A Comparative Analysis

With the advent of the North American Free Trade Agreement (NAFTA), small businesses in Canada. Mexico, and the United States are in a position to increase their export activities within the emeraina North American lization of foreign representatives. Advocates of direct marketing point to direct marketing's costeffectiveness and cite anecodotal evidence that the use of international direct marketing is on the in4. What factors increase the likelihood that small businesses will utilize international direct marketing for export markets? 5. How do the variables affecting a small firm's use of international direct marketing vary by each NAFTA country? THEORETICAL BACKGROUND On August 12, 1992, Canada, Mexico, and the U.S. announced a comprehensive plan (NAFTA) for free trade across North America. In 1991, the Canadian, Mexican, and U.S. trade with one another totaled $250 billion, representing the largest commercial relationship in the world (14). It has been noted that although the recent gains in U.S.-Canada trade have been impressive, increases in U.S.-Mexico trade will be much more profound, especially for small and mid-sized U.S. exporters (14). These trends are expected to increase dramatically if NAFTA is passed. In 1992, U.S. exports to Mexico rose to approximately $44 billion and the trade surplus grew to about $7 billion (14). The objective of NAFTA is to eliminate tariffs and other barriers to the flow of goods and services within the member nations. The terms of this free-trade agreement are contained in a 4,000-page document that identifies 9,000 products and the year in which each will be able to be exported tariff-free (14). NAFTA will have a dramatic impact on the size, volume, nature, and distribution of world trade both in the short and long run. NAFTA will create the world's largest market and the largest free-trade zone in the world-encompassing 370 million consumers with a combined gross national product (GNP) of more than $6 trillion (23). The economic dependence of Canada and Mexico on the U.S. is well known. Not only does the U.S. constitute a larger market than the other two countries, it also accounts for the majority of all foreign direct investment in Canada and Mexico. In 1990, the U.S. accounted for 62 percent of all foreign direct investment in Canada and 63 percent of all foreign direct investment in Mexico (26). The asymmetry between the U.S. and the other two trading partners in NAFTA has led to different predictions and models about the impact of NAFTA on the various countries involved (25,29). However, these models have focused exclusively on the imJOURNAL OF DIRECT MARKETING plications of production and labor costs for large multinationals. There have been no empirical studies of how market asymmetries may affect the export behavior of small businesses in the three countries. Yet, the lowering of tariff barriers associated with NAFTA will be especially important for small businesses because tariffs represent a larger entry barrier for small than for large firms. Small businesses typically do not have the financial resources or strategic planning to circumvent tariff barriers (6). Small businesses should be ideally suited to capitalize on the export opportunities arising from NAFTA because the flexibility inherent in small businesses provides them with the ability to adapt to environmental changes more quickly than larger enterprises (1,12,17). Previous studies, which have examined small businesses' use of international direct marketing, have been one-country studies (e.g., 1,7). With the increased export opportunities available to small businesses due to NAFTA, it is important to identify those variables that may affect a firm's decision to use international direct marketing within each NAFTA country. Thus, a theoretical model was tested on data obtained from three independent samples of small business exporters in Canada, Mexico, and the U.S.


What factors increase the likelihood that small
businesses will utilize international direct marketing for export markets? 5. How do the variables affecting a small firm's use of international direct marketing vary by each NAFTA country?

