the analysis, the data collection, and the research method. The fourth section gives the
empirical results, and this is followed by a section discussing these results. The final section
establishes important managerial, theoretical, and public policy implications, and suggests
some avenues for further research.

2. THEORETICAL FRAMEWORK

The purpose of this study is to use a number of agri-food firms to determine the factors that may
explain both their motivation to export and the method they choose for exporting. Previous
studies have found evidence that direct exporting and the use of intermediaries are the two main
alternatives employed by agri-food firms when internationalizing.
Both entry alternatives, direct and indirect exporting, have their own advantages and disad-
vantages, and which is better for a particular firm will depend on a number of different factors.
The use of intermediaries may enable a firm to perform certain export functions better or at
a lower cost than it could if it operated alone, for example, because intermediaries have the
know-how required to enter foreign markets (Li, 2004). This indirect export mode also allows
firms to avoid the direct trade costs of entering international markets and export intermediaries
often help their clients to save the costs associated with searching for new customers and moni-
toring the enforcement of contracts. Companies can also take advantage of the intermediaries’
contacts, experience, and knowledge of foreign markets. However, using export intermediaries
means incurring costs in terms of transaction costs and fees (Acs & Terjesen, 2006). Another

1 In 2011, DOC Rioja’s wine exports reached record levels for both value (€288 million) and volume (92 million

liters).

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150 FERNÁNDEZ-OLMOS AND DÍEZ-VIAL

disadvantage of exporting through an intermediary is the potential loss of control over the
way in which the product is marketed and serviced (Blomstermo, Sharma, & Sallis, 2006).
When first exporting, agri-food companies face a trade-off between indirect exporting and ex-
porting directly themselves in terms of the per-unit revenue, sunk and fixed export costs, and
learning-by-doing from exporting.
In the field of international business, the main theoretical approaches examining export
channel choices reach different conclusions on small- and medium-sized enterprises (SMEs)
that have not been operating in the sector for long, as is the case for the DOC Rioja wineries.
The Uppsala internationalization process model (Johanson & Vahlne, 1977) emphasizes the
importance of experiential knowledge for the subsequent expansion of operations into foreign
markets, as well as the increasing resource commitments in foreign markets (Eriksson, Johanson,
Majkgard, & Sharma, 1997; Johanson & Vahlne, 1977). According to this internationalization
theory, a young company is expected to gain initial experience through indirect exporting before
then exporting directly to the foreign markets. Despite having received empirical support, the
Uppsala model has been criticized for being too deterministic and for its inability to explain
the internationalization of small firms in today’s global market (Andersson, Gabrielsson, &
Wictor, 2004).
Another internationalization theory, the transaction cost economics (TCE) approach, has
been influential as it provides a decision rule for individual entry mode decisions. The firm
is expected to opt for the export mode that minimizes the coordination and control costs
associated with carrying out particular transactions in a foreign market (Madhok, 1997). In
contrast to TCE, the resource-based view is an important internationalization approach that
analyzes foreign entry strategies on the basis of core strategic considerations relating to the
exploitation and augmentation of knowledge and other resources that each firm possesses
(Dhanaraj & Beamish, 2003).
In summary, there are several theoretical approaches dealing with this foreign market entry
choice, including the Uppsala model, transaction cost economics, and the resource-based view.
There is little agreement in the existing literature on which theoretical framework should be used,
since each can offer a different perspective. Madhok (1997) and Sanchez-Peinado, Pla-Barber,
and Hébert (2007) emphasize the complementary explanations provided by these theories when
determining the choice of mode of entry. Accordingly, we use a unifying theoretical framework
within which we analyze different factors to explain our decision model.
Drawing on these internationalization approaches, the following factors are used as the most
significant in explaining both the decision to become an exporter and the entry mode chosen: 1)
firm size, 2) intangible resources, 3) product quality, and 4) international experience (Anderson
& Coughlan, 1987; Campa & Guillén, 1999; Rialp, Axinn, & Thach, 2002; Pla-Barber & Alegre,
2007). A detailed discussion of these effects is presented in the next subsections.

2.1 Firm Size

The relationship between firm size and export behavior has been widely analyzed in the inter-
national business literature (Pla-Barber & Alegre, 2007). The resource-based view, like most
theoretical explanations, suggests that there is a positive relationship between firm size and
exporting (Dhanaraj & Beamish, 2003). Larger firms can better absorb the risks associated
with foreign market entry, have greater economies of scale, and have more financial resources to
overcome the fixed or sunk costs of becoming an exporter (Wagner, 1995; Verwaal & Donkers,
2002; Majocchi, Bacchiocchi, & Mayhrofer, 2005). The generalized empirical evidence is that
larger firms are more likely to export (López & Garcı́a, 2005). Since indirect exporting involves
fewer financial resources than direct exporting (Johanson & Wiedersheim-Paul, 1975), the lit-
erature predicts that smaller firms will prefer the indirect export mode (Osborne, 1996; Rialp
et al. 2002). In other words, the size of the firm is expected to be positively correlated with its
propensity to export to foreign markets in general, and to choose direct exporting in particular.
Thus, we predict that:
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 EXPORTING DECISION IN AGRI-FOOD FIRMS 151

Hypothesis 1. The larger the firm, the greater the likelihood of exporting in general, and of
exporting directly rather than exporting indirectly.

