When Does Prior Experience Pay (2014) Perkins, S, L

Administrative Science Quarterly
59 (1)145–181
When Does Prior Ó The Author(s) 2014
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Institutional DOI: 10.1177/0001839214523603

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Experience and the

Multinational
Corporation
Susan E. Perkins1
Abstract
This study reexamines organizational learning theories to reconcile the condi-
tions under which prior internationalization experience leads to performance
gains for multinational corporations (MNCs) with varying host-country institu-
tional 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 insti-
tutional 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.
Keywords: Institutional experience, regulation, organizational learning, learning

curves, learning penalties, Brazil
International business scholars have long been interested in understanding the

role of experience in foreign direct investment entry, entry mode, valuation,
and survival. Some have established that prior experience in a host-country
context leads to positive performance gains from increased market-specific
knowledge (Johanson and Vahlne, 1977; Li, 1995; Shaver, Mitchell, and Yeung,
1
Kellogg School of Management, Northwestern University
146 Administrative Science Quarterly 59 (2014)
1997). When the learning environment is stable, these findings parallel more
general experiential learning theories that predict performance benefits (e.g.,
productivity, quality, survival) as the overall level of experience increases (Levitt
and March, 1988; for a review, see Argote, 1999). Several empirical studies in
the organizational learning literature demonstrate similar learning effects of
prior experience mainly by replication of routines in the same contextual envi-
ronment (Dutton, Thomas, and Butler, 1984; Darr, Argote, and Epple, 1995;
Epple, Argote, and Murphy, 1996).
Theoretical predictions are more questionable, however, when the environ-
mental context of learning changes. Institutional environments, generally char-
acterized by idiosyncratic laws, regulations, political hazards, and cultural
norms, are known to affect strategic decision making (e.g., Kogut and Singh,
1988; Henisz and Delios, 2004; Zhao, 2006; Siegel and Larson, 2008) and per-
formance outcomes (Barkema, Bell, and Pennings, 1996; Shaver, Mitchell, and
Yeung, 1997; Henisz and Delios, 2004; Berry and Sakakibara, 2008). In the glo-
bal context, where keen distinctions define heterogeneous country-level institu-
tional environments (see Henisz, 2004; and Guillén and Suarez, 2005, for
reviews), it is unclear how prior experiences acquired in other countries contrib-
ute to multinational corporations’ (MNCs’) performance in new host countries.
Despite the growing body of knowledge about organizational learning in the glo-
bal context, this puzzle remains unsolved. What firms learn from heteroge-
neous host-country environments, and whether all types of prior experience
have the same propensity to lead to future performance improvements,
remains unknown. This study builds on experiential learning theories in both
the organizational learning and international business literatures to explore the
boundaries of learning across heterogeneous institutional contexts and to
examine the effects on subsequent performance. I unravel the conditions in
which prior experience leads to positive performance outcomes and quantify
the learning penalties from unrelated institutional experience.
Experience is most broadly conceptualized as an organization’s historical
memory of routines (Cyert and March, 1963; Nelson and Winter, 1982; Levitt
and March, 1988) that, when retrieved and replicated, improve organizational
performance by reducing uncertainty. Organizational benefits derived from
accumulated experience are collectively referred to as organizational learning
curves (Yelle, 1979; Argote and Epple, 1990; Argote, 1999) or experience-based
learning curves (Huber, 1991: 94). Organizations’ prior experience with routi-
nized tasks in a homogenous context is associated with performance improve-
ments derived from learning-curve benefits in settings as diverse as U.S.
aircraft manufacturing (Dutton, Thomas, and Butler, 1984), shipbuilding
(Argote, Beckman, and Epple, 1990), truck assembly (Epple, Argote, and
Devadas, 1991), shift workers (Epple, Argote, and Murphy, 1996), pizza produc-
tion (Darr, Argote, and Epple, 1995), and cardiovascular surgical procedures
(Pisano, Bohmer, and Edmondson, 2001).
In the international context, foreign investment theorists have examined the
role of prior experience in organizational learning. The seminal theoretical per-
spectives established by scholars such as Johanson and Vahlne (1977) and
Kogut (1983) suggest that MNCs’ investment capacity depends on the sequen-
cing patterns and deployment of knowledge gained from previous investments.
Such experiences of internationalization allow organizations to acquire market-
specific knowledge that decreases uncertainty, which is a constraint on
Perkins 147
learning and is considered a liability of foreignness (Zaheer, 1995), and there-

fore to invest more successfully both in a country and across successive new
countries (Johanson and Vahlne, 1977). Research in the international business
literature in the last two decades has demonstrated performance benefits from
prior experience learning curves such as subunit survival (Li, 1995; Shaver,
Mitchell, and Yeung, 1997) and increases in shareholder value (Berry and
Sakakibara, 2008). But the learning effects identified in the extant literature are
often confounded between routinized skills being adapted in new host-country
environments, learning from the internationalization processes, and learning
from the host-country context. Clear distinctions among these differing types
of prior experience that MNCs acquire are not well established.
To solve the puzzle of learning effects in the international context, one must
first disentangle these confounded aspects of prior experience. The literature
suggests that there are three types of prior experiences that effect MNCs’
organizational learning curves. Scholars from one school of thought examine
learning from the perspective of a firm’s skills-based capabilities. These studies
are focused mainly on the internalization of markets and how the strategic
deployment of an MNC’s intangible assets can be a source of competitive
advantage (Dunning, 1980; Kogut and Chang, 1991; Morck and Yeung, 1992;
Chang, 1995; Caves, 1996; Delios and Beamish, 2001). These skills-based cap-
abilities are representative of intangible assets that include routines like tech-
nology transfer, product portfolio management, business model imprinting,
brand strategy, property, and plant and equipment planning. This view of learn-
ing is focused on how to deploy assets in the right combination to maximize
the firm’s value. Chang’s (1995) research, for example, revealed that MNCs
deploy their strategic capabilities across their subunits to benefit from prior
experiences with learned manufacturing routines in other countries. He found
MNCs more likely to sequentially invest in markets in which their capabilities
have an advantage over local competitors or are more central to their core
businesses.
According to the second school of thought, MNCs learn from competitors’
and their own prior entries into host countries (Mitchell, Shaver, and Yeung,
1994; Shaver, Mitchell, and Yeung, 1997). For example, Li (1995) showed that
first-time foreign entrants into the U.S. computer and pharmaceuticals industry
are more likely to fail than are repeat entrants. Moreover, Shaver, Mitchell, and
Yeung (1997) showed that foreign manufacturing firms entering the U.S. learn
through knowledge spillover effects acquired in prior local experiences. These
firms are more likely to survive than firms with no U.S. investment experience.
Similarly, Barkema, Bell, and Pennings’ (1996) research suggested that MNCs
with prior expansions in the same country and that are entering by means of
double-layered acculturation entry strategies (e.g., international joint ventures
and international acquisitions) are more likely to succeed. Both of these stud-
ies, as well as others (Chang, 1995; Berry and Sakakibara, 2008), have mea-
sured prior experience as the number of investments in the same host country.
More recently, Berry and Sakakibara (2008) also found that MNCs in more-
advanced stages of internationalization (i.e., with a larger number of subsidiar-
ies) are valued more by shareholders than those in the initial stage of interna-
tional expansion. These studies, consistent with interorganizational learning-
curve studies in homogeneous environments (Argote, Beckman, and Epple,
1990; Miner and Raghavan, 1999; Pisano, Bohmer, and Edmonson, 2001),
demonstrated that learning-curve effects appear as MNCs increase their invest-

ment presence in the same host-country environment or with increased inter-
national expansion experience, as reflected in the total number of global
subsidiaries (Li, 1995; Barkema, Bell, and Pennings, 1996; Shaver, Mitchell,
and Yeung, 1997; Berry, 2006; Berry and Sakakibara, 2008). Generalizing the
learning-curve effects of repeat investments in a single host country to
increased frequency of MNC investment across countries could be misguided,
as studies that have examined the internationalization experience across coun-
tries has provided less-consistent evidence. Barkema, Bell, and Pennings
(1996) found no general learning effects as MNCs increase their level of foreign
investments across host environments. Conversely, Chang (1995) revealed pat-
terns in sequential foreign investments suggesting that firms are using their
prior experience to inform subsequent host-country choices. This suggests that
accounting for the complexities of cross-country variation requires further
explanation.
The third view is based on experiential learning derived from knowledge
acquired in the host country’s institutional environment. This perspective
emphasizes learning from the contextual heterogeneity among institutions
(Kogut and Singh, 1988; Barkema, Bell, and Pennings, 1996; Delios and Henisz,
2000). Success in host-country environments hinges on organizational knowl-
edge of institutional dimensions that are likely to affect firm performance.
Several studies on institutions and world society have underscored the neces-
sity of understanding institutional variations and the interrelatedness among
nations (Hirsch and Lounsbury, 1996; Guillén and Saurez, 2005; Henisz, Zelner,
and Guillén, 2005; Dobbin, Simmons, and Garrett, 2007). Recent empirical stud-
ies of foreign investment have specified institutions that have a direct effect on
firms’ foreign investment strategies. Henisz (2000) found that country-level
political hazards directly affect strategic entry choice and local partner selection,
and Kogut and Singh (1988) demonstrated the effects of cultural distance on
foreign investment entry mode. Henisz and Delios (2004) revealed that political
hazards and regime change influence foreign-owned subsidiary failure, Zhao
(2006) demonstrated that property-rights protection affects global R&D sour-
cing strategies, and Siegel and Larson (2008) showed that unfriendly labor mar-
ket institutions negatively affect manufacturers’ profitability. All these studies
found that MNCs strategically navigate the institutional environment to avoid
the market uncertainties and expropriation risks their local subunit operations
face. The challenge for foreign investment managers is to accurately predict
the institutional variations that exist between their home country and the target
host country of subsequent investment.
Effectively solving the prior-experience puzzle requires distinguishing
between these learning effects and the other types of prior experience, includ-
ing skills-based experience and internationalization experience from both repeat
entries in the same host country and total number of different countries
entered. Does a firm benefit more from having multiple investments in the
same country or multiple investments across countries with similar institutional
environments? Do varying types of institutional experience or the depth of insti-
tutional experience matter? Are there differences in the learning-curve effects
of institutional experience versus more-routine experiential learning? These are
all open questions. To begin to answer them, I empirically examined the entire
population of MNC foreign investments in the Brazilian telecommunications
Perkins 149
industry from 1997 to 2004. By using field studies, interviews with executives
and regulators in Brazil, Spain, Portugal, Canada, and the U.S., and a foreign
investment database, I develop an experiential learning framework to codify
and examine the effects of MNCs’ prior home and host-country experiences on
subsequent investment in Brazil.
PRIOR EXPERIENCE AND THE MNC LEARNING CURVE

