Public Release:  Labor mobility generates growth

Companies that want to expand can benefit from hiring employees with experience in and knowledge about new export destinations

Aarhus University

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IMAGE: The research project of assistant professor Eliane Choquette and Philipp Meinen, Ph.D., is based on a very detailed dataset derived from Danish manufacturing companies. view more

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If small European countries like Denmark are to match China's export growth rates, more companies need to venture out and expand to new export markets, for instance in developing countries. But how do small companies get started on exporting to e.g. Brazil?

According to Eliane Choquette and Philipp Meinen, PhDs from the Department of Economics and Business at Aarhus University in Denmark, the answer can be quite simple: If you want your company to expand, you need to hire people who know how to approach the new market.

"Differences across export markets make it difficult for firms to assess the potential costs and benefits of starting to export to a specific country. Firms need to gather information about business practices, customers' tastes, competition, legal environment, etc. Gathering such information can be costly, and therefore only a fraction of firms are able to afford exporting," explains Philipp Meinen and proceeds: "Labour mobility is an effective means of obtaining information about and cultural understanding of countries that are geographically and culturally distant from Denmark."

Globalisation fosters export spillovers

Eliane Choquette and Philipp Meinen's research project is based on a very detailed dataset derived from Danish manufacturing companies. And the data confirms their theory on the effects of globalisation: "Spillovers from one company to another happen so frequently today, because firms are no longer isolated entities but rather parts of a larger system - and so, the firms' internationalisation decisions are impacted by the behaviour of other firms," explains Eliane Choquette.

Their results suggest that the channel via which spillovers happen is dependent upon the size of the company: Smaller companies tend to observe and mimic the behaviour of firms that are similar to them, which may be an inexpensive way to assess potential opportunities.

Larger companies, on the other hand, tend to rely on the labour mobility channel to gather knowledge of potential markets. This difference may be due to the fact that larger firms have more resources available to react upon the knowledge derived from new employees and venturing into new markets.

Particularly valuable for Danish companies

Denmark has a flexible labour market that induces high labour mobility, which means it is easy for employees to change jobs. Therefore, the results are of particularly great value to Danish firms and industry advisers. Philipp Schröder, Director of the Tuborg Research Centre for Globalisation and Firms at Aarhus University, emphasises that the results can also make a difference for non-exporting companies or companies that take an improvisatory approach to internationalisation: "Many companies hit a brick wall in their process of internationalisation, and most firms cease exporting within the first 12 months. But this research offers a recipe for export success: Companies should not start exporting on their own - they need to obtain the right manpower."

Promoting best practice

According to Philipp Schröder, the research findings are ground-breaking, because they can help motivate smaller companies to act: "There is a very important export function inherent in Human Resources. For example, if customs formalities is the main issue standing in the way of a company exporting to a given country, this company needs to establish the network and find the expertise that can help them overcome this obstacle," he explains.

Eliane Choquette and Philipp Meinen emphasise this point: "A country's welfare is directly affected by firms' ability to export goods to other countries. And internationalisation and globalisation help kick the economy into a higher gear. Therefore, the exchange of cultural knowledge and industry information should be promoted," explains Philipp Meinen.

The young researchers' results may aid in the development of similar initiatives for the promotion of export, says Philipp Schröder. "It would be possible, for instance, to get older or retired employees with a lot of experience from larger exporting companies to council the smaller companies that have less extensive export experience. We need to promote best practice for the benefit of the economy," concludes Philip Schröder.

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Further information

Eliane Choquette is Assistant Professor at the Department of Economics and Business at Aarhus University and is affiliated with the Tuborg Research Centre for Globalisation and Firms. Philipp Meinen defended his PhD dissertation at the Department of Economics and Business in August, and today he works at Deutsche Bundesbank in Frankfurt.

Contact information:

Eliane Choquette, Assistant Professor
Department of Economics and Business, Aarhus University
Tel.: +45 87 16 50 68
Email: elianec@asb.dk

Professor Philipp Schröder
Centre Director, Tuborg Research Centre for Globalisation and Firms
Department of Economics and Business, Aarhus University
Tel.: +45 87 16 49 71
Email: psc@asb.dk

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