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The Internationalisation of New Russian Ventures: The Institutional Frontier
Laine Igor, Kuivalainen Olli
Laine I., Kuivalainen O. (2017) The Internationalization of New Russian Ventures: The
Institutional Frontier. In: Ibeh K., Tolentino P., Janne O., Liu X. (eds) Growth Frontiers in
International Business. The Academy of International Business. Palgrave Macmillan, Cham
p. 121-141. DOI: 10.1007/978-3-319-48851-6_7
Author's accepted manuscript (AAM)
Palgrave Macmillan, Cham
Growth Frontiers in International Business. The Academy of International Business.
10.1007/978-3-319-48851-6_7
© The Author(s) 2017
1Internationalisation of new Russian ventures: the institutional frontier
Igor Laine and Olli Kuivalainen
Abstract
Based on the view that re-engineering and upgrading the institutional environment in previous
command economies offers an important new frontier for boosting new venture creation and
entrepreneurial internationalisation, the current study examines and addresses institutional
constraints to the internationalization of new ventures in Russia. It draws on 213 interviews with
entrepreneurs and government officials, specifically regarding their perceptions and experiences of
the impact of Russian institutional environment on entrepreneurial growth and internationalization.
The study illuminates and discusses critical impediments to the growth and internationalization of
new Russian ventures, providing practice-based insights on how the internationalisation of
entrepreneurial ventures might be facilitated through improvements in institutional environment.
Introduction
Although institutional transition evolves differently in previously command economies, in general
the liberalization of markets led to the increasing role of entrepreneurship, while economic
globalization opens up opportunities for entrepreneurial internationalization from these countries.
As far as entrepreneurship and its internationalization only recently became a legitimate form of
activity in these countries, the release of their currently untapped potential for economic growth is
largely dependent on adequate institutional development in these countries. Russia is a critical
example of a country where levels of entrepreneurial activity and internationalization are far below
comparative countries (Singer, Amorós, and Moska 2015; Verkhovskaia and Dorokhina 2014) and
the levels the country could and should achieve in order to be competitive in global economy. This
2study argues that institutional environment was and still is a major reason for this problem, and
thus a tailor-made institutional re-engineering is an important new frontier for boosting new
venture creation and entrepreneurial internationalisation. In order to understand how institutional
environment hinders the internationalization of new Russian ventures, one should consider how
decision-makers perceive it. Accordingly, this study explores institutional constraints to the
internationalization of new ventures in Russia based on the experience of entrepreneurs.
Economic growth, institutions and entrepreneurship in Russia
Initially, the transition of Russian economy toward freer markets was fast, radical and aggressive,
but in recent years, the country partially retreated from the course showing increasing role of the
government in the economy. Economic liberalization of emerging markets has given a growth
impulse for Russian economy and after the August 1998 financial crisis, backed by devaluated
currency, rising commodity prices, consumer boom and ongoing liberal reforms, the country‘s
development was at outstripping rate. The subsequent global financial crisis of 2008 was sharp for
the country, but brief due to proactive and timely measures by the government and central bank.
Starting from 2009 the country has shown an impressive recovery and in 2012, according to
Financial Times’s economic performance estimate based on seven indicators, was ranked number
two among G20 (Atkins 2012). Although, starting from 2013 the growth of the economy has
slowed down reaching zero levels in 2014 and -3.7% in 2015.
In relation to international trade, membership in the World Trade Organization since August 2012
implies gradual decrease in trade barriers for cross-border trade providing certain stimuli for
entrepreneurial internationalization. Additionally, establishment of Eurasia Economic Union with
four neighboring countries is another facilitating factor. At the same time, devaluation of national
currency makes export and sourcing from Russia an attractive opportunity for international
3entrepreneurship. On the other hand, sanction imposed by and towards multitude of western
economies since spring 2014 hinders international trade possibilities for certain categories of goods
as well as access to global financial markets. While Western sanctions were meant to influence a
limited list of political figures and large state-affiliated business entities, their impact has a major
bandwagon effect and intensified challenges that Russian economy was already facing.
According to recent report of Organization for Economic Cooperation and Development, the role
of entrepreneurship in Russia on economy of the country is relatively small compared to other
OECD countries in terms of numbers of enterprises, employment figures, generated output and
investments (OECD 2015). Likewise, Global Entrepreneurship Monitor indicates that in 2014 just
2.4% of adults was involved in venture creation activities, that is far below other efficiency-driven
economies; also only 27% of adult population perceived good opportunities for starting a business
in Russia (Singer, Amorós, and Moska 2015). It has been found that development of
entrepreneurship in Russia is largely hindered by the weakness of its formal institutions, such as
property rights and contract enforcement (Aidis, Estrin, and Mickiewicz 2008; Alon and Rottig
2013). Various rankings such World Bank Doing Business shed their view on how easy or difficult
it is for a local entrepreneur to start and operate their business across countries, putting emphasis
on assessment of business regulations. For example, according to Doing Business data, from 2009
Russia to 2015 (see Table 1) has dramatically improved the overall ranking, but has not achieved
any results with trading across borders (World Bank 2016).
