Firm Internationalization in CEE Countries: Exploring the Main Determinants

Abstract

The aim of this thesis is to indentify and estimate the impact of firm-specific variables in export propensity and export performance in small and medium enterpises (SMEs) of Central and Eastern European countries, including within this group also the six Western Balkan countries. Therefore, in total this work studies 17 countries of this region. SMEs constuct the majority of the firms in the region, and they are the backbone of these economies; yet, they are the least represented in international trade. The increase of their internationalizaiton in international trade will contribute to the economic growth and development of the region. However, compared to large firms, they lack resources and capabilities and face many barriers that hinder their internationalization. This work indentifies the importance of SMEs in the studied economies and explores the main factors, such as innovaiton capacity, foreign ownership, networks, imports, and so on in export propensity and export performance. Previous studies conducted in this region investigate specific countries. On the contrary, this work conducts a compehensive study, focusing on the whole region and uses the latest survey data of Business Environment and Enterprise Performance Survey of World Bank before the COVID-19 pandemic. The data used for the empirical analysis are cross-sectional data of 2003, 2009 and 2019. The empirical analysis uses an OLS, probit and tobit model and the factor analysis. The probit model is used to measure the impact of firm-specific factors on the probability of SMEs to become exporters. The tobit model measures the impact of these factors on the export performance of SMEs that are already operating in foreign markets through exporting. The conclusion derived from the implemented models demonstrate that firm-characteristics such as firm size, foreign ownership, and labor iv productivity are significant indicators that increase the probability of a certain SME to become an exporting firm/entity the innovation capacity of SMEs creates competitive advantages for SMEs and makes them more likely to enter foreign markets through exporting or increase their exporting performance. Indicators of labor capital such as average labor cost or industry experience of top managers also have a significant impact on export propensity and export performance. Imports are another form of internationalization, and they create opportunities for SMEs to network and gain knowledge about foreign markets. This increases their probability to become exporting SMEs. Networks and collaborations at national and international level compensate for the lack of resources and capabilities in SMEs and enable them to gather information regarding foreign markets. This reduces uncertainty and increases the probability for an SME to become an exporting firm/entity; it also increases their exporting performance; in case they are already operating in foreign markets. These findings fill the gap and extend the literature in relation to this specific field of CEE countries. They contribute, helping managers and policy makers in realizing on the importance of SME internationalization and identifying the factors that make them more likely to export or increase their exporting performance.