Choice of export entry mode by developing economies SMEs

Choice of export entry mode bydeveloping economies SMEs

An empirical investigation of Egyptian SMEsHatem El-Gohary

Birmingham City Business School, Birmingham City University, Birmingham,UK and Cairo University Business School, Cairo, Eygpt

David EdwardsBirmingham City Business School, Birmingham City University,

Birmingham, UK

Riyad EidFaculty of Business and Economics, UAE University, Al-Ain,

United Arab Emirates, and

Juanling HuangBirmingham City Business School, Birmingham City University,

Birmingham, UK

Abstract

Purpose – The purpose of this paper is to add to the accumulative knowledge in the field throughinvestigating the different factors affecting the choice of export entry mode by Egyptian SMEs.An organised examination of the literature related to export entry modes by SMEs is discussed toprovide and develop a clear understanding about the different factors affecting the choice of export entrymode by Egyptian SMEs. Such investigation will help in achieving a deep and reflective understandingof current exporting practises by Egyptian SMEs. The findings indicated that there is very few researchstudies in the literature related to the choice of export entry mode in developing countries in general andthere was no published studies related to the choice of export entry mode in Egypt.Design/methodology/approach – The paper reviews the published literature related to choice ofexport entry mode by SMEs in general and to SMEs in developing countries (e.g. Egypt) in particular.Based on this review and the results of two focus groups, the paper validates a conceptual modelutilising a positivist research philosophy with a quantitative approach, in which quantitative data arecollected based on survey strategy through questionnaires to address different levels of the study.Findings – The findings showed that Egyptian SMEs owners, marketing and sales managers havea limited knowledge in relation to the different available export entry modes. The findings alsoillustrated that SME internal factors, local market factors and target market factors have differentimpacts on the choice of export entry mode and that only small number of Egyptian SMEs conductedan effective and efficient export activities.Research limitations/implications – The paper will provide great benefits for entrepreneurs,policy makers, practitioners, researchers and educators though providing a clearer view and deepunderstanding for the issues related to different factors affecting the choice of export entry modeby Egyptian SMEs.Originality/value – The paper adds to the extremely limited number of empirical studies that hasbeen conducted to investigate different factors affecting the choice of export entry mode by Egyptianand Developing Economies SMEs. Depending on this research, researchers and scholars in the fieldcan have a clearer view to set their attitude towards suitable future research studies which in turn willcontribute to the related accumulated knowledge in the field.

Keywords Developing countries, Export, Market entry mode, SME and export marketing,Structural equation modelling (SEM), Survey research

Paper type Research paper

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/1026-4116.htm

Journal of Economic andAdministrative Sciences

Vol. 29 No. 2, 2013pp. 113-133

r Emerald Group Publishing Limited1026-4116

DOI 10.1108/JEAS-09-2013-0030

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Choice of exportentry mode

IntroductionGlobalisation is a massive unrelenting and forceful process that is unlikely tohalt or reverse. At present, producers not only compete with local and nationalcompetitors but also producers from around the world. Consequently, SMEs mustactively participate in, and cope with globalisation in order to secure businessprofitability and survival. However, in practice, the choice of export activitiesadopted depends upon many enabling factors, including: an understanding of theforeign marketing environment; resources required to work globally; neutralisedmulti-language web sites to successfully reach target customers; cultural barriers;legal barriers; and the type of industry that the SME operates within. Adoptingexport activities may reflect the SME’s international market orientation and the needto compete with bigger competitors in a global free trade market. This researchargues that SMEs increasingly prioritise export activities within strategiesdeveloped and for most, this presents huge opportunities for business growth.However, the implementation of global export activities requires considerableeffort, expertise and consideration of the aforementioned enabling factors thatimpact upon such. This is because, there are also many obstacles associated withdeveloping a global presence (El-Gohary, 2009; Chaffey et al., 2000; Eid, 2003;Duggan and Deveney, 2000; Hamill and Gregory, 1997; Gogan, 1997 and Chan andSwatman, 2000).

The literature reveals that a plethora of studies has investigated factors affectingthe choice of export entry mode by large firms within developed economies.In stark contrast, similar literature in the context of developing countries remainsscant. Accordingly, an investigation into the different factors affecting the choice ofexport entry mode by Egyptian SMEs is needed. This is because Egyptian SMEsare the engine of economic growth and create jobs for an ever-growing population.Geographically, Egypt is an important Arab, Middle Eastern and African countrydue to its economic, political and geographical landscape. The Egyptian economydepends mainly on agriculture exports, media, Suez Canal, tourism, petroleumand gas exports and the transferred income of more than five million Egyptiansworking abroad (mainly in Saudi Arabia, the Gulf area and Europe).

Over the past 30 years, the Egyptian Government started reforming the highlycentralised economy from the 1960s and mid-1970s era into a totally marketliberalisation economy. Accordingly, economic conditions improved considerablyand in 2005, the government reduced personal and corporate tax rates, reducedenergy subsidies and privatised several public enterprises in an attempt toencourage economic growth. Between 2000-2006, the stock market grew dramaticallyand gross domestic product (GDP) grew by nearly 5 per cent (El-Gohary, 2009).Despite these significant achievements, the government failed to raise the livingstandards for most Egyptians and continues to provide subsidies for basicnecessities for the populace. Cumulatively, subsidies and a trading balance deficithave contributed to a growing budget deficit – more than 8 per cent of GDP in 2012(CAPMAS, 2012). According to Trade Economics (2012), Egypt reported a 7.8 billionUSD trade deficit in the third quarter of 2011. To close this deficit and achievehigher GDP, the Egyptian Government must pursue aggressive reform, especially inthe export sectors. The government has injected huge investment in communicationsand physical infrastructure, and encourages expansion within the SMEs sector – thisin response to the current world financial crises and its impact upon the country’seconomic performance.