2.2 Intangible Resources

Many studies, mainly those using the resource-based approach, have highlighted the impor-
tance of intangible resources (i.e., those resources based on the specific knowledge of the
firm) for success in international markets (Langlois & Robertson, 1995; Hitt, Hoskisson,
& Hicheon, 1997; Dhanaraj & Beamish, 2003; Fernández & Fuentes, 2009). So some
firms have an excess intangible resource capacity that they can leverage abroad (López &
Garcı́a, 2005). Different intangible resources, such as R&D investment (López & Garcı́a,
2005; Wilkinson & Brouthers, 2006), reputation (Erramilli, Agarwal, & Kim, 1997; Kotabe,
Srinivasan, & Aulakh, 2002), and human resources (Gomez-Mejia, 1988), have been ana-
lyzed to explain both how firms can obtain a competitive advantage and their international
presence.
It is also generally assumed that the greater the importance of intangible resources, the greater
the probability that companies will choose to export directly (Rialp et al. 2002). Researchers
argue that this is because direct exporting allows firms to improve their existing resources
by accessing information and knowledge about foreign markets (Henistz, 2003; Madhok,
1997).
Firms that establish direct export channels have access to valuable information and knowl-
edge about foreign markets in terms of the different national market rules, consumer tastes and
preferences, distribution chains, and external management practices (Majocchi et al., 2005).
In contrast, firms that use intermediaries to sell their products abroad can only obtain this
information and knowledge through the intermediaries. While this is possible, understanding
what the intermediaries have learned about international markets would involve a costly and
time-consuming process (Barkema & Vermeulen, 1998). That is, firms with few existing re-
sources would tend to prefer indirect export modes because with direct export modes the firms
have to incur higher costs of information acquisition and interpretation (Carlson, 1974; Hisey
& Caves, 1985).
According to Autio, Sapienza, and Almeida (2000), firms must apprehend, share, and as-
similate new knowledge in order to compete and grow in international markets where they
have little or no previous experience. However, Cohen and Levinthal (1990) argued that each
firm has its own ability to exploit this information and knowledge of international markets,
which they express in terms of “absorptive capacity.” This absorptive capacity tends to develop
cumulatively and builds on prior related knowledge, such as technological developments in a
given field or even a shared language. Thus, the possession of intangible resources based on
knowledge similar to that to be acquired in international markets improves the capacity of the
firm to take advantage of their direct relationships with international markets (Autio et al.,
2000).
Previous studies, using aggregate data for Spanish agricultural and manufacturing industries,
have found a positive effect for intangible resources on both the likelihood of exporting and the
exporting mode (Rialp et al. 2002; Fuentes, Fernández, & Cano, 2011).
In keeping with Grant (1991), in the empirical analysis we establish three broad categories
of intangible resources: technological, reputational, and human resources. We therefore predict
that:
Hypothesis 2. The greater the firm’s intangible resources, the higher the likelihood of exporting in
general, and of exporting directly rather than exporting indirectly.

2.3 Product Quality

There is growing evidence of the benefits of product differentiation on a firm’s ability to

internationalize. It has been argued that the quality of the products destined for foreign markets
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152 FERNÁNDEZ-OLMOS AND DÍEZ-VIAL

