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.