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It is commonly accepted that SMEs are well distributed throughout the countrywith the majority based around the urban conurbations of Cairo, Alexandria andDamietta. The capital, Cairo has traditionally attracted large public and privateinvestments mainly due to its relatively advanced infrastructure development, theavailability of investment opportunities and the existence of a sprawling marketplace.The Alexandria and Damietta regions are also well known and have a globalreputation for their wood and furniture products, and world-class food products.The Small Business Enterprises Development Law (Law number 141 for the year 2004)represents key legislation that supports Egyptian SME trading. Although the lawintroduced a definition for small businesses it did not define SMEs. Consequently, theEgyptian legal definition for SBEs derived from the Small Business EnterprisesDevelopment Law will be used for the main unit of analysis and the definition ofOmran (2012) for defining SMEs. According to article number (Law number 141/year2004) an SBE is defined as: “Any company or individual firm that conduct production,service or commercial economic activities with a capital no less than 50,000 Egyptianpounds and no more than one million Egyptian pounds and employs 50 employeesor less” (Law number 141/year 2009, article 1, p. 2). Whereas Omran (2012) definesEgyptian SMEs as: “Any company or individual firm that conduct production,service or commercial economic activities with a capital no less than one millionEgyptian pounds and no more than five million Egyptian pounds and employs 51-99employees” (Omran, 2012, p. 6).

Given progressive Egyptian government policies and the availability of EgyptianInternational Trade Points (EITP), a large number of Egyptian SMEs currently export.The EITP is a subsector of the Egyptian Ministry of Trade and Industry (EMTI) whichpromotes Egyptian products and services throughout the world. It achieves this by:utilising different international information networks; promoting and spreading theadoption of E-commerce among Egyptian companies; and providing SMEs withmarket intelligence to help establish the business, produce products and marketthemselves internationally (Egyptian International Trade Points (EITP), 2012).At present, there are 14 EITPs distributed throughout the country:

. three in Greater Cairo (the Egyptian trade point head office, the 6th of Octobercity international trade point and the businessmen international trade point);

. six in the Delta region (Alexandria international trade point, Kafr ElShiekh international trade point, Badr international trade point, tenth of Ramadaninternational trade point, Tanta international trade point and Mansoura internationaltrade point);

. two in Suez Canal region (Ismailia International Trade Point and Port SaidInternational Trade Point); and

. three in Upper Egypt region (Fayoum international trade point, Beni-Suefinternational trade point and Assiut international trade point) (El-Gohary, 2009).

The fundamental problem motivating this study is the need to identify and understandfactors that impact upon an Egyptian SME’s choice of export entry mode. Accordingly,the three main questions posed are: what are the different factors affecting the choiceof export entry mode?; what is the relative importance of each of these factors inaffecting the choice of export entry mode?; and when implementing export activities,what are the different export forms used by these organisations?. By answering these

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questions researchers, scholars and policy makers in the field will have a clearer viewof pertinent issues and how to address these, and be given direction for future researchstudies that will contribute further to accumulated knowledge in the field.

Literature review, conceptual model, methodology and hypothesisedrelationshipsSMEs can chose from a variety of foreign market entry modes when conductinginternational business but these offer different benefits and costs (Sharma andErramilli, 2004). However, Zekiri and Angelova (2011) propose that expansion intoforeign markets can be achieved via the following mechanisms: exporting; licensing;franchising; joint venture; and direct investment. In the case of exporting, SMEscan conduct either:

(1) Direct exporting using the enterprise’s own resources; or

(2) Indirect exporting using the help of an intermediary (Peng and York, 2001).

(3) According to Zhao and Decker (2012), market entry mode choice has gainedsubstantial interest from the research community in recent years. According tothem (Zhao and Decker, 2012), the most common and widely used market entrymode choice models are:

. The Stage of Development Model (SD);

. the Transaction Cost Analysis Model (TCA) (and its extensions);

. the Ownership, Location and Internalisation Model (OLI);

. the Organisation Capacity Model (OC); and

. the Decision-Making Process Model (DMP) (Table I).

The literature review on the different factors affecting entry mode, revealed that themajority of research concentrated on factors such as: brand equity (Lu et al., 2011);financial capability (Lu et al., 2011; Koch, 2001); firm size (Leung et al., 2003; Evans,2002; Nakos and Brouthers, 2002; Agarwal and Ramaswami, 1992; Erramilli and Rao,1993; Chung and Enderwick, 2001; Terpstra and Yu, 1988; Weinstein, 1977); companyresources (Lu et al., 2011; Koch, 2001); type of service/product (Erramilli and Rao, 1993;Ekeledo and Sivakumar, 1998); international experience (Lu et al., 2011; Evans, 2002;Agarwal and Ramaswami, 1992; Terpstra and Yu, 1988; Czinkota and Ronkainen,1995); market share targets (Koch, 2001); management risk attitudes (Koch, 2001);profit and growth goals (Czinkota and Ronkainen, 1995); managerial motives (Czinkotaand Ronkainen, 1995); ability to develop differentiated products (Agarwal andRamaswami, 1992); capital intensity (Erramilli and Rao, 1993); and firm objectives(Koch, 2001; Ekeledo and Sivakumar, 1998). A more limited body of research focusedon investigating external environment (Zekiri and Angelova, 2011; Koch, 2001; Mattooet al., 2001). Table II illustrates examples of the different studies that have researchedfactors affecting entry mode.

