PARTICIPATION OF THE DOMESTIC SME SECTOR IN EXPORTS
2 Participation of the domestic SME sector in exports The SME sector is key to the productivity growth and technological progress of the economy. Small and mediumsized enterprises account for a substantial weight in employment, but their productivity falls behind that of large corporations, thus they have a significant growth potential. This section assesses the participation of the Hungarian SME sector in exports. Foreign market entry represents a potential growth strategy for SMEs: after starting to export, enterprises increase their number of employees, boost their capital intensity and improve their total factor productivity. Improved performance can manifest itself via several channels during exporting, for example enterprises may enhance their products to satisfy demand differing from that in the domestic market. New competitors may force enterprises to implement additional innovations or technological knowledge may pass through from large corporations to small and medium-sized enterprises as a result of supplier relations. On the whole, exporting can be regarded as a learning process in the lifecycle of enterprises. Based on our results, the export performance of Hungarian small and medium-sized enterprises falls short of the EU average. Although these SMEs play an important role in international trade within the EU, it can be concluded that they export to relatively few countries. The diversification of export by destination and product or service types may be expensive for SMEs. The corporate-level data available to us permit an accurate categorisation of exporters by size, as well as an analysis of service exports in addition to the export of goods, which offers new opportunities for the SME sector in the expansion in external markets. Roughly 20 percent of both goods and services exports can be linked to micro, small or medium-sized enterprises. Within this, the largest portion of exported value can be attributed to mediumsized enterprises (15 percent of total exports) both for goods and services. In terms of their number, a mere 5 percent of SMEs export, and they mostly export goods. Micro and small enterprises are less active in the external markets, while on average 50 percent of medium-sized enterprises export. The smaller an enterprise, the longer it takes for it to enter the export market after the establishment of the company. In respect of both goods and services, entering the export market offers a significant growth opportunity for Hungarian SMEs. The performance of exporting SMEs exceeds that of non-exporter SMEs several times. Exporting SMEs outperform their non-exporting counterparts in terms of capital intensity, investments, value added and productivity, with service exporters being the most productive. Even controlling for initial firm-level characteristics, it can be shown that exporting enterprises increase their productivity faster than their non-exporting peers, and exporting services or goods together with services occasionally generates even more advantages for the exporting SMEs than the export of goods only. Almost three-quarters of SMEs’ manufactured exports can be linked to enterprises related to industries of mediumlevel technology. The exports of enterprises of medium-to-low technology represent the highest share within manufactured exports. Exports of market services represents a somewhat lower value, which is mostly less knowledge-intensive. The production of higher quality, more technological or knowledge-intensive products or services would provide SMEs with additional growth opportunities. Despite the fact that exporting generates a number of benefits for SMEs, only a small number of SMEs participate in exports, which is mostly because– compared to large corporations – they face more obstacles when entering external markets. Most of the factors that hamper exports arise from the enterprise size and are related to the absence of properly qualified human resources, financing, regulation and the high cost of adopting standards, and to the limited access to information. The removal of such obstacles facilitates more intensive participation of SMEs in export markets. GROWTH REPORT • 2017
27