positively affects the probability of becoming an exporter (Crozet, Head, & Mayer, 2011).
There are two straightforward reasons making high-quality/high-price products more export
competitive than low-quality/low-price products. These are that firms incur a fixed cost in
accessing export markets and high-quality products appeal more to consumers (Baldwin &
Harrigan, 2007).
The distribution of high-quality products also affects the probability of direct exporting
(Anderson & Coughlan, 1987; Klein, Frazier, & Roth, 1990; Campa & Guillén, 1999). Trans-
action cost theory posits that the distribution of high-quality products is more likely to require
significant management skills and specific asset investments, such as specialized sales force
training (Williamson, 1985). As a result, prospective consumers rely on the information pro-
vided by the distributor as an indicator of product quality. Therefore, when the firm offers high
levels of product differentiation, direct exporting may be more efficient because it ensures a
higher level of control compared to exporting via an intermediary. There is substantial empiri-
cal support for the use of own export channels with highly differentiated products (Anderson
& Coughlan, 1987; Campa & Guillén, 1999).
However, the previous reasoning is not expected to be confirmed in the wine industry. Wine
is a highly differentiated product sold at a wide range of prices, so consumers face complex
choices when they buy it. The problem, in particular, is that wine is an experience product and
therefore it has a high proportion of attributes that can only be assessed during consumption
(Chaney, 2000). In these conditions of imperfect information about product quality, when
consumers purchase a wine for the first time they do not generally have much of an idea about
the sensorial characteristics of the wine and so will fall back on so-called objective criteria
to assess quality (Speed, 1998; Unwin, 1999; Zanni, Mattiacci, & Nosi, 2005). Thus, previous
literature on the behavior of wine consumers (e.g., Combris, Lecocq, & Visser, 1997, 2000;
Nerlove, 1995; Gergaud, 1998; Oczkowski, 1994) has concluded that the price paid for wine by
consumers is primarily determined by the attributes of the wine that are easily identified and
perceived by them. Or, in other words, by the objective attributes appearing on the label of the
bottle (e.g., region of origin, vintage, producer, grape variety, and alcohol strength). Based on
this argument, price is a good measure of wine quality and is not expected to be affected by the
export channel chosen by the firm.
Hypothesis 3. Firms producing high-quality wine are more likely to export but quality will not
affect the decision on the export channel.

2.4 International Experience

The Uppsala model of internationalization posits that firms increase their commitment to fur-
ther internationalization over time as their experiential knowledge of foreign markets increases
(Johanson & Vahlne, 1977). According to this logic, firms initially begin their international
expansion using low-resource approaches. As they become more experienced in international
sales they acquire knowledge about foreign markets and become more confident about using
higher-control and more resource-intensive entry modes (Eriksson et al., 1997).
Some studies have found that firms with high levels of international business experience are
more likely to choose a high-control entry mode over a low-control entry mode (Ekeledo &
Sivakumar, 2004). Hence:
Hypothesis 4. A firm’s international experience increases the likelihood of it exporting directly
rather than indirectly.
There is also evidence that international business experience does not always lead to full-
control entry modes (Kogut & Singh, 1988; Nakos & Brouthers, 2002). It is possible that
the different ways of measuring international experience have contributed to these ambiguous
results.
Luo and Peng (1999) suggest that both geographical diversity and the intensity of experience
are useful in international business. Based on this research, we include a set of three items
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 EXPORTING DECISION IN AGRI-FOOD FIRMS 153

that measure the intensity and geographical diversity of exports: number of years exporting
(Majocchi et al., 2005), the percentage of a firm’s sales generated from exporting (Bugel &
Murray, 2000; Wu, Sinkovics, Cavusgil, & Roath, 2007), and the number of foreign countries
in which the firm has sold products (Delios & Beamish, 1999; Morgan, Kaleka, & Katsikeas,
2004). The international experience factor was composed of the sum of the scores for each
standardized item.

2.5 Control Variables

To avoid any effect from variables absent from our model we looked at the current literature
(Roper & Love, 2002; Majocchi et al. 2005; Lamin, 2008) and chose to control for the effects
of group affiliation and firm age.

2.5.1 Business Group Affiliation. Previous literature has also examined the impact of business
group membership on the foreign expansion strategies of firms. There are two distinct ap-
proaches in this literature (Lamin, 2008). The first argues that firms belonging to a business
group are more likely to export since the group has more resources than a firm. Thus, belonging
to a group is expected to allow firms to overcome the problem of lacking the resources necessary
to export, such as financial, physical, or human capital resources (Basile, 2001; Roper & Love,
2002). The second research approach argues that firms within business groups learn from each
other and imitate the choice of each other’s foreign entry modes (Lu, 2002; Guillén, 2002).

2.5.2 Firm Age. It is argued in the international business literature that long-established firms
may have accumulated a knowledge stock from which they can build their capabilities and
achieve better leverage to compete in the international market (Majocchi et al., 2005). Interme-
diaries are expected to be particularly helpful for younger firms with little business experience
who thus face a more risky and uncertain path to internationalization (Peng & Ilinitch, 1998).
In contrast, older firms with clear competitive advantages from their market knowledge may
be less likely to need to rely on intermediaries. However, it is also argued that mature firms may
be more rigid and that newly-created firms may be more flexible, aggressive, and proactive in
their access to foreign markets (Lefebvre & Lefebvre, 2001).

