Summer Journal

RE-EXAMINING FIRM SIZE AND EXPORTING:
AN EMPIRICAL ANALYSIS OF SOUTH CAROLINA FIRMS

J. Kent Poff
North Georgia College & State University

kpoff@ngcsu.edu

Kirk C. Heriot
Columbus State University
Heriot_kirk@colstate.edu

Noel D. Campbell
University of Central Arkansas

ncampbell@uca.edu

ABSTRACT

Mittlelstaedt, Harben, and Ward (2003) and Wolff and Pett (2000) offer contradictory
evidence on the impact of firm size (by employment) and the propensity to export. Using a
data set very similar to that of Mittelstaedt et al., we re-examine the issue. Although we find
that firm size has a significant impact on export propensity, we fail to find a threshold at
twenty employees, as Mittelsteadt, et al., did. Our findings are more supportive of Wolff and
Pett, who argue very small firms are capable of exporting. This paper concludes by
considering the implications for researchers and policymakers.

INTRODUCTION

Exporting by small firms is a significant
economic activity. The U.S. Bureau of
Census indicates that over 239,000 firms
exported goods in 2005. Small companies
account for 97 percent of all U.S. exporters,
a percentage that has risen slightly since
1995. Small exporters exported goods valued
at $228 billion, which represented 29.1
percent of total U.S. goods exported (U.S.
Census Bureau, 2007).

McDougall and Oviatt (1999) are credited
w i t h i d e n t i f y i n g a l i n k b e t w e e n
internationalization and entrepreneurship.
However, they expressed caution that the
“born global” phenomenon was universally
appealing to all firms, regardless of size.
Their caution was guided by the fact that
they noted that there was largely no
empirical support for the recommendation
that firms internationalize.

Given figures such as these, it is unsurprising
that the academic literature explores the
relationship between firm size (by number of
employees) and exporting (see Wolff and

Pett, 2000, and Mittelstaedt, Harben, and
Ward, 2003). Although there any many ways
for firms to internationalize, like much of the
literature, we focus on exporting. The
findings are inconsistent in this area. Some
studies identified a positive relationship
between firm size and export success (e.g.,
Lall and Kumar, 1981; Kaynak and Kothari,
1984). Other studies found no relationship
(e.g., Czinkota and Johnson, 1983; and
Moini, 1995). Finally, another group of
studies found an inverse relationship (e.g.,
Cooper and Klienschmidt, 1985).

Mittelstaedt, Harben, and Ward (2003)
argued that firms with fewer than 20
employees (hereafter, micro firms) fall below
a critical threshold and will face so many
major obstacles to exporting that they should
not attempt to export. However, their
conclusions contrasted with Wolff and Pett
(2000), who argued that micro firms are
capable of exporting, and with McDougall,
Shane, and Oviatt (1994) and Oviatt and
McDougall (1995) and others (e.g., Autio,
Sapienza, and Almeida 2000; Rialp-Criado,
Urbano, and Vaillant 2003), who argued that

STRATEGYJOURNAL OF SMALL BUSINESS

mailto:kpoff@ngcsu.edu
mailto:kpoff@ngcsu.edu
mailto:Heriot_kirk@colstate.edu
mailto:Heriot_kirk@colstate.edu

some new ventures are created with an intent
to sell internationally.

The purpose of this paper is to revisit the
relationship between firm size and export
propensity, focusing on micro firms, using
Mittlelstaedt et al (2003) and Wolff and Pett
(2000) as our antithetical backgrounds, and
using a data set very similar to that of
Mittelstaedt et al. We argue that Mittelstaedt
et al. did not prove that micro firms are
i n c a p a b l e o f e x p o r t i n g , b u t i n s t e a d
demonstrate that micro firms are less likely
to export. Their 20-employee threshold is not
an absolute value, but is the result of the
specific method Mittelstaedt et al. used to
analyze their data. Although we find that
firm size has a significant impact on export
propensity, we fail to find a threshold at
twenty employees. Instead, we find that the
evidence supports the existence of a
“threshold” at any arbitrarily chosen
partition value; that is, the evidence fails to
support the existence of a threshold at any
particular number of employees. Our
findings are supportive of the Wolff and Pett
argument, which said very small firms are
capable of exporting.

