Firms develop dynamic capabilities to adapt their ordinary capabilities when the context in which they compete changes. Besides change in its current context, firms can experience change by expanding to new contexts that differ from their current one along various dimensions. By adapting to these differences, firms also develop dynamic capabilities. We expect that the more a firm expands to new contexts and the more different the new environments, the more dynamic capabilities the firm develops along the dimensions of differences. And for future expansion, when a firm’s dynamic capabilities are more applicable to the differences that the firm needs to bridge between its current and potential new contexts, the more readily the firm can adapt its ordinary capabilities, which makes expanding to such contexts more likely. Around this baseline relationship, we expect different context dimensions and firm traits to have heterogeneous effects. We test our expectations using 2,577 firms’ 26,766 international expansion from 43 origin countries to 110 destination countries, focusing on social and economic dimensions of differences across countries. We find that greater applicability of a firm’s dynamic capabilities to a new country’s social and economic dimensions increases the likelihood that the firm expands to that country. Additionally, that applicability of a firm’s social dynamic capabilities is of greater importance for marketing intensive firms.
