Effects of prior market experiences and firm-specific resources on developed economy SMEs' export exit from emerging markets: Complementary or compensatory?

Abstract

Globalization has led to increased competition and risk of business failure for firms venturing abroad over the last decades. A particularly challenging situation is seen for SMEs from developed economies entering emerging markets. We theorize and empirically show that prior market experience with domestic and developed countries helps to reduce the hazard of exit from emerging markets. We further develop competing hypotheses from complementary and compensatory perspectives about the moderating influence of firm-specific resources (reflected by size, productivity and innovation). Using data from all Canadian SMEs having exported to emerging markets between 1993 and 2008, we find that SMEs can compensate for less accumulated experience through being larger, more productive and more innovative. SMEs that lack prior market experience are – with a sufficient set of compensatory resources – thereby able to be resilient in dissimilar export markets.