Adaptation Experience and New Foreign Market Entry: A Dynamic Capability Perspective

Abstract

One of the most fundamental choices a MNE has to make is in which geographic markets it wants to be active. Building on insights from the dynamic capabilities and experiential learning literatures we try to shed new light on MNEs location choices by developing predictions concerning the effect of adaptation experience on the likelihood that a MNE enters a new potential host market. Namely, we propose that geographic adaptation experience and product adaptation experience increase the likelihood of a MNE entering a new potential foreign market. Moreover, we propose that the level of environmental uncertainty and volatility as well as how distant the potential host market is from the MNE’s home country act as important contingency factors of these effects. We find general support for our predictions using a sample covering 12,207 firms originating from 48 different home countries over a 7-year period.