This is not a trivial result. Where there are
inconsistent results in the literature—
inconsistencies in what we know—there is
the increased likelihood of poor public
policy and poor business strategy decisions.
The two practical end products of academic
research in business are advice for public
policy makers and advice to business
strategy makers. Academic research would
fail in this regard if, for example, micro
business owners or business assistance
professionals fail to pursue exporting until a
firm has grown to a certain threshold size
because of a mistaken academic result.
Academic research would fail in this regard
if, for another example, policymakers fail to
pursue the idea that economic development
can occur through exporting by micro firms
because of a mistaken academic result. We
do not claim to have conclusively resolved
the empirical inconsistencies in the
relationship between firm size and exporting.
However, we do provide another piece of
evidence that moves us in that direction.

In the next section, we provide a brief review
of the literature on exporting by small firms
with a particular emphasis on size as a
determinant of exporting ability. Then, we
describe our research design and discuss our
results using a sample of firms obtained from
a database of over three thousand firms
m a i n t a i n e d b y t h e S o u t h C a r o l i n a
Department of Commerce. In the final
section, we discuss the implications of our
findings and make suggestions for both
future research and public policy officials.

LITERATURE REVIEW

Small firms and micro firms have emerged
as one of the most widely researched topics
of the last 30 years (Wright, 1993; Autio,
Sapienza, and Almeida, 2000; Baird, Lyles,
and Orris, 1994; Aitken, Hanson, and
Harrison, 1997; and Oviatt and McDougall,
1995). This section will emphasize particular
research relevant to firm size as a
determinant of exporting. While other forms
of market entry are available to small firms,
exporting remains a significant means of
foreign market entry (Pett and Wolff, 2003;
Hollenstein, 2003) and is the focus of this
paper.

Several studies have measured performance
outcomes in terms of export performance or
export intensity, with mixed results. Some
studies found a positive relationship between
firm size and export success (e.g., Lall and
Kumar, 1981; Kaynak and Kothari, 1984).
Other studies found no relationship (e.g.,
Czinkota and Johnson, 1983; and Moini,
1995). A final group of studies found an
inverse relationship (e.g., Cooper and
Klienschmidt, 1985).

A study from the first group, Baird, Lyles,
and Orris (1994), found that international
firms are larger and tend to be industrial
firms rather than retail or service firms.
Dhanaraj and Beamish (2003) confirmed this
finding using a resource-base theory of the
firm (Penrose, 1959; Barney, 1991) in a
sample of Canadian firms.

Wo l f f a n d P e t t ( 2 0 0 0 ) , h o w e v e r ,
demonstrated that small firms are capable of
exporting. They concluded that small firms
use a different decision process to export
than do large firms. They argued that the

Journal of Small Business Strategy

resource-based view of the firm may serve as
a useful explanation for the success of these
small exporters. Very small firms in their
study appeared to capitalize on unique
r e s o u r c e s t h a t w e r e i n d e p e n d e n t o f
economies of scale or other cost efficiencies.

The results of Mittelstaedt et al. (2003) and
Mittelstaedt and Ward (2005) are in sharp
contrast to those of Wolff and Pett (2000).
Using a sample of manufacturing firms in
South Carolina, they found that micro firms
are far less likely to engage in exporting than
small firms with between 20 and 500
employees (Mittelstaedt et al, 2003).
Significantly, they found that firms behave
as if 20 employees is a minimum threshold,
b e l o w w h i c h f i r m s d o n o t e x p o r t .
Mittelstaedt et al. concluded that micro firms
simply do not have the resources to engage
in exporting. They concluded that “firm size
serves as a necessary as well as a sufficient
c o n d i t i o n f o r e x p o r t i n g
success.” (Mittelstaedt, Harben, and Ward,
2003) They reasoned that “if minimum firm
size is a necessary condition for export
success, then exporting firms will be larger
than non-exporting firms” in the same
industry (Mittelstaedt, Harben, and Ward,
2003). Our interpretation of their work is that
t h e y v i e w e d e x p o r t i n g s u c c e s s
dichotomously rather than intensively,
wherein if a firm self-reported any amount of
exports, then that firm is coded as a success.
To test their hypothesis, they calculated the
exporting conditional probabilities of firm
size distribution within a given industry.
T h e y c o m p a r e t h e c a l c u l a t e d s i z e
distribution with the actual size distribution
of exporting firms to determine whether
c e r t a i n s i z e s o f f i r m s a r e
“underrepresented” (Mittelstaedt, Harben,
and Ward, 2003). They found that small
firms are less likely to export than are large
firms. Thus, they write, “In the United
States, how small is too small to export? The
answer appears to be 20 employees,” (2003),
and “The bad news for most firms with
fewer than 20 employees is that they appear
to be too small to acquire the knowledge or
experience necessary to engage in the
exporting process.” (2003).

