Internationalization and failure risk patterns

Abstract

Purpose This paper aims to find out what kind of export and failure risk patterns exist among young Estonian manufacturing exporters and explore their interlinkages. Design/methodology/approach The sample consisted of 208 young Estonian manufacturing exporters. Based on internationalization literature, export patterns were detected with a consecutive three-stage clustering of export sales share from total sales, outside-Europe sales share from export sales and number of target markets, while failure risk patterns were detected by clustering failure probabilities obtained from a universal prediction model. The interconnection of export patterns with financial ratios and failure risk patterns was studied with statistical tests. Findings Six main internationalization patterns existed. In all, 49 per cent of firms exported to a single European market and their export share was constantly very low, while even most of the firms with high export shares (39 per cent of the sample) were also active on one European market. In terms of failure risk patterns, 49 per cent of firms had constantly very low failure risk, while 51 per cent of firms had medium risk. Higher export engagement did not lead to better financial performance or lower failure risk. Originality/value This study is the first to find out if firms following different export patterns are also characterized by specific financial performance and failure risk. In addition, studies encompassing young exporters’ specific target markets and failure risk development are rare. While exporters’ and non-exporters’ financial performance differences have been frequently documented in favor of the former, this study found no such differences for different types of young exporters.

A literature review on CEE firms’ internationalization: success measurement, achievement and outcomes

“…Some authors have used high profitability as an indicator of successful internationalization as being profitable is all firms’ main goal (Bulis et al , 2021; Yang and Niedzielska, 2017). For measuring profitability, various indicators – including return on equity (ROE), return on assets (ROA) and/or return on sales (ROS) – have been used in some studies (Barłożewski and Trąpczyński, 2021a, 2021b) and operating cash flow divided by net sales (Lukason and Vissak, 2016), earnings before interest and taxes (EBITTA), or retained earnings to total assets (RETA) in others (Lukason and Vissak, 2019). In addition, high productivity – for example, value added per employee – has been used as a success indicator (Vranchev, 2022).…”

“…Most authors have agreed that born globals should internationalize (almost) from inception – often also defined as during the first three years since establishment (Daszkiewicz, 2019; Ermolaeva et al , 2019; Sass and Vlčková, 2019). Some have also used additional criteria: for instance, entering one or more markets outside the home continent and/or achieving a 25% or higher export share and/or entering at least three foreign markets (Ciszewska-Mlinarič et al , 2020) during early internationalization (Ermolaeva et al , 2019; Lukason and Vissak, 2019; Vissak and Masso, 2015; Zemplinerová, 2012). Due to using different definitions and datasets, assessments regarding how many firms are born globals can vary considerably.…”