How do Chinese enterprises’ operations in the domestic market (domestic cycle) affect their performance in the international market (international cycle)? This issue is of great practical significance under the new development pattern with the major domestic cycle as the main body and the double domestic and international cycles promoting each other. Based on organizational learning perspective and revised resource-based view, this paper proposes a “institutional learning - capability building - performance outcome” of the two-stage theory framework and argue that as a form of firm-institutions interaction, domestic geographical diversity helps to promote enterprise learning of institutional knowledge to build institutional capacity, and the role with the increase of distance between parent-subsidiary institution and strengthened. However, institutional capacity built in the domestic market does not always improve the firm performance in the foreign market, there is an inverted U-shaped relationship between the two, which rises and then falls, and the inverted U-shaped relationship becomes more prominent with the increase of the institutional distance between the home country and the host country. Empirical evidence from Chinese private listed MNCs in the past 17 years (2006-2022) supports the above argument. Heterogeneity analysis further shows that the above findings exist only in policy-supported industries, manufacturing industry and non-coastal economically developed regions. This study makes important theoretical contributions to the construction and utilization of Chinese firm-specific advantages, and also provide theoretical support and empirical evidence for the national policy of accelerating the construction of a unified national market at the micro level.