3. RESEARCH

Our sample is drawn from the Rioja Qualified Designation of Origin2 (D.O.Ca.) wine market,
which produces wines among the world’s top 100 in 2011 (Wine Spectator). The main data source
used to obtain the list of wineries in the target population was the directories drawn up by the
Regulatory Council of the Rioja Designation of Origin. The data for this study were collected
through the use of a structural survey. All of the individuals asked to fill in the questionnaire
were managers directly responsible for exporting. Surveys were mailed to all the respondents,
along with a letter from the researchers on university stationery explaining the coding systems,
the purpose of the study, and the confidentiality of the replies. Respondents were offered a
summary of the results to encourage them to take part. The survey data collection period
ended in September 2010. The population from which the sample is drawn consists of wineries
that fulfill the following requirements3 : 1) they belong to the Rioja Designation of Origin, 2)
they are wine-making processors, 3) they are required to present accounting information to the
authorities, and 4) they are not cooperatives. In total, the population considered amounted to
211 wineries, from which 177 valid questionnaires were obtained, which represents a response

2 Rioja is the only wine region in Spain to be awarded the highest level in the quality system.
3 The population was drawn from the 2007 list provided by the Regulatory Council of the Rioja Designation of
Origin.

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154 FERNÁNDEZ-OLMOS AND DÍEZ-VIAL

DOC Rioja wineries sample

177

Yes exporƟng No exporƟng

138 39
187

Direct exporƟng Indirect exporƟng

103 35

Figure 1 Sample selection problem.

rate of over 83%. There are 138 exporting firms and 39 nonexporting firms (Fig. 1). Thus, the
sample size does not constitute an important limitation in this study.4
The use of questionnaires has been criticized for potentially leading to nonresponse bias
(Wickramasekera & Oczkowski, 2004). To overcome this bias, we compare known values for key
variables from respondents and nonrespondents (Armstrong & Overton, 1977). A comparison
of responding wineries with the population of all wineries using the chi-square test (P = 0.007)
showed no statistically significant differences between the sample and the population for the
proportion of exporting and nonexporting wineries. Finally, we compared known values for
key variables (measures are explained in the next section) from early respondents and late
respondents. A comparison of early-returned questionnaires with late-returned questionnaires
on a number of variables indicated that no significant mean differences existed between early
and late respondents. Thus, there was no evidence of obvious response bias in the sample.

3.1 Measures

Reliability analysis was done to determine the reliability of the construct international expe-
rience. The international experience items were considered to represent a measure with good
internal consistency if the total alpha value was more than 0.6 (Hair, Black, Babin, Anderson
& Tatham, 2006). Cronbach’s alpha was found to be highly reliable.
Factor analysis was carried out to determine the construct validity of international experience.
The Principal Component Analysis method was applied in the extraction of components, with
varimax (orthogonal) rotation, in accordance with the criteria proposed by Kaiser (components
with eigenvalues of over 1 were retained). The Kaiser-Meyer-Ohlin test and Bartlett’s test of
sphericity were applied to measure the sampling adequacy and appropriateness of the factors
extracted (Brown, 2006). One factor solution was considered to be theoretically more convenient
(see Table 1).
After the formation of the scale with exploratory factor analysis, the model was tested for
item fit by confirmatory factor analysis (Stevens, 1996). The analysis was carried out using Stata
software v. 12 (College Station, TX). This analysis hypothesizes an a priori model of underlying
structure of the target construct and examines whether this model fits the data adequately. The
measurement model fit with the data was checked with approximate fit indexes (Brown, 2006).
Using those indices and consulting accepted standards, we establish that our model represents
the data well enough (Table 1). The variables and their measurements are shown in Table 2.

4 While Anderson and Gerbing (1988) recommend samples of 150 observations, Tabachnick and Fidell (2001) accept

samples of 100.

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 EXPORTING DECISION IN AGRI-FOOD FIRMS 155

TABLE 1. Reliability and Validity in International Experience Assessment

Performance Acceptable Threshold Levels Sample of Exporting Firms

Reliability analysis
Cronbach´s alpha value >0.6 0.673
Exploratory Factor Analysis
Kaiser-Meyer-Olkin test (KMO) KMO value>0.5 KMO = 0.599
Bartlett´s test of sphericity P-value less than 0.05 P-value = 0.000
Principal Component Analysis Components over 1 must be retained Component 1 = 1.362
Varimax Rotation Component 2 = −0.002
Components of Eigen Values Component 3 = −0.237
Confirmatory Factor Analysis
Root Mean Squared Residual RMR<0.05 0.000
(RMR)
Root Mean Square error of RMSEA<0.08 0.000
approximation (RMSEA)
Comparative fit index (CFI) CFI> 0.9 1.000
Tucker-Lewis fit index (TFI) TFI>0.9 1.000

TABLE 2. Operational Measures

Independent Variables Definition of Measures References

Firm’s size Logarithm of average capacity Benjamin & Podolny, 1999.

