Export Behavior and Propensity to Innovate in Developing Country: The Case of Afghanistan

Table of contents

1. Introduction

he term propensity to innovate refers to firm's willingness and capability to adopt a new ideal (Morris, 2005, Sloan, 2008) from outside (Cannon, 1985, Hansen and Birkinshaw, 2007, Sloan, 2008) at a high level of risk (Dobni, 2006, Sloan, 2008). Whereas, the term export behavior refers to profile of firms with conjunction of their decision to export or not to export (Cavusgil & Tesar, 1979) according to same author when the export objectives characteristics are combined, export profile becomes export behavior (Cavusgil & Tesar, 1979).

Economists mostly agree that export plays important role for any country's development and developing ones in particular. However, according ample studies in export has been less possible without innovation in this era. There are many evidences that proves this assert. Forbes latest ranking of high growth innovative companies is an example to name one of such evidences (Forbes, 2018). According to this ranking majority of the innovative companies are based on a developed country. Therefore, examination of export and innovation at firm level has been an interesting research topic. However, most of studies have been conducted in context of developed countries and there only few ones on same about developing countries. For this purpose, this study attempts to improve our knowledge on relation between export behavior and propensity to in a developing country.

2. a) Background to Study

There is a debate if Afghanistan is least developed country (LDC) or developing one. According to United Nation Development Program Afghanistan holding fifth least developed country in terms human index development of rank in 2007 improved its positon to 20th in 2019. Furthermore, within same time frame there has been considerable GDP growth and infrastructure development. These positive changes indicate that Afghanistan is developing despite of instability and political unrest.

Earlier the study discussed that export was highly crucial for countries to sustain development, meanwhile we also argued that innovation was one of important element for export. Furthermore, we argued that Afghanistan was developing. These discussion and argument allows as to investigate relationship between both as area of research in this country on the basis of issue that there is a significant deficit in balance of trade in the country. According to figures reported by National Statistics and Information Authority (NSIA, 2020) of Afghanistan, import has been as large as USD 8.5 billion where export has been only 1.7 billion at maximum meaning that import for more outweighs export in this county.

To address the said issue-Afghanistan government recently has focused on promotion of some agro product such as dry and fresh fruit mainly by focusing on these products supply chain. Though there has been some achievement on value chain, analysis of supply chain considering the existing capacity at concerned organization in this county is complex to understand and seems not to bring significant changes. Parallel to this manufacturing industry deserve same attention for its development as experience of many countries indicate that manufacturing has been the prime driver of export development. On the basis of issue, argument and discussion next section proposes problem statement that lays a foundation for conduct of this study.

3. b) The Problem

As discussed in previous sections it is highly important to address issue of lower export in Afghanistan. This issue lays a foundation for many researches. As the importance of innovation and export was discussed above one of research area is to examine relation between innovation and export in this

