Political connections and strategic choices of emerging market firms

PurposeThe purpose of this paper is to investigate the importance of political connections in the emerging market context.Design/methodology/approachA 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.FindingsIn 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/implicationsFirms 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/valueThe 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.

Neoclassical Economics as the New Social Engineering

This chapter compares the role of neoclassical economics in trying to socially engineer the shock therapy post-socialist transition in the former Soviet Union with the robust pragmatism and incrementalism of the Chinese transition to a market economy. The Chinese transition was a success and the Russian transition a debacle—in both cases, of historic proportions. The problem lies not only in the lack of accountability of the elite Western advisors and advisory institutions such as the World Bank and International Monetary Fund, but in the whole orientation of neoclassical economics as the new “scientific” basis for social engineering on a vast scale.