The Impact of Foreign Trade Promotion on the Foreign Sales Intensity of SMEs

Abstract

Small and medium-sized enterprises (SMEs) show structural shortcomings with regard to the development of international markets. Thus, it is the explicit goal of foreign trade promotion to foster the degree of internationalisation of SMEs. Yet, empirical research whether foreign trade promotion helps SMEs to overcome barriers to internationalisation is quite rare. Our paper addresses this issue, by investigating the impact of the foreign trade promotion on the foreign sales intensity of firms. We test our hypotheses on a sample of 655 German firms. We present empirical evidence that the use of foreign trade promotion is positively linked to the foreign sales-to-total sales ratio. However, the effect of such public support on foreign sales intensity is not the same for SMEs and large companies. While we find a positive impact for SMEs, in the case of large companies the usage of support schemes has no significant effect on the foreign sales-to-total sales ratio. Thus, our findings provide evidence that large companies incorporate windfall gains when drawing on foreign trade promotion schemes.

Keywords: Internationalisation, Small and Medium-Sized Enterprises (SMEs), Foreign Trade Promotion, Foreign Sales Intensity, Germany

JEL Classification: L25, L26, L53, M16