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Institutional distance and international ownership strategies in Russia A subnational approach

Institutional distance and international ownership strategies in Russia A subnational approach 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Baltic Journal of Management Emerald Publishing

Institutional distance and international ownership strategies in Russia A subnational approach

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Publisher
Emerald Publishing
Copyright
Copyright © 2014 Emerald Group Publishing Limited. All rights reserved.
ISSN
1746-5265
DOI
10.1108/BJM-07-2013-0125
Publisher site
See Article on Publisher Site

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.

Journal

Baltic Journal of ManagementEmerald Publishing

Published: Jul 1, 2014

Keywords: Entry mode; Ownership structure; Russia; Regions; Institutional distance; Subnational level

References