| This is a report summarizing results from a study conducted by Professor Subodh Bhat of the Department of Marketing, San Francisco State University, under the auspices of a U.S. Department of Education grant received by San Francisco State University. The study examined the high tech industry's exporting activities with the objectives of providing statistics for benchmarking purposes, understanding the relationship between exporting inputs and outcomes, examining factors underlying success in exporting, and identifying problems encountered in international marketing. Marketing managers from 64 San Francisco Bay Area firms responed to a survey in the summer of 1997. RESPONDENT FIRMS' GENERAL AND EXPORT STATISTICS
The responding firms represented a wide cross-section of firms of various sizes exporting hardware and software in the computer and telecommunications industries. The firms were mainly publicly owned corporations and most had been funded by venture capitalists. They were of varying size, with the median revenues being $200 million, the median number of employees being 1000, and the median number of product lines sold being 5. Median export sales were $60 million, with about 35% of the firms reporting export sales less than $25 million. Median export/total sales ratio was 35%, with about half the firms reporting ratios between 21% and 40%. The firms had a median experience in exporting of 10 years, with a majority claiming experience of 10 years or less. Over half the firms exported to 20 countries or fewer (median was 20 countries). The developed nations of Europe and Asia were the major markets of these firms. EXPORT PROFITABILITY
Mean gross margins were quite high at 50% of dollar sales, with about 47% of the firms reporting margins between 26% and 50%. Mean net profits were 20% of dollar sales. Over two-thirds of the firms reported net profitability between 16% and 25%. Exports were generally more profitable than domestic business. Over 77% of respondent firms reported that their export profitability was similar to or better than profitability on domestic sales. 38% reported greater profitability in their export business. An overwhelming majority (73%) of the respondent firms were satisfied with their export business. Asked to explain why they were satisfied, a majority seemed pleased at the rapid growth in their export business. An additional 30% were pleased that their objective of entering foreign markets had been met. Asked to explain any dissatisfaction with their current export business, 22% reported that their export business was still not as large as desired. EXPORT PRIORITY AND RISK Exporting was given marginally more priority than other activities at a majority of the respondent firms. However, the different priorities given to exporting at different firms had little impact on the firms' gross export margins, net export profitability, profitability of their exports relative to domestic sales, or to their satisfction with exports. Generally, exports were perceived as riskier than domestic business but not by much. SOURCES OF EXPORT INFORMATION In-house sources were the most frequently used source. Foreign consulates and trade missions, and state and local agencies were not used or rarely used. Given these statistics, firms wanting to initiate exports may turn to industry associations and export consultants for assistance. Federal, state, regional, and local agencies charged with export promotion may want to study why their services are not used, and develop more outreach programs to help potential exporters. 85% of the firms reported going to foreign trade shows to promote their products overseas. A majority also participated in domestic trade shows promotiong exports. For firms planning exporting activity in the future, going to domestic and foreign trade shows could prove to be very useful. MOTIVATION FOR EXPORTING Given that technology markets are inherently global, it was not surprising that a majority of firms reported gaining greater global market share and a global image as being important motivators for exporting. However, cash and tax incentives were not reasons for exporting. In the high tech industry, public policy is probably better served by facilitating export contacts (organizing trade shows, for example), through outreach programs, and by developing information databases, than by offering tax or cash incentives to exporters. PROBLEMS ENCOUNTERED IN EXPORTING Lack of data, product localization, exchange rate risks, and dealing with bureaucracy and cultural differences were cited as important problems in exporting. Surprisingly, piracy and distribution were rated as least problematic. The two or three major markets within Europe, Asia, and Latin America, were selected for examining differences in the occurrence of these problems. While Table 1 details some of these findings, here are a few observations: a) Brazil and Chile were considered more problematic with respect to most of the problem areas than any of the other countries. b) Surprisingly, on most issues, Mexico had ratings comparable to those of the major European and Asian markets. c) Product localization was a major issue in Germany. d) Among the European and Asian nations, Taiwan was cited for high cost of entry, high cost per transaction, likelihood of piracy, and likelihood of bad debts. ADAPTATION OF STRATEGY Moderate adaptation was necessary for all aspects of strategy. Product adaptation was the least likely type of adaptation necessary in foreign markets, whereas changing target customers and changing competitive strategy were listed as the most common types of strategy adaptation. Chile demands high levels of adaptation with respect to most strategies, with Taiwan a close second. Table 2 contains more details of these differences. Here are a few: a) Changes in product and advertising strategies were mostly moderate for most nations. b) Adapting distribution strategy was likely to be a major issue in the U.K., Taiwan, and Chile. c) Similarly, changing target customers was reported to be higher for the U.K., Taiwan, Chile, and Mexico. d) Major changes in competitive strategy were noted for Taiwan and Chile.
