Italy’s Small Exporting Companies: Globalization and Sustainability Issues

Abstract

Internationalization has gained momentum in the last few years as a strategy that may allow small enterprises to grow. Frequently, import and export activities represent the first step of the internationalized process and an important challenge for small business. Quite a number of studies have investigated and tried to solve the implied problems. Starting from the theoretical and empirical literature, this research focuses on the most relevant economic and financial constraints faced by small Italian import-export companies and is specifically aimed at analyzing the characteristics of their financial structure between 2011 and 2020, as well as their performance over the same period. We selected small Italian enterprises and identified the subset of import-export companies. We applied a set of performance indicators to reclassify financial statements to highlight the dynamics of investments, profitability, financial independence, and liquidity over the 10 years under analysis. The economic and financial characteristics of the small import-export companies are determined by comparing their performance with that of all Italian small enterprises. The findings show that small Italian exporting companies are not characterized by significant growth in turnover but present a situation that is certainly better in terms of economic and financial sustainability compared with non-internationalized companies.

1. Introduction

Small and medium-sized enterprises (SMEs) have always been the backbone of the Italian economic and entrepreneurial system: they play a decisive role in terms of contribution to GDP formation, employment, and value added [1, 2].

The globalization process that has been underway for some decades, together with the digital revolution of recent years, has pushed many small businesses to accept the challenge of internationalization driven by the search of opportunities for affirmation and growth. The analysis of this phenomenon must start from a definition of the concept of internationalization. In order to underline the complexity of the theme and its evolution over time, it is possible to refer to the following quotes: Johanson and Vahlne define internationalization “as a process in wich a firms steps up in incremental stages its involvement in international operations” [3], while Calof and Beamish consider internationalization “as the process of adapting a firm’s operations (strategy, structure, resource, etc.) to international environments” [4].

Data on the European economic system show that, although small enterprises represent on average more than 95% of the total number of enterprises, their contribution to import-export activities is significantly lower than the one offered by large enterprises and varies between 20% and 40%. There is, undoubtedly, a greater propensity for large companies to internationalize, considering that, on average, 90% of large companies export their products, while only a small share of SMEs (between 10% and 25%) sell across borders [5]. The Italian situation appears more favorable than that of other European countries: it is characterized by a significant contribution of small enterprises to international trade (exceeding in a few years the value of import-export achieved by large enterprises) and by a steady growth in the number of companies choosing to internationalize [6].

The European Union (EU) also recognizes the strategic importance of the internationalization process for the development of SMEs and tends to promote this process through various economic policy instruments, such as the Communications “Small Business, Big Word” [7], or “Trade, Growth and World Affaires. Trade policy as a core component of the EU’s 2020 strategy” [8].

Despite the obvious advantages of import-export activities in terms of turnover growth and consolidation of international competitive position, the choice to operate outside the national borders involves some difficulties. The high costs of managing orders, the complexity of bureaucratic procedures, and the need for qualified personnel are some of the problems that small businesses have to face in order to undertake an internationalization process. It is also important to underline the presence of financial constraints to which SMEs are traditionally subject, such as equity gap, information opacity, excessive debt weight in the financial structure [9]: about financial aspect, internationalized companies must also deal with the lack of working capital to support the necessary investments in global markets and to finance exports. These issues can discourage small business and slow down their internationalization process.

In this perspective, the present research work aims to analyze the financial and economic situation of small Italian exporting companies in the period between 2011 and 2020 selected from the AIDA database. The results obtained by applying some indicators to the reclassified financial statements of small exporting companies were then compared with the values obtained by applying the same indicators to all small Italian companies, selected from the same database. The objective is to verify the health of small exporting enterprises, analyzing their strengths and weaknesses, as well as to compare it with the situation of non-exporting ones, assessing the nature and extent of any differences in performance levels.

The research work is organized as follows. Paragraph 2 offers a review of the literature on the opportunities and limitations associated with a choice of internationalization of SMEs. The third paragraph defines the research methodology and exposes the results obtained, while the subsequent section proposes a reasoned discussion on the causes and dynamics that led to the formation of the same results. The last section contains the conclusions and outlines issues for further discussion.

2. Literature review

As stated above, previous research suggests that SMEs in Italy drive most of the export value but represent a very small number of the total amount of exporting firms [10, 11]. The Italian productive structure is in fact characterized by numerous small enterprises, which, individually, do not influence export performance, but which, in aggregate, have a significant growth potential. For this reason, our attention is focused in this paragraph on the challenges and barriers that hinder the internationalization, first in general of SMEs and then in particular of small Italian enterprises.

As compared with the large enterprises, SMEs are potentially elastic and flexible and benefit from a fast decision-making process, but they often suffer from a top management characterized by poor skills, little dynamism and motivation, limited ability to interpret economic and social changes, and low propensity to accept risk and to update and innovate their business. These characteristics play an important role in the growth path of a company and are crucial in the process of internationalization. On the other hand, larger firms, being well skilled and motivated, respond better than SMEs to the challenges of internationalization and can gain a competitive advantage in foreign markets thanks to the economies of scale and scope inherent in their size and to the financial and technological resources at their disposal. The experience and global mindset of their managers often lead to the establishment of export departments or to foreign direct investment, such as foreign-located structures, to conduct export activities on a more solid basis. These are more difficult to realize for small companies, because they lack both financial and human resources involved in these projects.

