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Structural Factors Affecting International Trade Growth in Iran

Farsi JY1*, Moradi MA1, Jandoust A2 and Esfandabadi HM3

1Department of Entrepreneurship, University of Tehran, Iran

2Graduate of Entrepreneurship Management, University of Tehran’s Faculty of Entrepreneurship, Iran

3Graduate of Social Sciences, Research Assistant at University of Tehran’s Faculty of Entrepreneurship, Iran

Corresponding Author:
Farsi JY
Department of Entrepreneurship
University of Tehran, Iran
Tel: +982161113411
E-mail: [email protected]

Received Date: May 12, 2016; Accepted Date: May 31, 2016; Published Date: June 07, 2016

Citation: Farsi JY, Moradi MA, Jandoust A, Esfandabadi HM (2016) Structural Factors Affecting International Trade Growth in Iran. Bus Eco J 7:235. doi:10.4172/2151-6219.1000235

Copyright: © 2016 Farsi JY, et al. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

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Abstract

Assuming that the future of the country is affected by the activities of nascent ventures today and considering that the establishment of such ventures is one of the aims of governments to improve and ensure a growing economy, it would seem a helpful resolution to encourage infiltration into foreign markets which would result in the prosperity of nascent ventures. Therefore, 32 structural factors affecting the growth of foreign trade were extracted from the related literature and classified according to the context, content and process dimensions. The mental patterns of 40 active exporters were analyzed using the Q-method and the important factors affecting foreign trade were extracted from their mental patterns. The research findings indicate that 9 major factors (international regulations, international policies, developing international infrastructures, developing the infrastructures of the country, service and support, exchange policies; domestic rules and regulations, trends and management) correspond to the three major dimensions. Achieved through reviewing the latest literature, the results can help government policy-makers with decision-making and prioritizing policies for each respective dimension.

Keywords

Welfare growth; Foreign markets; International trade growth

Introduction

Establishing nascent new ventures and stabilizing their commercial activities are among the primary objectives of the governments in achieving sustainable development and social welfare growth. The nourishment of international trade and the facilitation of the related activities can aid the infiltration of additional products into foreign markets and hence the survival of new nascent ventures. Since most of the foreign markets are highly competitive and international trade change and growth is dependent upon changing the conditions in the short run, the role played by structural factors is fundamental in controlling and facilitating the different dimensions of commercial activities and mitigating the effect of the gap between growth strategies [1,2]. While a range of structural factors are aimed at the way processes take place in specific contexts, the identification and application of these factors to growth strategies, as well as the consideration of the interactions among the three dimensions of context, content and process in the overall business environment is regarded as fundamental to governments [3].

The classification of structural dimensions of context, content and process, and the identification of crucial factors in each of the dimensions determines the responsibilities of government decisionmakers and sorts out the factors for the top managers in order of priority. Therefore, the major factors affecting the growth of foreign trade are collected from the literature and interviews with experts and categorized into three dimensions. Afterwards, according to the comments made by 40 active commercial institutions, the common mental patterns for 32 factors affecting foreign trade were analyzed using the Q-method. Finally, 9 effective structural factors in the overall environment of international trade in Iran were identified.

Literature Review

The identification of factors affecting business performance requires a careful study of social and commercial structures. To identify the driving factors and promote growth, the structural factors need to be examined and studied in different market environments [4]. Growth strategies depend on structural factors like government policies with permanent effects. Therefore, structural factors have sustainable and immediate effects on domestic and international interactions of organizations and commercial enterprises. These factors include supportive policies, tax cuts and infrastructural development policies administered by governments for commercial development and social growth.

In "Managing Change for Competitive Success" Pettigrew [3] argues that the content, context and process dimensions are the main factors affecting growth (Figure 1).

Business-Economics-Understanding-Strategic

Figure 1: Understanding Strategic Change: three essential dimensions.

Content (intentions, objective and goals): What?

Context (domestic and foreign environment): Where?

Process (function and application): How?