MNCs’ prior institutional experiences are conceptualized here as the sequential
combination of subunit investments that allows firms to create unique knowl-
edge patterns acquired across and within heterogeneous institutional environ-
ments. The transition from a domestic to an international, multinational, and
transnational organizational form forces firms to learn to efficiently acquire
knowledge and adapt to local market environments to survive. The institutional
knowledge acquired from prior experiences can be used to reinvest in new
subunits in the same country or to transfer knowledge to the home-country
organization, or it can be transferred to operations based in other foreign mar-
kets. Unlike the skills-based routines derived from intangible assets (Dunning
1980; Kogut and Chang, 1991; Caves, 1996), which are more easily codifiable
and transferable (Zander and Kogut, 1995), features of institutional environ-
ments are less predictable and observable given the vast variation in practices
globally. Similar to skills-based capabilities, which evolve through replication
and search, institutional experience can also be a firm-specific resource. A mul-
tinational’s knowledge acquired from institutional experiences can evolve into
firm-specific competencies that become a source of experience-based capabil-
ities of the firm. Firms that are more adept at retaining and transferring knowl-
edge from their institutional experiences across subunit organizations can find
these capabilities to be a source of competitive advantage. This reframing of
experience focuses more keenly on the active role the organization plays in
learning from the environment.
Institutional Similarity
Each institutional experience can be thought of as a type of knowledge the
organization acquires across a range of institutional environments. In a host
country, the institutional environment includes multiple dimensions from which
an organization learns. For example, dimensions of formal government regula-
tion include the statutory laws of the competitive market structure, entry bar-
riers, and industry standards, as well as the regulators’ power to influence the
market or the stability of the regulatory governance structure. Akin to these are
the widely explored informal institutional dimensions of culture, including indivi-
dualism versus collectivism, masculinity versus femininity, power distance, etc.
(Hofstede, 1980). As a firm’s investment portfolio expands into new countries,
the scope of experiential knowledge types likely broadens.
Experiential learning studies in the international business and strategy litera-
tures have predicted that familiarity with relevant dimensions of the institutional
environment leads to subsequent success in similar types of environments.
Delios and Henisz (2003) found that firms with more experience in countries
with high political hazards are less sensitive to such hazards in their subsequent
foreign entries. Barkema, Bell, and Pennings (1996) used cultural distance to
demonstrate that MNCs learn from host-country institutional environments

through the stages of internationalization. They found that a foreign subunit’s
longevity is associated with cultural similarity between the MNC’s home coun-
try and the targeted host country. Therefore logic suggests that the cumulative
experiences of MNCs in institutional environments similar to those of the target
host country should outperform MNCs without similar experience. Related
institutional experiences afford firms a more precise ability to predict and miti-
gate new institutional conditions. Firms with similar experience also have an
advantage in understanding the context of business codes, regulatory rules,
and practices, resulting in more efficient and effective strategic decision mak-
ing. Thus it is reasonable to expect that firms with acquired experience from
similar institutional environments will be more likely to succeed:
Hypothesis 1a: Multinational firms with prior experience in institutional environments

similar to that of the target host country are more likely to succeed in the subse-
quent foreign subunit investment than MNCs with less-similar institutional
experience.
But not all types of knowledge acquired from multiunit organizations’ experi-
ences are relevant when transferred between subunits. Although recent organi-
zational learning studies have demonstrated that similarity between prior and
current experience has positive effects on performance, learning discounts also
exist. For example, through SIC code matching, Haleblian and Finkelstein
(1999) found that acquisition success is highly correlated with similar prior
acquisition experience in the same industry, but acquiring firms are more prone
to fail when new acquisition partners have dissimilar types of acquiring experi-
ence. Likewise, Ingram and Baum (1997) found that Manhattan hotel chains
with nonlocal experience were more likely to fail despite the benefits gained
from hotel chain affiliation. These findings are consistent with the international
business ‘‘liability of foreignness’’ theory (Zaheer and Mosakowski, 1997),
which suggests that failure risks increase with dissimilarity between foreign
and host countries’ institutional environments. Without relevant experience,
firms are more likely to grossly misestimate the effect of the institutional envi-
ronment on their business operations until they have better knowledge of it.
This ‘‘learning penalty’’ can accelerate the time to failure because inappropriate
knowledge from dissimilar contexts is applied. Thus I hypothesize:
Hypothesis 1b: The learning penalty associated with dissimilar institutional experi-
ence will be disproportional to the learning benefits of having similar institutional
experience.
Learning from Breadth of Institutional Experience

The debate in the literature remains open as to whether variability in experience
has positive implications for a firm’s performance and whether the outcomes
are significantly different from repeatedly exploiting existing knowledge. Some
international business studies (Erramilli, 1991; Chang, 1995; Delios and Henisz,
2003) on sequential foreign investment entry have found that similarities in
entry can fuel future entries of the same type. Chang (1995), for example,
examined sequential foreign investment entries of Japanese firms into the U.S.
Perkins 151
market and found evidence that learning from early entries into core busi-
nesses enabled firms to launch future entries in more-risky noncore businesses
with less experience. In Erramalli’s (1991) investigation of the foreign invest-
ment entry behaviors of U.S. service firms, initial patterns of international
expansion were most evident in similar cultural environments. As organizations
gained experience with investing abroad, they became increasingly likely to
choose less-similar markets. These empirical studies confirmed Davidson’s
(1980) theoretical view that inexperienced MNCs are likely to select foreign
investment locations that are more similar to those of their host country than
firms with a broader range of investments. Organizational learning theories of
repetitive momentum (March, 1991; Amburgey and Miner, 1992) also predicted
that organizations are more likely to repeat routines with which they are famil-
iar. If the predictions of the extant literature prevail, a logical performance impli-
cation is that firms will reap the greatest benefits from reinvesting repeatedly
in the same host-country institutional environment. This strategy is bounded,
however, as investment opportunities diminish in a host country over time, and
there will always be variations at the country level. As MNCs internationalize,
the range in the types of experience acquired is likely to expand their knowl-
edge base. Expansion into institutional environments that vary significantly
from the home-country institutions increases the learning barriers for multina-
tional organizations but also possibly offers greater rewards.
Cyert and March (1963) anchored the learning argument with a more expan-
sive view by asserting that more learning experiences lead to more possible
combinations and a broader range of future choices. Applying this logic to an
MNC’s cumulative breadth of prior institutional experiences yields a reasonable
rationale that organizations that expand into new and uncertain markets have
the advantage of a greater knowledge pool. Firms potentially gain more from
these difficult learning environments, particularly in emerging market econo-
mies, which typically have more-volatile and weaker institutions. Further,
MNCs that possess greater variation in knowledge-retrieval sources are likely
to benefit from generating a greater number of combinative experiences to
leverage in future subunit investments. In another context, Beckman and
Haunschild (2002) showed that heterogeneity in the interorganizational network
structures of acquisition partners leads to better performance outcomes.
Pennings, Barkema, and Douma (1994) provided evidence that firms successful
in diversification have persistent success with subsequent firm expansions.
This suggests that organizations assuming greater risks in investing in varying
types of host-country institutional environments should reap benefits derived
from their breadth of knowledge.
Hypothesis 2: Possessing a greater breadth of institutional experiences has a posi-

tive effect on the survival of the subsequent foreign subunit investment of MNCs.
Experience-based Capabilities
The inherent heterogeneity of country-specific institutional dimensions creates
a challenge for firms to identify and build in-depth capabilities across each type
of institutional experience over time. Kogut and Zander (1992) argued that the
creation of new knowledge stems from the recombination of existing capabil-
ities. These recombination opportunities exist for MNCs learning from their
experience in a host-country environment and their ability to recombine it

appropriately to be relevant to a subsequent host-country environment.
Organizational routines developed by replicating prior institutional experience
of the same type are what I refer to as experience-based capabilities.
Because recombination is needed, developing experience-based capabilities
differs from replicating the entire set of host-country routines that would be
required of repeat investments in the same country. In this case, firms are
parsing out a specific institutional dimension that has relevance in another
country and combining it with an experience from yet another country. For
example, regulatory market structure rules for telecommunications are simi-
lar in Brazil, Israel, and New Zealand. If an MNC acquired experience-based
capabilities while navigating the regulatory market structure in any of these
countries, the specific capability could be used in another market and be
recombined with another experience-based capability that fit the subsequent
institutional environment. Organizations capable of building more in-depth
capabilities in specific institutional dimensions (i.e., regulatory strategies to
navigate entry barriers or political strategies to mitigate political hazards) can
then uniquely combine prior experiences to replicate any institutional environ-
ment, provided the firm has prior experience of that type. Kogut and Zander
(1992) suggested that organizations with strong combinative capabilities are
able to generate new knowledge and seek out market opportunities more
readily.
Achieving a balance in exploiting existing types of learning capabilities while
exploring new dimensions of the institutional environment allows MNCs to
maximize the benefits of existing knowledge. Firms that stage the sequence of
foreign subunit investments across countries that overlap with their existing
knowledge are also likely to experience learning-curve effects comparable to
the learning rates achieved by having repeat investments in the same host
country. Both represent a depth of relevant types of knowledge—one com-
bined in the host country, the other recombined across host countries. Thus I
hypothesize:
Hypothesis 3: MNCs that have redundant (in-depth) institutional knowledge in prior

foreign investments are likely to experience positive performance effects in the
subsequent foreign investment.
METHODS
Sample and Data Collection
The empirical setting I examined was the entire population of foreign subunit
investments in the Brazilian telecommunications industry from 1997 to 2004
following market privatization and liberalization. This setting is ideal for empiri-
cal investigation for several reasons. First, MNCs face considerable complexity
and heterogeneity in environmental contexts (Ghoshal and Westney, 2005) as
they internationalize. Second, the global telecommunications industry, rife with
government interventions and regulation, provides codifiable ‘‘rules of the
game’’ to measure learning constraints. Because of the tractable nature of gov-
ernment regulations and the fact that firms’ compliance is compulsory, reason-
able inferences can be made about organizational learning in this setting. Last,
Brazil’s economy, representative of many emerging market economies, is
Perkins 153
Table 1. Frequency of Foreign Investments from 18 Home Countries
Home country Frequency Percent Cum. %
Argentina 21 2.7 2.7

