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1.3.1.Innovativeness
Innovation is defined as an introduction of a new product, a new process or a new organisational
arrangement, opening or identifying a new market and as the conquest of a new source of supply of
raw materials or half manufactured goods (Schumpeter, 1934). Innovation is considered to be an
important element of a firm’s strategy to gain competitive advantage and maintain its dominant
position in the market.
International trade models developed by Vernon (1966) and Krugman (1979), amongst others, suggest
that innovation is the driving force behind exports. As developing countries imitate the innovative
products exported from developed countries, they will later be able to export these matured products.
For developed countries, they have to innovate to keep up their export and income. More recently,
Grossman and Helpman (1991, 1995) in their monopolistic model, show that certain factors
(technological innovation) could shift a country’s export demand curve outwards.
At the firm level, it has been argued that innovating firms have incentives to expand into other markets
so as to earn higher returns from their investment (Teece, 1986). Innovating firms will obtain and
sustain their competitive advantage not only in the domestic market but also to enter the global
market. Therefore, we can expect a positive linkage between innovation and exports. Local suppliers
and partners can get closely involved in the innovation process, thus ensuring a better match with
customers’ requirements (Mitra and Abubakar, 2009). Despite problems of endogeneity (innovation
affects performance but improved performance may affect innovation) most studies controlling for
endogeneity confirm the positive relationship.
Technological advancements explain, in part, superior export performance. The characteristics of the
specific technological and learning processes affect the relationship between technological
investments, innovation, and export market gains according to the technological intensity of sectors
(Montobbio and Rampa, 2005).
Firms enjoy benefits of the innovation in terms of cost reductions, new markets and potential
monopoly rents (Wakelin (1998). Innovating and non-innovating firms behave differently both in
terms of probability of exporting and the level of exports, implying that the capacity to innovate
changes the behaviour of the firm. Another result of the Wakelin (1998) study is that the production of
innovations at sector level improves the probability of all firms exporting, no matter if they are
innovative or not, which implies that the innovative environment is important and would encourage
firms to export, even though the same relationship was not supported by the results of the export
propensity. This might indicate that positive spill-over effects are significant for the increase of
probability for first-time exporters, but not for the increase of export propensity.
1.3.2.Proactiveness
Proactiveness, as described by Kropp et al. (2005), is the opportunity-seeking and forward-looking
perspective that involves introducing new products/services and acting in anticipation of future
demand. Entrepreneurial firms demonstrate proactive behaviour when they monitor trends in their
environments for opportunities that could be explored and exploited to their advantage (Shane and
Venkatraman, 2000; Brown, Davidsson and Wiklund, 2001). In addition, proactive firms are those that
visualise market opportunities by taking the lead to introduce new products, technologies and
procedures to the market ahead of the competition (Eckhardt and Shane, 2003). Proactive behaviour
has to do with the initiation of exporting as a deliberate management activity versus initiation of
exporting as a result of an unsolicited export order (Samiee, Walters and Dubois, 1993; Yeoh and
Jeong, 1995; Shoham, 2006; Balabanis and Katsikea, 2003).