Table 1. Russia’s World Bank Doing Business rankings (out of 189 economies)
Year
Ranking
2009 2010 2011 2012 2013 2014 2015 2016
Ease of doing business 120 116 123 120 112 92 62 51
Trading across borders 161 162 162 160 162 157 155 170
4According to Index of Economic Freedom, business, trade and fiscal freedom are all above the
world average, while financial, investment, property and freedom from corruption are far below
(Miller and Kim 2015). In fact, while the indicator of fiscal freedom in Russia has one of the highest
scores meaning that the tax burden is relatively low, the perceived effect of tax burden is reported
to be by far the most important obstacle for local entrepreneurs (World Bank 2012). The objective
indicator measured as a total amount of collected taxes does not reflect in similar corresponding
subjective perceptions of entrepreneurs, thus pointing towards the existence of the substantial gap
between the objective and measurable reality and subjective perceptions about this reality. Another
interesting fact is that, although the Index of Economic Freedom shows that trading freedom (a
composite measure of the absence of tariff and non-tariff barriers that affect imports and exports
of goods and services) has been gradually improving and by 2014 has reached levels of the most
developed economies (Miller, Holmes, and Feulner 2013), this has not lead to any increase in rates
of entrepreneurial internationalization in Russia. It can be suggested that the reason for this may
lay in informal institutions; while there are many rankings and reports dealing with formal
institutional frameworks, informal institutions are not easily measurable. At the same time,
according to another study, as much as sixty percent of economic activities in emerging economies
are driven by informal institutions including values, norms and beliefs spread in a society (Webb
et al. 2009). While there are many other inconsistencies between statistical indicators and real life
experiences, we clearly see the relevance for our study in trying to provide evidence-based
explanations. The next section describes our methodological approach in filling the gaps on the
crossroads of international entrepreneurship and institutions as it is experienced by entrepreneurs.
5Methodology
To gain greater insights and investigate in more detail the impact of institutional environment on
entrepreneurial growth and internationalization as it is experienced by practicing entrepreneurs in
Russia, we rely on hermeneutic (interpretive) phenomenology (Heidegger 1962) as a philosophical
and methodological standpoint guiding this study. While there are many definitions and
conceptualizations of phenomenology offered by different scholars they all agree that
phenomenology has the “potential to penetrate deep to the human experience and trace the essence
of a phenomenon and explicate it in its original form as experienced by the individuals” (Kafle
2011, 183). Generally, “a phenomenological study is one that focuses on descriptions of what
people experience and how it is that they experience what they experience” (Patton 2015, 117).
The hermeneutic (interpretive) version of phenomenology differentiates itself from the pure
phenomenology in a way that it allows for interpretation of the lived experiences rather than
providing mere descriptive accounts. In so doing, it focuses on people’s meaning of a lived
experience of a focal phenomenon in order to describe the essence of experiencing the phenomena
(Seymour 2007). Thus, this particular philosophical and methodological stance has clear
correspondence with the purpose of this study and provides guidelines for the subsequent data
collection and analysis (Berglund 2007; Cope 2005). Additionally, phenomenology allows to
integrate within one study intra-individual cognitions with extra-individual discourses (Berglund
2015), thus illuminating both individual cognitions and institutionally-transmitted discourses. The
current study employs a qualitative methodology seeking for “better stories, not better constructs”
(Dyer and Wilkins 1991, 613), although operating with extensive quantity of interview data. The
phenomenological focus of this qualitative inquiry implies getting at the essence of the experience
6of how institutional environment affect growth and internationalization of Russian ventures
through analyzing interviews with entrepreneurs.