Given limited resources, the internationalization process of SMEs differs significantly from that of large enterprises and already-established multinationals. Paul, Parthasarathy and Gupta [12] and Vernon [13] report that some firms introduce new products in their home market to gather information and learn from their performance, then expand their offering by starting with export and later venturing into foreign direct investments. This is usually done in multinational companies. SMEs, on the other hand, generally adopt a process that pays more attention to psychic distance, choosing foreign markets whose language, culture, and political system do not differ substantially from their own.

Among the factors that help the internationalization process of SMEs, Mitgwe [14] emphasizes the importance of network relationships as a source of information and knowledge about foreign markets. Hessel and Parker [15] point out that affordability, independence, and flexibility are the key factors motivating SMEs to follow the network approach theory, especially when they do not already have a presence abroad. Moreover, SMEs constrained by limited resources are likely to value informal collaborations, which are cheaper than formal ones and, most importantly, do not entail the loss of control by ownership and managers.

Cavusgil and Knight [16] describe the path followed by some companies that internationalize soon after their inception, highlighting their ability to innovate and create new knowledge and capabilities. These companies are called International New Ventures (INVs) or Born Global. Their managers are leaders and have an effective market orientation. This is typical of high-tech companies that are able to convert new technology into commercial success. It is clear that the factors influencing the internationalization of small enterprises are manifold and may be specific to the individual firm, the industry it belongs, or the country it is in, or may result from existing trade rules and domestic regulations of foreign countries.

2.1 Economic and cultural barriers to internationalization

The literature classifies export barriers as internal or external factors depending on the control the firm has over them. Internal factors are intrinsic to the firm and are associated to the lack of qualified and competent personnel needed to administer export activities [17] as well as creative owners and managers able to design and sustain the export strategy. Exporting requires managers and senior executives to have an entrepreneurial dynamism and an international orientation. Many researchers, such as Felício, Caldeirinha and Rodrigues [18], Gupta and Govindarajan [19], Kyvik [20], call this attitude global mindset. It is the ability to understand global scenarios and trends, foreign markets and institutions in order to identify opportunities and threats, reshape perceptions about psychic distance and barriers, learn from experience, and improve organization and operations to better support internationalization. Small companies lack experience in export activities and therefore perceive a higher incidence of impediments in going international than companies having more experience [21]. Cadogan, Diamantopoulos and Siguaw [22], and Reuber and Fischer [23] found that experience in international business is an essential factor in overcoming and addressing export barriers. Furthermore, according to Ganotakis and Love [24], a distinction must be made between the human capital skills required to enter foreign markets—the managerial motivation and orientation toward international markets—and those required operationally to achieve and sustain export success. They note that small firms may find it difficult to attract the full range of such diverse skills because they are not available in their domestic market, or because small firms cannot afford to sufficiently compensate workers. Gomez-Mejia [25] showed that exporting companies, on the other hand, may be able to offer more favorable conditions to their employees than non-exporters in terms of monetary (higher salary) and non-monetary (status, travel, and work environment) rewards. Suárez-Ortega and Álamo-Vera [26] added knowledge of foreign language, exposure to foreign culture, and missing training among the factors that negatively influence internationalization. Training and learning practices are important aspects of managing export operations, but many researchers [27, 28, 29] have found that, in general, small firms are very skeptical about the benefit of such initiatives and their managers hardly comply with qualifications and requirements, the use of performance appraisal and competitive compensation, and unlikely promote a learning culture and learning capabilities.

The literature shows that even regular exporters face problems in export transactions, having to cope with the so-called disadvantage of foreignness [30, 31, 32]. This is due to their being less familiar than domestic competitors with conditions and conventions prevailing in foreign markets. Wu, Sinkovics, Cavusgil and Roath [33] focused on the benefits from foreign distributors and found that trust, knowledge sharing, and contract-based relationships are useful mechanisms to overcome lack of foreign market expertise, manage relationships, and mitigate distributor opportunism. The importance of external support is clearly seen in a multiple case study made by Haag, Sallnäs and Sandberg [34]. All case companies have hired external lawyers and staff or used external promotion organizations and logistics providers for supplying the foreign markets. All case companies have integrated external support into their organization by obtaining market-specific knowledge (customer behavior, competitors’ choices, dominant culture) and guidance on export procedures and routine definition. Moreover, all case companies have used a trial-and-error approach and learned from external support and experience to improve organization and operations. Experiential learning is found, in particular, in the logistics organization. For example, companies have learnt from experience that logistic operations should be centralized in order to increase the in-house control and supply foreign markets more efficiently. Also, the warehouse operations should be standardized to achieve better control on the product flow to foreign markets.

2.2 Financial constraints to internationalization

Developing external support and rapidly improving organizations can be expensive and perhaps beyond the financial reach of small enterprises. Much research points out that the financing of export-related expenses is one of the main internal obstacles for small enterprises [29, 35, 36]. In particular, the literature on international trade signals the presence of sunk entry costs, i.e., fixed costs to be paid upfront, such as legal advisory services, foreign market analysis, adaptation of products and services to meet the regulations and demand of the new market, channels selection and setting up, translation of documents, travel expenses. These are often intangible or firm-specific assets, with no salvage value because they cannot simply be traded on other markets. The existence of sunk entry costs raises the question of financing such expenses, which, by their nature, are not matched by contemporaneous revenues. Only companies that manage to overcome this financial problem can become exporters.

