Author:

Keywords:

Social Sciences, Business, Economics, Business & Economics, SUNK COSTS, TRADE, FIRMS, ORGANIZATION, UNCERTAINTY, KNOWLEDGE, ENTRY

Abstract:

Entering a new export destination market is difficult and costly. Firms face a mix of sunk and fixed costs—for instance, to set up distribution channels, learn the institutional or regulatory environment, translate their products’ labels into the foreign language, or advertise their products and monitor regulatory standards (Das, Roberts, and Tybout 2007). While part of these entry costs can be common to all export markets and incurred upon becoming an exporter, others are specific to a given destination country, and justify differences in entry and exit behavior of exporters across countries (see, eg, Eaton, Kortum, and Kramarz 2011), a fact that has stimulated a large literature on the dynamics of firms’ exporting strategies. 1, 2 These country-specific entry costs are mostly related to the service inputs needed to enter the market. 3 It therefore becomes important to understand how firms decide to source service inputs, and how, in turn, this is related to the evolution of firms’ exporting strategies. In this chapter we look at the role of export experience in influencing the firm’s sourcing decision regarding these key inputs. We show that greater experience is related to less domestic outsourcing. We do so by exploiting very detailed firm-level data from France, which include a long panel of balance sheet data, together with transaction-level import/export information. To reduce the magnitude of the fixed cost of exports, firms tentatively enter new markets (or introduce new products in the same market), and commit greater resources only once uncertainty about the destination market profitability has been resolved (see, eg, Albornoz et al. 2012). 4 As a consequence …