Political connections and strategic choices of emerging market firms

Abstract

Purpose The purpose of this paper is to investigate the importance of political connections in the emerging market context. Design/methodology/approach A case study analysis of three Russian pharmaceutical firms is conducted to uncover how they performed through the Russian transition – the institutional upheaval of the 1990s – and the ongoing state-led industrialization. Findings In the early years of transition, firms heavily rely on political networking to gain legitimacy and fill institutional voids. As institutions strengthen, the need for political networking is being substituted by arm’s length networking. Strengthening of institutions also results in a more stable business environment, evolving firms’ strategies from short-term core competency concentration to long-term innovative visions. Research limitations/implications Firms operating in the Russian, Commonwealth of Independent States and some other Eastern European state domains must be wary of complex ties that are prevalent in these countries and often can assist or hinder firm performance. Although formal institutions strengthen arm’s length networks, a close cooperation between strategic firms and the state remains. Originality/value The paper proposes two phases of the Russian transition and provides a taxonomy of strategic choices of Russian firms during the transition. Further, the paper describes the key institutional developments in the two phases of the Russian transition. Finally, a framework of political connections and their role in business operations in the two phases of the transition is provided.

Strategic Sensemaking and Political Connections in Unstable Institutional Contexts

“…Associations and lobby groups replaced the need for informal networking as the country moved toward more armslength relations (Govorun et al, 2016;Klarin & Ray, 2019 As of the early 2010s, the government has been committed to supporting several "priority" industries that include the military-industrial complex, shipbuilding, aircraft, machinery, metallurgy, engineering production, chemical production, pharmaceuticals, forestry, light manufacturing, information technology, and agriculture (Ministry of Industry and Trade of the Russian Federation, 2017). The government is adamant about creating an innovative culture through various programs, including stimulation of innovative activities of state-owned corporations, direct funding of innovative smalland medium-sized enterprises (SMEs), fiscal stimulation of innovative business activity, development of overall competition level, development of public-private partnership models and mechanisms, removal of state overregulation of high-tech business, creation of "competence centers" to generate and commercialize knowledge, pilot projects in Russian regions, and formation of industry clusters and technology platforms (Gokhberg & Kuznetsova, 2011).…”

“…Associations and lobby groups replaced the need for informal networking as the country moved toward more arms-length relations (Govorun et al, 2016; Klarin & Ray, 2019):Nowadays, institutions such as ARPhP [Association of Russian Pharmaceutical Producers], Union of Pharmaceutical and Biomedical Clusters, and Association of International Pharmaceutical Manufacturers are an important vehicle in working with the government in development of the industry.…”

The organizational legitimacy of Russian firms: Contextual specificity and legitimization strategies

“…In a similar vein, P. Karhunen emphasized the need for the companies' adaptation to the new hotel industry-level isomorphic pressures during and after transition [Karhunen, 2008]. There is a great role of firms' sensemaking and political connections with Russian state authorities in the process of gaining legitimacy and competitive advantage in Russia [Klarin, Ray, 2019;Klarin, Sharmelly, 2019]. Thus, firms, which maintain links with the government, have political legitimacy, security, and even more opportunities to enter new foreign markets [Klarin, Ray, 2019].…”

“…Article Focus [Tretyak, Radaev, 2013] Introduce the need of socio-political legitimacy for the new rules of firms' exchange in the retail chains that undergo the relational conflicts and institutional change [Kuzina, Chernysheva, 2016] The CSR-based political legitimacy strategy is important for large Russian companies to meet the pressure from the government [Klarin, Ray, 2019;Klarin, Sharmelly, 2019] Introduce the great role of the political connections in the process of sensemaking and gaining legitimacy by Russian firms [Zamir, Saeed, 2020] To increase organizational legitimacy and be isomorphic, Russian firms located closer to major cities and financial centers show more CSR disclosure Domestic Russian market focus: individual level [Golyagina, Valuckas, 2020] Applying the management accounting, the paper shows that the boundary-work (differentiation of one professional group from another) help to gain legitimacy by members having the IMA certification at Domestic Russian market focus: industry level [Karhunen, 2008] Analyze enterprise adaptation to the hotel industry-level isomorphic pressures during and after transition in post-Soviet period Domestic Russian market focus: foreign firms' legitimacy [Kulchina, Oxley, 2020] Emphasize the distinctive features of foreign entrepreneurs' managerial delegation decisions. Contracting impediments constitute one important aspect of the "liability of foreignness" for foreign firms in Russia N o t e: all data were retrieved from the Scopus database.…”

Evolution of the Russian Digital Media Market: Legitimacy of the Illegal

“…During the transition to a market economy in 1990s-2000s, once more Russia underwent a long process of shaping new legitimacy in many areas of the economy. There is a number of academic research devoted to the search of legitimacy in various forms and markets: e.g., the search for business legitimacy of corporate social responsibility (Kuznetsov et al 2009, Kuznetsova 2010, new legitimacy in the retail market (Radaev 2004(Radaev , 2018, legitimacy for women in business (Tsetsura 2012), for legitimacy of private high education (Suspitsin 2007), legitimacy of the mafia as a security provider (Varese 2001;Volkov 2016), the role of political connections in obtaining business legitimacy in the absence of legal regulation for new pharmaceutical firms (Klarin and Ray 2019), legitimacy of illegal behavior of small firms (Mannila and Eremicheva 2018), search of legitimacy of legally questionable privatization (Frye 2006), and even legitimacy of the Russian government (Huskey 2012).…”