Intangible resources
• Technological resources
• Reputational resources
• Human resources
Product quality
International experience
Control Variables
Business group affiliation
Firm’s age
The ratio of research and development
expenditures to sales
The ratio of advertising and
promotional expenditures to sales
The proportion of the firm’s employees
with university degrees
Average price of wine: the ratio of
value of sales to volume of production.
One factor measured by three items:
– Percentage of sales abroad
– The number of years that the firm
had been exporting
– The number of export countries
served
Dichotomous variable: GROUP = 1 if
the firm belongs to a business group
Logarithm of the number of years of
experience in the wine-making activity.
Erramilli et al., 1997; Lu & Beamish,
2004.
Delios & Beamish, 1999; Qian, 2002;
Lu & Beamish, 2004;
Plechero & Chaminade, 2010.
Information of the value of sales from
the SABI (Sistemas de Análisis de
Balances Ibéricos) database
Majocchi et al., 2005;
Bugel & Murray, 2000; Wu et al., 2007.
Delios & Beamish, 1999; Morgan
et al., 2004
Basile, 2001
Majocchi et al., 2005; Pla-Barber &
Alegre 2007

3.2 Methodology

The export channel decision involves a two-stage process: first, deciding whether or not to export
and, second, deciding whether to export through a particular channel, or, in other words, direct
versus indirect export channels. This leads to a sample selectivity problem (Fig. 1). Only those
who decide to export will choose a channel, but we need to make inferences about the export
channel of the winery population in general. This implies the need to use Heckman’s sample
selection probit model.
The direct exporting category includes wineries primarily selling to foreign customers
or foreign middle-men/agents/distributors directly or through a company-owned sales-
force/distribution channel located overseas. In this category, the key aspect is that the winery
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156 FERNÁNDEZ-OLMOS AND DÍEZ-VIAL

has almost complete control over the activities needed to carry out all phases of the marketing
in foreign markets. In contrast, with indirect exporting the winery exerts little or no control over
the marketing of the wine. This category includes wineries primarily selling to a middle-man,
agent, or distributor in foreign markets who export for the wineries.
The modeled export channel decision was simplified to the dichotomous choice for two
reasons. First, most wineries in our sample use the same exporting mode (direct or indirect) for
all their exports, but ∼10% of wineries do not use the same exporting mode, i.e., they have both a
direct export channel and an indirect export channel through independent foreign distributors.
Thus, we should distinguish between wineries that only export indirectly, wineries that only
export directly, and wineries that export directly and indirectly (Abel-Koch, 2010). However,
given the small size of our sample and, hence, the small number of observations in this mixed
category, we only distinguish between direct and indirect exporting. For those wineries that use
both channels, following He, Brouthers, and Filatotchev (2013), we chose the category used in
their most important export market.
Second, most empirical internationalization work measures export channel choice as a dis-
crete event, that is, exporters choose to either export directly or export indirectly (see, e.g.,
Ramaseshan & Patton, 1994; Hessels & Terjesen, 2010; Li, 2010; He et al., 2013). On this point,
we are supported by a previous debate among several individuals with a clear understanding of
the activity who reported that direct exporting and the use of intermediaries are in reality the
two predominant alternatives employed by Rioja wineries to sell their wines abroad. In short,
our model mirrors what Rioja wineries actually do.
First, we need to investigate the determinants of the export decision. Access to exporting is
estimated using a probit model where the dependent variable yi is a dichotomous (1,0) variable
indicating whether the i-th firm exports or not. The decision to export is assumed to be explained
by a set of characteristics xi , as given by the following equation:

y∗i = β  xi + εi (1)

Where β is a vector of parameters to be estimated, εi is a random error term and:

 
0, if the firm i decides not to export
yi = (2)
1, if the firm i decides to export

Second, we analyze the determinants of the entry mode chosen. We consider that this variable
is the result of the exporting firm’s previous decision (yi ), so it is conditional on the decision the
firms take in the first stage.
Throughout the Heckman specification, we take into account the fact that information about
the choice of direct or indirect exporting is only available for firms deciding to export. The
probit model with sample selection assumes that an underlying relationship exists, with the
latent equation given by:

y∗i = α  Zi + μi (3)

Where α is a vector of parameters to be estimated, μi is a random error term, and:

 
0, if the firm i decides to export indirectly
yi = (4)
1, if the firm i decides to export directly

The dependent variable, however, is not always observed. Rather, the dependent variable is
observed if:

yobserved
i = (y∗i > 0) (5)
Agribusiness DOI 10.1002/agr
 EXPORTING DECISION IN AGRI-FOOD FIRMS 157

With:

εi ∼N(0, 1)

