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Institutional distance and international ownership strategies in Russia : A subnational approach

Päivi Karhunen (Centre for Markets in Transition, Aalto University School of Business, Helsinki, Finland)
Riitta Kosonen (Centre for Markets in Transition, Aalto University School of Business, Helsinki, Finland)
Svetlana Ledyaeva (Department of Economics and Centre for Markets in Transition, Aalto University School of Business, Helsinki, Finland)

Baltic Journal of Management

ISSN: 1746-5265

Article publication date: 1 July 2014

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Abstract

Purpose

The purpose of this paper is to analyse the impact of institutional distance, extended to capture subnational institutional variation, on foreign entry mode choice.

Design/methodology/approach

As an empirical study, it focuses on manufacturing firms established in Russia by foreign investors from developed countries. The dependent variables, the share of foreign ownership and the entry mode choice binary variable (equal to 1 for full foreign ownership and zero for a joint venture) were obtained from the registry of foreign-owned firms in Russia. The World Bank's regulatory quality (RQ) index on a national level and a respective indicator for the various Russian regions on a subnational level were utilised to measure institutions. Multilevel cross-classified analysis including foreign firms, the various Russian regions and characteristics of the foreign owners’ home countries was applied to for making empirical estimations.

Findings

The empirical results show, first, that the regionally adjusted institutional distance, i.e. the distance between the home country and the Russian region in question, when measured in terms of RQ, shifts the ownership structure towards shared ownership. However, nation-level institutional distance between the home country and Russia does not show any statistically significant relationship with the modal choice.

Originality/value

The results indicate that with the exception of industries of strategic importance to the state, the most important “rules of the game” for foreign entry strategies are provided not by the federal government but by the regional governors. The theoretical value of the paper lies in the extension of the institutional distance concept to the subnational level. At the same time, the paper identifies those institutional features that foreign entrants eyeing Russia need to take into account when selecting an entry mode and location within Russia.

Keywords

Acknowledgements

The authors would like to thank Klaus Meyer for very helpful comments on earlier version of this paper. The first author acknowledges the financial support from the Academy of Finland Grant No. 264948. All the remaining errors are of the authors.

Citation

Karhunen, P., Kosonen, R. and Ledyaeva, S. (2014), "Institutional distance and international ownership strategies in Russia : A subnational approach", Baltic Journal of Management, Vol. 9 No. 3, pp. 254-276. https://doi.org/10.1108/BJM-07-2013-0125

Publisher

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Emerald Group Publishing Limited

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