Cumulatively, this aforementioned research (vibe Table II) revealed a scarcity ofstudies related to SMEs and those that did, investigated the impact of internal andexternal factors on the choice of entry mode (such as: political environment, legalenvironment, economic environment, risk and uncertainty, customers availability,knowledge of the market and costs) (Albertini et al., 2011; Hessels and Terjesen, 2007).Strikingly, there are no published studies related to the choice of export entry mode

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models and theories onmarket entry mode choice

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in Egypt and almost all related studies were conducted to investigate export entrymode in developed countries. Most of these studies were concerned with direct exportmode and predominantly focused on investigating the different SME internal-relatedand owner-related factors such as: product characteristics (Cavusgil and Nevin, 1981);top management international experience (Eriksson et al., 1997); the SME research anddevelopment-related activity (Lefebvre and Lefebvre, 2002); and the SME ownercharacteristics (Westhead, 1995). A more limited body of research was found to

No. Study Factors affecting entry mode

1 Lu et al. (2011) Asset specificity; brand equity; financial capability;international experience; country risk; cultural distance;government restrictions; market potential; and marketcompetition

2 Zekiri and Angelova (2011) Political environment; risk; legal environment; economicenvironment; market potential and market size; culture;technological factors

3 Leung et al. (2003) Cultural distance; and firm size4 Westhead et al. (2002) Being contacted by foreign customers that place orders;

one-off order (no continuous exporting); the availability offoreign market information; part of growth objective of thefirm; and export markets actively targeted by key founder/owner/manager

5 Evans (2002) Cultural distance; international experience; and firm size6 Nakos and Brouthers (2002) Market size; and firm size7 Agarwal and Ramaswami (1992) Firm size; multinational experience; ability to develop

differentiated products; market potential; investment risk;and contractual risk

8 Erramilli and Rao (1990) Market knowledge; and type of service/product9 Erramilli (1991) International marketing experience; and control

10 Erramilli and Rao (1993) Capital intensity; firm size; country risk; inseparability; andcultural distance

11 Mattoo et al. (2001) Technology transfer12 Chung and Enderwick (2001) Immigrant effect; and market size13 Terpstra and Yu (1988) Market size of host country; geographic proximity of host

country and the home country; firm size; firm’s foreignmarket experience; and oligopolistic reaction

14 Ekeledo and Sivakumar (1998) Type of products; firm objectives; political and socio-culturalfactors; trade barriers; and economic infrastructure

15 Weinstein (1977) Area of the world; stage of economic development; year ofinvestment; and size

16 Czinkota and Ronkainen (1995) Proactive motives:Profit and growth goals; managerial motives; foreign marketopportunities; economies of scale; tax benefitsReactive motives:Competitive pressures; domestic market (small andsaturated); overproduction/excess capacity; unsolicitedforeign orders; extend sales of seasonal products; proximityto international customers/psychological distance

17 Koch (2001) Country market potential; competitive significance of themarket; company size/resources; management locus ofcontrol; experience; market share targets; management riskattitudes; and market barriers; industry feasibility/viability;sufficiency and reliability of information inputs

Table II.Factors affectingentry mode

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investigate the impact of SMEs’ external factors on its export entry mode choice.These studies investigated: government influence (Wilkinson, 2006); and the market,environment and environmental risk (Westhead et al., 2004; Thirkell and Dau, 1998;Axinn, 1988). The most widely investigated factors within the field are: brandequity; financial capability; firm size; company resources; type of service/product;international experience; market share targets; management risk attitudes; profit andgrowth goals; firm objectives; managerial motives; ability to develop differentiatedproducts; and capital intensity. This reflects the high importance of such factors in thechoice of entry mode but also confirms an opportunity to use them to investigate theirimpact upon choice of export entry mode by Egyptian SMEs. To achieve this, focusgroups were adopted to investigate the most important factors.

The focus groupsA focus group is a frequently used research technique in social science, and as Krueger(1995) observed the number of citations of focus groups in health research hasincreased exponentially since the 1980s. Thomas et al. (1995) defined a focus group as atechnique that involves the use of in-depth group interview in which participants arechosen to represent a sample of a particular research population in order to investigatea specified topic. Participants are usually selected based upon the criterion that theyshould have good knowledge about the subject domain (Richardson and Rabiee, 2001;Burrows and Kendall, 1997). The most unique characteristic of group sessionsrelates to group dynamics (Thomas et al., 1995). According to Green et al. (2003), theuniqueness of a focus group is its ability to generate a wide range of different databased on the synergy of the group interaction. Moreover, Thomas et al. (1995) arguesthat the type and range of data generated through the social interactions within thefocus group are often deeper and richer than the data obtained from one-to-oneinterviews. This research used two focus groups to test and filter the factors emanatingfrom the literature to determine what the most important factors were.

