This study considers the relationship between people's access to resources and their likelihood to start a new business, and particularly how this relationship might be moderated by formal and informal institutions. Individual–level resources might be more potent for new business creation in countries with financial and educational systems that are more oriented toward entrepreneurship, higher levels of trust, and cultures that are less hierarchical and conservative. The hypotheses are tested by undertaking random–effects multilevel analyses of a multi–source data set that spans a 5–year time period (2003–2007). The study's findings offer important implications for research and practice.
Research summary:Researchers have increasingly emphasized the need to better understand how context affects the value of experiential learning. We address this gap by investigating when corporate-level experience can be leveraged across borders and when experience needs to be country-specific to be valuable. We test our hypotheses using a unique multi-source panel dataset of 379 large MNCs from 29 home countries and their subsidiaries in 117 host countries over a 10-year period, 1999-2008. In contrast to prior research, we find that the ability of a firm to leverage its experience with political risk across borders is limited by the type of risk involved. Experience with nonstate violent conflicts may be transferrable, but only country-specific experience appears to yield measureable benefits for conflicts involving the host country government.
Managerial summary: Violent conflicts not only increase social unrest but also impose added costs of doing business. For managers who find themselves in the midst of violent conflicts or whowish to survive and potentially gain a competitive advantage in operating in such challenging environments, is it possible to learn to manage such a seemingly "unmanageable" problem? In contrast to studies that have examined other types of political risk, we find that the ability of a firm to leverage its experience with violent conflict risk across borders is limited. Specifically, only country-specific experiential knowledge about how the host government prepares and manages such conflict risks yields measureable economic benefits for MNCs and their subsidiaries operating in countries during conflict.
We investigate whether firm experience with discontinuous risks, particularly high-impact disasters that are episodic and difficult to anticipate, moderates the relationship between disasters, foreign entry, and expansion decisions. Using a panel data set with 57,500 observations from 106 large European multinational corporations and their subsidiaries operating across 109 countries from 2001 to 2007, we find that although discontinuous risk was negatively related to firm entry and expansion, firms that had experience with high-impact disasters were more likely to expand in countries experiencing disasters.
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