Canada 76 9.8 12.5
Denmark 5 0.6 13.1
France 19 2.4 15.5
Germany 4 0.5 16.1
India 8 1.0 17.1
Israel 16 2.1 19.1
Italy 114 14.6 33.8
Japan 32 4.1 37.9
Korea 4 0.5 38.4
Luxembourg 6 0.8 39.2
Mexico 34 4.4 43.5
Panama 1 0.1 43.7
Portugal 96 12.3 56.0
Spain 104 13.4 69.3
Sweden 5 0.6 70.0
UK 12 1.5 71.5
U.S. 222 28.5 100
Total parent/year observations 779 100
known for an exceedingly difficult institutional landscape to navigate because

of strong development dependencies between the government and industry
(Evans, 1979; Schneider, 2008; Schneider, 2009) and other non–market factors
(i.e., weak rule of law, weak investor protections, and high ownership concen-
tration) (Musacchio, 2008: 7). This setting provides a valid reference point for
gauging firms’ abilities to navigate institutional differences.
There were 110 firms providing telecommunications services in Brazil in
Standard Industrial Classification (SIC) codes 4812—wireless; 4813—fixed;
4822—messaging; and 4899—misc. and satellite. Ninety-six of the 110 tele-
communications firms were foreign-held subunits with equity participation
through joint ventures or wholly owned subsidiaries. The average ownership
stake of these foreign firms was 54 percent. Subsidiaries ranged in size from
R$225,000 to R$13,308,630 annually.1 The subunit firms were owned by 66
parent firms from 18 host countries, broadly ranging from developed countries
(e.g., U.S., UK) and emerging markets (e.g., South Korea, Mexico), with an
average of eight prior foreign experiences spanning 80 countries in total.
Table 1 presents the frequency of parent firms’ investments by host country.
These subsidiary data were disaggregated at the firm/parent/year level of analy-
sis in order to capture the time-varying experience effects of each parent firm.
This generated 1,193 observations. I dropped 414 firm/parent/year observa-
tions, 348 of which were observations of domestic equity participation, includ-
ing both joint venture participation and totally domestically owned subsidiaries,
and 60 were observations with no telecommunications participation (e.g.,
investment banks). Three observations were duplicates because of multiple
1
R$ denotes real dollars, Brazilian currency (reais). Subsidiary size is represented by annual sales
revenues that have been adjusted in real values based on the consumer price index (CPI) for tele-
coms in 1995 reais.
entries in less than one year, and five were observations of exits that were not
failures (Headd, 2003).2 The remaining 779 firm/parent/year observations were
used for empirical examination.
I constructed this dataset by using a broad selection of data collection and
triangulation techniques, including several firsthand data sources in Brazil—
Conselho Administrativo de Defensa Economica (CADE), BNDES
(Development Bank of Brazil), ANATEL (the Brazilian telecommunications
regulatory agency), and Comissão de Valores Mobiliários (CVM), Brazil’s
securities and exchange commission. Secondary archival data sources
included ISI Emerging Markets, Espicom Business Intelligence, BuddeComm
Telecommunications Reports, and Dunn & Bradstreet Million Dollar,
Hoover’s, Gale, and Orbis databases. I used other publicly available periodi-
cals acquired through Factiva, company reports, and press releases to vali-
date each subunit’s entire event history and subsidiary locations for its
parent’s prior experience. I augmented these data with interview data from
30 telecommunications and regulatory agency senior executives, who
recounted market events.
Dependent Variable
I analyzed the time to failure event, a firm’s exit from Brazil, at the firm/parent/
year level, where firm survival in period t was (0) or failure was (1). Defining fail-
ure can be problematic in event history studies because some market entries
are not designed for longevity (e.g., organizational learning) (Nakamura, Shaver,
and Yeung, 1996), and some market exits are not the result of organizational
failure (e.g., capital gains) (Headd, 2003). Therefore I examined each exit to
determine the reason for it. I limited failures to exits driven by financial under-
performance in earnings projections, difficulty securing capital to continue the
investment, lack of understanding of local institutions, or related situations.
Three independent coders tested the reliability of the assessment of failure
cases. Interrater reliability was 100 percent in all cases.
Independent Variables
Regulatory distance. A distinct challenge of this research was to develop

an approach that precisely measured the differences in institutional environ-
ments across nations and captured MNCs’ prior experiences in all host nations
before entry into Brazil, the subsequent target host country. Although scholars
have studied selected dimensions of international institutions such as political
hazards (Henisz, 2000), intellectual property rights (Zhao, 2006), legal origins
(La Porta et al., 1998), labor laws (Siegel and Larson, 2008), and cultural dis-
tance (Hofstede, 1980; Schwartz, 1994), little is known about the effects of for-
mal regulation on foreign subunit performance. I examined these effects by
developing a methodology to create regulatory distance measures precisely
characterizing the telecommunications industry regulatory context in 80 coun-
tries. On the basis of analysis of 131 regulatory agencies, I deduced that
2
Firm exits were precisely coded to capture reasons for market exit other than failure. Alternative
explanations included mergers and acquisitions and geographic regulatory constraints on the num-
ber of firms allowed per region.
Perkins 155
industry regulation is a function of six institutional dimensions that explained 78

percent of the variation among 28 key comparative regulatory measures, such
as practices in the regulation of prices and market structure, the duration of
licensing, the regulation of standards and subsidies to specific consumer
groups, the term limitations of regulators, and so forth. I used confirmatory
factor analytic techniques to validate the six theorized regulatory dimensions,
which include (1) key aspects of statutory laws related to the regulatory com-
petitive market structure (e.g., pricing, territorial assignments, technology uti-
lization, asset sharing), (2) regulatory standards (e.g., quality standards,
safety guidelines) and (3) regulatory entry barriers (e.g., foreign ownership
limitations, WTO compliance requirements), two additional dimensions
related to the regulators’ political power— (4) regulatory political competition
and (5) regulatory governance structure, which capture the terms under
which regulators came into office and their authority to provide public
goods—and a final dimension, (6) regulatory stability, which captures the
effectiveness of the institutions’ organizational form.3 This dimension
includes factors related to how the institution was established, such as fund-
ing, jurisdictional coverage, autonomy from state-owned enterprises, number
of regulatory agencies, and frequency of reforms. These six dimensions of
industry regulation are arguably the knowledge gaps of highest risk for
MNCs entering highly regulated services-oriented industries such as tele-
coms, energy, mining, banking, and insurance. Firms that are not as depen-
dent on government regulation are less constrained by institutional
knowledge of this sort (e.g., consumer products, durables such as automo-
tive products). Online Appendix A (http://asq.sagepub.com/supplemental)
details the 28 measures across these six dimensions of regulation; Online
Appendix B provides more details on the regulatory framework used to com-
pare countries, and Appendix C provides more details on the coding of regu-
latory scores and methodology for constructing the dimensions.
To construct a similarity measure for each organization’s prior regulatory
experience, I used these six dimensions of industry regulation to calculate the
distance between a firm’s home and prior host-country regulatory experiences
versus that of Brazil’s regulatory environment by using a Mahalanobis distance
measure. First, regulatory distance (di) is captured by measuring the level of
similarity between each country, j, and that of the reference country, Brazil.4
Each country’s regulatory dimensions are captured in the column vector Xj such
that
0 1
competitive market structurej
B standardsj C
B C
B entry barriersj C
B
Xj = B C ð6x1Þ;
C
B political appointment processj C
@ governance structurej A
institutional stabilityj
3
Statutory laws related to the regulatory competitive market structure are the most widely cited in
the literature on industry regulation (Stigler and Friedland, 1962; Demsetz, 1968; Koller, 1973;
Priest, 1993).
4
Brazil is a suitable reference point because telecom regulation is relatively close to the mean level
of telecom regulation among the 80 countries of prior experience examined in this study.
and the target country’s dimensions are captured in the vector Yj such that
0 1
competitive market structureY
B standardsY C
B C
B entry barriersY C
Y =B
B political appointment processY
C
C ð6x1Þ:
B C
@ governance structureY A
institutional stabilityY
Online Appendix D presents regulatory dimensional scores for all 80 countries.

A Mahalanobis measurement technique was specified instead of a Euclidian
distance because of the non-orthogonal relationships between the six regula-
tory dimensions (see Online Appendix E for a detailed review of Mahalanobis
distance). For instance, a country’s regulatory laws are not completely indepen-
dent of the government’s ability to enforce the laws through sanctions that
typically come from the formal regulatory institutional structures. The
Mahalanobis specification adds robustness by taking into account the means
across countries and accounts for the variances and covariances within each
dimension of regulation in the inverse covariance matrix S-1(6x6). The calculation
captures the squared distance
0
dj = Xj Y S 1 Xj Y , where j = 1 to n for each country j:
ð1 × 6Þð6 × 6Þð6 × 1Þ
The regulatory distance scores between Brazil and other countries are pre-
sented in Online Appendix F.
3 piled up across each country such that dj 8j
2 dj, is
This regulatory distance,
D1
generates the vector D = 4 ::: 5 for all countries j. This vector provides com-
Dn
parative distance measures for each host country versus the regulatory envi-
ronment in Brazil. To make these measures meaningful at the firm level, I
recorded the host countries of experience prior to the beginning of this study
(t ≤ 1998) such that for each parent firm i, the global portfolio of investments is
2 3
0 0 1 p1n
61 0 0 p2n 7
P = pij = 6
4 ::: :::
7ðk × nÞ,
::: ::: 5
0 1 0 pkn
where i = 1, 2, ., k and k is the number of firms, j = 1, 2, ., n and n is the

number of countries, one (1) equals headquarters or subunit investment pres-
ence, and zero (0) means no investment presence of firm i in country j. The
portfolio was updated annually to include any new subunits acquired globally
during the time of this study. To determine a firm’s overall regulatory distance
score relative to Brazil, I multiplied the P(kxn) matrix by the D(nx1) vector. Using
P
n
the following weights, w, RegulatorySimilarityi = wi,j pij dj + wi,h pih dh ,
j = 1,j„h
where h = home country and j = all other countries with prior experience, and
P
n
the wi,j = 1. This firm-specific regulatory distance measure captures the
j =1
Perkins 157
Figure 1. Mahalanobis distance of regulation.
Regulatory
Competitive
Market Regulatory
Structure Entry Barriers
Regulatory Brazil
Standards
Mahalanobis
Distance
Parent Firmj
Regulatory Regulatory Stability