Several empirical studies [29, 37, 38, 39, 40, 41] show that small firms have to rely more on self-financing, using retained earnings, and that constrained firms need to cut costs according to the availability of internal financing.

It is widely acknowledged that SMEs suffer from information asymmetry and higher agency costs than large firms. Serious imperfections exist in both equity and debt markets. In equity markets, initial public offerings of small companies are subject to higher underpricing, and listing is relatively more expensive to organize for small issues [42, 43]. Furthermore, SMEs’ owners and managers are reluctant to sell equity to third parties and give up independence and control [30, 44]. The same applies for business angel and venture capital finance. In addition, monitoring of SMEs is more difficult and expensive as they have a lower credit history as well as reputation and are subject to less rigorous reporting requirements than large firms. Therefore, SMEs are also not very attractive for business angels and venture capitalists.

As a consequence of this equity gap, small firms are more dependent on bank debt, trade credit, and owner loans [37, 38]. Bank financing is the most common source of funding, although for small firms banks may ration credit rather than raise interest rates to overcome information asymmetry. In perfect markets, all valuable projects should be financed, but export projects and foreign direct investments are characterized by highly variable returns and the assessment of their future incomes and cash flows is often unfeasible for banks. Collateralization may help mitigate credit rationing, but these projects frequently involve, as stated above, intangible assets with little or no collateral value. Therefore, even for companies with promising growth opportunities, it is extremely difficult to raise external capital on reasonably favorable terms. Binks and Ennew [45] observe that SMEs are dissatisfied with the quality of service provided by their banks and generally perceive their banking relationship as poor. From interviews with small businesses, De Maeseneire and Claeys [38] found that banks only lend for acquiring fixed assets and not for any market studies or advisory services and that obtaining financing is a time-consuming process. It is therefore not surprising, as Bellone, Musso, Nesta and Schiavo [35] argue, that firms starting to export exhibit a significant ex-ante financial advantage over their non-exporting counterparts. Thus, financial constraints prevent firms from selling abroad: firms that are unable to secure sufficient internal funds or access external funds may not be able to serve foreign markets.

2.3 Exogenous problems to internationalization

External barriers to internationalization are in addition to internal ones. They are caused by factors beyond the control of the company and are often categorized as macro or exogenous problems. Many studies [12, 15, 46, 47, 48, 49] have found that the domestic business environment has a significant effect on export projects, compared with the firm’s competencies and industry factors. The main barriers are related to domestic regulations, the diversity of the economic and operating environment at the subnational or regional level, the lack of adequate trade institutions and government support, the absence of a stimulating national export policy, bureaucratic rigidity, and administrative practices. Additionally, firms may be forced to accept institutional and cultural conditions in foreign markets as contextual data, without any negotiating power. These include tariffs, quotas, currency restrictions, import and export formalities and controls, custom procedures, and sometimes even the political instability of foreign countries. Another major obstacle of small firms is compliance with certain foreign technical standards and certifications (i.e., non-tariff measures): meeting technical requirements is often time-consuming for SMEs, which also cannot spread fixed compliance costs over large export values. Furthermore, labeling requirements that vary from country to country, and the protection of intellectual property right, geographical indications, and protected destination of origin, although essential in food industry, can have a negative impact on exports [50, 51].

However, the world economy is gradually becoming more integrated as regulatory barriers continue to decrease and technology continues to advance. The admission of new Member States from Eastern Europe into the EU has provided growth opportunities for EU SMEs: the consumer market is now larger and barriers to doing business across borders have decreased. Several EU policy initiatives are already helping European SMEs to reach international markets also outside the EU [52, 53]. These include, for instance, Free Trade Agreements, which facilitate access outside the EU by eliminating protective tariffs abroad or reducing the cost of non-tariff measures.

3. The methodology

The empirical analysis has been conducted on Italian small enterprises. Recommendation No. 2003/361/EC states that, within the SME category, a small enterprise employs fewer than 50 persons and its annual turnover or annual balance sheet total does not exceed € 10 million. Micro-enterprises (with less than 10 employees) have been excluded from the analysis because they adopt simplified accounting that does not allow in-depth investigations.

The financial statements of the small enterprises were extracted from the AIDA (Bureau van Dijk) database and were divided into two samples: companies engaged in import-export activities, consisting of 1,982 companies²; companies trading only within national borders, consisting of 42,277 companies.

Many changes have taken place during this period. The first years of the period analyzed (2011-2014) were the closing years of the severe financial crisis that began in 2009. In the following years, until 2020, there was an economic recovery, while in 2020 the pandemic began, which continues still in 2022. As mentioned above, the research aims to compare the financial and economic situation of small exporting companies with that of small non-exporting companies, highlighting the nature and extent of any discrepancies.

The research covers a period of 10 years, from 2011 to 2020. Many changes took place during this period. The first years of the analyzed period (2011–2014) are the closing years of the severe financial crisis that began in 2009. In the following years, until 2020, there is an economic recovery, while in 2020 the pandemic begins, which still continues in 2022. As already stated, the research aims to compare the financial and economic situation between small exporting companies and non-exporting companies of small exporting companies with the financial and economic situation of small non-exporting companies, highlighting the nature and size of any discrepancies.

In particular, the analysis is aimed at deepening four dimensions:

1. investments and growth;

2. profitability;

3. financial structure;

4. liquidity.