μi ∼N(0, 1)

corr(εi , ui ) = ρ

When the error terms are correlated, that is ρ = 0, standard probit techniques applied to the
first equation yield biased results. Thus, the Heckman probit selection model is employed to
analyze the export channel decision because it provides consistent and asymptotically efficient
estimates for all parameters (StataCorp, 2003).
For this study, the first stage of the Heckman probit model considers whether firms decide to
export or not; this is the selection model. The variables hypothesized to influence the decision
to become an exporter and the export intensity include technological resources, reputational
resources, human resources, product quality, firm size, business group affiliation, and firm age.
The second-stage model looks at whether the firm chooses direct or indirect exporting, and
this is conditional on the first stage, that is, on having decided to export. This second stage is
the outcome model. For the outcome equation, it is hypothesized that the relevant factors are
firm size, technological resources, reputational resources, human resources, product quality,
international experience, business group affiliation, and firm age.

4. RESULTS

The results of our Heckman probit estimation are shown in Table 3. Looking first at the Wald
test, it suggests that the model is congruent given that the estimated parameters are jointly
significantly different from zero (Pr > χ 2 = 0.000). Turning to the LR test of independent
equations, the correlation coefficient between the two equations (ρ) is statistically significant at
the 5% significance level. This implies that at the conventional level we can reject the hypothesis
that both equations are independent, i.e., the sample selection bias exists. Thus, the Heckman
selection technique is appropriate.
The selection equation shows the results of the first stage of our analysis of the model for
the agri-food firms’ international entry mode choice. The “product quality” and “firm size”
variables are positively significantly related to exporting. One of the control variables, “business
group,” is also significantly related to exporting.
The outcome equation shows the results of the second stage of our analysis. The variables
“firm size,” “reputational resources,” “human resources,” “product quality,” and “international
experience” are significantly related to direct exporting, in the predicted direction.

5. DISCUSSION OF RESULTS

Researchers are showing increasing interest in the internationalization process of agri-food

firms. However, our knowledge of the foreign market entry mode decision for agri-food firms
is still limited. Our goal is to contribute to this stream of research. We find that Hypothesis 2
is partially supported, whereas Hypotheses 1, 3, and 4 are fully supported.
As predicted by the theory, firm size increases the likelihood of exporting, therefore confirming
Hypothesis 1. When it comes to exporting, small wineries are in a more vulnerable position
than large wineries for several reasons. First, most small wineries do not have the volume or
economic power that large wineries have to cut prices in order to gain international market
share. Second, there are some fixed costs incurred when starting to export that prevent many
small wineries from doing so, such as laboratory analyses related to the application of SPS
(sanitary and phytosanitary) measures. Third, exporting is a complicated process involving a
great deal of paperwork and bureaucracy and this discourages low-volume wine exporters.
Agribusiness DOI 10.1002/agr
Agribusiness
TABLE 3. Results of the Heckman Probit

Selection Equation (First Stage) Outcome Equation (Second Stage)

DOI 10.1002/agr
Regression Marginal Impacts Regression Marginal Impacts

Explanatory Variables Coefficients Std. errors dy/dx Std. errors Coefficients Std. errors dy/dx Std. Errors
158 FERNÁNDEZ-OLMOS AND DÍEZ-VIAL

Firm’s size 0.474∗∗ 0.135 0.102∗∗ 0.027 0.496∗∗ 0.130 0.191∗∗ 0.048
Technological resources 0.043 0.026 0.009 0.006 0.078∗ 0.031 0.030∗ 0.012
Reputational resources 0.017 0.030 0.003 0.006 0.045 0.036 0.017 0.014
Human resources -0.188 0.537 −0.040 0.115 1.852∗∗ 0.720 0.714∗∗ 0.274
Product quality 0.201∗ 0.087 0.043∗∗ 0.016 −0.064 0.054 −0.025 0.021
Factor 0.250∗∗ 0.088 0.096∗∗ 0.034
Business group 0.962∗∗ 0.343 0.166∗ 0.050 0.094 0.288 0.036 0.110
Firm’s age 0.135 0.146 0.029 0.031 −0.191 0.138 −0.074 0.053
Constant −6.863∗∗ 1.883 −6.656∗∗ 1.801
Total observations: 158 Censored observations: 36 Uncensored observations: 122
Wald Chi square 41.36 Prob > chi2 = 0.0000
LR test of indep. Eqs. 8.42 Prob > chi2 = 0.0037
Note: ∗∗ , ∗ Significant at 1%, 5% probability levels, respectively. Marginal effects with delta method. Although 187 firms answered the sample, not all the firms appear in
SABI basedata. For this reason, the final number of observations in the model is 158 firms.
 EXPORTING DECISION IN AGRI-FOOD FIRMS 159