The focus group design starts with the determination of focus group participants.The number of participants may vary according to: the nature of the research problem;the experience of the researcher as a leader for focus groups; the complexity of thetopic discussed; and the availability of participants. Some studies provide guidance onthe most suitable number of participants for a focus group, for example, Kruegerand Casey (2000) suggest a number between six and eight participants. Rabiee (2004)argues that a manageable number of participants would be between six and tenparticipants to secure participant diversity and maintain a cohesive group. For thisresearch, two focus groups of seven to nine participants per group were used toelicit desired data as these cohort numbers concurred with guidance from eminentresearchers (e.g. Rabiee, 2004; Krueger, 1995; Krueger and Casey, 2000). Localbusiness directories were used to identify a cohort of 29 academic researchers,SBEs and marketing practitioners within Greater Cairo, Suez and Alexandria whowere approached to participate in the focus groups. Selection criteria used was basedpredominantly upon knowledge of export and export entry modes of Egyptian SMEs –17 of the 29 targeted participants agreed to participate and were stratifiedas follows:

. five academic researchers within Cairo University, Ain Shams University,Alexandria University and Helwan University Business Schools;

. ten SME owners (six from Cairo city and four from Alexandria city); and

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. two marketing practitioners from Egyptian private consultancy companiesbased in Cairo and Alexandria.

Following a consultation with all focus groups participants, two groups were formedconsisting of ten and seven participants and arrangements for two 2.5 hours sessionswere agreed. During each session, the researcher led discussions around key topicsarising from the literature on choice of export entry mode. The sessions wereelectronically recorded so that narratives could be summarised and analysed in somedetail. The focus group sessions were managed to ensure that a suitable relaxingenvironment was created to encourage participants to feel relaxed and proactivelyengage in the discussion.

The research frameworkThe culmination of analysis of data generated from the focus groups revealedthat participants believed only certain factors (sourced from the literature review) have asignificant impact on an Egyptian SME’s choice of export entry mode.Specifically, the factors that they believed drove the choice of export entry mode byEgyptian SMEs are: competition in the target market; target market structure; localcompetitive pressures; local government influences; local market trends; entrepreneurskills and support; SME resources (financial, human and technical); organisation size;cost; type of the product; and international orientation and experience of the SME. Thesefactors were classified into three thematic groupings according to their impact upon thechoice of export entry mode (namely, company-related factors, local market-relatedfactors and target market-related factors). These three factors were used in constructingthe research framework as illustrated in Figure 1.

The research hypothesesBased on the previous discussion, the literature review and the outcomes of the exploratoryfocus group studies, the following hypotheses were constructed. Both the conceptualframework and empirical study are linked together to test these hypotheses:

H1. The choice of export entry mode by Egyptian SMEs is dependent on the SMEinternal-related factors.

H1

H3TargetMarketRelatedFactors

Choice ofexport entry

mode byEgyptian

SMEs

CompanyRelatedFactors

LocalMarketRelatedFactors

H2H4

DirectExport

IndirectExport

Figure 1.The research framework

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H1-A. The choice of export entry mode by Egyptian SMEs is dependent on theSME owner skills and support.

H1-B. The choice of export entry mode by Egyptian SMEs is dependent onthe SME’s available resources.

H1-C. The choice of export entry mode by Egyptian SMEs is dependent on theSME’s size.

H1-D. The choice of export entry mode by Egyptian SMEs is dependent on the typeof products produced and exported by the SME.

H1-E. The choice of export entry mode by Egyptian SMEs is dependent on theSME’s international orientation.

H1-F. The choice of export entry mode by Egyptian SMEs is dependent on theexport-related cost.

H1-G. All of the above (H1A-H1F) cumulatively have a positive impact on thechoice of export entry mode by Egyptian SMEs.

H2. The choice of export entry mode by Egyptian SMEs is dependent on the SMElocal market-related factors.

H2-A. The choice of export entry mode by Egyptian SMEs is dependent on localcompetitive pressures.

H2-B. The choice of export entry mode by Egyptian SMEs is dependent on localmarket trends.

H2-C. The choice of export entry mode by Egyptian SMEs is dependent on localgovernment influences.

H3. The choice of export entry mode by Egyptian SMEs is dependent on the SMEtarget market-related factors.

H3-A. The choice of export entry mode by Egyptian SMEs is dependent oncompetition in the target market.

H3-B. The choice of export entry mode by Egyptian SMEs is dependent on targetmarket structure.

H3-C. The choice of export entry mode by Egyptian SMEs is dependent on targetmarket government influences.

H4. When exporting, Egyptian SMEs depend upon more than one export entry mode.

As depending on more than one export entry mode when conducting export activitiesby Egyptian SMEs might be related to other investigated factors within the current

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study (e.g. SME owner skills and support, SME international orientation, SME’savailable resources, SME size, the type of products produced and exported by theSME, etc.), testing H4 is important to relate Egyptian SMEs exporting practices withthe different factors investigated in this research.

Material and methodsTo validate the conceptual framework for the research, a positivist research philosophywas utilised with a quantitative approach via questionnaire survey. To test researchhypotheses posed a major survey was conducted and structure equation modelling(SEM) (together with other advanced statistical tools) were used to analyze datacollected. The survey questionnaire targeted a random sample of 545 Egyptian SMEsorganisations from a population of 2,722 exporting Egyptian SMEs. The populationframe originated from the Egyptian Ministry of Trade, Egyptian Champer ofCommerce and The Egyptian Cabinet Information and Decision Support Center (IDSC)databases which contained complete information about all the exporting EgyptianSMEs. The population frame contained only organisations that could satisfy theessential requirement to be considered as a valid unit of analysis. Although the samplesize was planned to be determined according to criteria established by Aaker andDay (1986), their sample size equation generated a relatively small sample. Hence, thedecision was taken to randomly select circa 20 per cent of the population as suchrepresents an accepted norm by most researchers within the field whilstsimultaneously increasing sample confidence and decreasing sample error.

