Entrepreneurship in Russia and China: The Impact of Formal Institutional Voids

Abstract

Transition economies are often characterized by underdeveloped formal institutions, often resulting in an unstable environment and creating a void usually filled by informal ones. Entrepreneurs in transition environments thus face more uncertainty and risk than those in more developed economies. This article examines the relationship of institutions and entrepreneurship in Russia and China in the context of institutional theory by analyzing private property as a formal institution, as well as trust and blat/guanxi as informal institutions. This article thus contributes to the literature on entrepreneurship and institutional theory by focusing on these topics in transition economies, and by emphasizing how their relationship differs from that in developed economies. We conclude that full convergence toward entrepreneurs' reliance on formal institutions may not readily occur in countries like Russia and China due to the embeddedness of informal institutions. Instead, such countries and their entrepreneurs may develop unique balances between informal and formal institutions that better fit their circumstances. Implications for the theory and practice of entrepreneurship in such environments are also offered. Russian and Chinese Entrepreneurship in an Institutional ContextEntrepreneurship is critical for the economic development of Russia and China as they transition from central planning and large state-owned enterprises, although China continues to support many of those favored enterprises, as does Russia in strategic sectors like energy. This article analyzes how the void of formal institutions in transition economies affects the relationship between entrepreneurship and institutions, and how the relationship differs from that in developed economies. It focuses on the environmental context and the void of formal institutions, like the security of private property rights, and explains how traditions and informal institutions, specifically trust and blat/guanxi, have filled that void. Such a contrast can make a significant contribution to the literature by examining the specific context of transition economies, since entrepreneurship is recognized as "a context-dependent social process through which individuals and teams create wealth by Please send correspondence to: Sheila

Suboptimal Size: Factors Preventing the Growth of Russian Small and Medium-Sized Enterprises

“…The entrepreneurial dynamism, which is fundamental to innovation and growth according to the endogenous growth theory [Aghion, Howitt, 1997], simply has not yet been achieved in Russia. Small businesses remain too small and lack the sufficient scale to be truly competitive [Estrin et al, 2006;Peng, 2001;Puffer et al, 2010]. Furthermore, in 2012-2014 the share of players who had no growth aspirations, i.e., those did not plan to create jobs, increased significantly.…”

Theoretical Foundations

“…3 The boundaries of the relevant organizational fields may be defined in many different ways. In emerging economies, such organizational fields may pertain to peer groups of firms in similar types of ownership, such as SOEs (Bruton et al, 2015, Filatotchev et al, 2000, business groups (Estrin, Poukliakova, & Shapiro, 2009c;Khanna & Yafeh, 2007), and entrepreneurial start-ups (Aidis et al 2008;Obloj, Obloj, & Pratt, 2010;Peng, 2001;Puffer et al, 2010). Other scholars have focused on network relationships as the critical linkages between organizations (Batjargal, 2007;Musteen, Datta, & Francis, 2014;Prashantham & Dhanaraj, 2010;Sun et al, 2012), which suggests that a firm's network may represent its relevant organizational field.…”

“…Most large incumbent firms were in state ownership and going through a process of privatization (Filatotchev et al, 2000;Megginson & Netter, 2001;Meyer, 2002), while structures of corporate governance were often ill defined and in flux (Djankov & Murrel, 2002;Estrin, 2002). Private start-ups often benefited from the resourcefulness of their entrepreneurs, but initially remained small and lacked scale to compete (Estrin, Meyer, & Bytchkova, 2006;Peng, 2001;Puffer, McCarthy, & Boisot, 2010).…”

“…Thus, entrepreneurs may use informal practices (Puffer et al, 2010), mature businesses may form business groups (Estrin et al, 2009c;Khanna & Yafeh, 2007), and foreign investors may partner with local firms (Brouthers, 2002;Brouthers & Brouthers, 2001;Meyer et al, 2009;Steensma & Lyles, 2000).…”

Foundations of Responsible Leadership: Asian Versus Western Executive Responsibility Orientations Toward Key Stakeholders

“…Similarly, bribery and corruption scandals in China and India have undermined their economic and political stability. The weak legitimacy of formal institutions and attendant institutional voids in emerging-market environments have also been recognized (Khanna and Palepu 1997;Puffer et al 2010).…”