Likewise, the coefficient is positive and highly significant in the second stage of the model.
This result coincides with those previously obtained by other authors (for example, Rialp et al.,
2002; Hessels & Terjesen, 2010), confirming that larger firms are more likely to export using
the direct mode.
Hypothesis 2 stated that the greater the intangible resources, the more likely it is that agri-
food firms will enter foreign markets, and choose a direct export channel rather than an indirect
export channel. Nevertheless, some of the resources do not play a significant role. The results
for reputational resources are not supported in our study. This may be because firms in the agri-
food sector tend to rely on geographical appellations to identify the quality of their products,
and these regional brands have played a particularly crucial role in the viticulture industry (e.g.,
Bordeaux, Champagne, Chianti, Napa Valley, and Rioja). Thus, it could be that for the wine
industry, a strong regional brand provides more visibility in export markets than a multitude
of individual brands.
We did not find technological resources to be statistically significant in terms of the export
decision but we found a slight relationship with direct exporting. One possible explanation
for this is that the agri-food industry has traditionally been a low-technology sector and as
a result innovations are less relevant when it comes to improving the competitive position in
international markets. However, as we expected, wineries that pursue innovation and invest in
research and development for new wines (e.g., signature wines) are more likely to export directly
because this option will allow them to discover the specific preferences of each consumer group
and to understand consumers’ opinions about their wines, their acceptance of them, and their
intention to purchase them.
We also find no evidence that firms that employ more highly educated workers are more likely
to export. One possible explanation could be the existence of many export assistance programs
provided by public sector institutions5 which assist domestic firms with the export process.
We found a positive marginal effect for the proportion of skilled labor in DOC Rioja wineries
on direct export choice. This is in line with findings from past research that indicate that the
abilities developed by highly educated employees, such as speaking foreign languages (Knowles,
Mughan, & Reason, 2006) or understanding new technologies (Bojnec & Ferto, 2010), make it
easier for firms to establish direct export channels.
In keeping with Hypothesis 3, the marginal coefficient of product quality is positive and
significant in the selection equation. This finding supports the earlier work of Fischer (2010),
who stated that high-quality wine clearly played a significant role in the wine exports of some
countries, including Spain.
Likewise, as hypothesized, our results indicate that wine quality does not affect the export
channel choice. This line of argument is supported by those authors who argue that objective
variables, instead of the sensorial variables assessed by a jury of specialists, influence personal
choice at the moment of purchasing the wine, above all when it is bought for the first time
(Charters, Lockshin, & Unwin, 1999; Unwin, 1999).
In analyzing Hypothesis 4, our empirical results seem to suggest that international experience
plays an important role in affecting the export channel choice made by wineries. The results of
the outcome equation indicate that the probability of a firm choosing to export directly increase
as its international experience increases, a result predicted by the theory and observed in other
empirical studies (e.g., Merino & Salas, 2002).
With respect to the control variables, the “business group” variable was only statistically
significant in the first stage. This result indicates that wineries that are part of a business group
are more likely to export, which is consistent with Basile (2001). “Firm age,” a normal control
variable in international business empirical studies, was not significant in either of the equations
in the model. This echoes the contradictory results generally obtained by other authors (for
example, Majocchi et al., 2005; Fryges, 2006; Pla-Barber & Alegre, 2007; Hessels & Terjesen,
2010). Other researchers have suggested controlling for the age of the entrepreneur in order to

5 The Spanish Institute of Foreign Trade (ICEX) and the Spanish Chamber of Commerce are the most important

institutions in this field.

Agribusiness DOI 10.1002/agr

160 FERNÁNDEZ-OLMOS AND DÍEZ-VIAL

shed light on the export behavior of SMEs. However, the results obtained by these studies have
also proved inconclusive (Welch & Weidersheim-Paul, 1980; Oviatt & McDougall, 1994).
It has been argued in the literature that entering a foreign market and selecting a distribution
channel for exporting the products are two complex and difficult decisions that have clear
implications for the success of the firm in international markets (Madhok, 1997; Rialp et al.,
2002; Root, 1994). Taking into account the return on assets (ROA) and return on equity
(ROE) ratios as measures of performance, we tested the relationship between exporting and
performance by using the Wilcoxon signed-rank test.6 Our results suggest that there is no
statistically significant difference between the underlying distributions of the performance (ROA
and ROE) of exporting wineries and the performance of nonexporting wineries. Likewise, we
tested the relationship between export channel choice and performance but no concluding
results have been obtained. These results are consistent with previous studies: while some
have found that direct channels are more profitable (Koh, 1991; Lee & Griffith, 2004), other
researchers have found little or no impact for the type of channel on export performance (Chetty
& Hamilton, 1993; Merino & Salas, 2002).