THEORETICAL BACKGROUND
On August 12, 1992, Canada, Mexico, and the U.S. announced a comprehensive plan (NAFTA) for free trade across North America. In 1991, the Canadian, Mexican, and U.S. trade with one another totaled $250 billion, representing the largest commercial relationship in the world (14). It has been noted that although the recent gains in U.S.-Canada trade have been impressive, increases in U.S.-Mexico trade will be much more profound, especially for small and mid-sized U.S. exporters (14). These trends are expected to increase dramatically if NAFTA is passed. In 1992, U.S. exports to Mexico rose to approximately $44 billion and the trade surplus grew to about $7 billion (14). The objective of NAFTA is to eliminate tariffs and other barriers to the flow of goods and services within the member nations. The terms of this free-trade agreement are contained in a 4,000-page document that identifies 9,000 products and the year in which each will be able to be exported tariff-free (14). NAFTA will have a dramatic impact on the size, volume, nature, and distribution of world trade both in the short and long run. NAFTA will create the world's largest market and the largest free-trade zone in the world-encompassing 370 million consumers with a combined gross national product (GNP) of more than $6 trillion (23). The economic dependence of Canada and Mexico on the U.S. is well known. Not only does the U.S. constitute a larger market than the other two countries, it also accounts for the majority of all foreign direct investment in Canada and Mexico. In 1990, the U.S. accounted for 62 percent of all foreign direct investment in Canada and 63 percent of all foreign direct investment in Mexico (26). The asymmetry between the U.S. and the other two trading partners in NAFTA has led to different predictions and models about the impact of NAFTA on the various countries involved (25,29). However, these models have focused exclusively on the im-JOURNAL OF DIRECT MARKETING plications of production and labor costs for large multinationals. There have been no empirical studies of how market asymmetries may affect the export behavior of small businesses in the three countries.
Yet, the lowering of tariff barriers associated with NAFTA will be especially important for small businesses because tariffs represent a larger entry barrier for small than for large firms. Small businesses typically do not have the financial resources or strategic planning to circumvent tariff barriers (6). Small businesses should be ideally suited to capitalize on the export opportunities arising from NAFTA because the flexibility inherent in small businesses provides them with the ability to adapt to environmental changes more quickly than larger enterprises (1,12,17).
Previous studies, which have examined small businesses' use of international direct marketing, have been one-country studies (e.g., 1,7). With the increased export opportunities available to small businesses due to NAFTA, it is important to identify those variables that may affect a firm's decision to use international direct marketing within each NAFTA country. Thus, a theoretical model was tested on data obtained from three independent samples of small business exporters in Canada, Mexico, and the U.S.

THEORETICAL MODEL
A review of the academic and popular literature suggests that experience plays a large part in a firm's use of international direct marketing. This is measured by the firm's experience in both exporting and direct marketing, as well as by the consistency of the firm's marketing efforts across domestic and foreign markets. Because direct marketing can be tailored to accommodate cultural differences and to fit individual markets, another factor, which may affect the use of international direct marketing, is the extent to which a firm's product line can be adapted to suit foreign markets. Finally, the firm's export behavior (proactive vs. reactive) would likely flow from the firm's market objectives and should have some bearing on the marketing techniques utilized. Each of these variables is discussed in turn.
EXPORT EXPERIENCE. Direct marketing efforts require an understanding of national markets, lan-guages, and life-styles (1,5,13,21), since direct marketing must be tailored to the specific target audience. A firm's prior experience in dealing with foreign markets not only affects export performance (8,9,19), but is necessary for the effective utilization of direct marketing techniques. Thus, it is expected that prior export experience will increase a firm's use of direct marketing as a market penetration strategy in foreign markets.

DIRECT MARKETING EXPERIENCE.
A similar rationale applies to the positive effect of prior direct marketing experience on an exporter's use of international direct marketing abroad. When a firm exports to a foreign market it must deal with many uncontrollable market characteristics, such as the competitive environment, political and legal environ· ment, state of technology, geographical resources available, and consumer preferences (19). In light of this uncertainty, exporters are likely to try to build on previous experience when they enter foreign markets. It is thus expected that a firm's prior experience in direct marketing will increase its use of direct marketing for foreign markets.
CONSISTENCY OF MARKETING EFFORT. Although a small firm's experience with direct marketing may come from experience in foreign markets or from experience in its domestic market, firms that utilize direct marketing techniques domestically are also more likely to use these techniques abroad. This is because exporting involves considerable risk and resource commitment for a small firm. Small businesses are likely to enter foreign markets only after they have established a successful market position in their domestic markets (19). If small businesses have successfully used direct marketing in their domestic markets, it is expected that they will utilize direct marketing techniques in foreign markets. This probability is measured in our study by the consistency of a firm's marketing efforts in its domestic and international markets (i.e., the extent to which firms utilize the same marketing techniques domestically as abroad).