A research packet, which contained a covering letter and an anonymous (self-administering) questionnaire, was mailed to the SME owner and/or head of marketingdepartments. This procedure resulted in 197 useful responses or a 37.16 per centoverall response rate; where the response rate calculated used the De Vaus (1991: p. 99)method. The development of the survey instrument was based mostly on scales thatwere newly developed as the researcher could not identify any past studies directlyaddressing the phenomena under investigation. However, and where possible,validated measures that have been previously applied were used. The instrument waspre-tested three times to guarantee that research respondents’ understood researchmeasurement scales used. Upon confirmation, the research survey instrumentwas piloted with a selective sample of the research participants and based uponfeedback provided; the instrument was modified to fully reflect the phenomena underinvestigation.

Descriptive analysisA descriptive analysis of data collected found that the majority of organisationswere located in Cairo (60.4 per cent), followed by Alexandria (22.3 per cent) and Sinai(1.5 per cent) – the remainder were uniformly distributed around the country.In addition, the majority of participating organisations (98.4 per cent) were localorganisations while 1.6 per cent was international organisations (owned by non-Egyptian owners). The research sample was distributed among eight differentbusiness sectors with the largest number of organisations in the food and agriculturalproducts sector (n¼ 125 or 63.4 per cent), followed by the traditional Egyptianproducts sector (15.6 per cent), the industrial sector (13.2 per cent) and the remainderspread across the remaining five sectors. Companies were classified into three mainbusiness classification namely: Business-To-Business (B2B), Business-to-Consumer(B2C) and both (B2B and B2C). With regards to the number of employees, the majority

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of organisations (n¼ 112 or 56.8 per cent) fell into the category of enterprises thatemploy 10-49 people (SBEs) followed by the category of enterprises that employ 50-99people (85 enterprises with a percentage of 43.1 per cent). The majority of organisations(n¼ 49 or 24.8 per cent) had o1,250,000 Egyptian Pounds (LE) of annual salesfollowed by 15.7 and 13.1 per cent that generated annual sales of LE 1,250,000-1,499,000 and LE 5,000,000-9,999,000, respectively. In addition, the majority of studyorganisations had a marketing budget that is between 10-20 per cent of total enterprisebudget (n¼ 109 or 55.3 per cent) and most of the research organisations were inbusiness for more than 20 years (n¼ 136 or 69 per cent). It was also found that themajority of organisations (35.4 per cent) had a capital of 750,000-1,000,000 LE.With reference to individual participants, it was found that the majority were: theorganisation’s marketing managers (62.4 per cent of the total); aged between 30-40years (55.3 per cent of the total); worked within their enterprises for 5-10 years(45.1 per cent of the total); and university graduates (63.4 per cent of the total).

Analysis and resultsReliability analysis was first conducted depending on the calculation of the item-to-total correlation and the Cronbach’s a for the research measures and constructs.Results showed that all research variables exhibited a very good item-to-totalcorrelation values ranging from 0.519 to 0.755 and high-reliability coefficient rangingfrom 0.909 to 0.945, with a Cronbach’s a Based on Standardised Items equal 0.921(refer to Table III). The values of item-to-total correlation and Cronbach’s a areconsiderably higher than the reliability acceptable levels suggested by Edgett (1991),Magal et al. (1988) and Nunnally (1978). Consequently, the research measures aredeemed satisfactory and acceptable for conducting further data analysis throughinferential statistics to test the research hypothesis.

Second, to assess and sustain the validity of collected data, an exploratory factoranalysis was performed (refer to Table IV) using a varimax rotation method andEigenvalues extract to examine the data and ensure that research constructs share

ConstructsCronbach’s a

if item deletedCorrected

item-total correlation Mean SD

SME owner skills and support 0.912 0.601 4.0122 0.49643Available resources 0.932 0.613 3.0321 0.42536SME size 0.915 0.688 3.9899 0.54526Type of products 0.945 0.732 4.1121 0.51126International orientation 0.909 0.614 3.9648 0.53564Cost 0.941 0.755 4.0004 0.56985Local competitive pressures 0.916 0.519 4.1257 0.61278Local market trends 0.919 0.699 4.0125 0.53687Local government influences 0.929 0.578 4.2136 0.56331Competition in the target market 0.917 0.738 4.6987 0.61547Target market structure 0.923 0.622 3.9968 0.52314Target market government influences 0.914 0.611 4.9110 0.63461Internal factors 0.922 0.712 3.7854 0.68965Local market factors 0.924 0.733 4.8233 0.37315Target market factors 0.944 0.701 4.1201 0.23129Choice of export entry mode 0.921 0.599 3.9997 0.3172

Table III.Research measures and

constructs reliability

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particular fundamental factors. As advised by Hair et al. (1998), any item(s) with adominant loading o0.5, and/or with cross-loadings more than 0.35 would be excluded.A three-factor structure was suggested using an Eigenvalue 41 and the extractedfactors account for 68.253 per cent of the total variance. All factor loadings were highlyacceptable with the lowest factor loading equal to 0.521 and the highest equal to 0.911.Kaiser-Meyer-Olkin and Bartlett’s test results were extremely high; recording a value of0.922 with high significance (0.000). All research items were loaded into its designedfactor and all of it had a dominant loading that is 40.5 (as suggested by Hair et al.,1998), which support the discriminate validity of the research constructs.