6. CONCLUSIONS AND POLICY IMPLICATIONS

Agri-food firms now play an important role in international business, yet existing international
research has tended to ignore the specific factors influencing their decisions about whether to
export and how to export. In this study we addressed both of these issues. First, we set out to test
an integrative theoretical approach to an agri-food firm’s international export mode choice and
to provide a useful tool for managers of agri-food firms when making decisions about exporting.
Second, we increased our understanding of the relationship between the strategic decision of
whether to export and the operational decision of how to export. The paper introduces a more
realistic selection model, in which the export decision and the export mode choice are made
sequentially, rather than independently as past research has assumed.
Our empirical analysis uses a representative sample of a cross-section of the wine sector
from one of the most important wine regions in Spain, DOC Rioja. Firm-specific factors,
such as firm size and wine quality, were found to increase the likelihood of exporting. Among
the intangible factors, those relating to technological and human resources were found to be
significant predictors of export internalization. In keeping with theoretical expectations, direct
exporting is found to be more likely than indirect exporting as firms develop more international
experience and size.
A methodological contribution made by our study is the use of a Heckman probit model.
Previous research has typically performed probit or logistic regressions. A Heckman probit
model is a more sophisticated method that has allowed us to test both decisions simultaneously.
Likewise, this paper contributes to improving our understanding of the export channel de-
cision by wineries. However, it also highlights some limitations which raise some interesting
possible avenues for future research. First, our study has not revealed any performance impli-
cations from the choice of export channel. Further research should therefore investigate the
profitability implications of export channel choice by looking more closely at different business
models for wineries and by analyzing other theoretical approaches.
Second, one concern of this paper was to test the determinants of the choice of export
channel. However, we do not test whether or not the choice of the export channel affects
variables analyzed as determinants, such as the level of exports or human resources. This is
an important issue, since public policies to increase exports often encourage the creation of
export associations. However, future research could examine whether wine managers could find
benefits (e.g., a positive effect on exports) associated with exporting directly.
Third, in this study we only examined direct and indirect modes of exporting. Although
examining the dichotomous choice between direct and indirect modes of exporting is consistent

6 Results are available upon request.

Agribusiness DOI 10.1002/agr

 EXPORTING DECISION IN AGRI-FOOD FIRMS 161

with past research (e.g., Hessels & Terjesen, 2010; He et al., 2013), our integrated model might be
useful for examining other forms of direct exporting (e.g., foreign-based agents and distributors)
and indirect exporting (e.g., export buying agent, broker, export management company, trading
house, piggyback). This can be accomplished by using a multinomial probit with Heckman
selection analysis, but would require a larger sample size than in the present study. Studies like
these would add to our understanding of the export channel choice in the agri-food industry.
As with all cross-sectional research, the longitudinal effects of the determinant variables
on the export channel strategy remain unexplored. Future research could take a longitudinal
approach. This would allow for testing to establish whether these relationships change over
time.
The results from this study offer several additional implications for export researchers, man-
agers, and public policy-makers. First, export researchers do not, and should not, analyze the
export decision completely independently from the export channel decision. The results indicate
that the decisions on whether to export and how to export are related. Second, wine managers
should understand that they have to invest much of their managerial effort in the purchase
process, to effectively communicate to consumers the benefits of their wine. Finally, this paper
sheds some light on the export channel decision-making process.

ACKNOWLEDGMENTS

This project was supported by the ECO2009–09623 and ECO2011–29445 projects (Ministry
of Science and Innovation, National R&D Plan – Ministerio de Ciencia e Innovación, Plan
Nacional de I+D+i), the CREVALOR group from University of Zaragoza, and CR35/10-A
UCM from Complutense University of Madrid.

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Marta Fernández-Olmos obtained her Ph.D. in 2008 (Extraordinary Award of doctoral thesis from University
of Zaragoza) and is Associate Professor of Business Organization at the University of Zaragoza since 2010.
Research interests are vertical relations and internationalization of small and medium enterprises. The
author belongs to the Crevalor Research Group of the University of Zaragoza. She has published in Applied
Economic Perspectives and Policy, Food Policy, British Food Journal, among others. Research interests are
vertical relations and exporting.
Isabel Dı́ez-Vial is Associate Professor of Political Economy and Strategy in the Business Administration
Department at the Universidad Complutense de Madrid since 2005. She has written about vertical boundaries,
small and medium firm particularities in strategic decisions and clusters. She has published in Journal of
Management Studies, Journal of Small Business Management, Growth and Change, Review of Industrial
Organization, among others. She belongs to a research group, supported with public funding, specialized in
topics related to corporate strategy and clusters.

Agribusiness DOI 10.1002/agr

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