Description of data
The phenomenological research approach implies bracketing all the preconceived knowledge on
the phenomenon at the stage of data collection. In our study, the interviews were conducted by
other practicing entrepreneurs before the study was initiated, thus naturally preventing the bias of
pushing theoretical perspectives towards interviewees. The data came from two publically
available series of videotaped interviews with entrepreneurs conducted by two other practicing
entrepreneurs. The interviews were not meant to be organized for the purpose of the current
research, hence the data is a secondary source with a disadvantage of being less specific to our
research needs. This disadvantage is being overcome by analyzing the voluminous number of
interviews and the fact that for Russian entrepreneurs it is hardly possible to avoid topics related
to institutions no matter how general the interview itself is. The data analysis confirmed our
presumption on this matter. Another advantage of the data is that interviews were conducted by
entrepreneurs themselves in a friendly and open-way manner, whereas their guest were ready to
share their lived experience honestly and deliver rather sensitive information. Some of interviewees
are their friends, some belong to “big names” of Russian business or to young generation of
entrepreneurs. The first set of records contains 146 interviews (BS1 to BS146) held from October
2009 to September 2013, while the second set, consisting of 67 interviews (MD1 to MD67), was
recorded between May 2014 and September 2015. Thus, the core data for this study contains 213
transcribed interviews, 116 hours of records and 1290 pages of transcripts. Importantly, these series
were shot in two temporally sequential but rather distinct intervals when considering institutional
environment in Russia. The former timeframe, when the first series were shot, started right after
7the revival from the global economic crisis of 2008 and belongs to generally untroubled presidency
of Dmitry Medvedev who was relatively liberal towards entrepreneurship. The latter period under
the presidency of Vladimir Putin refers to sharply decreased oil prices, armed conflict in Ukraine
and related two-way trade sanctions between Russia and Western World, which all have had
negative influence on Russian economy. Among interviewees, we not only have Russian
entrepreneurs of different age, gender and scale, but also investors, government representatives and
foreign entrepreneurs doing business in Russia, thus providing opinions from different perspectives
(Table 2).
Table 2. Classification statistics (N=213)
Scale % Experience % Age group % Gender %
Local 68 Business 75 Younger (born after 19731) 40 Male 90
National 9 International 30 Older (born before 1973) 60 Female 10
International 9
Global 14
The majority of interviewees were born in Russia, while 19 of others are from former Soviet Union
countries and 10 are foreigners. The average age at the date of interview is 39.5 years that matches
the latest figures from Global Entrepreneurship Monitor report on Russia (Verkhovskaia and
Dorokhina 2014). Gender distribution reflects the dominance of males in entrepreneurship,
corresponding with secondary data (Verkhovskaia and Dorokhina 2014).
Data analysis
In our analysis, we investigate the influence of institutional environment on venture creation,
growth and internationalization as it is reflected in experience, attitudes and perceptions of acting
entrepreneurs. In order to organize and analyze the large amount of information we utilized a
Computer Assisted Qualitative Data Analysis Software package, in our case NVIVO 11. In our
analysis we followed guidelines for  phenomenological research approach (Giorgi 1985; van
8Manen 1990; Smith et al. 1999), that were also applied in other studies into entrepreneurship
(Berglund 2007; Cope 2005, 2011).
In overall, our analysis included five basic steps. The first step involved watching the full set of
videos in order to obtain “a sense of the whole of the phenomenon as described. The second step
generally referred to as horizonalization implied more thorough analysis of individual interviews
and corresponding transcripts with the aim to extract and label all the significant statements
(meaning units) related to the experience of the focal phenomenon. The third step was grouping
and categorization of isolated meaning units into thematic categories (clusters of meanings), where
categories with similar meanings were merged and others split up in the process. This step was
finished when all the significant statements were assigned to some category. On the fourth step,
the identified categories were grouped into factors, while factors were further reduced to
dimensions where possible. The final step was interpretation and synthesis of the combined
evidence leading to what we have reported in the results section. Each table presented in the results
section contains selected illustrative quotations from our interviews, while conclusions are made
only if the same pattern is repeatedly supported within the entire set of interviews. To be able to
meaningfully interpret the data and integrate the results with the existing body of knowledge,
available academic studies and external research reports about entrepreneurship in Russia and
institutional factors involved in entrepreneurship such as Global Entrepreneurship Monitor and
World Bank Doing Business reports were taken into consideration; hence, the findings of our study
were discussed in order to address particular problematic issues with aggregate figures from the
secondary reports and explain surprising research results obtained elsewhere (Volchek, Jantunen,
and Saarenketo 2013).