4. Theoretical Background

This section focusses the existing studies two strands. The first strand discusses determinants of export behavior. Sai, Sun and Liu (2018) unravels the effects of export and innovation on firm-level markup and productivity. The findings show that starting to export without innovation has negative affect on firm productivity and markup, while starting to innovate without export has a significant positive impact on productivity and ultimately to export. Radicic (2019) explore the extend in which the potential complementary relation exists between technological persistence innovation, feedback and export. Result suggests positive relation between three with no connection between past product and process innovation to export behavior of firms. Similarly, Azar and Ciabuschi (2017) examines relation between export performance and innovation type. Their study finds out that export enhances radicalness and extensiveness of technological innovation. On the other hand, a study of Crick and Crick (2016) examines on what exist behind a firm export order and marketing innovation concentrating on risk/reward considerations in decisionmaking. Result of the study suggest that a variety of factors can affect the decision of owner/managers in small firms to start their internationalization path. Decisions are made in the context of perceived risk and reward with conjunction of different opportunities exploitation. Edeh, Obodoechi and Ramos-Hidalgo (2020) in their study explore heterogeneous effect of innovation type on SMEs export performance in developing countries finds out simultaneous technological and non-technological impact of innovation on firms' export performance. Study further finds out that product innovation is negatively related with export performance while process innovation is positively related with same. Lewandowska et al (2016) in their study aim at examining to what extend innovation can influence export confirming need for application of network approach to research on between interrelationships internationalization of the firm and innovation. Similar to this, Oura, Zilber and Lopes (2016) comparing the effect of innovation capacity on export behavior and internationalization experience on export behavior suggests that internationalization has greater effect on export behavior than innovation capacity. Furthermore, Rodil, Vence and Carmen Sanchez (2016) examines the problem that what happens to innovation level of firm when export increases. Finding suggest that marketing innovation is crucial for export enhancement. Similar to this, Tavassoli (2018) analyze role of product innovation on firms' export behavior. Findings suggests output of firm as result of innovation measured by sales has a positive and significant role on firm subsequent export behavior. Result of studies discussed as above point to importance of innovation toward export involving other variables such as internationalization, product quality, owner/manager perceived risk and marketing innovation.

The From the review of literature as document above one understand that innovation can lead to improvement of export behavior. Researches are mostly conducted in developed and European countries in particular. Researches have been generally quantitative and either data were collected through questionnaire or from databases. It further shows that most of researches H8: Firm age significantly influence propensity to innovate.

5. H9: Process innovation significantly influence propensity to innovate.

H10: There is a positive relation between export behavior and propensity to innovate.

6. III.

7. Methodology

In order to address the defined research questions author applied quantitate method due to the large population size whereby qualitative study was practically impossible. Data were collected through data collection tool structured in light of available literature and conceptual model as shown in figure 2.1. Table 3.1. explains how variables were measured in questions/ statement included in data collection instrument on dichotomous scale i.e. Yes/No where 1 was assigned to "Yes" and 0 was assigned to "No" and values such as investment and expenditure. Study targeted a number of 236 manufacturing firms located in three major cities of Afghanistan (Kabul, Herat and Jalalabad) and questionnaires were distributed key person in firm (i.e. either owner/manager).

8. Measure

? ? = [? ?? , ? , ? ?? ] ? ??? (?, ?) ?? ? ? = [? ?? , ? , ? ?? ] ? ???(? ? ?, ?)(3)

where i=1,...,N indicates observations, j=1,...,M indicates outcomes, Xi is a K-vector of exogenous covariates, the ui are assumed to be independent across i but correlated across j for any i, and "MVN" denotes the multivariate normal distribution.

IV.

9. Results and Findings

Findings based on descriptive statistics (table 4.1) shows AFN 532,000 and AFN 474,000 on average basis and firms expenditure gain exposure to internationalization and train their labor force respectively. These amount respectively to equivalent USD 7000 and USD 6000 approximately 1 , which are considerable in view of firms size and age. Similarly, average size of firms has been AFN 6.2 million equivalent to USD 80,000 with an average age of 11. This indicates that half of manufacturing firms are medium in size according to SME definition of Afghan Ministry of commerce and industry. The age figure indicates that firms are still young. Probit regression analysis (table 4.3) result shows that majority i.e. 53% of manufacturing firms were not involved in export. Finding further suggests that marketing innovation had higher impact (i.e. sig = 0.045 and coef =0.536) on export behavior whereas, rest of variables had insignificance influence on same.

10. Discussion

Finding of data analysis is both surprising and interesting. It is surprising in a sense that most of important variables across literature were insignificant and interesting in a sense that innovation is less dependent to firm size and age. Therefore, leading to substantiating only hypothesis(s) 2 and 5. The findings lead to answer research questions one that marketing innovation explains export behavior. Answer to question number two asserts that technological advancement defines propensity to innovate and finally there is no relation between two. However, these findings are prone to some limitation such as higher log likelihood and insignificant R square. Due to nature of data (mixture of amounts and binary values) study applied multivariate probit regression nonetheless, descriptive statistics and predictors percentage analysis seem to be more reliable on the basis which risk-taking behavior managers/ owners, process innovation, product quality are more worthwhile for further examination and attention.

