The Impact of Vicarious Experience on Foreign Location Strategy |
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| Institution: | 1. Dalhousie University, Rowe School of Business, 6100 University Avenue, Halifax, Nova Scotia B3H 4R2, Canada;2. Western University, Ivey Business School, 1255 Western Road, London, Ontario N6G 0N1, Canada;1. Asia Pacific, Pearson Education Asia Limited, 20/F, Cornwall House, Taikoo Place, 979 King''s Road, Quarry Bay, Hong Kong;2. School of Business Administration, University of Houston—Victoria, 14000 University Boulevard, Sugar Land, TX 77479, USA;3. College of Business Administration, King Saud University, Riyadh, Saudi Arabia;4. Sheldon B. Lubar School of Business, University of Wisconsin-Milwaukee, USA;1. University of Houston-Victoria, School of Business, 340 Brazos Hall, 14000 University Blvd., Sugar Land, TX 77479, United States;2. Old Dominion University, United States;3. Savannah State University, United States |
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| Abstract: | MNEs can learn from the foreign investment experiences of other firms when evaluating their own foreign entry strategies. We argue that other firms' experiences reduce investment barriers arising from formal and informal institutional environments in host countries that are dissimilar from an MNE's home country, thereby encouraging new entry. Our empirical analysis of foreign entries by Japanese public manufacturing firms over more than a thirty-year period indicates that the prior experiences of other firms in a host country mitigate the negative effect of formal and informal institutional distance on entry decisions: as other firms' experiences in a host country increase, a firm is less deterred by greater institutional distance from entering the country. We also find that the distance-mitigating effect of other firms' experiences in different industries is less significant when a larger body of same-industry firm experience exists in a country, implying a substitution effect between different types of vicarious experience. |
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