Political
Competition Regulatory
Governance
Structure
regulatory similarity between the firm’s experience and the regulatory environ-
ment of Brazil. Figure 1 provides a graphical illustration of this comparative dis-
tance measure.
I used three weighting approaches, described below, to capture the home-
country effects, host-country effects, and combined regulatory effects.
Home-country effects. A multinational’s home-country experiences repre-

sent the organization’s inherited knowledge of the business practices and
norms existing since the organization’s inception (Huber, 1991). Inherited
knowledge contains the knowledge of the initial organizational environment as
established by the organization’s creators and passed on to the organization.
These inherited routines are especially important for foreign investment manag-
ers who originate from the headquarters location, as the goals, approach, and
culture of organizations are greatly shaped by their founders (Stinchcombe,
1965). Multinationals’ home-country knowledge imprint has a stronger propor-
tional effect on a firm’s performance than subsequently acquired host-country
knowledge because of the prevailing institutional practices of the organization
and the internal pressures to maintain the legitimacy of the MNC in the context
of a foreign host (Meyer and Rowan, 1977). Most scholars in the foreign invest-
ment research tradition (Kogut and Singh, 1988; Erramilli, 1991; Benito and
Gripsrud, 1992; Barkema, Bell, and Pennings, 1996) have used solely home
country of origin to measure proximity to the target country. Home-country
knowledge effects are represented by using the above regulatory distance
measure for each firm, where wi,h = 1 and wi,j = 0 8j (meaning 100 percent
weighted on home country and 0 percent weighted on host countries).
Host-country effects. Firms’ decisions to enter a country are largely based

on congenital knowledge (Huber, 1991: 91), which is a combination of both
inherited knowledge from the organization’s foundation and other information
the firm acquires prior to the birth of a new organization. For multinationals,
new organization events are subunit investments in host countries. The other
sources of information include acquired knowledge from MNCs’ prior experi-
ences in institutional environments globally. In Huber’s (1991) knowledge acqui-
sition framing, organizations rely on congenital knowledge for information
retrieval to assist future decision making about which countries to invest in,
what inherent capabilities the firm will deploy relative to market needs, and
what resources will be needed in the targeted country’s institutional environ-
ment. To capture congenital knowledge, regulatory distance is weighted (wij) to
include the entire set of host countries a firm has previously entered, with all
host-country
P investments weighted equally. In this case, the weight wi,h = 0
and wi,j = 1translates into 100 percent of the experiential learning weight
j
being given to host countries and none to home-country experience.
Combined experience effects. An MNC’s intraorganizational knowledge

flows bidirectionally between the home and host countries. Frequently, knowl-
edge is transferred in these firms through the movement of managers from
one subunit location to another (Almeida and Kogut, 1999; executive inter-
views). To model this assumption prudently, both the inherited knowledge of
the home country and congenital knowledge of the host-country experiences
are weighted
P equally in the regulatory distance calculation, where wi,h = 0.5
and wi,j = 0:5 (meaning 50 percent weighted on home country and 50 per-
j
cent weighted on host countries).
Admittedly, using a distance measure that aggregates experiences presents
challenges in interpreting the influence of firms’ overall experiences. Firms that
have multiple foreign investment experiences that might be both similar and
dissimilar to the investment in Brazil can potentially be underspecified by exam-
ining the mean experience overall. Thus a downward bias exists for firms with
broad variations in foreign investment experience. To account for this bias and
provide more accurate depictions of each firm’s experience at the extremities,
I created a measure of minimum distance for more empirical precision.
Moreover, because the squared distance term in the Mahalanobis calculation
provided only a positive measure of distance, I also developed a measure, sign
of regulatory distance, to capture the directional effects from either stronger
(scores higher than Brazil’s) or weaker (scores lower than Brazil’s) industry reg-
ulation. For example, comparing Germany and Romania, both of which appear
to have comparable regulatory distances to Brazil, 20.9 and 16.5, respectively,
the actual regulatory environment in Germany is more stable (standardized reg-
ulatory score of 28.0) than Romania’s (standardized regulatory score of –9.26).
This variable helps distinguish between the two differing environments.
Breadth. Breadth of experience measures the amount of dispersion accord-

ing to types of host-country regulatory experience prior to entering Brazil (t <
1998). I used a coefficient of variance approach (Martin and Gray, 1971: 496;
Beckman and Haunschild, 2002) to measure heterogeneity of experience
because it adequately focused on the central tendency of dispersion in experi-
ence rather than on the simple standard deviation. This relative measure of
Perkins 159
breadth is preferable to a standard variance term for isolating the range of

experiences independent of the number of countries a firm has entered. The
coefficient of variance is
qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
2 ffi
P
Xij u =N
V (d) = ;
u
where d represents the dispersion of host-country regulatory experiences, and

N represents the number of countries of prior experience. I used standardized
regulatory scores (see Online Appendix F) to compute the dispersion in types
of regulation across all home and host-country regulatory environments. This
time-varying measure is updated annually to include new host-country subunit
entries.
Depth. To test hypothesis 3, I developed a depth measure of the frequency

of each of the six regulatory dimensions summed across countries that exactly
matched ( ± .1 of the regulatory dimensional scores) the regulatory environ-
ment in Brazil. Firm scores were based on the fraction of replication of Brazil’s
regulatory environment (100 percent redundancy = 1) and the depth within each
of the replicated dimensions (1/6 for each replicated dimension). For example,
America Movil’s prior regulatory experience in 1998 included Spain, Mexico,
and Argentina, which combined, replicated five of the six (.83) regulatory dimen-
sions in Brazil. Conservative estimations were used to add fractional redundan-
cies of the same type only after all six dimensions were replicated. Depth
scores ranged from 0 (e.g., SK Telecom, 1998) to 2.5 (e.g., Telefonica, 2004).
Control Variables
Host-country experience and internationalization experience. To first
replicate the predicted theory and findings of the conventional wisdom on
MNC experience, I developed two variables. Host-country prior experience cap-
tures the number of subsidiary investments in Brazil. This count variable repli-
cates the methodology used in the existing literature on foreign investment
(Barkema, Bell, and Pennings, 1996), which suggests that a firm’s own experi-
ence in a host-country affects performance. The second variable, internationali-
zation experience, measures the number of foreign host countries each
multinational has entered prior to entering Brazil.
Skills-based capabilities. In the telecom industry, network operators’ (e.g.,

AT&T’s, Nextel’s, Sprint’s) business units are organizations based on highly
routinized skills-based capabilities. The industry terminology for the highly trans-
ferable, codifiable business models is the ‘‘organizational imprint,’’ which
includes technology platforms, exclusive supplier contracts, and global manu-
facturing agreements, for example. Such skills-based capabilities in telecommu-
nications are conveniently segmented by four, 4-digit SIC codes: 4812—fixed,
4813—wireless, 4822—messaging service, and 4899—satellite services. I
developed fixed-effects indicator variables for the firm’s primary SIC code. I
obtained data from the Dunn & Bradstreet Million Dollar database.
Skills-based prior experience. Like prior internationalization experiences, I

quantified the number of each firm’s skills-based experiences in previous home
and host-country investments. Previous studies have typically confounded
these two types of experience (frequency of country experience versus fre-
quency of routine organizational imprinting). I used country-level 4-digit SIC
code matching (Hayward, 2002), collecting data for each company from a vari-
ety of sources (primarily Dunn & Bradstreet Million Dollar database,
Compustat, Orbis, Factiva, Gale, and Buddecom telecom reports). On average,
parent firms had four preexisting investments in the same SIC code. This time-
varying measure is reported annually.
Institutional controls. Similar to Siegel, Licht, and Schwartz (2011), I

included several institutional comparative measures in the analysis to rule out
alternative explanations. I used Hofstede’s (1980) cultural dimensions (power
distance—PDI, collectivism versus individualism—IDV, femininity versus mas-
culinity—MAS, and uncertainty avoidance—UAI) to calculate cultural distance,
replicating the methodology used by Kogut and Singh (1988: 422).5 Differing
from their study, Brazil was the reference point, not the U.S. I also used the
POLCON V data (for the year 1998) (Henisz, 2000) to develop a political-hazards
institutional distance measure for each home country versus Brazil. This vari-
able, POLCON distance, along with the subsequent two measures, used a
Euclidian distance formulation.6 I also computed La Porta et al.’s (1998) legal
origin measure as a distance measure to control for institutional variations in
legal structures of each parent firm’s home country. I categorically scaled the
variable from the weakest to the strongest legal protections (1 = French civil
law; 2 = Scandinavian civil law; 3 = German civil law; and 4 = common law).7
I constructed a language distance variable by using Grimes’ (1992) language
family trees to measure a country’s level of closeness in language to
Portuguese, the official language of Brazil. For example, a code of 1 represents
other sibling-related countries in which Portuguese is also the official language
(e.g., Portugal); 2 represents other Ibero-Romance languages (e.g., Spanish and
French); 3 represents Gallo Romance languages (e.g., Italian); 4 represents
other Indo-European languages (e.g., English, German), and so on. For each of
these institutional controls, the distance measures represent the gap between
each firm’s home country and Brazil.
5
Hofstede’s cultural dimensions did not include Luxembourg, so I used the cultural measures for
Belgium as a proxy, given the proximity and historical ties. Kogut and Singh (1988: 422) defined cul-
tural distance using the computation
4
P
CDj = (Iij Iiu )2 =Vi g=4;
i =1
where Iij is the index for the ith cultural dimension and the jth country, Vi is the variance of the index
of the ith dimension, u indicates the U.S., and CDj is the cultural difference of the jth country from
the U.S.
6
The Euclidian distance, DE = ðpx qx Þ2 = jpx qx j, was used to calculate a distance for each par-
ent company’s home country in comparison to Brazil for the POLCON, legal origins, and language
variables. I used the simplest form of the Euclidean distance, given that each of these measures is
one-dimensional.
7
La Porta et al.’s (1998) study did not include legal origins in Panama and Luxembourg. Both of
these civil-law societies have been coded accordingly.
Perkins 161
Firm controls. Firm size is a time-varying covariate based on annual sales

revenue (log) at the subunit level. Data come from the Comissão de Valores
Mobiliários and company annual reports. Nominal revenue numbers were
adjusted to real on the basis of the CPI (Índice nacional de Prec xos ao
Consumidor Amplo—IPCA) for telecoms provided by the Instituto Brasileiro de
Geografia e Estatı́stica. Subunit telecom market share (percentage of total
Brazil telecom revenues) was also included to control for the firm’s size relative
to the overall telecom market size. Because observations of failure were coded
at the firm/parent/year level, it was important to capture the percent equity
ownership of each parent in a subunit firm. Ownership percentage is a mean-
ingful indicator of control rights. I also included an indicator variable of whether
the subsidiary was affiliated with a business group (0/1), as previous studies
have revealed that business group affiliations can affect firm performance
(Khanna and Rivkin, 2001; Chang, 2003; Khanna and Thomas, 2009).
I collected additional time-varying firm performance measures germane to
the telecom industry, including (annually) ARPUs (average revenue per subscri-
ber) in reais, number of subscribers, number of employees, and purchase price.
But missing data was an issue in up to 60 percent of the cases, so these vari-
ables were not included in the main analysis to preserve the sample size.
Auction and industry controls. A variable geographic region was con-

structed to measure the territorial effects of firms’ jurisdiction of licensure in
Brazil (e.g., São Paulo, Rio de Janeiro, etc.). This categorical variable ranked the
regions on the basis of the telecom regulator’s (ANATEL’s) population count
and projected subscriber base. An indicator variable, auction FDI restrict, coded
foreign subunits that participated in the first privatization licensing auction in
Brazil. Of the nine privatization auctions, only the first imposed foreign invest-
ment ownership restrictions and local consortium partnerships on entrants, a
market imperfection that may have been cause for exit (Kogut, 1983). A fixed-
effects specification with indicator variables for each auction produced similar
results. Relative industry size (annual total telecommunications industry reven-
ues in home country / total telecommunications revenues in Brazil) was
included to capture home-country market attractiveness relative to Brazil. Firms
from smaller telecommunications markets may find Brazil most attractive.
Conversely, firms from larger telecom markets are at an advantage in dealing
with competition. Hill and Thomas (2005) showed that asset bubbles fueled by
external social factors were correlated with the relative position of firms in the
industry. Through the lens of another important global utilities industry (electric-
ity), they posited that firm performance is negatively correlated with the firm’s
entry sequence. In an asset bubble, significant overinvestment is most likely to
occur at the most distant points in the information cascade. To control for this
alternative explanation, I developed an asset bubble variable, entry order, to
capture the sequential entry number of firms entering the telecommunications
industry in Brazil.
Robustness. For robustness, I disaggregated Hofstede’s (1980) dimensions