Table 1 shows the set of indicators selected for each dimension investigated.

The main results that emerged from the survey are listed below.

3.1 Results on investments and growth

The first aspect to focus on when dealing with internationalization is the company’s investment and growth expectations.

It is evident that the choice of expanding the commercial activity beyond national borders requires efforts in terms of new investments, especially with reference to the working capital. On the other hand, however, the empirical evidence confirms that small internationalized enterprises have significantly higher growth rates than enterprises that deal exclusively with the domestic market [54].

The results of the indicators applied to small exporting firms and to all small firms selected to understand the dynamics of investments and growth are shown in Table 2.

Investments and growth; Revenues on a fixed 2011 base (1) Fixed assets on total assets (2) Annual rate of change in investment (∆%Inv) (3) Asset coverage ratio (4) Annual rate of change in total asset (5) Annual rate of change in equity (6)	Profitability; ROE % (7) ROI % (8) ROS % (9) EBITDA/Revenues % (10) Capital turnover (11) Value added/Revenues % (12) Value added per capita (13) Labor cost/revenues % (14) Labor cost/ per capita (15) Employee performance (16)
Financial structure; Debt/Equity ratio (17) Debt/total asset ratio (18) Debt/EBITDA ratio (19) ROD % (20) ROI – ROD % (21) Structure margin (22)	Liquidity; Net working capital/Revenues (23) Average stock (days) (24) Average credit duration (days) (25) Average debt duration (days) (26) Quick ratio (27) Current ratio (28)

Table 1.

The set of indicators.

	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Exporting companies
1	100	97.11	97.89	100.59	104.2	106.55	112.87	115.14	114.17	101.97
2	0.22	0.22	0.22	0.22	0.22	0.21	0.21	0.22	0.23	0.26
3	—	−2.49	−2.7	−2.33	−1.77	−1.57	−0.43	−0.4	−1.61	4.66
4	1.74	1.74	1.74	1.8	1.89	1.94	1.96	1.99	2.02	2.07
5	—	−0.35	1.41	2.61	3.29	3.20	4.97	2.40	0.61	6.65
6	—	3.71	2.88	3.29	5.06	5.15	6.68	6.21	4.62	10.58
Non-exporting companies
1	100	98.63	99.13	101.03	104.53	106.88	111.33	115.2	116.2	102.15
2	0.23	0.23	0.23	0.23	0.23	0.23	0.23	0.23	0.24	0.26
3	—	−2.69	−3.13	−2.39	−2	−1.41	−0.99	−0.87	−1.54	0.72
4	1.28	1.31	1.34	1.39	1.46	1.51	1.55	1.57	1.59	1.7
5	—	0.23	1.22	2.03	2.81	3.08	3.84	2.12	1.11	5.01
6	—	3.85	2.85	3.61	5.43	5.34	6.17	5.73	4.99	8.29

Table 2.

Investments and growth, median values.

The first indicator, revenues on a fixed 2011 base, is calculated as the ratio between revenues from sales and services of each year under investigation compared with the revenues achieved in 2011. However, a sharp slowdown in turnover growth emerges in the last year, 2020, probably due to the effects caused by the global pandemic crisis.

The indicator fixed asset on total asset (number 2), constructed by comparing fixed assets respect to the total invested capital, represents the weight that the fixed assets have on the total investments. Generally, small firms are characterized by a low intensity of invested fixed capital: the data that emerged from the empirical study show a reduced weight of fixed assets for both exporting and non-exporting companies. Although the values for the two types of firms are quite similar, small exporting firms record slightly lower values than non-exporting firms (the weight fluctuates between 21% and 22% for the entire period, with the exception of 2020): this result can be explained by higher investments required in working capital (inventories and credits) associated with import-export activities.

The percentage change in investments between 1 year and the previous one (indicator number 3) always shows negative values for all the companies analyzed (with the exception of 2020), signaling a progressive contraction of the fixed capital invested.

The asset coverage ratio (number 4), constructed by comparing the sum of equity and long-term debt with respect to the total fixed capital, measures the ability of the company to finance the acquisition of fixed assets through consolidated sources of financing (equity and long-term debt), also offering information on financial solidity. Both exporting and non-exporting companies show values higher than unity and therefore positive from the patrimonial point of view, but companies that also carry out activities abroad tend to have higher values.

Business growth can also be measured by observing the annual variation of the entire invested capital. Indicator 5 shows constantly growing values (with the exception of 2019) for exporting companies and on average higher than for other companies. This information indicates the presence of a development trend of internationalized enterprises.

The latest indicator of the growth dimension, the annual rate of change in equity (indicator number 6), presents positive and slightly increasing values for both types of companies: the joint reading of these values with those that emerged for the previous indicator allows us to affirm that the expansion of the total invested capital was accompanied by an increase in equity and therefore from a strengthening of the level of capitalization of companies.

3.2 Results on profitability

Table 3 shows the results of the net and operating profitability indicators.