Successful changes in this approach are accomplished through emphasizing the interaction between the three dimensions and the way tasks are done in domestic and foreign environments. Therefore, change and growth processes are understood through considering (domestic and foreign) context, content (objectives and assumptions), and process (executive patterns). When it comes to crucial decisions, the most important factor will determine the result of the decisions.

Empirical evidences

Factors: This section deals with the literature related to the factors affecting international trade growth in Iran. Using the SWOT method, a study is conducted to the end of designing a strategic plan for nonoil export development by Trade Promotion Organization of Iran. For data collection, the research used the interview data with non-oil experts conducted in 2006 from the Trade Promotion Organization of Iran on the factors affecting non-oil exports. According to the experts, opportunities, threats, weaknesses and strengths were identified, the main factors of which are shown in Table 1 (Trade Promotion Organization of Iran, 2007) (Table 1).

First category: Opportunities and threats Second category: Strengths and weaknesses
1. The emergence of powerful competitors such as China, Turkey and India 1. Weak presence in the regional and multilateral treaties
2. Not being accepted in WOT 2. Lack of regulations for export sector and streamlining the processes.
3. The tendency of 25 neighboring countries for importing from Iran as a natural market 3. Lack of coordination between exchange, financial and monetary policies with export development objectives.
4. The possibility of co-production with other countries. 4. Weak transportation despite great opportunities
5. Removing the obstacles and extending relations to more countries. 5. Lack of cooperation between the export organizations in Iran.

Table 1: The SWOT model findings.

In another study, Do'ayi et al. used the Delphi method to investigate the factors affecting international trade. They interviewed 25 experts in non-oil exports selected through non-random-snowball sampling.

Their findings revealed that factors such as standardizing business activities, processes and products, developing and advancing IT and stability and national security play a key role in non-oil export growth.

In their study, Fathi and Azizi [5] classified 35 major barriers to political, economic, commercial and inter-organizational development. They prepared and distributed a questionnaire among 500 firms in various industries. Afterwards, the analysis of the collected data from 335 returned questionnaires, point to the importance of low economic security in Iran, low foreign investment, proper management of information systems all over the country and the activities of business, unions, and commerce chambers. They suggest that management functions and systems, business, union and commerce chambers as well as banking systems, the custom organization need to be improved and problems related to financing need to be solved. In another study, Madhooshi [6] argues that factors such as export institutions, lack of knowledge about the laws and regulations of the target country, conflicting export instructions, provincial research centers, seasonal fees, exchange rates, taking foreign agencies are among the major factors in international trade growth in Iran. The major factors affecting businesses in different economic environments which are pointed to in other studies around the globe include: the necessary documents, information about foreign markets, barriers created by governments, foreign competitors [7], the required documents for export, cultural differences, barriers created by governments, competition, exchange rates, taking foreign agencies [8]; high dollar rates, transportation expenses, focusing on foreign markets, government and legal barriers [8] (Baursmichmidt, 1985); government fees, commitment to high quality products and services [9], intense foreign competitions, government support, attractive export and government incentives [10], barriers created by governments, government policies, fees and supports, firm size, experience and network support [9], various standards for products, laws and regulations, government support, exchange rates, taking foreign agencies, political-economic fluctuations, legal and administrative corruption [11], exchange rates, transportation expenses, foreign competitors [12], exchange fluctuations, government support, competitive foreign markets, pricing policies [13], government support, foreign competitors, import tariffs, pricing policies, complex regulations, high exchange rates, government subsidies P [14] and so forth. Some of the above mentioned factors are export drivers and some other factors act as barriers to export growth. The present research aims at identifying the role played by these factors in the context of Iran. The identification of factors affecting export growth in economic environments of other countries could help the identification of opportunities and threats in the way to the path of development. After the modification and localization of these factors, the effect of each factor in mid and long term could be determined (Table 2).

