When Does Prior Experience Pay? Institutional Experience and the Multinational Corporation

Abstract

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.

Rapid expansion of international new ventures across institutional distance

“…We used Worldwide Governance Indicators to replace the Index of Economic Freedom in measuring country-level openness and obtain similar results. Finally, we modified the speed variables to accommodate the recency effect in institutional exposure (Perkins, 2014). Prior to the INV's expansion into foreign markets, its organizational routine is affected by the firm's exposure to the home market institutions.…”

“…Given the firm's recent institutional experience at home (emerging markets), the less open countries are more familiar to that at home. Such an institutional similarity triggers the entry into similar markets (Zhou & Guillén, 2015) and brings desirable performance (Perkins, 2014). Moreover, knowledge from recent experience is easy to access, retrieve, and apply.…”

Legal Family and Infrastructure Voids as Drivers of Regulated Physical Infrastructure Firms' Exposure to Governmental Discretion

“…This index turns out to be the most accurate and widely used measurement from which we can build a governmental discretion index (Berry, 2013;Fuentelsaz et al, 2014;García-Canal and Guillén, 2008;Henisz and Delios, 2001;Holburn and Zelner, 2010;Perkins, 2014;Zelner et al, 2009). The POLCONV index accounts on a yearly basis for the number of independent power branches-e.g.…”

En la internacionalización hacia países en desarrollo: ¿qué cuestiones básicas han de tener presentes las empresas españolas? / In the internationalization towards developing countries: what basic issues must Spanish companies have in mind

“…1 Autor de correspondencia: sonia.suarez@ulpgc.es Cuando una empresa pretende abordar un mercado en desarrollo por primera vez, debe ser consciente de que el conocimiento desarrollado en su mercado local o en otros mercados avanzados no le será de gran utilidad (Perkins, 2014). Es en este contexto en el que adquiere relevancia la respuesta a interrogantes tales como: ¿Qué debe saberse antes de iniciar la internacionalización?…”

“…Knowledge that could have acquired in our previous international experiences can be useful for entry into a new market (Eriksson, Johanson, Majkgard, & Sharma, 1997), as long as the markets are culturally and institutionally similar. When a company aims to address a developing market for the first time, it should be aware that the knowledge developed in its local market or in other advanced markets will not be of great value (Perkins, 2014). It is in this context that 1 Corresponding author: sonia.suarez@ulpgc.es answering to the following questions becomes relevant: What should I know before starting the internationalization?…”