PRODUCT LINE SPECIALIZATION.
Although direct marketing techniques can be used with a variety of products, firms that can readily adapt their product lines to suit a variety of markets are more likely to capitalize on the opportunities of direct marketing 10 JOURNAL OF DIRECT MARKETING abroad. This is because firms with a highly specialized product line with many modifications are likely to be catering to different market segments. Prior researchers (19) have concluded that product strength affects export performance directly through better satisfaction of customer needs. In addition, direct marketing represents a cost-effective way for small firms to target their marketing efforts (22). Therefore, it is expected that those small firms possessing highly specialized product lines, including product modifications, will be more likely to utilize international direct marketing techniques.
EXPORT BEHAVIOR. A frequently cited criticism of small business exporters is that they tend to be reactive in their international marketing efforts (15,16). Rather than actively soliciting foreign orders, small firms often wait for foreign customers to come to them and fulfill foreign orders on a rather ad hoc basis. This may be partly due to the inefficient use of appropriate methods of marketing their products to foreign markets. Nancy Albers and V. Kumar (1) found that the marketing variable most heaVily associated with a consistent pattern of exporting for small businesses was a direct marketing effort.
International direct marketing allows small firms to be selective about their customer segments and to target those segments with the highest expected return. Firms with proactive export behavior will benefit more from the cost effectiveness of international direct marketing than firms with reactive export behavior. Therefore, it is expected that firms which proactively solicit customer orders in foreign markets are also more likely to utilize international direct marketing.
When the Canadian and Mexican markets are compared to that of the U.S., there are dramatic differences in both market size and per capita income (14). The absolute size of the Canadian market (27.4 million) is quite small compared to both the U.S. (255.6 million) and Mexico (87.7 million). However, despite its size, the per capita income of Mexico ($3,283) is dramatically lowerthan that of either the U.S. ($22,183) or Canada ($20,804). These market asymmetries between the U.S. and the other two trading partners in NAFTA suggest that there may be significant differences in the importance of exporting for small businesses in Canada and Mexico versus the U.S. Small firms located in Canada or Mexico are more likely than their American coun·, terparts to actively seek export opportunities in order to expand their sales.
However, there are likely to be significant dif. . ferences in export behavior between Canadian and Mexican firms. Although negotiations are still un·· derway about the implementation of NAFTA, a Free Trade Agreement has been in place between Canada and the U.S. since 1989. It is likely that Canadian firms are already capitalizing on export opportuni. . ties with the U.S. resulting from their Free Trade Agreement, whereas Mexican firms are more likely to be preparing for the eventual implementation of NAFTA. Thus, it is expected that Canadian firms will be more proactive in their export behavior than Mexican firms. In contrast, firms located in the larger U.S. market are likely to be reactive and view other national markets as representing only incremental volume requiring only minor additional efforts in adapting production and marketing activities.

Logit Model
A linear regression logit model was used to estimate the results because the dependent variable (a smalll firm's use of international direct marketing in export markets) was formulated as a dichotomous variable. Firms either used international direct marketing techniques always, or whenever possible, or they did not use them. The logit model proVides the regression weights and the chi-square statistics for each of the independent variables to evaluate its level of importance and significance.
The logit model that was formulated in this study modeled use of international direct marketing as at function of export experience, number of products, direct marketing experience, and consistency of marketing efforts and export behavior.

Data Collection
The data used for this research came from three independent samples of small businesses in Canada, Mexico, and the u.s. The sampling frame was lists of small business exporters proVided by govern· mental agencies in each respective country market. Although small business definitions vary by country, small businesses were defined in this study as those JOURNAL OF DIRECT MARKETING firms with 100 or fewer employees. Asample of 100 small businesses was then selected from one geographic region in each country. Telephone interviews were conducted using a structured survey in· strument (which was pretested in all three countries) in Canada and the U.S., whereas data collection in Mexico reqUired the utilization of a "drop-off and pick-up" method.
The survey instrument is divided into three sections. The first section gathers company profile information such as the type of product and market, the use or nonuse of international direct marketing for export markets, and the number of years' experience in exporting. The second section collects information about the factors that facilitate or inhibit the firm's use of international direct marketing. Questions include the firm's familiarity with the foreign market, the firm's prior experience with direct marketing, and cross-cultural attitudes. The third section gathers data about the extent to which firms use international direct marketing. These data include information about their use of lists, databases, toll-free numbers, direct response advertising, direct telemarketing, and catalogs.

DISCUSSION OF RESULTS
A total of 209 small business exporters located in the three NAFTA countries participated in the study, representing a 70 percent response rate. The statistical methods employed in analyzing the results were chi-square, correlation analysis, and multiple regression. Chi-square was used to analyze whether the country groups differed in frequency on several variables; Spearman rank correlation coefficients were used to identify those firm characteristics significantly associated with the use of international direct marketing, because several of the independent variables were categorical; a multiple regression logit model was used to identify those variables that would significantly predict the use versus nonuse of international direct marketing.
The results of this study provide some insight into the perceptions and use of direct marketing by small businesses located in metropolitan areas within Canada, Mexico, and the U.S. In addition, it provided the following answers to our five research questions. VOLUME 8 NUMBER I WINTER 1994 n

KETS?
Our findings showed that an overwhelming majority of small businesses in all three NAFTA countries reported using some form of international direct marketing. Overall, 84 percent of the firms surveyed reported the use of direct marketing techniques, and only 16 percent did not employ these marketing techniques for export markets. However, statistically significant differences exist regarding usage among the three countries.
Significantly more small businesses in Canada were users of international direct marketing (94 percent reported usage) than were the small firms located in Mexico and in the U.S. (80% and 75%, respectively; X 2 = 9.080, dJ. = 2, P < .05).

