Does exporting increase business performance or is good performance necessary for exporting?

The existence of a relationship between export activities and firm performance is a widely discussed topic in economic literature. Numerous studies have indeed found that exporting firms achieve better results compared to those operating exclusively in the domestic market. However, this relationship is influenced by a multitude of factors, making it complex to establish the cause-and-effect relationship.

In the literature, there are various interpretations supporting the positive interaction between export activities and firm performance, summarized essentially as:

• Self-selection: exporting firms are those that exhibit a high level of productivity before entering international markets (Melitz, 2003). The fixed costs associated with exporting constitute an initial barrier to entry, so only the most productive and efficient firms can undertake this process, as they are better able to bear such expenses;
• Learning by Exporting: the international competitive context and increased competition stimulate exporting firms to innovate and adopt new management techniques, thereby increasing their productivity to remain competitive in international markets.

Hence, a higher performance of exporting firms compared to non-exporting ones is compatible with both arguments, which can coexist simultaneously. On one hand, more productive firms can effectively overcome barriers to entry into foreign markets; on the other hand, the experience gained in international markets drives these firms to innovate and further improve their performance and ability to compete in the globalized world.

Further insight into this issue can be gained by considering the firm size dimension. Economic literature suggests that internationalization brings significant benefits to firms, regardless of their size. However, firm size influences firms' propensity to export and their ability to fully capitalize on international opportunities. Large firms tend to benefit more from exporting activities due to greater availability of financial and human resources, as well as the ability to exploit economies of scale. Small and medium-sized enterprises (SMEs), and especially micro-enterprises, face greater challenges.

This concept is reflected in analyses conducted in previous articles (see Exporting Companies in Europe: A Comparative Analysis, European Exporting Companies in the Food Sector) regarding the propensity to export among European manufacturing firms: firm size can be an obstacle for smaller firms at the beginning of the internationalization process, while it may be irrelevant for those already established in foreign markets.

Exporting firms demonstrate better performance compared to those operating exclusively in the domestic market. However, this relationship is influenced by a multitude of factors, making it complex to establish the cause-and-effect relationship.

Empirical Analysis: Inferential Statistics to Analyze the Relationship Between Firm Performance and Export Activities

With reference to the above, it is useful to conduct an analysis on European firms belonging to the manufacturing sector to verify the existence of a relationship between firm performance and export activities, supported by data.
Using an inferential approach, it is possible to calculate the correlation between the share of exporting firms (a measure of export activity) and the Business Performance Index, a synthetic measure of firm performance. It is the result of a weighted average between the standardized variables "gross operating surplus" and "labor productivity": a high value of the index means that firms are efficient from an operational point of view and have greater economic sustainability. Conversely, a low index value suggests worse firm performance.

Considering all 27 EU member countries and all size classes, the correlation between the share of exporting firms and the Business Performance Index is weakly positive (0.27), a result that supports what is highlighted in the literature. Particularly informative is the breakdown of this relationship by size class. The table below shows the correlation values between the share of exporting firms and the Business Performance Index after segmenting by firm size.

Correlation between Share of Exporting Firms and Firm Performance, Manufacturing Sector, 2021

From the table, it emerges that the positive relationship, albeit weak, holds for each size class, appearing stronger for smaller-sized firms.
The essentially null correlation value for large firms, however, is due to the low variability of the share of exporting firms (almost all large manufacturing firms export), thereby reducing the contribution of the export factor in explaining firm performance.

Conclusions

The empirical results reflect what is outlined by economic theory, although the analyses conducted so far do not allow us to establish the direction of causality between firm performance and export activity.
These data therefore represent only a preliminary result regarding the relationship between firm performance and exports. The use of more complex data structures, such as microdata at the enterprise level, may provide further analysis insights, highlighting the heterogeneity between exporting and non-exporting firms. This more detailed approach can therefore contribute to a better understanding of the dynamics that influence firm performance in relation to export activity and will be the subject of future research.