  Items Researcher
 World Trade Organization (2007)  Do'ayi (2007)  Fathi (2007)  Madhoushi (2007)  Winston (2006)  Ahmed (2004)  Anderson (1993) Sullivan and Bauerschmidt (1990) Groke and Kreidle (1967)
Country Iran Iran Iran Iran 81 countries Lebanon Norway Australia, Sweden, Germany U.S.A
Firm size - - - - Small, middle, large Small, middle, large Small, middle - Small
market sector - - Electronics - Agriculture services Multiple services industrial   _
Sample population - experts Various industries manufacturers exporter & non-exporter (WTO report) Exporter entrepreneurs exporter & non-exporter Exporter Exporters
Sampling method   Non-random sampling consensus - - Stratified-random sampling Non-random, purposive Non-random _
Sample size   25 335 100 8047 20 128 62 _
Data collection method Interview-Delphi Interview-Delphi questionnaire questionnaire Interview Questionnaire-personal interview personal interview Electronic questionnaire Personal interview
Scale Qualitative Qualitative - - Jan-00 Likert-5 point scale Jan-00 Likert-5 point scale 1-0 (cross)
Assessment factors 20 - 35   15 20 - 30 18
Statistical method - - Friedman test SWOT analysis probit Turkey test F-test Mean Frequency (percent)
T-test Factor analysis
Factors identified Removing the legal barriers Standards for activities Economic security Import organizations Previous export background Government support The number of new products exchange rates Limited trade possibilities
streamlining the processes Processes Information systems Few research centers Providing subsides Competitive foreign markets Foreign markets coverage Transportation expenses The necessary documents
Lack of cooperation between exchange policies Lower manufacture expenses Management method Conflicting export regulations Competitive markets Pricing system Expansion in domestic market Competitive foreign markets Foreign market information
Poor transportation   The activities of unions and commerce chambers     High export tariffs      
    Foreign investments     Capital for promotion      

Table 2: The comparison of studies conducted around the world on the factors affecting international trade growth.

Laws and regulations

The most significant incentives provided by governments for international trade development include: granting subsides to R&D, supervising importations, trade contracts, granting preferential credits and guaranteeing exportations [15]; removing taxes, determining taxes based on each region, postponing tax liabilities [16]; exchange rate stabilization, actual export subsides [17] and removing/facilitating tax payment, income tax on exports, custom fees, importing machineries and equipment for manufacturing export products, subsidy adjustments based on export rates, actual income rates, interest rates, and tax documentations [18].

The characterization of the sample population

Policies: The first systematic initiatives for modifying the export development plans in Iran began in 1998 during the Third Social and Economical Development Plan and was continued in The Fourth Plan. The Fifth Development Plan for the first time includes a completely distinct chapter on foreign trade with a special focus on exportation. This plan also includes target-setting for strategic plans in provinces [19-21].

Therefore, province officials need to consider the Fifth Plan in organizing their future plans. Some of the plans administered in line with export development include the modification of laws and regulations related to export and import which is achieved through forming Exchange Allocation Committee and Order Submission Office for Importation founded in 1979-80.

Other initiatives like adjusting custom tariffs and interest rates, enacting incentives and supportive policies and export incentives for non-oil sector in 2006, removing redundant provisions and clarifying the process of non-oil exports, tax exemptions and special facilities for exporters, modifying the pricing processes for export products, developing export enterprises such as export clusters and improving export organizations, developing the investments in this area through forming joint workshops, attracting foreign investors and focusing more on research particularly in the areas of exporting products and services. The results of the quantitative studies are shown in Table 3.

Development Plan Year target-setting Achieved (without condensates ) Percent
The First Plan 1989-1993 17.8 11.7 66
The Second Plan 1995-1999 26.4 15.3 58
The Third Plan 2000-2004 28.2 26 92
The Fourth Plan 2005-2009 60months plan, 52.9 60 months performance 79 149.3

Table 3: The achievement of target-setting in development plans (Billion).