MARKETING FOR EXPORT TRADE?
Although only a small number (n = 33) of the firms surveyed were not using direct marketing in their export markets, the two major barriers cited by respondents were consistent across the three countries. These barriers were: a) direct marketing was inappropriate for their business; and b) direct marketing was inappropriate for their customers. Of the other barriers investigated (lack of knowledge, lack of interest, and financial), none of the respondents indicated a lack of knowledge of direct marketing techniques. This finding indicates that lack of awareness is clearly not a barrier when it comes to direct marketing.

RESEARCH QUESTION 3: WHICH METHODS OF DIRECT MARKETING ARE PERCEIVED TO BE MOST EFFECTIVE
FOR SMALL BUSINESS EXPORTERS? Across all three countries, respondents cited the use of a sales force, distributing brochures by mail, and distributing catalogs by mail as the three most frequently used direct marketing techniques.
Mexican small business exporters also reported significantly greater use of direct mail, compared with the Canadian and u.s. small businesses (x 2 = 13.15, dJ. = 6, P < .05). (1), telemarketing, mailing lists, and direct response ads were not highly used international direct marketing techniques in any country, although Canadian exporters reported greater use of these techniques than did Mexican and U.S. exporters. These differences were statistically significant for both telemarketing (x 2 = 27.73, dJ. = 6, P < .00l) and the use of direct response ads (x 2 = 21.03, dJ. = 6, P < .01).

RESEARCH QUESTION 4: WHAT FACTORS INCREASE THE LIKELIHOOD THAT SMALL BUSINESSES WILL UTI-LIZE INTERNATIONAL DIRECT MARKETING FOR EX-PORT MARKETS?
Although the overall logistic model across all three countries was significant at a probability level of .05 (x 2 = 12.280, dJ. = 5) as shown in Table lA, only one variable was a significant predictor of the use of international direct marketing by small firms. This variable was export behavior (x 2 = 4.3105, d.£. = 5, P < .05). Surprisingly, the three variables measuring experienc~effects (export experience, direct marketing experience, and consistency of marketing efforts) were found to be insignificant and had negative coefficients. The specialization of a firm's product line was also insignificant although its coefficient was positive. As these variables were insignificant, their coefficients cannot be interpreted as proViding evidence about their directional effects upon a firm's use of international direct marketing.
The lack of significance for the experience and marketing variables in our model (   how small businesses market their products internationally (e.g., 8,9,19). In orderto verify that these results were not due to problems with the data, a multicollinearity test was conducted. There was no evidence of multicollinearity between the variables used in this model, which suggests that these results cannot be attributed to methodological problems. Conceptually, there are several possible explanations for our findings. The first is that the use of international direct marketing is more related to export market conditions than to firm experience. Small firms may be selectively using international direct marketing techniques in those markets in which there are the greatest potential gains. Some support for this explanation is found in the types of barriers that were mentioned by nonusers of international direct marketing. Rather than financial or knowledge barriers, the major barrier cited by respondents was that direct marketing was inappropriate for either the firm's business or its customers.
An alternative explanation for our findings is that small firms are greater risk takers than has been previously described in the literature. There has been no empirical validation of the commonly held notion that small firms are risk-averse. Our findings suggest an alternative view. Rather than adopting an incremental approach to the use of international direct marketing whereby firms build on previous export and direct marketing experience, the firms in our sample appear to be entrepreneurial risk takers. They are aggressively using international direct marketing even without prior experience.
Based on our findings, we can identify the characteristics of the small business users of international direct marketing. Utilizing the Spearman rank correlation coefficient analysis, the direct marketing users within the NAFTA countries tend to be Ca-JOURNAL OF DIRECT MARKETING nadian firms, proactive firms (those who search actively for orders from foreign countries), utilize more or less the same marketing efforts or techniques in marketing their products internationally as they would domestically, and tend to be marketing highly specialized products (where many modifications are necessary for different country markets). As can be seen in Table 2, these variables were significantly correlated with direct marketing usage.
It is interesting to note those firm characteristics that were not significantly associated with the use (or nonuse) of direct marketing by small business exporters. These variables included the firm's number of employees, length of export experience, percentage of total sales derived by export trade, type of industry, and the number of products offered by the firm.

