Why do some firms stop exporting?

During economic turbulence, such as those caused by the US-China conflict and COVID-19, sunk cost effect has garnered attention in IB literature. As it becomes increasingly difficult to predict export profits, relying on sunk costs for strategic positioning in export markets appears to be a rational decision. However, few studies quan-titatively examined sunk cost effect variations, especially in export-exit decision-making. In our study, we quantified sunk cost effect with respect to export performance and export portfolio, specifically in terms of export-exit probability. Our findings indicate that the export-exit rate due to sunk cost effect is less than 50% only if export volume surpasses a certain threshold. Consequently, we have provided an explanation for why export exits still occur in the presence of high sunk costs. Additionally, we have identified that geographic diversification, up to four destinations, has more synergy with sunk cost effect than product diversification, particularly in volatile environments.

Automated summary

During economic turbulence caused by the US-China conflict and COVID-19, the sunk cost effect in international business literature has gained attention. Relying on sunk costs for strategic positioning in export markets is considered a rational decision due to the difficulty in predicting export profits. However, there is a lack of quantitative studies on variations of the sunk cost effect in export-exit decision-making. In our study, we quantified the sunk cost effect in terms of export performance and export portfolio, specifically regarding export-exit probability.