Other plans include some cultural and educational initiatives. In this regard, the Trade Promotion Organization of Iran has trained about 120556 individuals in 2445 courses at primary-professionaladvanced and general levels from 1989 to mid-2010 [22]. Moreover, there are other initiatives that are aimed at policies for developing trade infrastructures such as air, land, and sea transportation and improving culture, supporting packaging and rationalizing the supports. The budget allocation for export awards from 2000-2009 is shown in Table 4.

The amount of export award 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0 202 352 480 368 807 1450 1250 3180 1520

Table 4: budget allocation and export awards from 2005 to 2009Billion (IR Rial).

A review of the table figures demonstrates that there has been a significant increase in the amount of awards in the Fourth Plan [23-25]. 8207 billion Rials paid as export awards during the Fourth Plan could explain the significant increase of the exports during that period (Figure 2).

Business-Economics-Budget-allocation

Figure 2: Budget Allocation For Export Awards.

Despite the pressures and sanctions from foreign countries, the government had a successful experience with regard to non-oil export objectives during 2005-2009 (Trade Promotion Organization of Iran, Trade Program Office).

Figure 3 shows the non-oil export objectives and achievements in Iran's development plans.

Business-Economics-Non-oil-export

Figure 3: Non-oil export objectives and achievements in Iran's development plans.

As demonstrated in Figure 3, the objectives have been attained above the expected level. Figure 4 shows a four-time growth for nonoil exports during those years.

Business-Economics-Non-oil

Figure 4: Non-oil exports from 2001 to 2009.

The Figure 4 shows the improvement of export during the Third and Fourth Plans in the non-oil export sector which indicates that the planned objectives have been achieved through development plans. Therefore, given the economic capabilities developed in the country and the new markets in neighboring countries, we need to stabilize this trend and take advantage of the new opportunities (Table 5).

As reported by the Trade Planning Bureau of Iran (Table 5), about 86% of the expected objectives of the year was achieved through noncondensate exports during the first half of the year 2010.

Year Overall objective Performance Achievement in comparison with 2010 (percent)
With condensates Without condensates With condensates Without condensates
2010 14188 14447 12260 102 86

Table 5: Achievement in comparison with 2010 (percent).

The Conceptual model of the research

There is a range of structural factors that affect the coordination of economic processes i.e. how procedures are accomplished in a given context. Therefore, the conceptual model of the research (Figure 3) adopted from the theoretical model proposed by Pettigrew (Figure 2) has been used for classifying the collected structural factors. The factors affecting international trade growth has been extracted from the related literature and sorted according to the three dimensions of context, content and process.

Contextual structural factors: These include the factors for creating coordination with foreign institutions which affect international trade growth in Iran. External factors consist of political, economic and cultural factors, international infrastructures and internal factors consist of the private sector.

Content structural factors: These include the initiatives carried out by the government for organizing and administering economic policies, infrastructural development, support and promotion.

The procedural structural factors: Rules, trends, institutions and management policies coordinate the decisions made for trade growth and facilitate the process of achieving the goals.

The results of the categorization of the factors into different levels and classes were examined though interviews with experts.

This examination was done to determine whether or not the factors possessed structural features, and to find out if they were related to the subject of the research at hand. Finally, 13 contextual factors, 9 content factors and 10 process factors affecting international trade growth in Iran were identified (Figure 5).

Business-Economics-Conceptual-Model

Figure 5: The Conceptual Model For major dimensions and classes.

Objective and research questions

The main objective of the research is to identify the structural factors affecting international trade growth in Iran. The research questions include:

1. What are the structural factors affecting international trade growth in Iran?

2. What are the main factors in each of the three dimensions of context, content and process?

Research Methodology

The main factors were extracted from the related literature. The data were changed into short statements after collection. The sample statements were selected using the conceptual model of the research. The collected factors from the related literature include 79 factors in the three dimensions which were organized into a checklist of the structural factors affecting international trade growth in Iran. Afterwards, the correlation between the factors was determined using the Likert scale. The data collected from the test was analyzed using the binomial test. Thirty two Q-sample statements with the highest impacts on international trade were used from the results of the test. Finally, the most important factors in the international trade growth were selected after interviewing with the experts.