Apart from positive effect of marketing innovation and technological advancement on explained variables which agrees with findings of authors such as Crick and Crick (2016); Rodil, Vence and Carmen Sanchez (2016) and Hue (2019 the rest of findings (i.e. insignificant effect of other variable on explained variables) contradicts with majority of previous studies, which adds more to our surprise.

11. Volume XX Issue VII Version I

12. ( E )

As policy implication this study suggest the government should not overlook quality control of product that may lead to process innovation as product improvement has been highly emphasized upon through research studies over the world. Besides, technological advancement-managerial implication of this study include attention to training and development which may positively affect product innovation through process improvement that ultimately leads to higher innovation.

Figure 1.
are in developed countries. This fact leaves the gap of research in context of developing country. Furthermore, country context is a highly worthwhile research topic. As realized so far, no research on the topic has been conducted in Afghanistan. The study attempts to fill this gap by conducting an investigation on Afghanistan based firm to uncover relation between propensity to innovation and export behavior.a) Conceptual Framework and Model BuildingThe schematic diagram in figure2.1 depicts hypothetical relationship model between export behavior, propensity to innovate and factors that determine both. The model theorizes impact of technological advancement, training and development, firm size and age and finally process innovation on propensity to innovate. Whereas, exposure to internationalization, marketing innovation, product quality and quantity and owner/manager risk-taking behavior assumedly impacts export behavior. We further assume relation between propensity to innovate and export behavior.
Figure 2. Figure 2
2Figure 2.1: Conceptual framework
Figure 3.
examining the differences in transformational
leadership's effect on each dimension of innovation
capability, namely, product innovation and process
innovation. The findings indicate that knowledge sharing
mediates transforming leadership effects on innovation
capabilities. These findings are further similar to Hues'
(2019) study with aims at empirically analysis of
innovation decision determinants the result of study
indicates that besides firm size, a higher percentage of
skilled force representing technological factors and
which are based on technological intensive sector to be
critical factors of innovation decisions besides. Similarly,
Medase, (2020) confirm positive effect of firm size as
well as firm age on product innovation. Authors such as
Aziz and Samad (2016); Coad (2018) and Pellegrino
(2020) emphasize on positive role of firm age on
process and product innovation. From the studies
discussed above one can realize the importance of
variables such as training and development, technology,
firm size, firm age and finally product and process
quality on innovation.
Figure 4.
Scale Dependent Predicator Constructs
Variable
Firm Exports Dichoto Export ExpBeh
mous Behavior
Propensity
Growth in sales as result of Dichoto to PropInnov
product/process improvement, mous Innovate
technological advancement and
training & development
Firm exposure to AFN Exposure to ExpInt'l
Internationalization (Fair, thousand Internationa
exhibition, Owner/manager lization
business trips)
Table continues to next page
owner/man
Is manager/owner risk averse? Dichoto ager risk- MgrRTB
mous taking
behavior
Did firm approach for marketing Dichoto Marketing MInnov
lead to change product or mous Innovation
production process? Product
Has there been changes in Dichoto quality and ProdQntQlt
quantity and quality of product mous quantity
based on customer demand? improvement
technological
Firm's additional investment on technology after initial outlay. machinery and any other Million AFN advancement TAdv