A more recent study by Mittelstaedt and
Ward (2005) also found a significant positive

relationship between firm size and the
propensity to export. However, in this study,
the authors noted that their model captured
not only a difference in export propensity
between small and large firms, but also
between micro firms and small firms.

Researchers exploring the relationship
between firm size and export propensity
have continued to produce contradictory
findings. For example, Thomas, and Grosse
(2005) also suggested that firm size matters.
Thomas and Grosse (2005), used size as an
indicator of resource availability. Their
initial hypothesis is consistent with
Mittelstaedt et al (2003). They argued that
“firms that possess higher levels of resources
are more likely to engage in exporting to
exploit them” (Thomas and Grosse, 2005).
However, their results did not show a
positive relationship between firm size and
export propensity. They identified a positive
r e l a t i o n s h i p b e t w e e n f i r m s i z e a n d
importing. They point out that their study
was limited to the study of the largest
Mexican firms. Thus, the authors noted the
range restriction of their measure for firm
size as a limitation, but noted that range
restrictions are a significant problem with
much of the research on internationalization,
exporting, and firm size.

Finally, a recent study by Hollenstein (2005)
argued that size may be a determinant of
exporting, but only up to a certain size
threshold (firms with up to 200 employees).
Hollenstein’s analysis of a sample of Swiss
firms was divided into three sub-samples to
capture subsets based upon three primary
size categories: small, medium, and large
firms. Firm size was not found to exert an
independent influence on internationalization
in the sub-sample of large firms (greater than
200 employees).

The contradiction between the conclusions
of Wolff and Pett (2003) and Thomas and
Grosse (2005), and the conclusions by
Mittelstadt et al. (2003), Hollenstein (2005),
and others, is more appearance than
substance. We argue that Mittelstaedt et al.
did not conclusively demonstrate that micro
firms are incapable of exporting. Rather,
they demonstrated that micro firms are less
likely to export than larger firms. We argue

Volume 19, Number 1 Spring/Summer 2008

that the 20-employee threshold is not an
absolute value, but is the result of the
specific method Mittelstaedt et al. used to
analyze their data.

METHODOLOGY AND RESULTS

We examined data from the 2000-2001
South Carolina Industrial Directory to
determine whether firm size serves as a
necessary and sufficient condition for export
success among small manufacturing firms.
We used data drawn to replicate the
Mittlelstaedt et al (2003) study. 1 More
current versions of the South Carolina
Industrial Directory are available, but we
used the 2000-2001 edition to remain
consistent with the prior study. We believe
this is a methodological strength for us, as it
allows us to test their conclusion that 20
employees are a necessary condition for
exporting, using what is essentially their own
data set.

We examined the data to determine whether
South Carolina firms with fewer than 20
employees export. If 20 employees is a
necessary condition for exporting, then one
should be unable to observe firms with fewer
than 20 employees actually exporting.

After sorting the dataset by SIC code, we
conducted chi-squared tests after partitioning
the sample using arbitrarily chosen firm
sizes. If, using a chi-squared test, we find
evidence that an “exporting threshold” exists
at an arbitrarily chosen cut-off number of
employees, then the similarly derived
evidence for a threshold at 20 employees
will fail to persuade.

Mittelstaedt et al. examined 2,848 firms from
49 three-digit SIC industrial sectors. The
current study from the same data set uses
3,771 firms. The specific 49 sectors were not
listed in the first paper, so our data could not
be restricted to these sectors.

We wish to emphasize what constitutes an
“exporting firm” for the purposes of this
paper, given the dataset we used. The data
recorded self-reported answers measuring
whether a firm exported during the year, on a

“yes” or “no” basis. Thus, if a firm reports
exporting, we coded that firm as an export
success. The data did not allow us to
measure sales volume or profit volume of
exports, nor did it allow us to measure export
intensity or export intentions.