The reliability of the collected data was tested using the Cronbach's alpha where the reliability coefficient of 95% was obtained. The validity of the questionnaire items was approved by the experts (Figure 6).

Business-Economics-The-Steps

Figure 6: The steps to conducting the Research with Q-Method.

The statistical population

The experts were selected through non-random purposive sampling as three executive chains of executive, academic and government groups which consisted of 13 experts.

Using stratified-random method, 40 respondents were selected from 581 active exporters introduced by the Trade Promotion Organization of Iran.

Empirical results

Q-Sampling statements: The factors affecting international trade obtained from the binomial test, and the interviews with the experts were analyzed where 32 factors with the highest impacts were selected and categorized into the three dimensions (Table 6) and afterwards, used in the questionnaire.

Contextual factors
A) International sector B) Private sector
Political factors
•International sanctions
•Regional conflicts
Economic factors
•Direct foreign investment
•Reputable foreign banks
Export-oriented clusters
•International transportation infrastructures
•International shipping
•Airlines



International rules and regulations

•The free trade principle
•Quality standards for export products
•Intellectual property rights
•The laws of the target country
Technological factor
Market information system
Cultural factor
•The view of other countries to export products
Content factors
Exchange policies

• Exchange system
•State monopoly in the supply of currency
Infrastructure development policies

•Railway transport
•Ports
•Airline fleet
Support services



•Product quality control
•After-sale services

Marketing policies



•Holding permanent exhibitions for the selected products in neighboring markets
•E-marketing
Process factors

Table 6: Q-sample statements-questionnaire items.

The factors determined through interviews with the respondents (active exporters) were tabulated and grouped using the Q-factor analysis.

Correlation of the viewpoints of the respondents: To determine the correlation of the viewpoints of the respondents and to identify the convergent mental patterns, the cross correlation matrices of the respondents and the effect of each factor with the significant level of 5% was obtained.

Just like the exploratory factor analysis, the Q-factor analysis is consisted of two phases: Extracting the common mental patterns and classifying them as the first phase and then re-sorting them for interpretation

The Principal Component Analysis is among the most common methods for extracting the factors for conducting the first Q-factor analysis phase.

The results show the level of the relation of each respondent with its corresponding mental pattern group. The number of columns in the factor loading matrix table (with rotation) reveals that the grouping is different from the mental pattern. In other words, each group (column) is composed of individuals with shared statistical classifications (Table 7).

Component Initial Eigenvalues Extraction Sums of Squared Loadings Rotation Sums of Squared Loadings
Total % of Variance Cumulative % Total % of Variance Cumulative % Total % of Variance Cumulative %
1 16.234 42.72 42.72 16.234 42.72 42.72 8.868 23.337 23.337
2 4.005 10.538 53.258 4.005 10.538 53.258 6.313 16.613 39.95
3 2.904 7.642 60.9 2.904 7.642 60.9 5.887 15.491 55.442
4 1.927 5.072 65.972 1.927 5.072 65.972 2.295 6.039 61.481
5 1.824 4.8 70.772 1.824 4.8 70.772 2.171 5.714 67.195
6 1.688 4.441 75.214 1.688 4.441 75.214 2.169 5.709 72.904
7 1.316 3.464 78.678 1.316 3.464 78.678 1.629 4.287 77.191
8 1.217 3.204 81.882 1.217 3.204 81.882 1.496 3.936 81.127
9 1.114 2.932 84.814 1.114 2.932 84.814 1.401 3.687 84.814

Table 7: The total variance for all the factors (groups).

As demonstrated, the table shows the variances for each variable. The variance for the 9th group is 84.8% and the eigenvalue is above (1).

Eigenvalue (the column’s total) and the proportion of the variance (the Variance % of the column) for each factor, and their cumulative sum (the cumulative % of the column) is shown in the table.

For example, the eigenvalue for the first group after rotation is 8.865 with the proportion of variance of 23.3% (Table 8).