Firm's expenditure on technical and personal development training AFN thousand Development Training and TD
Change in production process as
because of improvement in Dichoto Process ProInnov
product quality and quantity or mous innovation
vice versa?
total value of firms fixed asset AFN Firm Size FSize
(Machinery) Million
Number of years since firm's Number Firm Age FAge
establishment. of Years
(1)
(2)
Figure 5. Table 4 .
4
1: Data descriptive information
Covariate Exposure to Internationalization Manager/Owner Risk N Minimum Maximum Mean Std. Dev 236 0.00 994.00 531.59 286.56 236 0.00 1.00 0.54 0.50 Year 2020
Taking 25
Behavior Marketing Innovation 236 Product Quantity and Quality 236 Technological Advancement 236 Training and Development 236 Process Innovation 236 Firm Size 236 2528.00 0.00 0.00 0.00 0.00 0.00 Firm Age 236 1.00 1.00 1.00 1.00 991.00 1.00 9,957.00 6281.28 2079.41 0.50 0.50 0.56 0.50 0.49 0.50 474.42 296.45 0.55 0.50 20.00 10.72 5.99 Volume XX Issue VII Version I ( E )
Similarly, to descriptive statistic a percentage analysis of variables (table 4.2) indicates that majority of owner/mangers were risk-takers. Effect of marketing innovation on product and process development is equally likely. Majority of improvement in product quality and quantity has been based on customers' demand. And finally a large percentage of is due to product quantity and quality improvement which is further result of customer demand. Global Journal of Human Social Science -
Figure 6. Table 4 . 2 :
42
Risk Averse Risk taker Total
Managers risk 109 127 236
taking behavior 46% 54% 100%
Marketing led to product and did not lead to Product and process
Innovation Process innovation Innovation
118 118 236
50% 50% 1
Product quality as result of customer demand
and quantity
Yes No
132 104 236
56% 44% 100%
process As result of improvement in product
innovation quantity and quality
Yes No
130 106 236
55% 45% 100%
Figure 7. Table 4 . 3 :
43
Probit Regression Export Behavior
Total number of observation
Yes No
112 124 236
47.5% 52.5% 100.0%
log likelihood 321.36
Nagal Kerke R Square 0.029
Coef. St.Er Sig Exp(B)
Exposure to Internationalization -0.000 0.000 0.754 1.000
Owner/Manager Risk-taking
Behavior 0.130 0.267 0.627 1.139
Marketing Innovation 0.536 0.267 0.045 1.708
Product Quantity and Quality -0.197 0.267 0.462 0.822
Similarly, probit regression of propensity to
innovation (table 4.4) indicates that technological
advancement has significant and positive influence over
propensity to innovate (i.e. sig=0.011 and coef=
0.6884). however, other variable defined has
insignificant effect on same.
Figure 8. Table 4 . 4 :
44
Logistic Regression Propensity to innovate
Yes No observation
112 124 236
47.5% 52.5 % 100.0%
log likelihood 318.93
Nagal Kerke R Square 0.042
Coef. St.Er Sig Exp(B)
Technological Advancement 0.684 0.270 0.011 0.504
Training & Development 0.000 0.000 0.642 1.000
Process Innovation 0.330 0.274 0.229 1.391
Firm Size 0.000 0.000 0.634 1.000
Firm Age -0.003 0.022 0.883 0.997
A partial correlation analysis (table 4.5) between In this analysis all predicators included in model
export behavior and propensity to innovate indicates remained control variables.
negative yet very insignificant relationship between two.
Figure 9. Table 4 . 5 :
45
Control Variables Export Behavior Propensity to Innovation
1. Exposure to Internationalization Behavior Export Correlation 1.000 -0.038
2. Manager/Owner Risk Taking Significance . 0.572
Behaviour (2-tailed) Table continues
3. Marketing Innovation
4. Product Quantity and Quality
5. Technological Advancement df 0 225
6. Training and Development Propensity Correlation -0.038 1.000
7. Process Innovation to Innovation Significance (2- 0.572 .
tailed)
8. Firm Size
9. Firm Ag df 225 0
V.
1
2

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Notes
1.
Author utilized Afghanistan central bank's (known as Da Afghanistan Bank) AFS/USD mid-rate as of July 25, 2020
2
© 2020 Global Journals
Date: 2020-01-15