The missing link between awareness and use in the uptake of pro-internationalization incentives

We investigate the process by which firms become participants in official programmes of public support designed to promote outward internationalization. This study builds on previous research that has established the distinct factors associated with firms’ awareness and use of public support measures. These earlier studies have also shown that deficiencies within programmes manifest in low participation rates. However, scholars have not extended this reasoning to focus on the underlying processes involved, and have paid little attention to the steps through which firms elect to use public support, and how support operates upon, and within, the firm. In particular, the link between awareness of public incentives towards internationalization and the use of these incentives has been overlooked. General failure to understand this link is a potential source of policy inefficiency, reducing the effectiveness of those public programmes that employ incentives. We pose three research questions to examine the concept of such a link: (1) Do firms select public incentives that compensate for a lack of resources or capabilities in their possession? (2) Do firms react primarily to internal or external exigencies, for example, internal financial constraints or, rather, are they responding to unfolding circumstances, such as the more demanding market conditions experienced on internationalization? And (3) do firms use public support to “externalize” the increased risk to which they are exposed as internationalization proceeds, and thereby protect their external activities and investments from loss? The process that firms go through to apply for any type of public support is normally two-staged. Firms first become aware of incentives and then decide whether or not to use them. This process can be handled empirically using a Heckman Selection Model, which we apply to explore our research questions using survey data collected from a sample of

Portuguese firms. We find that the greater are the internal limitations of these firms with respect to resources and capabilities and the more demanding are the conditions in which internationalization takes place, then the greater is the use made of public support. We find that awareness of the availability of support is promoted by firms’ in-house resources and capabilities and, at the same time, is positively associated with more demanding conditions of internationalization. The use of public support appears to be associated with the opportunity cost to the firm of public incentives, and with the increased risk inherent with internationalization. These results point to the existence of important sources of inefficiency within the process of application for policy measures, particularly with respect to the link between awareness and use. The use of public support is inversely associated with the opportunity cost to the firm of the resources deployed to apply for public incentives and, for firms with greater resources and capabilities, associated positively with the increased inherent risk of internationalization. We find evidence that it is the firms with greater resources and capabilities that predominate in the application for public incentives, allowing us to infer from the data that the typical recipient pursues more risky modes of entry, or selects locations with higher levels of risk, because of the availability of public support. These results point to the possible existence of important sources of inefficiency within the process of application for policy measures, particularly with respect to the link between awareness and use. This behaviour is quite distinct from

the search for return on commercial investments and, therefore, is indicative of the possibility of social loss within this public policy intervention.