This study reexamines organizational learning theories to reconcile the conditions under which prior internationalization experience leads to performance gains for multinational corporations (MNCs) with varying host-country institutional experiences in different regulatory environments. Using field studies on telecommunications regulation, executive interviews conducted in Brazil, Spain, Portugal, Canada, and the U.S., and foreign direct investment data for 96 subunit operations investing in the Brazilian telecommunications industry from 1997 to 2004, I develop an experiential-learning theoretical framework to explain the mechanisms driving MNCs’ performance in subsequent host-country institutional environments given the prior experience they acquired in 80 heterogeneous regulatory environments. I predict and find that MNCs with highly similar institutional experience compared with the target country’s institutional environment will succeed. Empirical evidence suggests that similarity, breadth, and depth of prior regulatory experience significantly prolong survival. In contrast, firms with institutional experience unrelated to the target country’s regulatory environment experience learning penalties and are six times more likely to fail. These findings suggest that variations in learning contexts affect organizations’ learning curves.
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This study applies factor analytic techniques to 131 telecommunications regulatory agencies in 80 countries to develop a comparative framework for better understanding the cross-national institutional variation in industrial regulation. While some of these measures are specific to the telecom industry (i.e. World Trade Organization Basic Telecom Agreement participation), most of these regulatory variables can be applied to other regulated industries. After analyzing 30 variables, these techniques identify and quantify six distinct dimensions of industry regulation, namely, the competitive market structure rules, industry standards rules, entry barrier rules, institutional stability, political appointment process, and the regulatory governance structure. Despite the conventional wisdom that suggests the "rules of the game" are key to industry regulation, this study finds that the single largest source of cross-national variation is the level of regulatory institutional stability (accounting for 16 percent of the total variation in cross-national industry regulation). This suggests that more focus and attention should be given to the role formal institutions play in industry regulation. This study also finds differences in industry regulation between developed, developing, and least developed nations. Developed countries on average have significantly higher regulation, with the US being the highest. This suggests that regulation is a critical component of industrial regimes and the competitiveness of developed economies.
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