Exporting All The Way to Innovation or Maybe Vice Versa
I recently came across an article published in the International Small Business Journal that analyzed the UK Department of Business Annual Small Business Survey. The researchers found a link between exporting and innovation. Their analysis suggests that businesses that export are also characterized by high levels of innovation activity; 43 percent of exporters innovate in products, 27 percent innovate in process, and 21 percent innovate in both.
These results suggest a clear link between exporting and innovation, but they also raise the question of which came first, the chicken or the egg? Is innovation a catalyst to a business’s decision to start exporting, or is it that deciding to export facilitates innovation in a company?
As you can imagine, findings about this connection in academic literature support both possibilities.
Harris and Mofat, two researchers from Glasgow University, researched the links between R&D investment, innovation, and exporting in manufacturing and non-manufacturing firms. They found that innovation increased the probability of exporting products and services, while exporting did not have any effect on innovation in either sector.
Salomon and Shaver, researchers from the University of Southern California and the University of Minnesota respectively, researched the connection between exporting and innovation and found evidence of learning from exporting, meaning that the learning skills developed through the firm’s experience with exporting support its innovation (which translates into greater success).
I would like to focus on the effect Salomon and Shaver found. The “learning from exporting” effect, which refers to the situation whereby companies improve their productivity after entering export markets. Companies that enter new markets learn and develop new capabilities, not only directly through the buyer-seller relationship, but also indirectly through increased competition with new and unknown players.
Exporting at its essence is somewhat of a gamble; you cannot surely know how it will go until you try. Therefore, companies that take that leap of faith must be attentive to the changes in the new markets they enter and be creative in reacting to those changes, and that requires innovation both in product and in process.
Does it really matter which comes first in this case? I don’t think so. Even though I’m a firm believer in the implementation of academic knowledge into the business world, in this specific case I do not think it matter which comes first—innovation or exporting. The main conclusion we should take from this is that putting innovation and exporting together is a winning formula.
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