	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Exporting companies
7	5.3	5.1	4.42	5.48	7.27	7.94	9.69	8.57	7.34	5.34
8	4.19	3.56	3.88	4.17	4.28	4.37	4.68	6.64	4.02	3.12
9	3.67	3.09	3.41	3.84	3.89	4.09	4.46	4.13	3.75	3.44
10	1.14	1.12	1.11	1.11	1.08	1.06	1.05	1.04	1.04	0.84
11	6.51	6.08	6.30	6.77	7.05	7.22	7.39	7.34	6.87	6.72
12	25.11	25.29	25.99	26.47	26.51	27.25	27.42	27.04	27.63	27.58
13	58.160	57.520	58.655	60.620	62.100	63.585	65.370	66.400	66.395	60.444
14	16.70	17.41	17.75	17.91	17.86	18.01	17.47	17.67	18.18	18.84
15	39.630	40.240	41.125	41.830	42.135	42.515	42.515	43.005	46.150	41.730
16	6.05	5.84	5.71	5.66	5.72	5.65	5.65	5.77	5.62	5.44
Non-exporting companies
7	5.54	5.84	4.55	5.59	7.43	8.02	8.6	8.33	7.72	6.09
8	4.17	3.61	3.82	4.01	4.1	4.09	4.06	3.98	3.73	2.84
9	3.5	3.05	3.26	3.45	3.58	3.63	3.65	3.59	3.37	3.1
10	1.21	1.18	1.16	1.15	1.15	1.13	1.12	1.11	1.10	0.89
11	6.49	6.01	6.22	6.41	6.55	6.67	6.68	6.64	6.44	6.11
12	31.37	32.06	32.82	32.91	33.22	33.9	33.83	33.83	34.25	33.54
13	46.710	45.870	47.000	48.000	49.050	50.210	51.140	52.150	52.660	47.210
14	22.3	23.53	23.98	23.98	23.78	24.13	23.92	23.95	24.5	25.23
15	34.570	35.010	35.660	36.180	36.520	37.250	37.795	38.700	39.460	35.850
16	4.53	4.32	4.25	4.25	4.28	4.25	4.3	4.29	4.2	4.15

Table 3.

Profitability, median values.

The first indicator we look at is the ROE (number 7) to interpret the ability to turn equity into profits. We see a decline in ROE until 2013 with respect to both the sample of small companies and the sample of small exporting companies. In 2013, the former stands at the worst value of 4.55%, while the latter drops to 4.42%. Since 2014, ROE increases and both samples reach their best value in 2017: 8.6% for the sample of small companies and 9.69% for exporting companies. Surprisingly, ROE of exporting companies is higher than that of small companies only in 2017 and 2018.

ROI (number 8) and ROS (number 9) have a very similar trend to ROE: they are characterized by a decreasing pattern until 2014, but both samples reach their worst value in 2020. Furthermore, we note that the ROI and ROS of exporting companies are always higher than those of small companies. The same can be seen for EBITDA, here calculated as a percentage of revenues (number 10): exporting companies outperform the median values of small companies by exceeding the 7% threshold from 2015 to 2018.

The analysis continues with capital turnover (number 11) to assess the efficiency with which companies use assets to generate sales. A decreasing trend can be seen for both samples. Their lowest value, below unity, is reached in 2020.

A different trend emerges in relation to value added, expressed as a percentage of revenues (number 12). As the difference between production value and external costs, it identifies the value that capital and labor have added to achieve a given output. This value is increasing, denoting the ability of small Italian companies to make savings in the acquisition of external factors over time. We note that the median values of small companies are still higher than those of exporting companies (by about 6%). This proves that exporting companies bear higher external costs than non-exporting companies, i.e., higher costs for the purchase of both materials and services.

Consequently, our attention focuses on a very important factor for exporting companies: labor. We calculate value added per capita (number 13), labor cost as a percentage of revenues (number 14), labor cost per capita (number 15), and employee performance (number 16). We observe that exporting companies always have a lower incidence of labor costs on revenues. The difference between the median values never falls below 5.5 percentage points in favor of small exporters and grows over time reaching a spread of 6.39% in 2020. While labor costs are lower as a percentage of revenues, the cost per labor unit is significantly higher for exporters, proving that they offer more favorable conditions to their employees than non-exporters in terms of monetary rewards. The difference between the median values grows over time and reaches its highest peak in 2019 with a per capita cost difference of € 6,690. The results of indicators 11 and 14 show that the employees of small exporting companies perform better than those of non-exporters: both the revenues and the value added provided by the individual employee of exporters are consistently higher and grow faster over time than those of non-exporters.

3.3 Results on financial structure

The analysis of the financial structure allows to investigate the conditions of balance between sources and investments, focusing in particular on the level of debt of the company. Table 4 shows the results of some important financial structure indicators.

	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Exporting companies
17	0.49	0.49	0.44	0.44	0.44	0.41	0.39	0.38	0.34	0.34
18	0.59	0.57	0.55	0.55	0.54	0.53	0.53	0.51	0.49	0.47
19	1.64	1.76	1.71	1.68	1.65	1.58	1.38	1.38	1.31	1.19
20	4.13	4.57	4.52	4.3	3.6	2.98	2.52	2.24	2.35	1.83
21	0.06	−1.01	−0.64	−0.13	0.68	1.39	2.16	2.4	1.67	1.29
22	212	277	301	319	412	452	528	534	612	711
Non-exporting companies
17	0.54	0.57	0.55	0.53	0.52	0.48	0.46	0.43	0.39	0.38
18	0.65	0.63	0.62	0.61	0.6	0.59	0.58	0.57	0.55	0.53
19	7.04	7.12	7.01	6.88	6.77	6.71	6.6	6.37	6.21	5.16
20	4.63	5.27	5.4	5.32	4.69	4.01	3.52	3.31	3.28	2.58
21	−0.46	−1.66	−1.58	−1.31	−0.59	0.08	0.54	0.67	0.45	0.26
22	−14	−5	4	14	30	41	61	76	95	126

Table 4.

