SEARCH

tel. +44 (0)203 031 2900

CHALLENGE US MY FAVOURITES ACCOUNT LOG OUT

HOME ABOUT IDEAS LIBRARY IDEAS BY INSTITUTIONS

Home Ideas Library Working Abroad: The Value of Experience

10.13007/205

Ideas for Leaders #205

Working Abroad: The Value of

Experience

Key Concept

Intuitively, experience reduces the chance of failure. An experienced manager

will make fewer mistakes than the inexperienced manager. The same logic

can be applied to international business activity: companies experienced in

foreign markets are going to fail less frequently than companies without

foreign experience.

New research shows, however, that this assumption is too simple. Previous

experience in a foreign market helps if the company returns to that market. It

also helps if the company ventures into a different foreign market, but only,

the research shows, as long as the situational context between the new

market and the previously experienced market is similar. If the context is

dissimilar, it is actually better to have no experience in foreign countries than

irrelevant experience; previous irrelevant experience becomes harmful.

Idea Summary

Susan Perkins, a professor at Northwestern University’s Kellogg School of

Management, and a visiting professor at MIT’s Sloan School of Management,

sought to empirically measure the role of prior international experience in the

success or failure of a firm’s subsequent international activities. She based

her research on data from the investment activity of 96 foreign-owned firms in

the Brazilian telecom industry between 1997 and 2004. The parent companies

of these firms came from 18 home countries.

Using a variety of methodologies, Perkins was able to determine the

similarities and differences between the regulatory environments of a number

of different countries. This was required so that she could identify compare

the prior foreign environment experienced by the firms in her research with the

environment they were facing in Brazil. The choice of the telecommunications

industry was helpful because of its codified regulatory environment.

Based on the research, Perkins confirmed the following hypotheses and

conclusions:

Multinational firms with prior experience in institutional environments similar to the

target country’s environment are more likely to succeed. In other words, if a firm

experienced with an institutional environment that was similar to Brazil’s is more likely to

succeed than a firm with a foreign experience that was dissimilar to Brazil’s institutional

environment.

The learning penalty from dissimilar experience was disproportionate to the learning

advantage from similar experience. Perkins’ research illustrated that the likelihood to fail

after experiencing a dissimilar environment was much higher than the likelihood to succeed

from experience in a similar environment.

Authors

Perkins, Susan E.

Institutions

Kellogg School of Management

Source

Administrative Science Quarterly

Idea conceived

January 2012

Idea posted

September 2013

DOI number

Subject

Globalization

Cross-cultural Management

Emerging Markets

Global Operations

Haven't found what you

need?

Challenge us

GO

The breadth of experience within a target country will have a positive effect on the

chances for the firm’s survival in that market. Based on her research, Perkins determined

that “industry regulation is a function of six institutional dimensions.” These six regulatory

dimensions include: regulatory competitive market structure (e.g., pricing); regulatory

standards; regulatory political competition and regulatory governance structure (both related to

the political power of regulators); and regulatory stability (the effectiveness of the regulatory

agencies). The more experience across the various dimensions, the greater the knowledge

base for a company to draw on for future foreign investments.

The greatest chance for success comes from depth (repetition) of experience. The

more often the firm has repeated the experience in a certain institutional dimension, the more

likely the chance for success. Depth can involve one country or several countries with a similar

context. One firm, for example, has competence centers in its various subsidiaries staffed by

personnel with extensive experience in their environments — people, as one executive

explained, “who have already passed through this experience three, four, five times before.”

Business Application

There are both positive and negative lessons to draw from Perkins’ research:

Do not apply irrelevant experience to a new situation or context. The classic example of

this mistake is the U.S. executive who wants to do things “the way we do it at home.” Perkins

gives the example of a major U.S. telecom firm whose revenue projects were 25 percent less

than expected because it assumed the regulatory market in Brazil was similar to the regulatory

situation in the U.S. Applying irrelevant experience is worse than having no experience at all.

Be aware of the ‘experienced’ international manager who will overestimate future

performance. Experience is invaluable as long as it is in a context that is relevant to the new

situation. The biggest mistakes that managers make is overestimating performance outcomes

and inflating expectations because they assume that their knowledge from another foreign

experience can be plugged into the new host country. When they fail, they assume the cause

was outside market factors — and had nothing to do with their own misguided decisions.

Strategically combine elements of the knowledge pool created by the breadth and

depth of your experience to fit the situation in new markets. You have developed

routines — for example, political strategies to mitigate political hazards — to deal with the

institutional environments in several countries. Combine these “experience-based capabilities”

to address the particular situation of a new institutional environment. For example, if the

regulatory environments in Brazil and Turkey are similar to the environment in India, parse the

prior experiences with the various dimensions (political, market structure, regulatory stability,

etc.) of the first two countries and combine the capabilities that best apply to the situation in

India.

Further Reading

“When Does Prior Experience Pay? Institutional Experience and the Case of the

Multinational Corporation,” by Susan Perkins. Forthcoming, Administrative Science

Quarterly. MIT Sloan School Working Paper 4986-13.

“The Risks and Rewards of Experience Abroad,” Susan Perkins, Kellogg Insight, 5

August 2013.

Further Relevant Resources

Susan Perkin’s profile at The Kellogg School of Management

Kellogg School of Management Executive Education profile at IEDP

© Copyright IEDP Ideas for Leaders 2013

About Legal Help Follow

About

People

IEDP

Partner Institutions

Terms of Use

Privacy

Disclaimer

Cookies

Subscribe

Help

FAQs

Contact

Accessibility

Twitter

Facebook

LinkedIn

Google+

Site by Deeson