of culture and tested each dimension separately to address the measurement
criticisms of dimensional aggregation and lack of generalizability to national cul-
ture, given that these data were derived from a single multinational corporation
(IBM) (Shenkar, 2001). Alternatively, I used Schwartz’s (1994) one-dimensional

egalitarianism measure, which has known effects on international investment
flows (Siegel, Licht, and Schwartz, 2011). Political capital and other institutional
knowledge of the ‘‘rules of the game’’ can be lost through exogenous shocks
such as regime changes (Siegel, 2007) and governmental reforms (Henisz and
Delios, 2004). I used regime-change indicator variables to capture presidential
regime changes—Fernando Henrique Cardoso (1995–2002) versus Luiz Inacio
Lula da Silva (2003–2010). The president of Brazil appoints the ANATEL com-
missioners and the minister of communications in Brazil. I included additional
regime-change indicator variables for shifts at the ministerial level. During this
period of the study, there were five ministers of communications in Brazil
(Sergio Motta, Luiz Carlos Mendonc xa de Barros, João Pimenta da Veiga Filho,
Juarez Martinho Quadros do Nascimento, and Miro Teixeira).
Empirical Model
A log-logistic parametric duration-dependence model was specified to both
accommodate the time-varying covariates and account for the liability of adoles-
cence and life-cycle-oriented factors of these new subunit organizations (Carroll
and Huo, 1986; Hannan and Freeman, 1989; Brüderl and Schüssler, 1990). I
confirmed the expected nonmonotonic distribution (i.e., inverted-U shape)
using nonparametric estimates to determine the appropriateness of fit of a log-
logistic form. A time-to-fail event, exit, was predicted by
λρ(λt)ρ1
h(t) =
1 + (λt)ρ
at a given point in time t for every subunit/parent firm observation i. The covari-
ates were parameterized in l so that the functional form fit the expectation that
the covariates positively or negatively affected the baseline survival rate, a con-
venient feature of the accelerated failure time (AFT) models. A concern that
requires attention when using survival models is both left and right censoring.
The majority of subunit entries (more than 80 percent) occurred in the first two
years of market privatization, which alleviated concerns of left censoring. In the
periods prior to this study, the telecom industry was 100 percent state owned
and operated by Telebras. Right censoring is an obstacle in interpreting the out-
come of foreign subunits that are between states of success and failure. The
AFT model specification allows for greater emphasis on predictions of the orga-
nizations’ time to fail beyond the life of this study. It is also worth noting that
counterintuitive to proportional hazard rate models (i.e., Gompertz and Weibull),
AFT coefficient interpretation is consistent with the direction of the sign. That
means a positive and significant coefficient translates into a deceleration in
time to fail with each unit increase; negative coefficients accelerate time to
failure.
RESULTS
Tables 2 and 3 provide descriptive statistics for all variables and a correlation
matrix for variables included in the analysis. On average, MNCs’ prior host-
country regulatory experiences (mean = 9.3) are more proximate to the
Perkins 163
Table 2. Descriptive Statistics
Variable Mean S.D. Min. Max.
Cultural distance (Hofstede, 1980) 1.76 1.14 0.38 5.64

POLCONV distance 0.12 0.06 0.04 0.30
Legal origin distance (LLSV) 1.21 1.44 0.00 3.00
Language distance 2.91 1.16 1.00 5.00
Sales revenues—real (log) 12.68 2.16 4.30 17.11
Market share (%) 2.71 4.71 0.00 26.09
Ownership (%) 0.58 0.31 0.02 1.00
Business group affiliation 0.65 0.48 0.00 1.00
Relative industry size 5.28 6.35 0.01 19.17
Bubble effect 22.95 17.00 1.00 76.00
Geographic region 9.27 3.36 1.00 14.00
Auction—FDI restricted 0.21 0.41 0.00 1.00
Host-country experience 3.52 4.54 0.00 17.00
Internationalization experience 9.10 5.24 0.00 24.00
Skills-based capabilities experience 5.25 4.11 0.00 18.00
Fixed effects—SIC code 4812 0.38 0.49 0.00 1.00
Regulatory distance—home country 11.16 10.15 1.96 34.84
Regulatory distance—host country 9.34 2.94 4.19 20.90
Minimum distance 3.75 2.37 0.00 26.03
Sign regulatory distance 0.56 0.50 0.00 1.00
Regulatory distance (50/50) 10.28 5.91 4.61 26.03
Breadth 2.29 3.20 -3.00 12.35
Depth 0.87 0.63 0.00 2.50
regulatory environment in Brazil than to their home countries (mean = 11.2).

Table 3 reveals multicollinearity issues (indicated by correlations > .80)
between the institutional control variables of culture distance, legal origin dis-
tance, and language distance, at .84, .85, and .83, respectively. This is consis-
tent with the extant literature, which revealed that cultural distance and
language factors are nonorthogonal (Shenkar, 2001). Classic multicollinearity
problems arose, such as erratic coefficient signs and inconsistency in signifi-
cance (Greene, 2000: 256), when these institutional variables were included
together in model 1, table 4a, which summarizes the survival model results.
Using multicollinearity confirmatory techniques, principal component (Greene,
2000: 258) and factor analysis demonstrated that these five institutional mea-
sures all load on one factor. Further multicollinearity tests were used. Variance
inflation factor (VIF) results over 2.5 also suggest problems and that these vari-
ables be eliminated (Allison, 1999). In subsequent models, language distance
and legal origin distance, with VIF scores of 3.4 and 3.3, respectively, were
removed to alleviate concerns of redundancy and multicollinearity.
Model 2 first examines the statistical significance and relevance of institu-
tional-, firm-, industry-, and auction-specific controls. All the included institu-
tional distance variables (i.e., culture distance and political hazards distance)
consistently are associated with an increase in time to failure, which is consis-
tent with the predicted directional effect in the extant literature. Many of the
firm-level, industry-level, and auction controls were not significant, but two
Table 3. Correlation Matrix for Variables Included in the Analysis
Variable 1 2 3 4 5 6 7 8 9 10 11 12
1. Cultural distance
2. POLCONV distance .417
3. Legal origin distance (LLSV) .843 .495
4. Language distance .853 .418 .833
5. Sales revenues—real (log) –.315 –.174 –.309 –.274
6. Market share (%) –.257 –.222 –.256 –.242 .639
7. Ownership (%) –.068 .104 .000 –.121 –.169 –.038
8. Business group affiliation –.729 –.424 –.781 –.616 .274 .184 –.068
9. Relative industry size .696 .392 .697 .595 –.294 –.158 .075 –.793
10. Bubble effect .002 –.012 –.055 –.047 .060 .012 –.082 –.071 .066
11. Geographic region .138 –.001 .152 .134 –.464 –.143 .266 –.147 .220 .216
12. Auction—FDI restricted .052 .365 .023 .012 .120 –.135 –.139 .013 –.051 –.156 –.477
13. Host-country experience –.432 –.323 –.504 –.502 .261 .142 –.093 .418 –.423 .464 –.150 –.046
14. Internationalization experience –.254 –.291 –.198 –.125 .106 .079 .040 .152 .006 .069 .059 –.119
15. Skills-based capabilities –.447 –.280 –.376 –.299 .231 .220 .200 .317 –.185 .059 –.019 –.064
experience
16. Fixed effects—SIC code 4812 –.046 .128 –.127 –.097 .138 –.071 –.064 .069 –.062 .039 –.204 .414
17. Fixed effects—SIC code 4813 –.014 –.131 .079 .023 –.040 .133 .053 –.011 –.002 –.106 .083 –.333
18. Fixed effects—SIC code 4822 .031 –.003 –.014 .035 –.110 –.055 –.133 –.010 .025 .000 –.008 –.050
19. Fixed effects—SIC code 4899 .111 .012 .100 .138 –.155 –.113 .074 –.116 .122 .144 .249 –.130
20. Regulatory distance— .784 .430 .806 .790 –.292 –.208 –.053 –.742 .875 .011 .174 .007
home country
21. Regulatory distance— .551 –.100 .501 .625 –.069 –.090 –.161 –.332 .200 –.021 .057 –.141
host country
22. Minimum distance .504 .331 .486 .522 –.208 –.176 –.147 –.418 .351 .047 .107 .019
23. Sign regulatory distance .428 .220 .671 .552 –.088 –.013 –.054 –.552 .527 –.075 .003 –.066
24. Regulatory distance (50/50) .821 .361 .830 .834 –.285 –.208 –.094 –.746 .824 .020 .178 –.030
25. Breadth –.136 .530 –.180 .091 .067 –.043 .040 .103 –.085 –.023 –.051 .276
26. Depth –.624 –.471 –.580 –.568 .262 .266 .015 .389 –.259 .078 –.080 –.118
Variable 13 14 15 16 17 18 19 20 21 22 23 24 25
13. Host-country experience

14. Internationalization experience .080
15. Skills-based capabilities .278 .692
experience
16. Fixed effects—SIC code 4812 .096 –.080 .038
17. Fixed effects—SIC code 4813 –.040 .086 .007 –.869
18. Fixed effects—SIC code 4822 –.047 .011 –.124 –.076 –.108
19. Fixed effects—SIC code 4899 –.094 –.021 –.042 –.195 –.278 –.024
20. Regulatory distance— –.512 –.084 –.295 –.059 –.019 .008 .158
home country
21. Regulatory distance— –.291 .038 –.189 –.153 .104 .004 .095 .446
host country
22. Minimum distance –.301 –.294 –.344 .025 –.110 .298 .058 .435 .311
23. Sign regulatory distance –.375 –.021 –.074 –.142 .130 –.044 .036 .606 .279 .254
24. Regulatory distance (50/50) –.516 –.078 –.315 –.080 –.004 .052 .154 .972 .601 .557 .596
25. Breadth –.125 .196 .203 .146 –.144 .022 –.007 –.084 –.195 .014 –.194 –.125
26. Depth .321 .726 .704 –.005 .084 –.023 –.158 –.422 –.334 –.459 –.070 –.451 .072
demonstrated relatively consistent significance throughout. Both percentage

ownership and relative industry size in proportion to the home-country telecom-
munications market significantly increase survival times. Though many studies
Perkins 165
Table 4a. Log-Logistic Survival Model (AFT) (N = 779)*
Variable Model 1 Model 2 Model 3 Model 4
Cultural distance 0.137• –0.168•••• –0.146•••• –0.156••••