Financial structure, median values.

From this point of view, the first aspect to assess is the degree of leverage obtained from the ratio between total debt (short and medium to long-term) and equity (indicator number 17). Small exporting companies show steadily decreasing results over the decade, highlighting the ability to reduce debt in favor of an increase in equity. In addition, these companies, in each year, have lower debt ratios than those of non-exporting companies, thus showing less dependence on debt and greater financial solidity.

The next indicator (number 18), obtained from the comparison between total debts and total asset, defines the weight that the debt has in the financial structure and its contribution to covering the investments. The results appear in line with what was stated for the previous indicator: a decrease in the debt burden emerges over the years and, for exporting companies, lower values than for other companies. This confirms the presence of a greater level of capitalization and capital strength for companies operating abroad.

The Debt/EBITDA ratio (indicator number 19) indicates how many times EBITDA must be generated to allow debt to be repaid. The values shown in the table express the ability of small exporting companies to repay the debt contracted in much shorter times than other small companies.

When studying the financial structure, the cost of debt plays a decisive role as it measures the economic effort involved in the use of debt and is connected with the creditworthiness associated with the financed companies. The return on debt (ROD, indicator number 20) is calculated as the ratio between financial charges and total debts and appears higher for companies that operate only in the domestic market: the financial market therefore perceives small exporting companies as less risky than others. In addition, a gradual reduction in the ROD should be noted. This can be attributed to the general decline in interest rates that took place during the years under investigation.

The cost of debt is linked to the ROI, analyzed in the previous section: the comparison between the two indicators defines the “leverage effect” (indicator number 21) that makes it possible to verify whether the investments made by the company guarantee a higher or lower return than the cost incurred for finance them and suggests whether there is room for debt extension. The results obtained by small exporting enterprises are better than those recorded by other enterprises, even in the years in which negative values have emerged.

The structural margin (indicator number 22), obtained from the difference between equity and total fixed assets, expresses the contribution of equity to the financing of fixed assets and also offers information on the level of capitalization of the company. This indicator also shows more favorable values for internationalized companies, with positive and ever-growing values.

3.4 Results on liquidity

Table 5 shows the results of the liquidity indicators.

	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Exporting companies
23	25.65	27.33	26.41	27.42	27.74	26.3	26.33	26.71	27.57	29.84
24	59.01	57.94	58.89	61.78	62.22	61.34	60.66	63.88	64.63	69.36
25	106.3	104.71	103.5	102.06	100.43	98.24	98.28	94.78	92.83	98.43
26	99.29	96.63	97.57	95.36	95.09	96.39	98.41	92.57	90.59	95.63
27	1.04	1.09	1.1	1.12	1.16	1.2	1.22	1.21	1.23	1.49
28	1.46	1.54	1.55	1.60	1.67	1.70	1.71	1.75	1.80	2.11
Non-exporting companies
23	19.97	21.43	22.05	22.02	21.83	21.4	21.05	21.3	21.55	22.72
24	7.65	7.2	7.52	22.55	22.55	18.05	20.77	21.48	22.39	23.32
25	104.98	107.47	109.86	108.11	106.19	104.85	104.66	101.14	98.26	103.72
26	103.16	100.73	102.55	100.89	99.43	101.36	102.91	96.38	92.74	99.55
27	1.02	1.05	1.07	1.1	1.14	1.17	1.19	1.21	1.22	1.43
28	1.29	1.32	1.35	1.39	1.44	1.48	1.51	1.53	1.57	1.81

Table 5.

Liquidity, median values.

Given the nature of exporting companies, it is interesting to study the net working capital (NWC), which represents a much more significant asset class than structural assets [55, 56]. It is calculated as a percentage of revenues (number 23) and, as expected, the median values of exporting companies are always higher than those of non-exporters. The median has an increasing trend for both exporting and non-exporting companies and reaches its highest value in 2020 (with 22.72% for non-exporting companies and 29.84% for exporters). The difference between their medians also increases over time, and in 2020, the NWC of exporters is 7.12 percentage points higher than that of non-exporters.

The analysis is deepened by calculating the average duration of inventories (number 24), credits (number 25), and debts (number 26) of the operating cycle. In relation to warehousing, the results prove that inventories of exporters cannot be compressed beyond a certain level. The median of exporting companies remains almost constant over the years, while that of non-exporting companies increases over time, with a surge in 2014 from 7.52 days to 22.55 days. In relation to the average duration of credits, the results show a decreasing trend for both samples, but exporting companies always collect faster than non-exporters, even if the delay is only a few days. The trend in the average duration of debts is also slightly decreasing, and generally exporting companies pay their suppliers earlier than non-exporting ones. However, the time gap between their medians is so low that one cannot assume substantial differences between the payment terms granted by suppliers to exporters and non-exporters.

Finally, it is interesting to look at the quick ratio (number 27) and the current ratio (number 28). The latter considers the weight of total current assets over total current liabilities, indicating how the company can maximize the liquidity of its current assets to settle its debts and payables. The current ratio of exporting companies is always higher, by about 0.20, than that of non-exporting companies. This means that exporters can easily pay back 0.20 times more than non-exporting firms for each euro borrowed. The difference between the median values decreases over time, from 0.30 in 2011 to 0.17 in 2020. This means that during the last years of the crisis, exporting companies enjoyed more liquidity than non-exporting ones. However, given the high inventories of the former, it is also useful to monitor the quick ratio.

