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Introduction
This research paper will analyze the impact of domestic sales on an exporting nation. The nation for this survey is Spain. There is an escalation in the number of firms in Spain. These firms trade in the international market. This statistics is on the rise since the past three decades. This quick rise in international business in Spain is promoting competition in international and domestic markets. The relationship between the domestic and international demand of goods affect the nation's economy majorly. The entry in international markets gets governance from both internal and external factors. Internal factors are in relation to the characteristics of firms. Domestic business has a positive correlation with international trade. The firm's prior conditions will affect the entry in international markets. The international entry includes economic factors like the exchange rates, demand and the regulations. Changes in the domestic requirements like recession or expansion will incentive the export scenario.
Subsidies from the foreign government lead the firms to produce in excess capacity. It becomes a very safe trade barrier and allows the goods from the nation to sell in other nations at a higher price. The excess capacity and sudden rise in demands boost the export sales of Spain. The Spanish companies use these subsidies and profits to invest in higher capacity and stress on excess profit. This process is cyclical. This strategy is successful and working in favor of United States of America for the former decade in steel and agricultural products. The access to foreign markets is a necessary part of firm’s of Spanish origin will give it strategic advantage competitive upper hand. In spite of the decline in 2009 in Spain, this strategy is working in favor of Spain. The result of this attempt is growth oriented and profitable. The exports of Spain made products are more by 8.5 percent from the period of 2007 to 2012. German, French and Italian exports in this period were 10.5 percent, 6.5 percent and 4 percent respectively. Economic crisis reduces internal demands and promotes exports to foreign markets. Having access to international markets is a mandatory part of the strategy of any form to get a long-term success. The access becomes very handy in a time of crisis. Spanish firms also apply this strategy and are successful.
Theoretical Framework
The sample consists of Spanish Manufacturing firms taken from 1990 to 2011. The approach is performing the econometric analysis. The results are examined before and after the firms get exposed to international markets. In this research, the comparison is between national and international sales of exporters and importers. The firms are into different categories according to their activities in export business. One can observe the influence of exports on the national economy and domestic sales. The latest research in international trade is on exports, trade flows and the determinants of exports. The answers o these questions are constantly changing at macro and micro levels. A micro-level approach helps in analyzing firms for obtaining the factors that affect the economy of domestic markets. There are not many researches on how exports affect the economy.
Another view is closer to the aim of this research paper. It addresses the relationship between domestic sales and exports in Spain. The period of analysis is from 1990 to 2011. The study helps to find the connection between exports and domestic sales. The paper also helps to find out the relationship of market economy and firms. Thirdly, the paper develops the relations between the domestic sales and exports of the goods from Spain. The export sales and domestic profits also depend on the costs spent in advertising. There is also a possibility of substitution attitude between export and domestic sales. Positive demand in foreign markets generates a rise in expansion and profit. The paper also concentrates on the changes in marginal costs and constraint in capacity. Export also is a response to demand shocks and increasing marginal cost. The firms have a tendency to spend more capital to sell in international markets to fight negative demand. Capital investment is also a method explain the participation in national and international markets. The Spanish firms sell to international markets when the internal demand is low, and the initial capital is not in use properly. Spanish firms are occasional and perennial in their investment approaches. In international markets, financial constraints lead to increasing in marginal costs. There is a negative correlation between financial restrictions in foreign and domestic markets. Firms with a constraint in capacity have a stronger substitution relationship between sales in foreign and domestic markets. Recent economic crisis in Spain stimulates researchers relates to the relationship between the effects of the crisis in international and domestic markets. There is a significant decrease in the private consumption due to weakness in Spanish economy as compared to other European Nations. The effective exchange rates from 2007 to 2012 differ by 12 percent in exports. The paper also identifies the major firms that have the possibility to fail. The relationship between internal position and export volumes is strong in the present day than prior crisis period.
Data
The data is a firm level datum or micro data from Encuesta Sobre Estrategias Empresariales or ESSE. The survey is from SEPI and Spanish Ministry of industry. It analyzed the variables from firms in Spain. The sample period is from 1990 to 2011. The final sample consists of 5040 firms from Spain. The data provides significant information of firms' characteristics both domestic and international. There are details of finances, export sales, volumes of sales, employees and structural alliances. It is a very authentic source information for all research and development activities. In this research, there are four different firms that are in consideration:
- The firms that never export.
- The firms that always export.
- The firms that exit from the export and never export again
- The firms that enter into export markets once or multiple times (to and fro).
The database of ESSE also gives the participation of firms in innovation activities and investments in marketing and advertising. This data is however not useful for our analysis. The data is as below:
Source – ESSE data
Inferences
The firms that take part in exports are big and have very high internal sales in Spain. The firms that always export are biggest of all. These firms have highest internal sales in Spain and are the most innovative. The companies that recently took an exit from exporting have a lower number of employees and less internal sales in Spain. The R & D expenses of these firms are also less. The growth rate of the third type, the firms that never export are negative and lowest among four. The constant changers, the firms that enter and leave the international market multiple times have characteristics similar to the new entrants. They have growing domestic profits and growing research expenditures.
Source- ESSE data
The more tenacious the company is, the bigger is the influence. Persistent firms are those firms that slowly enter the international market and continue to export in smaller scales for consecutive years. These firms take the decision for going international after careful economic planning. Switchers, on the other hand, use international economy to dump the surplus goods. Persistent entrants slowly become true exporters.
Conclusion
Participating in export activities gives a larger, productive and innovative way for Spanish companies to generate profits. Domestic sales in Spanish increase after exporting, as the consumer thinks he is buying a commodity of international standards. It boosts the Spanished economy. Exporters have a difference of 10.4 million euros as compared to internal sellers in Spain. Residual export difference is substantial depending on the firm's persistence in the international market. There is a clear indication that there is a strong link between domestic sales and export sales. Exporters have higher growth rate and profit as compared to internal sellers and thus contribute to Spanish economy more. The residual exports generate main determinants of this boost in Spanish Economy. An important point of consideration is the prior behavior of firms and the possibility of exports. Studies suggest that there is always a saturation point for the firms who stick to only domestic selling. For switchers, this situation is continuously changing. For deeper analysis, a "fixed and random" model is useful.
Spanish firms always had more sales from export in comparison with the sales from selling only in the domestic market. Permanent entrants to international economies earn 19 million Euros more than switchers of Spain. Switchers, on the other hand, do not affect the Spanished economy as much as permanent entrants to international markets. The relationship between the domestic and international demand of goods affect the nation’s economy majorly. The entry in international markets gets governance from both internal and external factors. Internal factors are in relation to the characteristics of firms. Domestic business has a positive correlation with international trade. The firm’s prior conditions will affect the entry in international markets. The international entry includes economic factors like the exchange rates, demand and the regulations. Changes in the domestic requirements like recession or expansion will incentive the export scenario in Spain.
The conclusion is the promotion of export policies in Spain will boost the economy from going into depression again. Spain needs to focus more on persistent entries to the international economy and understand the benefits of exporting. It will not only encourage the growth but will also make the nation strong economically.
References
Liu, Y. (2012): Capital Adjustment Costs: Implications For Domestic And Export Sales
Dynamics, Mimeo.
Salomon, R. And Shaver, M. (2005): Export And Domestic Sales: Their Interrelationships And
Determinants, Strategic Management Journal, 26, P. 855-871.
Blonigen, B.A. And Wilson, W.W. (2010): Foreign Subsidization And Excess Capacity,
