Abstract
In this short note we offer a novel quantitative approach to modeling of early stages of firm’s internalization, namely stages of accumulation of export readiness and their export debut. In particular, we introduce a new model of export readiness and offer an explicit way of how the export readiness can be accounted in the company share price. The model considers export readiness as a non-observable intangible asset that changes a firm’s asset dynamics. This, in the framework of an option-based debt-equity Merton model, affects both the equity and debt of the company. The approach also allows one to define the contribution of export readiness to equity price and to find a self-consistent quantitative solution to the problem of optimal export strategy and the corresponding optimal firm’s capital allocation.
Highlights
InternationalizationAccelerated globalization driven by political development, falling trade barriers, development in shipping, and advances in technology, has resulted in nearly 6-times growth in international trade since the 1970s
In this short note we offer a novel quantitative approach to modeling of early stages of firm’s internalization, namely stages of accumulation of export readiness and their export debut
Finding a quantitative solution is not a trivial problem because it requires prediction of future export success, which is difficult for companies that have not entered the export market yet and are only planning to do so. This is the most practically interesting case for the agencies since the highest marginal effect of government support measures comes from these companies, which usually belong to the Small and Medium (SME) sector of the economy
Summary
Accelerated globalization driven by political development, falling trade barriers, development in shipping, and advances in technology, has resulted in nearly 6-times growth in international trade since the 1970s. The Holy Grail of export readiness would be to find an export readiness model that is quantitatively built from both objective and subjective information about the company, such that it would be able to predict future out-of-sample success of the export activity, as well as being able to identify particular problem areas that need to be addressed to increase the chance of this success. It would be good if the model can time the crossing to export, adding a time dimension to the problem, and explaining how the threshold is reached and when. This article is a step in the quest for the Holy Grail
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