Given satisfactory results obtained from exploratory factor analysis, confirmatoryfactor analysis was performed to test the unidimensionality of research scales.Several fit statistics were generated and utilised to evaluate the adequacy, suitabilityand satisfactoriness of each of the factor models resulted from the confirmatoryfactor analysis as illustrated in Table V. The goodness of fit for the confirmatory factoranalysis of the model constructs were found to be highly acceptable as the differentresearch constructs exceeded the recommended levels of fitness.

ComponentItems (constructs) 1 2 3

SME owner skills and support 0.521Available resources of the SME 0.719SME size 0.795Type of products 0.862International orientation of the SME 0.687Cost 0.878Local competitive pressures 0.556Local market trends 0.832Local government influences 0.725Competition in the target market 0.901Target market structure 0.911Target market government influences 0.869Initial Eigenvalues 5.045 1.456 1.092% of Variance 53.576 9.213 5.464Cumulative % 53.576 62.789 68.253

Table IV.Results of the exploratoryfactor analysis

Construct w2 P GFI IFI AGFI CFI RMSEA

Internal factors 4.125 0.000 0.912 0.904 0.932 0.977 0.0454Local market factors 4.365 0.000 0.903 0.909 0.901 0.907 0.0619Target market factors 4.012 0.000 0.922 0.911 0.952 0.935 0.0535Statistic SuggestedGoodness-of-fit index (GFI) X0.90Adjusted goodness-of-fit index (AGFI) X0.80Comparative fit index (CFI) X0.90Root mean square residual (RMSEA)a p0.07Incremental fit index (IFI) X0.80w2-Significantb p5

Sources: aHooper et al. (2008b); bDobyns et al. (2007)

Table V.Confirmatory factoranalysis of the modelconstructs

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Third, SEM was used to test the research hypotheses related to the total impact of theSME internal factors, local market factors and target market factors on the choice ofexport entry mode. Data were analysed using path analysis, which is a multivariateanalytical methodology for empirically examining sets of relationships in the form oflinear causal models (Garson, 2009a and 2009b). Path analysis was used to examine thedirect and indirect effects of each hypothesis on the basis of knowledge and theoreticalconstructs (Kenny, 2008). Figure 2 illustrates the proposed path diagram that reflectsthe relationships between the different research variables.

To calculate the path coefficient associated with the strength of each linear influencefor each path, the SEM package, AMOS V18 was used. This software tested thehypotheses developed in the framework, applying the maximum likelihood estimates(MLE) method (Joreskog and Sorbom, 1982, 1984).

Results of hypotheses testingTo satisfy analysis requirements, the data’s multivariate normality was investigatedby conducting skewness test of normality (Garson, 2009a) and investigating thehistograms of the adoption different variables. The results indicated no departurefrom normality. The framework (Figure 1) indicated a very good fit of the data (refer toTable VI) and the obtained results confirmed that the model was appropriate.

Testing the hypothesised causal relationshipsFigure 2 shows the path diagram for the study model which reflects the estimatedstandardised parameters for the paths, their level of significance and the squaremultiple correlations for each construct. Table VII illustrates the regression weight ofall the causal paths and the significance of each path. To strengthen model results, theoverall impact of variables within the model was calculated to ascertain the direct andindirect relationships’ impact among the research variables.

Results indicated that Egyptian SMEs internal factors as well as local marketfactors positively affects the choice of export entry mode (standardised estimate(SE)¼ 0.635, po0.001 and SE¼ 0.713, po0.01, respectively). It was also found that

0.635***

0.367 ns

Notes: ns, not significant; ***,**,*significant at 0.001, 0.01,0.05levels respectively

TargetMarketRelatedFactors

Choice ofexport entry

mode byEgyptian

SMEs

CompanyRelatedFactors

LocalMarketRelatedFactors

0.713**

DirectExport

IndirectExport

Figure 2.Results of path analysis

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target market factors have insignificant positive impact on the choice of export entrymode (SE¼ 0.367, p¼ 0.533). Finally, and as discussed earlier, to test the hypothesesrelated to export forms employed by Egyptian SMEs, statistical frequencies wereused. In this context, frequency analysis was used to distribute the participatingorganisations according to export forms implemented by these organisations.The results indicated that although a reasonable number of Egyptian SMEs useda combination of export forms, the majority of respondents (73.09 per cent) useda single export form. This might reflect a relationship between the usages of more thanone export entry mode by Egyptian SMEs when conducting export activities andEgyptian SME owner skills, SME owner support, SME’s available resources, SMEsize, SME international orientation and the type of products produced and exported bythe SME.

DiscussionStudy results indicate that Egyptian SMEs internal factors are the most importantfactors affecting the choice of export entry mode by these organisations (includingSME owner skills and support, available resources of the SME, size, type of products,international orientation and export-related cost, etc.). These results synergise withthe findings of Lu et al. (2011) and Koch (2001) who found that financial capabilityand company resources are important factors in determining the suitable entry modeby any enterprise. It also supports previous findings that firm size is an importantvariable affecting the choice of entry mode (Leung et al., 2003; Evans, 2002; Nakosand Brouthers, 2002; Agarwal and Ramaswami, 1992; Erramilli and Rao, 1993;Chung and Enderwick, 2001; Terpstra and Yu, 1988; Weinstein, 1977; Erramilli andRao, 1993; Ekeledo and Sivakumar, 1998; Czinkota and Ronkainen, 1995; Ekeledoand Sivakumar, 1998).