Individuals Component
1 2 3 4 5 6 7 8 9
p17 0.85                
p8 0.798                
p28 0.794                
p26 0.783                
p24 0.744                
p9 0.737                
p19 0.703                
p2 0.692                
p20 0.682                
p21 0.644                
p37 0.62                
p23 0.586                
p35   0.852              
p14   0.783              
p6   0.753              
p27   0.712              
p12   0.699              
p3   0.634              
p25   0.629              
p13 0.526 0.581              
p32   0.576              
p18     0.936            
p7     0.912            
p29     0.825            
p30     0.693            
p38 0.574   0.656            
p16 0.519   0.522            
p31 0.509   0.516            
p1     0.507            
p10       0.721          
p5       0.708          
p4         -0.82        
p36       0.507 0.599        
p11           0.868      
p22           0.759      
p15             0.875    
p34               0.798  
p33                 0.731
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization
a. Rotation converged in 11 iterations.

Table 8: factor loading matrix with rotation.

The grouping of the mental patterns of the respondent: Respondents with different viewpoints were classified using the Q-factor loading. The classification returned 9 groups with shared viewpoints.

Table 8 shows the values for factor loading after rotation.

A factor that was deemed the most important according to the respondents was chosen.

Given the array of factors for each group, and their significant statements, the position of each significant statements was determined in relation to the dimensions of context, content and process.

The most significant factors obtained from significant statements are shown in Table 9.

Factors Contextual factors Content factors Process factors
International sector Private sector    
The first factor International rules      
The second factor       Domestic rules and regulations
The third factor     Domestic infrastructural development policies  
The fourth factor       Procedures
The fifth factor       Management
The sixth factor International infrastructural development      
The seventh factor     Exchange policies  
The eight factor     Support services  
The ninth factor International policies      

Table 9: The classification of the 9 factors according to each dimension.

The factors of international rules, domestic rules and regulations, infrastructural development policies, procedures, management, international infrastructural development, exchange policies, support services, and international policies were determined with regard to the significant statements of the shared mental patterns extracted from Table 9.

Discussion

The current research was carried out with the aim of identifying the structural process, content and context factors affecting trade growth in the context of international trade in Iran. The findings showed that focusing on international rules, adopting free trade policies for joining the WTO, following qualitative and quantitative standards can positively affect foreign trade growth. However, with regard to undeveloped neighbor countries, it is worth noting that adopting the free trade policy would facilitate importation from these countries and exportation to farther countries. This would result in easier importation and more difficult exportation conditions; because these countries are home to saturated markets and entering their markets requires high competitive expenses to overcome big powerful companies. The long-term effect of international sanction on the economy of Iran is evident. With the formation of a positive atmosphere for economic activities and the increase in the demand from neighboring countries, sanctions could be great barriers to taking advantage of the potential opportunities. Moreover, the decrease in regional tensions could have a positive effect on trade relations with other countries and lessening the sanctions.

Entering into trade relations and mitigating the international tensions could improve the interactions between the economic enterprises of the country and foreign markets. However, this improvement is not possible without the required infrastructures such as the railway system and land transportations. Therefore, focusing on and adopting proper policies by the government in this sector will not only provide a solution to the issues related to the industries, but also will facilitate the domestic and foreign transportations.

Another effective and crucial factor for foreign trade is the exchange policies of the country. It seems that as long as the actual currency rates are not determined, activities related to importations would be more profitable than exportation activities.

Conclusion

The research findings show that observing the international rules and standards, adopting proper policies for developing the international infrastructures, and paying attention to the end effect of the decisions and sanctions from the international organizations plays a vital role in the contextual dimension. With regard to the content dimension, the public top managers need to take actual exchange policies and develop the required infrastructures for developing commerce in the country. Modifying the trade rules and regulations and the current trends and recruiting qualified managers to executive positions could improve the process dimension and enhance the interaction between the three dimensions. This categorization could help the planning of different sectors of the government and developing appropriate strategies for foreign trade.

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