The effect of experience and absorptive capacity on foreign market knowledge

Abstract

Learning about foreign markets often occurs through collaboration with other firms who have this knowledge. In this paper, we focus on one aspect of foreign market knowledge, which is the knowledge a partner in a dyadic relationship, has of the other partner and of their respective business network relationships. The concept ‘absorptive capacity’ [Admin. Sci. Q. 35 (1990) 128] is used to describe the firm’s ability to use its prior related knowledge and diverse background to identify the value of new information and to develop this into something creative. We develop and empirically test a model of how depth and diversity of experience affect absorptive capacity, and how this absorptive capacity affects the way a lack of foreign market knowledge is perceived as an obstacle in carrying out the ongoing business activity. The results show that the lack of foreign market knowledge in the ongoing business is determined both by the firm’s absorptive capacity generated in dyadic relationships with foreign customers and the customer’s network. The dyadic and network absorptive capacities, however, appear to be used differently in the ongoing business. Dyadic absorptive capacity seems to decrease the lack of foreign market knowledge, whereas customer network absorptive capacity seems to increase it.