Riitta Kosonen

Institutional constraints for outsourcing services in Russia

Purpose – The purpose of this paper is to show how the institutional context in an emerging economy, Russia, moderates the “do or buy” decision of international firms operating in the country. This is examined through the influence of institutional voids on transaction costs and definition of core competencies.Design/methodology/approach – The paper adopts a qualitative research approach, where the empirical data are based on interviews with executives of eight Finnish companies, which have invested in Russias second largest city, St Petersburg.Findings – The key findings include first, that the formal and informal constraints in the Russian business environment influence outsourcing decisions in terms of increased transaction costs, and in terms of resources needed to be competitive. Second, the authors show that, due to these constraints, a firm in Russia may need to insource functions that it would otherwise outsource as non‐core activities and invest in building of competencies specific to the Russia...

Between Business and Byt: Experiences of Women Entrepreneurs in Contemporary Russia

Abstract This article contributes to the study of womens entrepreneurship in transition economies by examining Russian self-employed womens experiences and interpretations of gender in the context of entrepreneurship. It traces how gender articulates the opportunities for and the constraints on entrepreneurial activities in Russian society. As such, this article engages in the theoretical discussion of gendered patterns of entrepreneurship. The article employs a qualitative methodology and analyses semi-structured interviews with women entrepreneurs conducted in St Petersburg and in two towns in the Republic of Karelia during the period 2005–2006. The respondents represent small and medium-sized enterprises mainly in production, retail trade and services.

Subsidiary Evolution in a Transition Economy: Kemira GrowHow in the Russian Fertilizer Market*

This paper illustrates subsidiary evolution in a transition economy through the development of a multinational company’s Russian subsidiary. Building on the concept of subsidiary evolution, we analyze how knowledge transfer from headquarters and application of the subsidiary management’s local knowledge contributed to the process of change. Our empirical analysis is based on four in-depth interviews with senior managers from the companys headquarters and the Russian subsidiary and on documentary evidence. Our results show that the subsidiary capabilities were developed as a combination of knowledge transfer from headquarters at the beginning of the operations and of learning by the Russian management.

Strategic responses of foreign subsidiaries to host country corruption: The case of Finnish firms in Russia

Purpose – This paper seeks to discover whether and how a subsidiary located in a high‐corruption host country can pursue its parents corporate non‐corrupt strategy, rooted in a low‐corruption home country. Theoretically, it aims to apply the construct of institutional duality. It also aims to argue that the subsidiarys strategic response is contingent to the relative strength of two sets of institutional demands: the articulation of the multinational companys (MNCs) corporate policy towards corruption; and the direct influence of the host country corruption on the subsidiarys daily business.Design/methodology/approach – A qualitative analysis of interviews with executives of 27 Finnish companies (15 large MNCs and 12 small to medium‐sized enterprises (SMEs)) with subsidiaries in Russia was conducted.Findings – The subsidiarys strategic response to host country corruption is contingent to the firm size and the respective resources. Large MNCs can implement their non‐corrupt policy also in their Russi...

Offshore Foreign Direct Investment, Capital Round-Tripping, and Corruption: Empirical Analysis of Russian Regions

Recent economic geography research has identified the round-tripping of capital from emerging economies to offshore financial centers (OFCs) and back as foreign direct investment (FDI) as a central element of the global offshore FDI network. However, the factors behind this phenomenon are not yet fully understood. Our study develops a general framework that conceptualizes the phenomenon of round-trip investment. In particular, we argue that secrecy arbitrage, defined as interplay of onshore corruption and offshore secrecy, largely explains round-trip investment between onshore jurisdictions and OFCs. First, we argue that part of the round-trip FDI consists of proceeds from corruption, which is laundered in OFCs and reinvested back to the location of origin. Second, we maintain that the secrecy dimension of the OFC also motivates the round-tripping of licit capital, as businesses use the secrecy provided by OFCs to hide their true identities from corrupt authorities in the home location. To test the validity of our argument about onshore corruption as a driver for round-trip investment, we empirically analyze firm-level data on the distribution of offshore FDI (which, we argue, is largely round-trip) across Russian regions. Our empirical findings confirm that FDI from OFCs is positively associated with host region corruption, and this relationship is stronger for OFCs with a higher secrecy score. Hence, we conclude that round-trip FDI is strongly motivated by the interplay between onshore corruption and offshore secrecy.

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 Banks 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 adjus...

Paired Border Towns or TwinCities from Finland and China

Abstract This paper discusses cross-border cooperation at the level of urban socio-economic systems. Worldwide, cross-border urban cooperation has in several cases produced socio-economic and political coherence supported by various joint programs and efforts. However, the degree of coherence varies and seldom creates socio-economically and politically tightly integrated “Twin-Cities” where the state border becomes highly transparent or obscure. Focusing on Finland and China, our aim is to identify whether the selected border towns represent coherent TwinCities or a more loose type of “paired border towns”. The study uses an empirical examination of three Finnish towns (Helsinki, Tornio, Imatra) and their neighboring towns in Estonia, Sweden, and Russia as a benchmark. Then, a comparative study is made regarding three Chinese cross-border cities facing Russia, Vietnam and Kazakhstan. We highlight the differences in cross-border integration from the viewpoint of shared public sector programs, cross-border enterprise relocation and networking, and integrated social sector in terms of labor market, education and shopping area.

Internationalization of Russian firms as institutional arbitrage: The case of Finland

We analyze the internationalization of Russian firms based on a qualitative case study implemented in Finland. We empirically elaborate the concept of institutional arbitrage (Gaur and Lu, 2007; Boisot and Meyer, 2008), which refers to the situation where a firm is provided opportunities to exploit differences between two institutional environments. The sample consists of 12 Russian-owned firms located in Finland. The profile of the firms varied from subsidiaries of large MNCs to small firms established by entrepreneurs immigrating to Finland. Our empirical data provides support for the argument that the internationalization of Russian firms in many cases is as much escape from Russia as entry to the foreign market in search for a more favorable institutional environment. Furthermore, in some cases the ultimate goal may be to enter a particular foreign market, but prior achieving this goal the firm needs to escape from Russia and gather speed in an intermediate location in order to learn how to operate in an institutional environment different from Russia. The selection of this location is therefore not motivated by market potential or other traditional pull factors for internationalization. In our case the philosophy of such firms seems to be that the farther the test environment is from Russia in terms of institutional distance, the better it equips the firm to operate on other foreign markets as well. We conclude that the fact that the Russian institutional environment pushes firms and private investors to escape abroad provides also possibilities for institutional arbitrage. In our case this is demonstrated by possibilities to establish in Finland businesses, which are targeted to Russian customers seeking for safe haven for their capital in Finnish real estate, or who need support services for their international trade. Our analysis also points to the negative implications of institutional distance, and the root causes of institutional escape. The large magnitude of capital outflow from Russia, part of which has criminal origin, has made some foreign financial institutions suspicious to any Russian capital. From the perspective of policy-making, our interviews at the Russian-owned businesses in Finland discovered a strong commitment to operate according to the rules of the Finnish society and economy. Therefore, the potential prejudices towards Russian investors are in many cases without real basis. Finally, when drafting inward FDI promotion measures targeted to Russian investors, one should take into account the strong influence of personal motives for establishing business abroad that is characteristic for Russian entrepreneurs. It is not necessary the market potential and large profits that motivate internationalization, but rather the wish to establish ones business and personal life in an environment less stressful and unstable than the Russian one.