How do the source and context of experiential knowledge affect firms’ degree of internationalization?

Although received research emphasizes direct experiential knowledge as a key driver of firms’ internationalization, the role of indirect experience has been increasingly recognized in recent studies. In this paper, we extend these studies by examining the role of source and context of experiential knowledge in relation to firms’ internationalization into specific host markets, and offer a fine-grained analysis of when and how indirect experience complement or substitute direct experience. We test our hypotheses with data from 1,478 Swedish SMEs. Our results reveal that a firm can address its knowledge gaps and increase its extent of internationalization into a host market by combining direct and indirect experience, especially when they yield different types of knowledge needed for internationalization. We further show that direct and indirect experience derived from comparable contexts could substitute for each other but may also create knowledge redundancies.