The quick ratio (number 27) measures the ability to meet short-term obligations with the most liquid assets. It is more conservative than the current ratio because it only considers assets that can be converted into cash in a short period of time, thus excluding inventory and other current assets, which are generally more difficult to convert into cash. A result of 1 indicates that the company is fully equipped with exactly enough assets to be instantly liquidated to pay off its current liabilities. The results show that all small Italian companies always have a quick ratio of more than 1, so they can always get rid of their current liabilities instantly. The medians of exporting and non-exporting companies become very similar, but the value of the former is never lower than that of the latter.

4. Discussion

As suggested by the literature [12, 46, 57, 58, 59, 60], the results reported in the previous paragraphs should be read in light of the Italian economic and financial context. This is because country-specific characteristics either challenge or facilitate the propensity and possibilities of internationalization. In particular, the number of companies, their methods of internationalization, and the performance achieved by small Italian exporting companies depend, above all, on the peculiarities of the Italian economic and cultural context.

Regarding the economic and cultural barriers to internationalization, previous research [15, 61, 62, 63, 64] has suggested that ownership and governance structures can influence SMEs’ growth and internationalization as they affect the firm’s objectives and willingness to take risks. In particular, Fernandez and Nieto [61] demonstrate the existence of a negative relationship between family ownership and export activity. Graves and Thomas [63] find that the managerial capabilities of family firms are inferior to those of their non-family counterparts when expanding internationally.

In Italy, the entrepreneurial system consists of many small enterprises characterized by family ownership and governance. They usually assume elementary structures and organizations and adopt a strategy of market permanence rather than growth and development [65]. These factors inevitably exacerbate cultural barriers to internationalization, also explaining the much smaller sample size of exporting companies compared with non-exporting ones.

Fernandez and Nieto [61] observe that stable relationships of family SMEs with other firms through shareholding or formal agreements aim to promote their international expansion and provide them with the necessary resources (knowledge, information, commitment, experience) proven to be key factors for a successful internationalization process. In Italy, however, family management is usually associated with the absence of cooperation or association with other enterprises and of adherence to organized trade circuits. Therefore, the internationalization process of small family Italian firms is hardly facilitated by a set of formal network relationships that many scholars invoke to encourage and sustain exports [66, 67, 68, 69].

However, Becchetti and Rossi [70] and Mariotti and Piscitello [71] observe that the presence of qualified localized capabilities strengthens and complements the competitive advantage of SMEs, thus favoring their internationalization. They refer to industrial districts as socio-territorial entity characterized by the active presence of both a community of people and a population of firms in a naturally and historically delimitated area [72, 73, 74]. In the district, community and business tend to merge. Each of the many firms that constitute the population tends to specialize in just one or a few phases of the production processes typical of the district. In this case, the term localization indicates something other than an accidental concentration of production processes in one place: community and firms are attracted by preexisting localization factors, i.e., the advanced specialized services available to firms, the existence of a marshallian atmosphere, and an environment conducive to innovation and learning. Final products cannot be sold only in the district and require the development of a permanent network of links, based on mutual trust and commitment between suppliers, distributors, clients, regulatory and public agencies, as well as national and international institutions. Generally, the target market of the districts is the external, essentially global market. As confirmed by Becchetti and Rossi [70], economies of scale in the provision of export services and informal face-to-face exchanges on foreign markets may improve the export performance of small firms located in Italian Marshall districts.

Therefore, in Italy, the prevailing method of internationalization of small firms is related to the network approach [12, 14], in contrast to other countries where the so-called International New Ventures or Born Global firms are more present [16]. The network approach emphasizes the importance of informal collaborations between firms. Such collaborations have a broader scope than one single task or one single purchase. They are usually based on complementary abilities and reciprocity, as the joint development of product or the co-provision of services. Collaborations may transfer skills, knowledge, and expertise between firms, but not control and power over partners and their resources. Collaborations are not based on a comprehensive written agreement, but rather on trust and commitment. This rarely provides complete protection against opportunistic behavior. On the other hand, informal collaborations allow partners to maintain considerable independence, which is an important aspect for many family Italian businesses. In addition, informal collaborations may not entail high transaction, monitoring, and enforcement costs, preventing firms from exporting.

As regards financial constraints to internationalization, it is useful to point out that Italy’s financial environment is the same as continental Europe’s: a bank-based system, with relatively underdeveloped capital markets and a rather immature business angel and venture capital industry compared with those of Anglo-Saxon countries [38].

In Italy, bank financing remains the most widespread source of funding. Therefore, small Italian companies have a high financial dependency on the banking system [75]. According to Del Giudice, Della Peruta and Carayannis [76], this is due to several factors, such as the abundance of loans granted in the past and the traditional ability of Italian banks to meet the financial needs of firms.

Nevertheless, the last two decades have been characterized by a gradual disengagement of banks in the provision of funds, due to the financial crisis. This aspect, combined to a limited financial culture within small firms in terms of alternative financial instruments to banking ones, puts their internationalization projects at a disadvantage, preventing them from realizing their full growth potential. In fact, the volatility of returns, the additional risks, the intangibility of assets, and the informational problems that foreign projects involve result in the inability of the financial market to finance the internationalization process.