It is helpful to plot the data, as shown in
Figure 1, to obtain a general understanding
of the data. Figure 1 shows the percentage of
firms that export by the number of
employees in the firm (from 0 – 500
employees). Figure 2 is identical to Figure 1,
except it emphasizes very small firms (0 – 50
employees). As most research suggests,
Figure 1 shows that larger firms are more
likely to export than smaller firms. The
figure shows that 15 percent of firms with
one employee export and this percentage
gradually increases with no discontinuities
until 37 percent of firms with 500 employees
export. Figure 1 and Figure 2 plot the
number of employees against the cumulative
percentages of firms that export. For
example, 37 percent of all firms with up to
500 employees export. The cumulative
percentage is used to reduce random
fluctuations in the exporting percentage of
firms with different number of employees.
The random fluctuations make interpreting
the graph very difficult.

Visual observation of the raw data does not
appear to support the Mittelstaedt et al.
conclusion that micro firms with fewer than
20 employees cannot export. Although larger
firms are more likely to export, micro firms
in South Carolina do export over the
observation period, and the data show no
unusual patterns around the 20-employee
mark. Figure 2 emphasizes very small firms
and shows that 44 percent of firms with zero
employees export. A firm with zero
employees would be a self-employed person
with no additional employees. Remember, a
self-employed person is not an employee of
the firm. This export percentage is higher
than the average export percentage of any
other level of employment. This observation
is consistent with anecdotal evidence that
micro firms with a web site or eBay presence
will export. The results are qualitatively

Journal of Small Business Strategy

1 The data sets used by the other researchers (e.g., Hollenstein, 2005 and Thomas and Grosse, 2005)
were not available to the researchers.

Volume 19, Number 1 Spring/Summer 2008

Figure 1.

Figure 2.

unchanged if we censor our sample to
exclude zero-employee firms. Although the
percentage of exporting companies falls after
censoring the data, it never dips below 15
percent of firms. Whether we include or
exclude zero-employee firms in our sample,
the evidence indicates that a sizeable portion
of micro firms are exporting.

Mittelstaedt et al. sorted the South Carolina
firms by three digit SIC codes and then
partitioned each selection of firms into four
groups: micro (fewer than 20 employees),
small (20-99 employees), medium (100 –
4 9 9 e m p l o y e e s ) , a n d l a r g e ( 5 0 0 +
employees). They counted firms that export
and firms that do not export by SIC
classification within each size group. They
performed Chi-square tests on each SIC
classification. They found 31 of the 49 SIC
classifications studied have statistically
significant differences across firm sizes.

Mittelstaedt et al. gave a very helpful
example on pages 71-72 of their paper, in
which they demonstrated their analytical
technique in detail for one business sector,
rather than simply reported 49 chi-squared
test results. We followed their lead, and also
analyzed one sector in detail, as an
illustrative example of the general procedure.
The example concerns SIC code 355
(Special Industry Machinery and Equipment)
which has a total of 120 firms, which they
partitioned by number of employees. Please
see the left-hand side of Table 1, wherein we
offer a similar example, with the data
partitioned as Mittelstaedt et al. did.

The left-hand side of Table 1 shows the
numbers of firms that export and do not
export in each partition, and also shows the
calculation of the chi-square test. We
calculated the expected values by assuming
that the average percentage of firms
exporting within the sample will be the same
as the average percentage of firms that
export within each partition. This is what one
would expect if there were no relationship
between firm size and export propensity. For
example, 63.33 percent (76 firms out of 120
firms) of the firms in this SIC classification
choose to export. Therefore, 63.33 percent of
firms will export in each partition. Of the 70

micro firms, we expect that 44.33 of these
firms will export.

This analysis creates an allocation exercise;
therefore, the actual value minus the
expected value is a zero sum calculation.
That is, the actual number of firms that
export (and do not export), minus the
expected number of firms that export (and do
not export), sum to zero across the columns
and down the rows. Therefore, when firms in
some categories export more than average
(i.e., large firms), then it follows that firms in
some other category will have to export less
than average (i.e., small firms). We then
calculated the sum of squared errors. The test
statistic was formed by the total sum of
squared errors, and takes a chi-squared
distribution. Figure 1 and Figure 2 show that
small firms export less, therefore any
partition of firms according to SIC code will
show that smaller firms export less than
larger firms. This is what Table 1 shows:
statistically, significantly fewer firms than
expected export within the “under 20
employees” partition. Our conclusion is that
size matters, and we reject the hypothesis
that there is no relationship between firm
size and export propensity.