(0.07) (0.04) (0.04) (0.04)
POLCONV distance –0.141 –1.495•••• –1.299•••• –1.355••••
(0.45) (0.37) (0.39) (0.38)
Legal origin distance (LLSV) –0.106•
(0.06)
Language distance –0.346••••
(0.06)
Sales revenues—real (log) –0.028 –0.027 0
(0.03) (0.02) (0.02)
Market share (%) 0.008 0.005 –0.005
(0.02) (0.02) (0.02)
Ownership (%) 0.447•••• 0.458•••• 0.402••••
(0.09) (0.10) (0.10)
Business group affiliation –0.028 –0.042 –0.029
(0.10) (0.09) (0.10)
Relative industry size 0.002 0.003 0.007
(0.01) (0.01) (0.01)
Bubble effect 0.003 0.002 0.004
(0.00) (0.00) (0.00)
Geographic region –0.003 –0.003 0.007
(0.01) (0.01) (0.01)
Auction—FDI restricted –0.062 –0.076 –0.007
(0.08) (0.08) (0.09)
Host-country experience 0.023• 0.024••
(0.01) (0.01)
Internationalization experience 0.000 0.011
(0.01) (0.01)
Skills-based capabilities experience 0.026•
(0.02)
Log likelihood –49.103 –54.998 –52.937 –45.433
•
p < .10; ••p < .05; •••p < .01; ••••p < .001.
* AFT coefficients, unlike other proportional hazard models, are interpreted as decelerating ( + ) or
accelerating (–) time to fail. Constant terms are not reported. Model 4 includes fixed effects.
have shown firm size is a significant predictor of success, I found that the par-
ent firm’s equity participation in the subunit firm is a more important factor, as
dominant equity owners (percentage ownership) survive longer. The entry
order variable, a proxy for asset bubbles, is consistently positive but insignifi-
cant. This suggests that perhaps later entrants fared better because they
entered after the significant industry overinvestments in acquiring licenses
were made and benefited from industry consolidation.
Model 3 measures the effects of prior foreign investment experience, opera-
tionalized as the number of host-country investments in Brazil, and internationa-
lization experience, the number of prior countries of investment. These
variables reveal some support for the argument that prior experience does pay,
as firms increase their market-specific investment commitment. Model 3
empirically replicates Shaver, Mitchell, and Yeung’s (1997) finding that foreign
entrants into U.S. manufacturing increase the likelihood of survival as the
Table 4b. Log-Logistic Survival Model (AFT) (N = 779)*
Cultural distance –0.136•••• –0.228•••• –0.16•••• –0.176••••

(0.04) (0.06) (0.04) (0.04)
POLCONV distance –1.424•••• –1.763•• –1.619•••• –1.46••••
(0.34) (0.84) (0.34) (0.37)
Sales Revenues—real (log) 0.016 –0.023 0.024 0.009
(0.02) (0.03) (0.02) (0.02)
Market share (%) –0.011 0.038 –0.015 –0.011
(0.01) (0.04) (0.01) (0.01)
Ownership (%) 0.248••• 0.42•••• 0.219••• 0.363••••
(0.08) (0.11) (0.08) (0.10)
Business group affiliation 0.054 –0.101 0.048 –0.028
(0.07) (0.09) (0.07) (0.08)
Relative industry size 0.034•••• 0.012 0.033•••• 0.014••
(0.01) (0.01) (0.01) (0.01)
Bubble effect 0.002 0.002 0.002 0.002
(0.00) (0.00) (0.00) (0.00)
Geographic region –0.003 –0.002 –0.001 0.002
(0.01) (0.01) (0.01) (0.01)
Auction—FDI restricted –0.112 –0.006 –0.15•• –0.071
(0.08) (0.09) (0.08) (0.09)
Host-country experience –0.005 0.021 –0.001 0.016
(0.01) (0.01) (0.01) (0.01)
Internationalization experience –0.012• 0.001 –0.027•••• –0.027•••
(0.01) (0.01) (0.01) (0.01)
Skills-based capabilities experience 0.019 0.002 0.023•• 0.033••
(0.01) (0.01) (0.01) (0.01)
Regulatory distance—home country –0.024••••
(0.00)
Regulatory distance—host country –0.026••
(0.01)
Regulatory distance (50/50) –0.031••••
(0.01)
Minimum distance –0.01••
(0.01)
Log likelihood –29.486 –24.174 –29.015 –43.175
•
p < .10; ••p < .05; •••p < .01; ••••p < .001.
accelerating (–) time to fail. Constant terms are not reported. All models include fixed effects.
number of prior U.S. subsidiaries increases. In the same host context, be it

Brazil or the U.S., prior experience does pay; frequent reinvestment in the
same host country significantly (p = .052) increases survival time. The results
become inconsistent, however, once other experience variables are included.
Model 3 does not provide any supporting evidence that firms with more inter-
nationalization experiences survive longer. Although this relationship is not sig-
nificant in model 3, later models reveal that once other types of experience,
both skills-based and experience-based, are accounted for, then having gone to
more countries significantly accelerates the time to fail. Results of this experi-
ence measure suggest there are learning discounts from adding more coun-
tries to the host-country portfolio. Model 4 reveals significant learning-curve
Perkins 167
Table 4c. Log-Logistic Survival Model (AFT) (N = 779)*
Cultural distance –0.153•••• –0.143•••• –0.132•••• –0.107•••

(0.04) (0.04) (0.04) (0.03)
POLCONV distance –1.659•••• –1.524•••• –1.083••• –1.331••••
(0.39) (0.35) (0.40) (0.34)
Sales revenues—real (log) –0.007 –0.003 –0.006 0.018
(0.02) (0.02) (0.02) (0.02)
Market share (%) –0.005 –0.003 –0.007 –0.012
(0.01) (0.02) (0.02) (0.01)
Ownership (%) 0.362•••• 0.375•••• 0.434•••• 0.202••
(0.09) (0.09) (0.10) (0.08)
Business group affiliation –0.147•• –0.036 –0.093 0.041
(0.07) (0.08) (0.09) (0.06)
Relative industry size 0.015••• 0.009 0.004 0.03••••
(0.01) (0.01) (0.01) (0.01)
Bubble effect 0 0.002 0.001 0.001
(0.00) (0.00) (0.00) (0.00)
Geographic region 0.001 0 0.003 0
(0.01) (0.01) (0.01) (0.01)
Auction—FDI restricted –0.014 –0.071 0.005 –0.147••
(0.08) (0.09) (0.09) (0.07)
Host-country experience 0.027•• 0.02• 0.026•• 0.005
(0.01) (0.01) (0.01) (0.01)
Internationalization experience –0.009 –0.017•• –0.021•• –0.031••••
(0.01) (0.01) (0.01) (0.01)
Skills-based capabilities experience 0.013 0.02 0.016 0.011
(0.01) (0.01) (0.02) (0.01)
Sign regulatory distance –0.443••••
(0.10)
Breadth 0.04••• 0.037••
(0.02) (0.02)
Depth 0.273•• 0.157•
(0.12) (0.08)
Regulatory distance (50/50) –0.027••
(0.01)
Log likelihood –29.788 –40.83 –42.656 –23.424
•
p < .10; ••p < .05; •••p < .01; ••••p < .001.
accelerating (–) time to fail. Constant terms are not reported. All models include fixed effects.
benefits from firms with skills-based experience. Repeat investments using the
same telecommunications technology skills (4-digit SIC code) significantly (p =
.08) decelerate time to fail. This relationship is consistently positive across all
models and becomes increasingly more significant when experience-based
measures are subsequently included. Fixed effects are also included in models
4 to 12 to account for the telecommunications technology used in each subunit
investment.
Institutional experience-based learning effect. Models 5 to 9 in tables 4b

and 4c test hypothesis 1a using the regulatory distance variables. For all five
of the weighted measures, I consistently found that greater distance (less
similarity) in the regulatory institutional environment accelerated the time to
fail. The home country, regulatory distance, and sign of distance were the
most significant, at p < .001. The magnitude of the sign of distance coeffi-
cient (–0.4) is more than tenfold that of the other regulatory distance mea-
sures. This suggests that the most difficult of these learning hurdles is
learning to adapt from a highly regulated environment to a much less regu-
lated environment.
Figure 2 provides strong support for hypothesis 1b. To investigate differ-
ences in failure rates for similarity versus dissimilarity, I stratified the regulatory
distance data categorically based on the mean regulatory distance from Brazil,
holding all other variables constant at their means. Deviation below the mean
was coded (1) for similar experience and (0) for deviation above the mean for
dissimilar experience. The stratified hazard rates reveal intriguing magnitude dif-
ferences. Firms with dissimilar experience are six times more likely to fail (0.6
hazard rate) than firms with similar experience (0.1 hazard rate). Figure 2 sug-
gests that not only does similar experience pay, but the learning penalties from
dissimilar experience have disproportionally greater negative impacts on
performance.
Model 10 in table 4c provides support for hypothesis 2. Breadth of experi-
ence has a positive and significant effect on firm survival. I also conducted fur-
ther hazard-rate stratification analysis to examine whether there are conditions
in which breadth of experience can hinder performance. Similar to the analysis
above, I stratified the breadth variable to create two categories of high (1) and
low (0) breadth split on the mean and further stratified the high/low breadth
observations by the stratified distance measure above, creating four categories
in total. Results, in figure 3, reveal that firms that acquired breadth and had
experience similar to Brazil had the lowest failure rate. This suggests that firms
experience learning penalties when the breadth of experience is not relevant to
Brazil. The implication is that firms are better off having similar experiences and
limited breadth. When irrelevant institutional knowledge is introduced into dis-
similar environments, breadth penalizes performance.
Model 11 confirms hypothesis 3. Depth of prior experience in regulatory
environments matching Brazil across the different dimensions has the most
positive and significant effects on the subunit’s survival of the three hypothe-
sized institutional experience effects. The magnitude of the coefficient is six
times more powerful than breadth in decelerating time to fail. These results are
supportive of the argument that learning-curve benefits can also be achieved
from experience-based capabilities that are derived from recombining learned
routines across institutional environments in highly applicable target host
countries. The full model 12, including all control variables, conventional prior
experience variables (number of prior investments in Brazil and number of
host countries of investment), skills-based experience variables, and explana-
tory variables for hypotheses 1 to 3 (regulatory distance, breadth, and depth),
maintains consistent directional and significance levels of the explanatory
variables. When all the experience types are considered simultaneously in
the full model, the host-country experience and skills-based capabilities expe-
rience variables are not significant in MNCs’ learning curves. This suggests
that repetitive entry with dissimilar intuitional experience negates the bene-
fits of repetition. Model 12 also reveals that positive learning-curve effects
associated with depth are strong enough to negate the negative learning
curve effects of both regulatory distance (b = –.03) and cultural distance
Perkins 169
Figure 2. Stratified hazard rate by similarity.
Log−logistic Regression
.8 .6
Hazard Function
.2 .40
1996 1998 2000 2002 2004

Time
Similar Experience Dissimilar Experience
®
Figure 3. Stratified hazard rate by breadth/similarity.*
Log−logistic Regression
.8 .6
Hazard Function
.2 .4 0
1996 1998 2000 2002 2004