Specifically, for a typical Italian family-owned SME, raising equity from existing shareholders is not always feasible, while entering equity from new external shareholders is often undesirable. New financial instruments such as commercial papers, mini-bond, debt funds, crowdfunding, hybrid debt securities are not well known. Although they represent a mean to cover financial needs, they are not yet considered in the corporate financial strategy. As a result, small Italian enterprises facing financial constraint prefer to internationalize in less capital-intensive ways, i.e., they prefer to export rather than opt for foreign direct investments, relying more on self-financing, short-term bank loans, trade credit, and owner loans [39, 77]. Essentially they cut costs to generate the resources they cannot raise on financial markets [78] and use cash flows from the initial stages to finance subsequent export transactions.

In this context, public intervention can be called upon to help efficient but constrained small firms expand their activity abroad [48, 49]. UE policy aims either at lowering sunk costs of entering foreign markets or at reducing financial market imperfections by means of local, regional, or national authorities, or financial intermediaries such as banks and venture capital funds. Italy has spent a lot of public money to moderate equity and debt gaps through loans, interest subsidies, or equity investments. The State does not require collateral or guarantees but can help small firms by guaranteeing their bank loans. An important indirect effect of obtaining state subsidies is that it facilitates access to private finance, by improving the solvency position and providing a positive signal to banks. However, this type of institutional support has received little academic attention, and in Italy, there are no empirical verifications proving the mitigation of the financing gap.

Regarding performance, we find that small Italian exporters tend to be more productive, pay higher wages, and earn higher returns from their employees than non-exporters. Their financial situation also seems to be better: exporting firms are less indebted, more creditworthy, benefit from a lower cost of borrowed capital, and can repay their debt much faster than non-exporting firms. Above all, exporting firms seem to have coped better than non-exporters with the crisis that started in 2009 and ended in the early years of the period under our analysis. This is consistently with the aforementioned empirical literature on the relationship between exporting and SMEs’ performance. Greenaway, Guariglia and Kneller [79] observe that exporting can help companies improve their financial health, making them more liquid and less leveraged. Thus, it seems that exporting is a sign of efficiency and a free way for creditors to assess the potential profitability of foreign investments.

Not in line, however, are the results on growth. To capture the different dimensions of the growth process, we measured the growth of revenues, investments, total assets, and equity. We would have expected a better performance of exporting firms compared with non-exporting ones, especially with regard to revenue growth; on the contrary, the median value of revenues expressed on a 2011 basis is always higher for non-exporting firms (apart from the year 2017). ROE is also higher for non-exporting firms (except for the years 2017 and 2018). These results deserve some clarification and reflection.

Many SMEs in almost all counties and industries face growing competition due to globalization and internationalization. Even primarily domestically oriented SMEs must operate internationally to guarantee their competitiveness and viability. Buying from foreign suppliers is an alternative strategy for developing competitive advantage and enhancing performance [80]. The advantages of this strategy can be manifold. Hessels and Parker [15] mention the cheapness and high quality of inputs purchased abroad or their absence in the domestic market. Thus, foreign suppliers can enable buyer companies either to improve their own products and services or access resources cheaply. This is essential for constraint SMEs. Above all, this is important for small Italian companies.

Italy has a persistent fragility in high-tech sectors and a comparative advantage in low and medium-low-tech sectors [10]. Competitive pressure from emerging countries erodes Italy’s positions in the production of final goods, so importing cheaper inputs can help companies save costs and survive. Therefore, in our subsample, there are many companies that only import. Their goal is to reduce purchasing costs and increase profitability, rather than to grow through exports. This reduces the results in terms of turnover growth but improves profitability.

5. Conclusions

The analysis conducted in this research work aims to offer a snapshot of the economic and financial situation of small Italian exporting enterprises and compare it with that of small enterprises that carry out their activity exclusively within the national territory. The results suggest: the absence of significant differences in terms of turnover growth and investments; the tendency to obtain better economic performance, with higher returns from operations and better performance of workers; the presence of more favorable financial conditions for internationalized companies, especially in terms of debt sustainability; a slightly more favorable situation from a liquidity point of view.

It is interesting to note that many of the indicators examined show anomalous values, i.e., not in line with the previous trend, in the last year considered: 2020. This figure probably depends on the coronavirus pandemic that began in 2020 and which generated an unprecedented global economic crisis. Due to the lack of more recent economic and financial data, this paper is unable to investigate the impact generated by this calamity on the state of health of companies and on the dynamics of internationalization processes. However, the way is opening up for a future line of research, aimed at studying and interpreting the effects produced on small businesses not only by the pandemic, but also by the war in progress since the beginning of 2022 and the consequent political and economic crisis.

The conflict between Russia and Ukraine has brought out all the problems related to the presence of global production chains, causing an uncontrolled rise in the prices of raw materials and generating problems in the supply of energy sources. These dynamics are destined to affect the balance sheets of companies, especially internationalized ones, which risk compromising the advantages obtained by operating abroad.

A further starting point for an in-depth study of the research concerns the possibility of dividing the samples of the selected companies, exporting or not, according to the sector they belong to. It is quite clear that the current crisis is destined to affect differently depending on the type of activity carried out: this distinction would allow us to understand which economic sectors have been most influenced by the crisis and which aspects of their activities have been involved.