Furthermore, Egyptian SMEs’ local market factors such as: local competitivepressures; local market trends; and local government influences were found to havea significant positive impact on the choice of export entry mode – this concurs with thefindings of Zekiri and Angelova (2011), Koch (2001), and Mattoo et al. (2001). However,target market factors (i.e. competition in the target market, target market structure andtarget market government influences) were found to have insignificant impact on thechoice of export entry mode. Moreover, Egyptian SMEs owners, marketing and sales

Hypothesised relationshipsFrom To Standardised estimate Significance

Internal factors Choice of export entry mode 0.635 ***Local market factors Choice of export entry mode 0.713 **Target market factors Choice of export entry mode 0.367 0.533

Notes: ***,**,*significant at 0.001, 0.01, 0.05 levels respectively

Table VII.Regression weight of allthe causal paths and thesignificance of each pathwithin the model

Goodness of fit index(GFI)

Root mean square residual(RMSEA)

Comparative fit index(CFI)

Incremental fit index(IFI)

0.932 0.042 0.977 0.9011

Table VI.Fit indices forthe path model

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managers were found to have a limited knowledge in relation to the different availableexport entry modes and the majority of the research respondents (73.09 per cent) useda single export form (indirect export). Hence, hypotheses: H1 and H2 can be supportedwhilst hypotheses: H3 and H4 are rejected.

Research implicationsThis research has theoretical (academic) and managerial (practical) implications.In terms of academic implications, the research is unique in the field of export entrymode choice in general, and export entry mode choice by Egyptian SMEs inparticular. The study has made a considerable contribution to accumulativeknowledge in this field and offers several implications for the wider body ofknowledge. First, this research validates an export entry mode choice model fordeveloping countries but also evaluates the specific current export practices byEgyptian SME owners and marketing managers. The research findings confirm thefindings of other researchers in the field (Lu et al., 2011; Leung et al., 2003; Evans,2002; Nakos and Brouthers, 2002; Agarwal and Ramaswami, 1992; Erramilli and Rao,1993; Chung and Enderwick, 2001; Terpstra and Yu, 1988; Koch, 2001; Weinstein,1977) and prove that SMEs’ internal and local market factors can illustrate and affectthe choice of export entry mode by these enterprises. This research also contributesto theory via the examination of phenomenon under investigation in the EgyptianSME context. Although the number of studies conducted to investigate choiceof export entry mode in developing countries is limited, the research findingspresented here confirm similarities and dissimilarities between the factors appliedin Egyptian organisations and other factors applied in the literature.

The impact of internal factors as well as local market factors on the choice ofexport entry mode by Egyptian organisations was similar to its impact on othertypes of organisations in developed and developing countries. In contrast, the impactof target market factors on the choice of export entry mode by Egyptianorganisations was different than its impact on other types of organisations indeveloped and developing countries. Through this, the research also contributes toan expansion of studies on choice of export entry mode in SMEs. Importantly, theresearch also measures the importance of such factors upon the choice of exportentry mode by Egyptian SMEs. These findings confirmed that internal factors, SMElocal market factors had a positive impact on the choice of export entry mode byEgyptian SMEs. Based on the importance of these factors, governmental agencies,non-governmental organisations (NGO’s) and other institutions (in Egypt and otherdeveloping countries) linked with SMEs will have greater understanding of thedifferent factors affecting the choice of export entry mode by such organisations.This new knowledge can be used in planning and directing the future policies, plansand strategies of these agencies and institutions. Because owner skills, availableresources and cost are among the most important factors affecting exportentry mode choice, governmental agencies and NGOs should target funding toprovide SME owners with suitable training. This will help those SMEs to betterunderstand the importance of adopting the right export entry mode and how tosuccessfully exploit such. Governmental agencies will also be encouraged to developappropriate policies to provide SMEs with prerequisite financial and technicalresources. Moreover, such governmental agencies can work in reducing the costassociated with export activities. This will in turn increase the diffusion of exportpractices by SMEs and might lead to a positive impact on the economy.

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Conclusion, limitations and recommendationsThe research findings support the research model and most of the hypotheses. Resultshelp understand the effect of the different environmental factors on the choice of exportentry mode by Egyptian SMEs. Within the study, it was found that Egyptian SMEs’internal and local market factors (such as: SME owner skills and support; availableresources of the SME; size; type of products; international orientation; export-relatedcost; local competitive pressures; local market trends; and local government influences)have a significant positive impact on export entry mode choice. Extensive attention wasput into planning this study and developing robust research methodology, data collectionand data analysis. As a result, it is hoped that the research contributes to theaccumulative knowledge in general and the choice of export entry mode by EgyptianSMEs in particular. Nonetheless, this study is not unique in that a number of limitationswere observed. Most of these are principally associated with the broadness of thephenomenon under investigation and lack of measurements. This motivated theresearcher to follow an empirical approach to developing a holistic and integratedunderstanding of the phenomena under investigation. In turn, this required increasingthe study’s scope by reviewing a large body of appropriate literature and collecting alarge set of related data. However, while the researcher attempted to meet suchrequirements by reviewing various literatures, it could not be claimed that the empiricalinvestigation was absolutely exhaustive. An additional limitation of this study isassociated with its reliance on subjective, self-report and judgmental indicators tomeasure the research constructs within the survey questionnaire.

However, the reliability examination of the research measures through the calculationof item-to-total correlation and Cronbach a coefficient are considerably higher than thereliability acceptable levels suggested by Edgett (1991) and Nunnally (1978). Thisindicates that the research measures are satisfactorily acceptable. Subsequently, theabove limitation notwithstanding, the results represent a promising step towardsthe establishment of good measures for the research variables.

