The internationalization of the italian supply chain and the relationship with performance: evidence for regional policies

Keywords:

Abstract:

The outline of the research question
Internationalization of firms is commonly recognized as a key factor for economic growth and industrial competitiveness in the globalizing era and, as a consequence, is objective of many public policy initiatives, in particular for small and medium sized firms.
Many national or regional measures have been defined to support either the intention of beginning to internationalize or increasing the limited level of internationalization. Common programs generally extended to SMEs include the diffusion of information about foreign markets, the assistance in contacting brokers or agents, the provision of voucher for participating at international trade exhibitions, the financial assistance such as trade credits or loans, and special incentives such as contributions toward the initial costs of new products. The global value chain theory suggests policies affecting cost saving (production, service link and network-set-up) and resource scarcity are major barriers for internationalization in particular for SMEs’. Besides, public policies for internationalization regard also the attracting of foreign direct investment.
The impact of policies for internationalization has been analysed by many empirical studies, but the efficacy of these measures is still questioned. Their divergent results do not permit a definite assessment.
Policies for internationalization are not good “per se” and not all firms are worthwhile to be supported. For more consistent and fruitful policies, firm selection has to consider their characteristics in terms of size and localization, the type of entrepreneurism in terms of ownership, the level of expertise and positioning in the global value chain, the access of finance in terms of credit scoring. The characteristics of owners and firms need to be taken into account when designing export measures.
This paper contributes to this debate taking into account an essential prerequisite for designing policies in a period of limited resources: that is the relationships between the internationalization expansion of firms and their performance.

The methodology
In literature the relationship between internationalization and growth is largely convincing, the effect on profitability is still ambiguous.
Firms need to know the actual performance of their foreign activities to assess if they have obtained the desirable results. Exporting and FDI are the two main dimensions of internationalization, plus foreign ownership and networking. Literature has generally focused only on one or two of these modes of internationalization or trying to calculate the degree of internationalization. One of the main contributions of this paper is to analyse the joint influences of all these activities on firms’ profitability and test internationalization/performance theories on a large database. Moreover, we have considered international outsourcing as a dimension of internationalization. In particular for SMEs, some scholars have found that most of them start the internationalization process on the sourcing side rather than exporting.
Even more so, national and regional governments are also interested in knowing the results of the firms supported by the measures designed for each mode of internationalization that can have a substantive impact on their specific welfare. However, the effects of internationalization can vary with regard size firm and localization. Another contribution of this paper has been the clustering of the database in order to test the internationalization/performance theories on pinpointed sample and, as a consequence, to highlight and design distinguished policy initiatives.
The methodology adopted in this paper is based on different ordinary least squares models specified so to be more confident in the comparison of the coefficients on the relevance of the independent variables of internationalization, plus control variables, and the dependent variable of profitability. Data refers the period 2008-2014 and the sample counts 2,115 Italian automotive firms. No questionnaires were used to collect the data, but only public databases and internet.

The main results
Firstly, we contributed to literature analysing the joint influences of all modes of internationalization on firms’ profitability and tested internationalization/performance theories on a large database. Our results partially contrast internationalization theories, namely the effects of exporting and networking on profitability. The drawing of the S-curves for FDI and exporting added new research perspectives and the introduction of control variables confirmed the influence of size, credit score and family ownership on firm profitability.
Secondly, we paid attention on exporting as the major area of policy intervention for the positive evaluation on the local economy by governments. The clustering of the database by location and size highlighted some useful peculiarities for policymakers so to better select which firms are worthwhile to be supported and better address the nowadays limited resources. The recommendation is that the beneficiary can be differently identified region by region so to optimize the impact of policies.

Practical implications
Policies to encourage exporting can varies from export promotion expenditure, to collecting information on foreign markets, to building distribution networks and so on. In particular SMEs associate most of these expenditures to sunk costs and make them reluctant in exporting. The types of grants that can be available to firms include capital grants, training grants, rent subsidies, employment grants, feasibility study grants. To counterbalance sunk costs, policymakers can also emphasize the potential learning benefits from internationalization experience. A factor to be considered is the size of the grants. Only large grants can encourage already exporting firms to compete on the international market, but the same measure does not encourage nonexporters to start exporting.
Another aspect to be considered for both further researches and policymaking is the positive effect of international outsourcing on profitability and the interaction with exporting. Manufacturing countries are gradually turning into a bazaar economy that is supplying with a broad range of products acquired in the world in order to exploit advantages related to labour and other production costs.
The possible gains regard not only the creation of jobs in the transforming and assembly phases, but mainly qualified jobs in designing, engineering, marketing and the other services concerned with products. Italy can further increase this role and thus confirm its traditional role of manufacturer country.