Overcoming Cultural Ignorance Institutional Knowledge Development in the Internationalizing Firm

Abstract: This thesis studies how experiences influence the development of institutional knowledge within business relationships. It contributes to international business research by clarifying how experience develops the institutional knowledge of firms and what outcome such knowledge development has on firms’ internationalizations. The thesis identifies a need to distinguish between different types of experiences when investigating institutional knowledge development. In addition, the thesis compares different types of knowledge with institutional knowledge as to understand how firms learn to overcome cultural ignorance.The empirical setting consists of quantitative research of small- and medium sized firms. The findings show that market-specific experiences increases a firm’s institutional knowledge whereas experiences of multiple markets contribute to the firm’s perception of a greater need of institutional knowledge when conducting business with their specific partner. However, these experience effects are influenced by firms’ mode of operation (export vs. subsidiaries) in the international markets and mediated by cultural distance. Furthermore, the results show that despite the increased complexity that experiences of multiple markets lead to, such experiences increase a firm’s competence in foreign institutional environments. In addition, the findings show that firms lacking in ability to adapt their business also perceives a lack of knowledge about a country’s institutions and the customer.