Therefore, there is abundant evidence on who exports and why a firm decides to export. But little is said the behavior of firms once serving foreign markets. Using a detailed emerging economy product and firm-level dataset, this paper explores, using survival analysis techniques, the role of export networks and diversification in the success of firms in foreign markets. The focus is on how firms perform in the export market, as measured by the length of survival, once they have begun exporting. The data is made up of every export transaction registered in Colombia between January 2001 and December 2008.
This paper adds to the literature in various aspects. First, Roberts and Tybout (1997) recognized that “prior experience” in the market is important in the current export decision. Recently, Albornoz et al. (2011) developed a model where they suggest that firms unveil their profitability only after they begin to export. Second, evidence suggests that network effects matter in the export market as the presence of other exporters makes it easier for other firms from the same country to enter into foreign markets (Clerides et al, 1998).
Third, the concentration of exports into few markets has been linked to substantial barriers to entry (Eaton et al., 2004). Lawless (2009) suggests theoretically –with little empirical support– that firms enter major markets first. A similar argument is made by Albornoz et al. (2011). The capacity that a firm has to diversify is linked to the ability of being successful in such markets. Fourth, although the impact of export promotion programs have studied in the past (Volpe Martincus and Carballo, 2008a, 2009), their effect on survival is not clear. We explicitly account for the effect of such programs on the survival of firms.
Our results suggest that product and market diversification significantly increases the odds of survival. We find that market diversification has a larger effect on the hazard rate than product diversification: exporting to an additional market reduces a firm’s hazard rate by around 20%, while an additional product reduces the hazard rate by 1%. Networks, measured by the number of Colombian firms exporting the same product to the same destination in a given month also reduce a firm’s hazard rate. In this case, for each additional 50 firms belonging to the same network the hazard rate is reduced by 2-3%. Other proxies for network, such as export promotion programs or the learning process that a firm has thanks to the experience of domestic rivals abroad reinforces its importance.