Rather than demonstrating that firms with
fewer than 20 employees are too small to
export, this example (and the original
examples in Mittelstaedt et al.) shows that
micro firms do export; albeit a smaller
percentage of these firms export than would
be expected based upon the average of all
firms in SIC code 355. This argument is
consistent with the evidence obtained from
Figure 1 and Figure 2. Contrary to the
Mittelstaedt et al. assertion (2003), firm size
is not a necessary condition for exporting
success, whether firm size is fewer than 20
employees or more than 20 employees.

The Mittelstaedt et al. finding that firms with
fewer than 20 employees are too small to
export is a result of their particular partition
of the dataset at 20 employees. To
demonstrate this, we partitioned the data
using arbitrarily chosen threshold figures, to
determine whether the data also supports any
arbitrarily chosen partition as an export
threshold. We partitioned the data from SIC
code 355 into firms with fewer than 100

Journal of Small Business Strategy

Volume 19, Number 1 Spring/Summer 2008

Table 1. Example of Chi-Squared Tests of Partitioning the Sample at Different Values

SIC Code 355, Special Industry Machinery and Equipment

Initial Partition Into Four Sizes Of
Firms

An Arbitrary Partition Into Four Sizes
Of Firms

Actual Values

<20
20-
99

100-
499 500+ Total <100

100-
200

200-
500 500+ Total

Export 39 25 10 2 76 64 8 2 2 76
Don't
Export 31 13 0 0 44 44 0 0 0 44
Total 70 38 10 2 120 108 8 2 2 120

Expected Values
Total Total
Export 44.33 24.07 6.33 1.27 76 68.40 5.07 1.27 1.27 73.47
Don't
Export 25.67 13.93 3.67 0.73 44 39.60 2.93 0.73 0.73 42.53
Total 70 38 10 2 120 108 8 2 2 116

Actual - Expected Values
Total Total
Export -5.33 0.93 3.67 0.73 0.00 -4.40 2.93 0.73 0.73 0.00
Don't
Export 5.33 -0.93 -3.67 -0.73 0.00 4.40 -2.93 -0.73 -0.73 0.00
Total 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Test
Statistic

Sum Sq
Errors

0.64 0.04 2.12 0.42 3.23 0.28 1.70 0.42 0.42 2.83
1.11 0.06 3.67 0.73 5.57 0.49 2.93 0.73 0.73 4.89
8.80 7.72

Value*
p-

Value*
0.032 0.052

* p-Values indicate statistically significant differences in export propensity across differently-sized

firms, indicating that smaller firms are significantly less likely to export than larger firms. However,
as the right-hand column indicates, the number of employees at which this threshold occurs is
arbitrary, and at the choice of the analyst.

employees, firms with 100-200 employees,
firms with 200-500 employees, and firms
with more than 500 employees. We report
the results on the right hand side of Table 1.
This example shows that 4.40 fewer firms
with less than 100 employees export than
would be expected. The test statistic reveals
statistically significant differences. The p-
values indicate statistically significant
differences in export propensity across
differently sized firms, and indicate that
smaller firms are significantly less likely to
export than larger firms. However, as the
right-hand column indicates, the number of
employees at which this threshold occurs is
arbitrary and at the choice of the analyst.

Therefore, the data provides the same
support of the existence of a threshold at an
a r b i t r a r y d i v i s i o n o f t h e d a t a ( 1 0 0
employees) as it does for the Mittelstaedt et
al. division of the data at twenty employees.
The evidence for the existence of an
exporting threshold at 20 employees is not
compelling, and we view the existence of an
exporting threshold at 20 employees as
possible, rather than conclusive. Our analysis
of a very similar data set fails to support the
Mittelstaedt et al. conclusion that “firm size
serves as a necessary as well as a sufficient
condition for exporting success” (2003). Our
evidence does support the conclusion of
Wolff and Pett (2000) and others who
conclude that even micro firms are capable
of exporting.

