Focusing on the cognitive process of managerial decision making, we argue that both organizational and personal international experiences contribute to managerial knowledge structure which in turn influences firms' foreign direct investment decisions. Given the decision task context of late-comer Asian firms, the two types of experiences can lead to decision outcomes that compete for limited decision making resources, and therefore their interaction effect is expected to be negative. Based on a sample of 164 Chinese electronic manufacturing firms over an eight-year period (2001–2008), we found substantial support for our hypotheses. While both organizational and personal international experiences increase the foreign direct investment propensity of a firm, these experiences also weaken each other's effects.
Recent years see a phenomenal growth of foreign direct investment (FDI) by firms from Asian emerging economies (EEs) (Buckley et al., 2007 and Jormanainen and Koveshnikov, 2012). Unlike their developed country counterparts, being “later-comers” (Bartlett & Ghoshal, 2000) to the global market, these Asian firms face dual competitive pressures for short-term survival and long-term sustainable growth (Rui and Yip, 2008 and Yamakawa et al., 2008). The weak market institutions in these emerging economies also impose constraints on firms' strategic behaviors and their access to critical resources (Cui and Jiang, 2012 and Peng et al., 2008). When making FDI decisions, these dual competitive pressures and institutional constraints result in increased decision task urgency and reduced decision making resources, which have consequences on firms' utilization of experiential knowledge. While such consequences can potentially explain the special characteristics in EE firms' internationalization that deviate from conventional theoretical prediction, they have, however, not been systemically studied in the literature.
The existent literature highlights two perspectives of experiential drivers of FDI. An organizational perspective recognizes firm's prior foreign market experience as a key driver of firm's entry and increasing commitment in foreign markets (Johanson and Vahlne, 2009 and Peng, 2001). An upper-echelon perspective focuses on the firm's managerial resources and experience that support its growth in international markets (Daily et al., 2000 and Reuber and Fischer, 1997). The literature however lacks an integrative framework to examine the simultaneous and interactive effect of both types of experiential drivers. The existent literature are also mainly validated in a developed country context, which does not take into consideration the special decision-making context faced by Asian emerging economy firms. To fill these research gaps and to better understand the internationalization process of Asian firms who are facing decision task urgency and limitations of decision making resources, this study adopts a managerial cognition perspective to examine the roles that organizational and managerial international experience play in firms' FDI decision makings, both independently and interactively.
A managerial cognition perspective focuses on the role of experiential knowledge in the decision making process (Nadkarni et al., 2011, Stubbart, 1989 and Walsh, 1995). Based on this perspective, organizational practice and managerial personal experience can both contribute to the formation of a knowledge structure that guides the information processing and analysis by managers during FDI decision-making. Organizational international experience is embedded in the organizational structure, resources, and path of internationalization, which supports a path-dependent decision outcome. Managerial international experience, on the other hand, can be obtained from diverse international activities of top managers which are unrelated to the focal firm, and therefore supports an adaptive decision outcome. Both organizational and managerial international experience can enhance a firm's ability to process foreign market information and, as a result, increase its propensity to conduct FDI. However, given the constrains related to decision task urgency and decision resource limitations faced by EE firms, the path-dependent and adaptive decision making mechanisms are likely to compete for limited managerial attention and decision-making resources, and thus weaken the effects of each other (Bogner and Barr, 2000, Lurigio and Carroll, 1985 and Nadkarni et al., 2011).
This study uses the Chinese context as its empirical ground. Being the leading emerging economy in Asia and the world, the Chinese context provides a variety of firms with different levels of international experience. Managers in these firms are also of diverse backgrounds, ranging from former government bureaucrats to local entrepreneurs and overseas returnees, all with different levels of international exposure. Such large variations in organizational and managerial international experience provide an ideal empirical setting for this study. Using longitudinal data covering a period of rapid growth of Chinese outward FDI (2001–2008), this study examines the effects of firms' experiential drivers using an event history analytical method.
Do organizational and managerial international experiences reinforce or weaken each other's effect in firms' internationalization decisions? The answer is likely to be dependent on the decision making context that influences the cognitive processes of firm decision makers. Late-comer Asian firms face dual competitive pressures to accelerate their internationalization while suffering from lack of supporting resources. As a result, decision makers with bounded rationality are likely to choose a mental model and to base his/her decision on the type of prior experience most relevant to the chosen model, which effectively downplays the role of other types of experience. Using a managerial cognition perspective to examine the simultaneous and interactive effect of organizational and managerial international experiences, this study finds that while both types of experiences independently increase the propensity of a firm conducting FDI, they weaken rather than reinforce each other's effects in interaction. This study contributes to both the internationalization and managerial cognition literatures. Notwithstanding its limitations, this study sets a theoretical pathway along with several future research directions for researchers to deepen the investigation into potential synergies between international business and managerial cognition researches streams.