TRY?
The market asymmetry between the U.S. and the other two trading partners in NAFTA implies significant differences in the importance of exporting for small businesses in Canada and Mexico ver· sus the U.S. These differences are likely to be reflected in small businesses use of international direct marketing techniques for export markets. Due to the relatively small per capita size of their domestic markets, small firms located in Canada or Mexico are likely to actively seek export opportunities in order to expand their sales and to customize their products to suit international markets. In contrast, firms located in the larger U.S. market are likely to view other national markets as representing only incremental volume requiring only minor additional efforts in adapting production and marketing activities.   The significant variable (export behavior) in our regression model offered some support for this reasoning. As anticipated, significantly more Canadian (67%) small businesses were proactive in their ex-14 JOURNAL OF DIRECT MARKETING port behavior than were u.s. (35%) or Mexican (38%) firms (x 2 = 21.34, dJ. = 4, P < .ool).
An additional explanation for this finding may be due to the underdevelopment of the Mexican econ- InternatIonally as well as domestically.
Market highly speCIalized products (many product modifications) omy relative to that of Canada and the U.S., rather than to inherent differences between the business strategies of Mexican small business exporters and those of the other countries. For example, although there were no statistical differences between countries for the firm's use of a catalog, fax machine, or computerized customer database, Figure 1 shows that significantly fewer Mexican firms have a tollfree telephone number (x 2 = 32.57, dJ. = 4, P < .001) or a brochure of their products or services (x 2 = 24.44, dJ. = 4, P < .00l). In addition, significantly fewer Mexican firms had been exporting for five or more years than had their U.S. and Canadian counterparts (x 2 = 44.91, dJ. = 4, P < .00l).
Although the majority of small businesses in each of the three NAFTA countries report using international direct marketing for five or more years, statistically significant cross-cultural differences do exist among the three countries. Of those firms using direct marketing for five or more years, significantly more Canadian respondents indicated direct marketing usage than did the Mexican and U.S. respondents (x 2 = 31.07, dJ. = 8, P < .001).

CONCLUSIONS
Although many of the hypothesized variables in our model were found to be insignificant predictors of the use of international direct marketing for small business exporters, our results provide some interesting insight into how small businesses use international direct marketing. The fact that for this sample only export behavior is a significant predictor of the use of international direct marketing for small business exporters, suggests that small firms are indeed entrepreneurial risk takers. Firms that actively pursue export markets are more likely to use inter-

Reactive Export Behavior
Use different marketing techniques in marketing products internationally opposed to domestically.
Market very standardized products (no product modifications, national direct marketing techniques-even if they have no prior export or direct marketing experience-than firms that are reactive in their export behavior.
The usefulness of international direct marketing for small business is a hotly contested issue. Our results provide empirical evidence that small businesses in all three NAFTA countries are utilizing international direct marketing techniques. These results provide grounds for optimism for direct marketing practioners. Small businesses in all three NAFTA countries are aware of the potential of international direct marketing for export market penetration, and the major barrier cited by respondents is that it is inappropriate for either the firm's business or its customers.
This study is one of the few to examine the use of international direct marketing across different countries. Our results suggest that although small exporters in Canada, Mexico, and the U.S. utilize direct marketing in their export markets, there are significant differences in their company infrastructures and in their levels of experience. Significantly fewer Mexican firms have a toll·free number or a brochure of their products. In contrast, Table 3 shows that Canadian small businesses are the highest users of international direct marketing and tend to be marketing highly specialized products where many modifications are made for different country markets. Our results also suggest that Canadian firms may be in a better position to capitalize on the increased trading opportunities arising from NAFTA than are firms in either Mexico or the U.S. because they are already proactively soliciting customer orders in foreign markets.
Clearly, there is much more research to be done on small businesses' use of international direct marketing. More comparative studies are needed to understand which factors lead small businesses to choose international direct marketing over other marketing methods and how these factors vary across countries. Future research could determine what type of experience most often affects small businesses' use of international direct marketing, as well as the importance of other firm, industry, and market characteristics. Our research results suggest that, in addition to overcoming the limitations of our study, future research could fruitfully explore a firm's export behavior as a predictor of the use of international direct marketing.
This study has provided a baseline for future research by establishing that a high percentage of small businesses in three different countries already use direct marketing techniques in their export markets. This result suggests that interesting research questions for the future may lie not in exploring why small businesses use international direct marketing, but in assisting them to use international direct marketing more effectively. •