RESEARCH AND POLICY
IMPLICATIONS

Although we find that firm size has a
significant impact on export propensity, we
fail to find a threshold at twenty employees.
In fact, we find that even the smallest firms
—those with zero or one employees—are
capable of exporting. We find that 20-
employee threshold is not an absolute value,
but is a result of the specific partition of the
dataset. We find that the evidence supports
the existence of a “threshold” at any
arbitrarily chosen partition value; that is, the
evidence fails to support the existence of a
threshold at any particular number of
employees. Our evidence fails to support the
Mittelstaedt et al. (2003) findings; however,
our evidence is consistent with the findings

of Wolff and Pett (2000), Autio et al. (2000),
and others.

With this paper, our contribution to the
literature is an additional set of results
showing that all firms, even very small
firms, are capable of exporting. With this
finding, we help dispel some of the
inconsistencies regarding the relationship
between exporting and firm size reported in
the literature. We have not conclusively
resolved the empirical inconsistencies in the
relationship between firm size and exporting,
but we do provide another piece of evidence
that moves us in that direction. Like Olson
and Gough (2001), we conclude that future
studies would be more useful if researchers
pursue the performance implications of
exporting by very small firms, rather than
pursue more correlation studies of the sort
we have presented in this study.

Mittelstaedt et al. (2003) also offered
suggestions to policy makers based upon
their conclusions about firm size and export
activity. They argued that policy makers
should focus on fostering domestic growth
strategies rather than exporting growth
strategies for micro firms, given their result
that micro firms are too small to effectively
export. Given our inability to support their
research finding, we conclude that this
advice may be misguided to the extent that it
is based upon their empirical finding.

Large firms usually start as small firms and
grow over time. Rather than growing in a
consistent and predictable fashion, small
firms follow many different paths toward
growth. Furthermore, export activity is not
neatly described in a simple 1-2-3 fashion.
Early research accepted the stages model of
internationalization (Johanson and Vahlne,
1977), which argued that small firms
gradually began exporting and escalated
their efforts as they grew and gained
experience. Bilkey (1978) and others
essentially argued that exporting is a process
of development. However, more recent
r e s e a r c h q u e s t i o n s t h i s p e r s p e c t i v e .
McDougall, Shane, and Oviatt (1994) and
Oviatt and McDougall (1995) argued that
some ventures are created with the intent to
sell internationally. Autio, Sapienza, and
Almeida (2000) and Rialp-Criado et al.

Journal of Small Business Strategy

(2003) label this the “born-global” trend,
whereby new ventures are launched with
cross-border business activities in mind.
Given our findings that micro firms can and
do achieve export success, we argue that if
policy makers continue to assist micro firms
with their exporting efforts, then these firms
may grow to become large firms.

Our results have a practical message for
business owners and business assistance
professionals. Our results imply that business
owners should not be dissuaded from
exporting simply because their firm is very
small. We find no evidence of a minimum
size below which exporting is necessarily a
losing proposition for firms. What we find is
that the smallest firms are capable of
exporting, even if fewer micro irms export
than do larger firms. Our results have a
similar message for business assistance
professionals. Given the ability of micro
firms to export and the absence of a
minimum size threshold for exporting ability,
business assistance professionals should not
hesitate to recommend or support micro firm
exporting, on general principle. A micro
firms’ exporting success will depend on the
firm’s particular market and on the skill and
strategy of the business strategist, but not on
the number of employees.

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J. Kent Poff is an associate professor of
accounting at North Georgia College and
State University. He teaches accounting and
tax with an emphasis on tax issues for micro
businesses. His current research interests
i n c l u d e e x p o r t i n g a c t i v i t y b y s m a l l
businesses, mathematical analysis of tax
issues, and legal analysis of tax issues.

Kirk C. Heriot is an associate professor of
management and the Crowley chair in
entrepreneurship at the Turner College of
Business at Columbus State University. His
c u r r e n t r e s e a r c h i n t e r e s t s f o c u s o n
entrepreneurship under adverse conditions
and exporting efforts of small firms.

Noel D. Campbell is an associate professor
of economics at the University of Central
Arkansas. His research interests include
small business entrepreneurship, state
lotteries, and state public finance.

Volume 19, Number 1 Spring/Summer 2008

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