(Time)
High Breadth & Similar Exp. Low Breadth & Similar Exp.
High Breadth & Dissimilar Low Breadth & Dissimilar
®
* Includes all controls and select explanatory variables from model 12.
combined. Among all the models in tables 4a–4c, the two leading explanatory
variables that have the greatest effects on survival are the sign of direction
of regulatory distance, which accelerates failure time by a factor of .44, and
the depth of experience, which decelerates failure time by a factor of .27.
This suggests that the learning gaps created by dissimilar institutional envir-
onments can be overcome to a great extent by recombining related prior
institutional experiences.
Sensitivity Testing, Endogeneity, and Selection Bias

I conducted a sensitivity test using the full model (model 12) to test the fit of
the log-logistic model versus other hazard-rate specifications. The model and
test results are presented in table A12 in the Online Appendix. On the basis of
the log likelihood scores, the log-logistic, Gompertz, and Weibull specifications
produce a similar fit. The results are consistently significant across these model
specifications, though AFT models and non-AFT models have opposite coeffi-
cient signs.
Another empirical concern is the selection bias of observable outcomes. In
the models presented, the empirical limitations assume that the endogeneity
of the firm’s ability to acquire institutional experience is randomly selected.
Previous studies (Zajac and Westphal, 1996; Shaver, 1998), however, have
demonstrated that firms’ strategic choices are not indicative of the random
treatment model specifications; presenting such results can be sorely mislead-
ing when unaccounted-for factors affect the selection process. In this context,
I observed survival of firms based on the similarity of institutional experience
relative to the industry regulations in Brazil. What is unobserved is that in this
industry, the most valuable assets are auctioned by governments and com-
peted for by the most adept MNCs. Therefore there are three types of firms
that could potentially be acquiring institutional experience around the world:
firms that entered Brazil, firms that wanted to enter Brazil (auction bidders) but
did not win a license from the government, and firms that could have entered
Brazil but chose not to. Multinational firms that are highly skilled at winning
these auctions for the newest technologies globally are likely to have greater
access to institutional experiences around the world and are likely to be more
sophisticated in using this knowledge for subsequent investments.
To account for the unobserved variable bias, I used a partial identification
strategy to identify instrumental variables (IVs) that meet the exclusion restric-
tion requirement of being correlated with a firm’s ability to acquire institutional
experience but not significantly correlated with the performance outcome.8
I identified two IVs that met these criteria for a valid instrument: auction wins,
a count variable of firms’ prior successful auction wins globally, and geographic
distance. Auction wins is a time-varying (annual) measure of the frequency of
each firm’s participation in government telecommunications spectrum licenses
that they bid on and won. Only the cases in which firms bested their competi-
tors are counted, as this select set of firms is most successful in competing for
market entry and has overcome market constraints imposed in the government
auction process. In short, the survival of the experienced firms can be observed
only for those firms that were able to navigate their way through the industry
entry barriers. I used geographic distance, a second IV, because of the well-
established relationship with reducing foreign entry (Shenkar, 2001).
8
Ideally, the order condition identification strategy is preferred (Greene, 2000: 670), but I was not
able to identify three distinct IVs for each of the three explanatory variables. I use a partial identifica-
tion strategy and focus on the primary explanatory variable, regulatory similarity.
Perkins 171
Geographic distance could also affect the propensity to invest in certain coun-
tries, which may have an indirect effect on how firms acquire regulatory experi-
ence. To confirm the exclusion restriction requirement (Greene, 2000: 672) of
not being correlated with success/failure, I separately added auction wins and
geographic distance to the probit models in table A13 in the Online Appendix.
Neither was correlated with firm survival.
To address the potential sample selection bias resulting from the heteroge-
neity in firms’ decisions to enter Brazil or not, I used these two valid instru-
ments and the three explanatory variables in the Heckman probit selection
models in table A13 (modified version of Heckman, 1979; adequate techniques
for event-history analysis have not yet been developed) (Boehmke, Morey, and
Shannon, 2006) to test whether the error terms of the two equations were cor-
related (r). To make the coefficients comparable, I replicated model 12 specifi-
cations, fitting a maximum likelihood probit model on the 779 observations
used in the survival analysis, and found similar results to those in model 12. I
constructed three selection models to address all possible unobserved hetero-
geneity concerns. Ideally, selection should include the entire population of mul-
tinational telecom firms that ever won a license that could have entered Brazil
during this period. The first selection model, global entry, examined this entire
population of firms. A more precise approach is to test for selection biases
among the firms that expressed an interest in entering Brazil. This set of firms
was examined in the next model, Brazil entry. The last model used a combined
approach to address both selection and endogeneity identification problems
together. I used a double-selection model (Amemiya, 1985) in which the first
selection equation is conditioned on having regulatory experience or not (0/1
dummy splitting the explanatory variable on the mean), and the second selec-
tion model is conditioned on the decision to enter Brazil or not. I included the
inverse Mill’s ratio from the first selection model in the latter to account for the
endogeneity of regulatory distance. Results across all three selection models
revealed there was no significant selection bias among the entering firms. The
coefficient estimates remain consistent for both the global entry and Brazil
entry models, though the significance of the regulatory distance variable has
weakened in the global entry model. Conditioning the results on both sample
selection and endogeneity only strengthened the magnitude of the coefficients.
Mainly, these selection bias results provide internal validity to the explanatory
power of the hypothesized effects.
Robustness Checks
I conducted 18 separate robustness checks in models 13 to 30; results are
available upon request. Models 13 to 15 tested the institutional control vari-
ables with multicollinearity concerns in lieu of the institutional controls used in
models 2 to 12, including language distance (Grimes, 1992), egalitarianism
(Siegel, Licht, and Schwartz, 2011), and legal origin distance (La Porta et al.,
1998).9 I also tested whether the results are robust during presidential and min-
isterial regime changes (Siegel, 2007) in models 16 and 17. The disaggregated
9
Egalitarianism measures were converted into Euclidian distance scores. Data sources included
Schwartz (1994) and table 1 of Siegel, Licht, and Schwartz (2011) for missing country data.
Germany was used as a proxy for Luxembourg.
Hofstede (1980) cultural distance composite measure was included as the four
dimensions of culture—PDI, IDV, MAS, and UAI—separately (Kogut and Singh,
1988; Shenkar, 2001) in models 18 to 22. Robustness checks in models 23 to
27 provided additional firm-level performance measures, including the number
of subscribers, purchase price, ARPU (average revenue per user), and number
of employees (alternative proxy for firm size). A robustness check in model 28
tested the first entry-year observations only. Two final robustness checks in
models 29 and 30 tested alternative measurements of regulatory distance
including Euclidian distance and standardized regulatory scores found in Online
Appendix F. Results revealed that the regulatory distance variable remains con-
sistently significant (p < .001) in all robustness checks except model 28 (first
entry-year observations). The breadth variable was significant across all robust-
ness checks except in model 14 (legal origins) and model 28. Similarly, the
depth variable was significant in all robustness checks except in models 14
(legal origins), 15 (egalitarianism), and 28. Alternative measurements in models
29 and 30 also produced similar coefficient estimates and significance levels.
Model 31, the final robustness check, examined the results including an eco-
nomic distance measure from Online Appendix F. These 18 robustness checks
indicate mostly consistent and repetitive support for the explanatory variables.
Moreover, the results from the robustness check in model 25 are consistent
with the egalitarian distance measure used in Siegel, Licht, and Schwartz
(2011); Hofstede’s (1980) uncertainty avoidance (UAI) index (used by Kogut and
Singh, 1988) was tested in model 21 and was consistently negative but not
significant.
DISCUSSION AND CONCLUSIONS

This paper addresses a fundamental and necessary question in organizational
learning: When does prior experience pay? Organizational learning theorists
(Dutton, Thomas, and Butler, 1984; Epple, Argote, and Murphy, 1996; Pisano,
Bohmer, and Edmondson, 2001) and international business scholars (Li, 1995;
Barkema, Bell, and Pennings, 1996; Shaver, Mitchell, and Yeung, 1997) have
demonstrated learning-curve effects in several studies, primarily when the envi-
ronmental context was relatively homogeneous (i.e., same plant location or
same host country of investment). This study reveals that when the learning
context, namely, the institutional environment, is unaccounted for, firms experi-
ence an accelerated path to exiting the market. This study provides clear evi-
dence that prior experience pays most consistently when the institutional
environment is similar.
This paper advances experience-based learning theory by demonstrating that
the environmental context is integral to the organizational learning process. The
core contribution to both the organizational learning and international business
literatures is that similar contextual factors are critical to learning outcomes.
Experience that lacks relevance is most harmful to an organization’s perfor-
mance. This also suggests that firms can benefit strategically by learning from
contextual environments and using that knowledge in seemingly unrelated sub-
sequent investments. This study provides a unique empirical methodology to
examine the types of institutional experience organizations acquired by using
specific dimensional measures of industry regulation that vary across host
nations. A Mahalanobis distance measure was used to capture the gap in each
Perkins 173
firm’s prior regulatory experiences across 80 host countries to determine the