Because studies of the impact and/or effect of owner skills and top managementsupport on the choice of export entry mode remain scarce, the need to conduct moreinsightful research is all too apparent. Other areas of future research include measuringthe impact of organisational culture on the choice of export entry mode by SMEs. Thelogical progression of this study would be to conduct similar studies relating to othereconomic sectors, other types of enterprises and sizes (e.g. micro businesses, largecompanies). The results of such work could be compared and contrasted with thisresearch and enhanced by expanding the different environmental factors employedwithin it. In this context, additional internal or external environmental factors (generatedfrom the literature) could be included in the model developed. Finally, similar studiescould be conducted in other developing countries to observe the different similaritiesand dissimilarities related to the factors affecting the choice of export entry modeby SMEs.

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About the authors

Dr Hatem El-Gohary is the Editor-in-Chief of the International Journal of Online Marketing

(IJOM), an Associate Editor of International Journal of Customer Relationship Marketing and

Management (IJCRMM) and the UK Director for the Institute for Research on Global Business(IRGB – UK). He has more than 20 years of experience in academia, worked as the MarketingDirector of a multinational company as well as a Marketing Consultant for a number of nationaland multinational companies. His research interest include: electronic marketing, electronicbusiness, electronic commerce, internet marketing and small business enterprises. He haspublished several articles and book chapters and presented several research papers in variousinternational conferences. He holds a PhD, an MSc, an MRes, a PGDip, a BSc as well as a PGCHE.He is also a Certified E-Marketer (CeM), Certified Social Marketing Associate (CSMA), anAABPP Fellow, HEA Fellow, a CIM Member (MCIM), a Chartered Marketer, a CMI Fellow andhas a significant record of experience in voluntary work in Egypt and the UK. With regards toawards and honours Dr El-Gohary won: The Routledge Best Paper Award 2007, The AmericanAcademy of Business and Public Policy Best Paper Award 2009, The Birmingham CityUniversity Business School Best Paper Award 2011, the Ideal Student for Cairo UniversityAward 1992, the Ideal Student for Cairo University Business School Award (twice for the years1991 and 1992) as well as The SLED Best New Mentor Award 2007. Moreover, he has beenawarded an Honorary life Membership in UBU. Dr Hatem El-Gohary is the corresponding authorand can be contacted at: [email protected]

Professor David Edwards is the Founder of OPERC, the Hand-Arm Vibration Test Centre(HAVTEC) and is currently Head of Faculty Research at The Birmingham City Business School,Birmingham City University. He established the Plant and Equipment Professional Trade

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magazine and the annual Plant and Equipment Management Innovation Conference event.David is a leading academic in the field of plant and machinery management and has attractedseveral millions of research funding from industry during his career. He has also publishedtextbooks, conference papers and over 150 peer refereed research papers. He acts as a peerreferee for 30 scientific journals and is on the editorial board of several others. He has extensivecollaborative links with practitioners within the plant hire, construction, warehouse anddistribution, civil engineering and quarrying industries. His work into hand-arm vibrationmanagement recently won a medal from the US Department of Defense and he continues tobe an active Panellist on Specialist Health and Safety Executive (HSE) consultative panels.David currently holds two Visiting Professorships at Curtin University, Western Australia andKNUST, Kumasi in Ghana.

Dr Riyad Eid is an Associate Professor of Marketing at the United Arab Emirates University.Dr Eid received a BSc (Hons) in Business Administration from Tanta University (Egypt), an MScin Business Administration from Tanta University (Egypt), PGDip (2002) and a PhD inMarketing from Bradford University (UK). Prior to the UAEU appointment, he was an AssistantProfessor in the Marketing Department at the Bradford University, UK, and an AssociateProfessor in the Marketing Department at the Wolverhampton University, UK. Dr Eid’s mainarea of marketing expertise and interest is in the domain of International Internet Marketing. DrEid has published in several internationally recognised journals such as Journal of International

Marketing, The Service Industries Journal, Journal of Euro-Marketing, Journal of marketing

Intelligence and Planning, Journal of Industrial Management & Data Systems, Benchmarking

International Journal, The International Journal of E-Business Research and ( Journal of ) Internet

Research. He has also attended numerous numbers of International Refereed Conferencesworldwide. Dr Eid acted as Consultant to a number of organisations in Egypt, UAE and UK.He is a Subject Matter Expert (Marketing) for the E-TQM collage in Dubai (UAE) andUmm AL-Qura University in Saudi Arabia. Dr Eid was presented with Emerald Best PaperAward for one of his publications. He is also the Editor-In-Chief of the International Journal of

Customer Relationship Marketing and Management and a Member of the Editorial Review Boardfor a number of international journals.

Dr Juanling Huang is a Senior Lecturer in Business Logistics in the Birmingham CityBusiness School. Her research areas are closed-loop supply chain, reverse logistics andsustainable development. She has industrial experience in logistics and international freightforwarding companies and has performed academic research activities in the SMEs and HigherEducation Institutions (HEIs) in the UK, the Netherlands, Hong Kong and China. These includeimplementation of Knowledge Transfer Partnerships (KTP) with the UK manufacturers;strategy, innovation and change; implementation of ERP systems in SMEs; process mappingin logistics and operations management; as well as Customer Relationship Management (CRM)in HEIs and business communities.

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