Trading activities and the Performance of Dutch SMEs'

Abstract: Nowadays, due to technological and political changes de facto all companies, even SMEs, face a world with global competition. Since the 1980s micro economic studies have been conducted by a multitude of scientist in order to describe the relationship between internationalization and a firm’s performance. In general terms the empirical evidence supports that internationalization, by export and import, is positively related to performance (Hagemejer and Kolasa 2008). Particularly, two causal relations have been proposed. The first relates to a ‘self-selection’ of better performing companies into international markets, whereas the second relates to the ex post performance enhancing effect of trading activities. The research is based on the EIM policy panel dataset including a sample of approximately 3,000 Dutch SMEs, which has been gathered by means of telephone interviews. The focus of this study is to asses if there is a positive relationship between internationalization modes (importing and exporting) and firm performance and if this relationship is due to self-selection, the performance enhancing effect, or both. Details aside, exporters are found to have higher profits than nonexporters. Furthermore we found evidence for a self-selection mechanism at the core of the better performance of exporting versus non exporting companies, whereas no support for the performance enhancing effect could be found. In addition, no empirical evidence for the positive relationship between import and performance has been found.