level of applicable knowledge possessed when entering Brazil. Similar metho-
dological approaches to capturing contextual variation may be beneficial to
future organizational learning and internationalization studies.
The above findings provide evidence of the trade-offs between breadth of
institutional experience versus depth of knowledge (i.e., repetition). Variation in
types of experience is a more significant indicator of learning in more-complex
environments (e.g., idiosyncratic institutional environments, highly variant regu-
latory environments) than the frequency of repetition of investment in the tar-
geted host country or the frequency of investing abroad. Breadth also has a
greater impact when the organization has prior experience relevant to the envi-
ronmental context. Without experiential relevance, breadth is associated with
learning discounts. These results provide more clarity on the trade-offs
between repetition-based learning versus contextual learning.
This study also introduces the learning concept of experience-based capabil-
ities, which firms acquire from gaining competencies in a specific type of insti-
tutional experience. Firms’ depth of experience, when recombined in relevant
contextual environments, is associated with performance gains. This finding
provides support for the position that experience-based learning-curve effects
can also be achieved across heterogeneous institutional environments. Firms
achieve this learning benefit by strategically deploying recombined experience-
based capabilities that replicate the targeted learning environment. Future
research in this direction could explore more-fine-grained measures of depth of
knowledge based on the duration and frequency of investments in each
sequential host-country environment.
Another contribution to organizational learning theory is identification of the
conditions under which learning discounts might occur. The demonstrated
effects of inappropriately applied prior experience that is not relevant to the tar-
geted context not only hurt performance, but the associated losses are often
greater than the benefits derived from having relevant prior experience.
Inappropriate knowledge applied from dissimilar experiences increases the risk
of failure because managers grossly overestimate performance outcomes and
inflate expectations. Such managerial overconfidence often results in a pattern
of underperformance. This learning hurdle potentially leaves investment man-
agers more risk averse in subsequent investments. The unlearned manager
assumes the lack of success is the consequence of exogenous market factors
when, in fact, the poor performance is largely a result of the manager’s ineffi-
cient decision making. The inability of organizations to adapt to select institu-
tional environments is perhaps indicative of learning competence traps (Levitt
and March, 1988; Levinthal and March, 1993) arising from selected and inher-
ited knowledge. Myopic managerial thinking potentially prohibits adaptation to
dissimilar institutional environments. This point is best illustrated by a telecom
executive I interviewed who described the decision-making myopia of his peer:
‘‘These guys think they have seen everything. They find a solution that worked
in the U.S. and try to use it in Brazil. The problem is, this is not Indiana!’’
This paper also provides a foundation for a more critical review of internatio-
nalization theory (Johanson and Vahlne, 1977) by distinguishing the role of
market-specific knowledge acquired within countries versus across countries.
The analysis presented suggests that learning across countries can be more
complex than previously theorized. The evidence that higher frequencies of
investment are associated with learning discounts when other similarities are
accounted for is another indication of dissimilar experience as a learning hin-
drance. These finding are counter to the theoretical predictions of Johanson
and Vahlne (1977), who also argued that benefits of reduced market uncer-
tainty should also be derived from investments across successive new coun-
tries. These results suggest that adding country-level experiences that neither
have regulatory similarity nor exploit skills-based capabilities of the firm are tax-
ing to subsequent foreign investments. Perhaps this refinement to the existing
theoretical view is needed. Future studies should take into account the learning
discount when knowledge that may not be relevant to the targeted institutional
environment is transferred across countries.
In exploring types of experience, this study provides a framework to identify
the unique and inimitable regulatory experiences that firms gain from idiosyn-
cratic patterns of sequential foreign investments. One future extension of
this research could explore how such knowledge can be leveraged as a
source of competitive advantage. The challenge for organizations is to recog-
nize the similarities that subunit organizations can experience across key
institutional dimensions and that can subsequently be retrieved in related
knowledge situations. The informed investment manager is able to select
investments that appear to be risky to the inexperienced by deploying unique
institutional knowledge based on related country characteristics (Davidson,
1980). These investment benefits may appear intuitive; however, interviews
with 30 telecommunications executives conducted for this study revealed
that many foreign investment managers do not make such underlying con-
nections and are more frequently blindsided by institutional differences.
Perhaps the heterogeneity in organizations’ regulatory experience provides a
plausible explanation for the unresolved variation in organizational learning
rates. The learning-curve differences among industry competitors could
result from the sequence and frequency of types of experience acquired
across learning environments. Organizations with investment patterns that
reduce the knowledge gaps across investments are likely to learn at a faster
rate than firms with fewer synergies.
This study also presents another key distinction in the variation in institu-
tional environments between countries. The six dimensions of the telecom reg-
ulatory framework explored in this study can be generalized to other regulatory
contexts, including energy, mining, and other utilities, pharmaceutical patent
protection and drug content regulations, state and local health care regulations,
and the banking industry. Subsequent studies assessing cross-country compari-
sons should include such regulatory dimensions in the same tradition as more-
established institutional measures such as culture.
Limitations and future research. Generalizations from this study may be

more limited when considering the level of foreign direct investment (FDI) that
is permitted in host-country industries. This varies greatly across both devel-
oped and developing countries in the telecommunications industry (i.e., Canada
requires 80 percent domestic ownership in telecom firms, whereas Croatia
requires none). In the case of Brazil, telecommunications FDI was restricted
only in the first privatization auction; therefore the dominating foreign
Perkins 175
ownership in this industry is perhaps more representative of host countries that

do not restrict foreign ownership.
Another plausible future extension of this research could explore the unspe-
cified relationship between organizational learning and institutional theory.
Behavioral scholars most frequently view these theories as independent.
Perhaps a profound relationship exists between the two. Consider that MNCs’
learning proactively engages the knowledge retrieval processes that inform
subsequent subunit investments. This logic implies that organizations are
enacting their role in the environment. On the contrary, new institutional theory
suggests that firms engage in isomorphic behavior to maintain legitimacy
(DiMaggio and Powell, 1983). Perhaps MNCs’ investments in host-country
institutional environments mimetic to those of industry peers, but exhibiting
preponderant patterns of failure, may suggest these firms are not learning but
are basing strategic decision making on isomorphic pressures of conformity
and maintaining the status quo. Attempts to ease the uncertainty and maintain
legitimacy could potentially lead to foreseeable failures as the institutional con-
text changes. The paradox of the widely held assumptions of the two theoreti-
cal perspectives gives rise to questioning the trade-offs between them.
There are a few measurement critiques that should be addressed in subse-
quent studies of this kind. Because the experimental design is limited to exam-
ining the effects of prior experience in a single country and industry, further
analysis including a broader scope of countries and industries would increase
the generalizability. Similarly, prior regulatory experience is based on a cross-
section of industry regulation codified at the beginning of the study, which does
not take into account the institutional shifts that occurred over time. Future
extensions should include temporal changes and continuous measures of expe-
rience (e.g., time, commitment in host country). Additional studies on learning
could examine the organization’s performance in each country throughout the
internationalization process. A more complete analysis of the sequential invest-
ment patterns of successes and failures would more meaningfully explain the
heterogeneity in learning rates of firms.
This study marks only the beginning of a research path that focuses on the
intersection of how organizations learn from the institutional environment and
heterogeneity in the global marketplace. More important than the specific con-
tributions and future research extensions to the research field discussed above
is that this paper bridges the interdisciplinary gaps between the international
business and organization learning and organization theory literatures to provide
insights that advance our understanding across these fields.
Acknowledgments
I especially thank Bernard Yeung, Rachelle Sampson, Juan Alcacer, Goncxalo Pacheco de
Almeida, Jeffrey Robinson, Edward Zajac, William Ocasio, Paul Hirsch, Klaus Weber,
and Ray Reagans for their helpful suggestions. I also thank participants at the Academy
of Management 2005 Annual Meeting, the Strategic Management Society Annual
Conference in 2004, the Academy of International Business Annual Conference in 2004,
and seminar participants at Kellogg School of Management, University of Michigan,
Columbia Business School, Duke University, Ohio State University, University of
Minnesota, University of Maryland, Georgetown University, University of Southern
California, INSEAD, Rutgers Business School, Texas A&M University, University of
Illinois, NYU Stern School of Business Management and Organizations Department
Brown Bag Seminar, NYU Stern Global Business Institute Cross-Disciplinary Strategy
Seminar, and CCC Colloquium for Doctoral Student Research for their valuable feedback
on an earlier version of this paper. I also acknowledge NYU Stern School of Business for
financial support and am grateful to Sergio Lazzarini, of Insper, São Paulo, for providing
the opportunity and support to conduct field research in Brazil. All errors and omissions
remain my responsibility.
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Author’s Biography
Susan E. Perkins is an assistant professor in the Management and Organizations
Department and the International Business and Markets Program at the Kellogg School
of Management, Northwestern University, 2001 Sheridan Rd., Evanston, IL 60208
(e-mail: s-perkins@kellogg.northwestern.edu). Her research examines how institutional
variations between nations potentially create investment risk factors for multinational
corporations. Her research focuses on the international business implications of industry
regulation, corporate governance and ownership structure, experiential learning, and
firm-level non-market strategy. She holds an M.B.A., Master’s of Philosophy, and Ph.D.
in international business strategy from the Stern School of Business, New York
University.

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Administrative Science Quarterly

Institutional DOI: 10.1177/0001839214523603

Experience and the

Keywords: Institutional experience, regulation, organizational learning, learning

International business scholars have long been interested in understanding the

learning and is considered a liability of foreignness (Zaheer, 1995), and there-

demonstrated that learning-curve effects appear as MNCs increase their invest-

PRIOR EXPERIENCE AND THE MNC LEARNING CURVE

demonstrate that MNCs learn from host-country institutional environments

Hypothesis 1a: Multinational firms with prior experience in institutional environments

Learning from Breadth of Institutional Experience

Hypothesis 2: Possessing a greater breadth of institutional experiences has a posi-

experience in a host-country environment and their ability to recombine it

Hypothesis 3: MNCs that have redundant (in-depth) institutional knowledge in prior

Table 1. Frequency of Foreign Investments from 18 Home Countries

Home country Frequency Percent Cum. %

Argentina 21 2.7 2.7

known for an exceedingly difficult institutional landscape to navigate because

Regulatory distance. A distinct challenge of this research was to develop

industry regulation is a function of six institutional dimensions that explained 78

Online Appendix D presents regulatory dimensional scores for all 80 countries.

where i = 1, 2, ., k and k is the number of firms, j = 1, 2, ., n and n is the

Figure 1. Mahalanobis distance of regulation.

Regulatory Regulatory Stability

Home-country effects. A multinational’s home-country experiences repre-

Host-country effects. Firms’ decisions to enter a country are largely based

Combined experience effects. An MNC’s intraorganizational knowledge

Breadth. Breadth of experience measures the amount of dispersion accord-

breadth is preferable to a standard variance term for isolating the range of

where d represents the dispersion of host-country regulatory experiences, and

Depth. To test hypothesis 3, I developed a depth measure of the frequency

Skills-based capabilities. In the telecom industry, network operators’ (e.g.,

Skills-based prior experience. Like prior internationalization experiences, I

Institutional controls. Similar to Siegel, Licht, and Schwartz (2011), I

Firm controls. Firm size is a time-varying covariate based on annual sales

Auction and industry controls. A variable geographic region was con-

Robustness. For robustness, I disaggregated Hofstede’s (1980) dimensions

(IBM) (Shenkar, 2001). Alternatively, I used Schwartz’s (1994) one-dimensional

Table 2. Descriptive Statistics

Variable Mean S.D. Min. Max.

Cultural distance (Hofstede, 1980) 1.76 1.14 0.38 5.64

regulatory environment in Brazil than to their home countries (mean = 11.2).

Table 3. Correlation Matrix for Variables Included in the Analysis

13. Host-country experience

demonstrated relatively consistent significance throughout. Both percentage

Table 4a. Log-Logistic Survival Model (AFT) (N = 779)*

Variable Model 1 Model 2 Model 3 Model 4

Cultural distance 0.137• –0.168•••• –0.146•••• –0.156••••

Table 4b. Log-Logistic Survival Model (AFT) (N = 779)*

Variable Model 5 Model 6 Model 7 Model 8

Cultural distance –0.136•••• –0.228•••• –0.16•••• –0.176••••

number of prior U.S. subsidiaries increases. In the same host context, be it

Table 4c. Log-Logistic Survival Model (AFT) (N = 779)*

Variable Model 9 Model 10 Model 11 Model 12

Cultural distance –0.153•••• –0.143•••• –0.132•••• –0.107•••

Institutional experience-based learning effect. Models 5 to 9 in tables 4b

Figure 2. Stratified hazard rate by similarity.

1996 1998 2000 2002 2004

Figure 3. Stratified hazard rate by breadth/similarity.*

1996 1998 2000 2002 2004

Sensitivity Testing, Endogeneity, and Selection Bias

DISCUSSION AND CONCLUSIONS

firm’s prior regulatory experiences across 80 host countries to determine the

Limitations and future research. Generalizations from this study may be