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| BENEFITS SOUGHT BY CUSTOMERS
Mean ratings of respondents' assessment of their customers' benefits are listed below. Please note that 1 = Unimportant and 5 = Very Important. |
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| Cost savings in customers' operations | 4.68 |
| Current reputation of product | 4.68 |
| Improved efficiency of customers' operations | 4.56 |
| Reputation for continuous innovations | 4.44 |
| Good customer service/technical assistance | 4.32 |
| Competitive price | 4.28 |
| Ease of channel access for customers | 4.20 |
| Distinctiveness of brand identity | 4.19 |
| Reputation of foreign distributor | 4.00 |
| Uniqueness of your product | 3.96 |
| Consistency across customers' operations | 3.68 |
| Localization of product | 3.44 |
| Accuracy of customers' operations | 3.44 |
| Bundling of multiple products/services | 2.68 |
| PRODUCT CHARACTERISTICS
60% of these firms reported exporting products with patented technology. 69% exported products with proprietary (and not established industry) standards. 52% reported being the first to enter the foreign markets. Given the generally high rates of export success of the respondent firms, having patents, using proprietary standards, and being the first to enter the foreign markets, may be important competitive advantages in foreign markets. |
TABLE 1
Problems Encountered in Exporting to Major Countries in Europe, Asia, and Latin America
| Problem | Average | Germany | England | Japan | Taiwan | Brazil | Chile | Mexico |
| Lack of data | 2.20 | 2.00 | 2.00 | 1.88 | 2.25 | 2.43 | 3.00 | 2.00 |
| Product localization | 2.13 | 3.00 | 2.00 | 2.12 | 1.75 | 2.14 | 2.00 | 2.00 |
| Exchange rate risks | 2.07 | 1.33 | 1.50 | 1.87 | 2.25 | 2.43 | 3.00 | 2.00 |
| Bureaucracy | 2.02 | 1.67 | 1.87 | 1.50 | 1.25 | 2.29 | 2.50 | 2.25 |
| Cultural differences | 2.02 | 1.67 | 1.50 | 2.00 | 1.75 | 2.14 | 3.00 | 1.75 |
| Likelihood of bad debt | 1.98 | 1.67 | 1.25 | 1.25 | 2.25 | 2.57 | 3.00 | 2.00 |
| High cost of entry | 1.91 | 1.33 | 1.87 | 1.87 | 2.25 | 2.14 | 1.75 | 1.50 |
| Foreign agent issues | 1.91 | 1.67 | 1.37 | 1.25 | 1.75 | 2.29 | 2.75 | 2.00 |
| High transaction costs | 1.87 | 1.67 | 1.87 | 1.37 | 2.25 | 2.29 | 2.25 | 1.25 |
| Lack of distribution | 1.80 | 2.00 | 1.63 | 1.25 | 1.75 | 2.29 | 2.25 | 1.75 |
| Likelihood of piracy | 1.80 | 1.33 | 1.63 | 1.50 | 2.50 | 1.71 | 2.25 | 1.50 |
TABLE 2
Adaptation for Exporting, Degree of Adaptation
| Type of Strategy | Average | Germany | England | Japan | Taiwan | Brazil | Chile | Mexico |
| Product | 2.66 | 3.33 | 2.78 | 2.37 | 2.25 | 2.20 | 3.00 | 3.25 |
| Advertising | 2.70 | 2.67 | 2.56 | 3.00 | 2.75 | 2.60 | 3.25 | 2.00 |
| Pricing | 2.77 | 2.00 | 2.78 | 2.62 | 3.25 | 2.40 | 3.50 | 3.00 |
| Promotion | 2.80 | 2.33 | 2.87 | 3.25 | 3.00 | 2.60 | 3.00 | 2.00 |
| Distribution | 2.89 | 1.33 | 3.44 | 2.87 | 3.25 | 2.33 | 3.25 | 2.50 |
| Competitive strategy | 3.09 | 3.33 | 3.11 | 2.87 | 3.75 | 2.60 | 3.75 | 3.00 |
| Target customers | 3.18 | 2.67 | 3.44 | 2.87 | 3.75 | 2.60 | 4.00 | 4.00 |