Reference Group to Competitors: Export Behavior of Firms in Transition Economies

Abstract

This paper examines how domestic and foreign competitors, as a reference group or direct competitors, influence export intensity of firms in transition economies. Domestic competitors as reference group better equips the focal firm to compete in the domestic market thereby reducing exports of the focal firm. On the other hand, foreign competitors as reference group encourages the firm to produce better quality products that meet the standards of international markets, thereby motivating firms to increase exports. However, the generic strategies of the focal firm, namely cost-leadership and differentiation strategies, likely turns domestic and foreign firms into direct competitors, respectively. The resulting heightening competition pressure from domestic and foreign competitors likely pressures firms in transition economies to engage in internationalization as an escape strategy by increasing their exports in order to avoid competition pressure within the market. We find empirical support for our arguments using a survey data set from 26 transition economies.