Siah Hwee Ang: Experience still the best key to Asia

Direct exposure to a market has the strongest impact. Photo / Bloomberg

There are ways to learn without going in cold.

Experience matters in any form of engagement. When it comes to doing business in Asia, it is hard to argue against the value of experience in Asia and with Asian organisations or people.

However, international experience doesn't usually come cheap and the stakes are high, especially for organisations taking their first steps in Asian markets.

Are there any ways to gain experience without having to take the drastic step of going in cold to a foreign country? Sounds impossible - but maybe not.

It is crucial to understand the definition of organisational experience before there can be any meaningful discussion about its impact. This can include an organisation's prior experience with a particular strategy - for example, experience with any acquisition, with international acquisitions only, or with international acquisitions in a particular host country of interest.

Organisational experience can also be accessed indirectly through observing what home country competitors are doing in the host country of interest and how acquisitions are organised there. Further, experience can be gained through director interlocks, where an organisation's directors or senior-level managers sit on the boards of other organisations that have direct experience in acquisitions.

So, what do we know about the impact of organisational experience? The general conclusion is that direct experience has stronger effects on outcomes than indirect experience. So, specific experience, such as prior involvement with international acquisition in the host country of interest, will always have a stronger impact than acquisition experience in another country.

Below are a few lessons that are worth noting.

Research shows that relatively inexperienced acquirers, after making their first acquisition, often try to replicate that experience in subsequent acquisitions, leading to poor outcomes.

Also, while generic experience with alliances adds value to an organisation while it is learning about strategy, constantly allying with a specific partner isn't always beneficial. This is because over time it can limit an organisation's scope in engaging and building capability for managing alliances.

In comparison, our understanding of the impact of indirect experience on strategic outcomes is in its infancy. Broadly speaking, indirect experience has resulted in the adoption of similar strategies, as organisations substitute others' experience for their own. This so-called "imitation effect" works in some situations but not in others. It can be argued that following others will help establish legitimacy in a foreign market to start with.

Indirect experience also provides the option of not engaging in particular forms of strategy, depending on what other organisations are doing in the host country of interest and how they are doing it. Where does this leave us?

Experience tends to positively moderate the outcomes of international investments. And given that even bad experiences can count as much as good ones, if not more so, experience will always deliver value.

Experience does come with a couple of caveats. First, quality and relevance of experiences matters as much as quantity. To this end, quality is not restricted only to positive experiences. Second, be sure to continue exploring alternatives rather than solely relying on experience, so no opportunities are missed.

Nonetheless, every organisation should seek to have a process for drawing upon various forms of experience, in particular ensuring the experience of individuals is shared across the organisation. Useful experiences should be documented as widely as possible for organisational learning. For Asian markets that tend to be volatile, this learning process should be earnestly fostered.

Professor Siah Hwee Ang is BNZ Chair in Business in Asia, at Victoria University of Wellington.