Strategic choices and innovation in a turbulent institutional environment: Russian firms in transition

Emerging economies often experience rapid and discontinuous shifts in their institutional environments. Amongst the BRIC economies, Russia in particular underwent the most radical and unprecedented institutional changes. In the academic realm, there has been much interest about how organisations adapt to institutional changes when a command and control economy is suddenly replaced by a liberalised laissez-faire market system, and again to state-guided market system. Despite recent contributions in the literature that aim to uncover this phenomenon, the need for a better understanding on how institutional changes affect strategic choices and innovativeness of firms in a co-evolutionary context has become increasingly apparent. Through the lens of institutional political economy, this thesis contributes to the broader literature on this topic. It provides a detailed three part account of the Russian transition and a taxonomy of strategic choices by Russian firms in a co-evolutionary backdrop. It uncovers the impact of serial institutional change on strategic choices of Russian entrepreneurial enterprises insofar as how they make decisions to innovate and upgrade during low versus higher levels of institutionalisation. It depicts three major sense-making strategies used by selected Russian firms during the shock therapy years and later during the two phases of transition in the state-led industrialization era. Whereas political connections bestow legitimacy on entrepreneurs operations during low levels of institutionalisation, higher levels of institutionalisation lead to attenuation of political connections between business and policymakers. With further institutional strengthening, political connections are eventually replaced by more formalised interactions between strategic firms and the state often managed by industry associations. Finally, the study proposes and tests hypotheses that predict how a shift from a weak to a strong institutional context is likely to affect innovation strategies of emerging economy firms. It generalizes the findings from case studies using multi-level econometric analysis of 282 Russian listed firms. Strategic choices of Russian firms towards investing in human capital, intangible assets and vertical integration during the two dichotomous transition periods are identified. The findings support and extend the previous case study results that Russian firms significantly raise their innovation-related investments during institutional strengthening