9Results and discussion
Towards an integrative framework of entrepreneurial cognition
The results and discussion section is largely based on provided direct quotations, which are
responsible for delivery of a thick description contributing to the trustworthiness of the study
(Lincoln and Guba 1985). Having multiple supporting evidence, our analysis shows that there is a
discrepancy between attitudes and behavior based on personal experience versus those framed by
external institutional factors (see Table 3). Similar pattern or relationships between cognition
framed on the basis of personal experience compared with that mostly based on institutionally-
shared knowledge is also persistent in the following parts of our analysis. Particularly, in most
cases, when entrepreneurial cognitions are based on personal experiences they reflect more positive
attitudes towards venture creation, domestic growth and internationalization, while institutionally
transmitted knowledge and social pressures suggest abandoning these intentions. In other words,
in a situation when nascent entrepreneurs do not have any or have only limited experience to frame
their cognition, they have to overcome these affectively strong institutional pressures. Notably,
very low perception of capabilities  (27.8%) corresponds to cultural-cognitive pillar and amplifies
the negative effect from the above-mentioned social pressures (Singer, Amorós, and Moska 2015).
Table 3. Experience-based versus institutionally-driven cognition
Experience-based cognition Institutionally-driven cognition
MD5: I think that all these fairytales about how
difficult is to do business in China are very much
subjective (entrepreneur actively developing his
business in China)
MD3: Frankly speaking, I often do not
understand when someone speak of a monstrous
corruption in Russia. I have been in the business
for the last 25 years and I do not remember that
someone extorted money from me, despite I had
experience of offering money myself to solve a
MD2: When we decided to start up, everyone
told us that we are going to fail, that we
don’t have enough money to start up, that we
live in our dreams. Even our parents told us
that our idea is silly. Thereat I decided to
take a strong step and stop talking to people
who demotivate me.
BS32: It is pretty clear that what’s yours
here is not always yours, somebody can
come and take it away… I think there are
10
problem more optimally. I have faced with the
bureaucracy in many countries, and I must say
that  ours  is  not  the  worst  one.  Here,  in  most
cases, you can always reach an agreement, in
contrast  to  i.e.  France.  For  example,  if  you
would like to start your own business you can
easily establish sole proprietorship and get
benefits such as reduced tax rates.
BS46: I think there is nothing so frightening to
be afraid of doing business here. We are always
frightened: there is a huge administrative
burden, monstrous tax authority and other state
agencies, but knock a wood, we have not had
any problems with the state for all these ten
years. I mean yeah, a lot of nonsense, but in
general, it is not so difficult to do business in
Russia as people think.
rules, I think they are clear and I think if you
do not work within those rules and
boundaries, the state can come and take
anything away.
BS53: When you try to discuss and share
your business ideas to anyone else, first what
you get in feedback are dozens of reasons of
why you will fail. These negative attitudes
are in the air and it somehow connected to
education. If a person tries to do something
its environment somehow subconsciously
protect him from doing it.
In general, every entrepreneurial intention before implementation first goes through the cognitive
process of feasibility analysis that involves both personal experience and institutional pressures.
The following vivid story describes how experience helps to go through seemingly deterrent
burdens of regulative environment:
MD37: When I have just started this venture, every quarter I had discussions with tax
inspectors. I was blamed in violations, and on my question what I was violating they stated
that my venture is unprofitable and asked to explain why. I explained: “We have an
investment project and our shareholders invested their money in the company. This money
is consumed to create the product”. – “No, you cannot do this; we have to call on the
commission to analyze your behavior”. Does it help? It seems to me not conducive at all.
Of course, having had enough experience behind and, in particular, the experience in
dealing with regulatory bodies, I did perceive the situation with humor: – “OK, let’s have
a commission and discuss it together. I’ll listen to your suggestions how to lead out the
company from such a terrible state when it does not bring profit from day one”. I suppose
someone without experience would be threatened to death by being called for commission
and think he would better find a job.
Being threatened by such regulative pressures, a large number of people abandon starting
entrepreneurial career in favor of having more stable job elsewhere, whereas institutionally
encouraged careers are found in large state-affiliated enterprises, military or federal security
services (BS10; MD37). As according to Global Entrepreneurship Monitor, the negative
11
perceptions of the opportunities for venture creation and unfavorability of external environment,
so extensively shared by non-entrepreneurs, could be halting the influx of new entrepreneurs;
tackling this perception is therefore critical (Singer, Amorós, and Moska 2015). For potential
entrepreneurs with legitimate business opportunity in mind and without previous experience the
difficulty to overcome these pressures from informal institutions may prevent them from becoming
entrepreneurs and leave them with good ideas that go unfulfilled. Interestingly, for entrepreneurs
opportunities for venture creation and perception of favorability of external environment in Russia
are more than twice higher than for non-entrepreneurs (Verkhovskaia and Dorokhina 2014), thus
indirectly supporting our general idea that experience-based cognition is largely distinct from
cognition that is solely based on institutionally-driven knowledge. The remaining part of the section
is devoted to describe the impact of institutional environment on entrepreneurial intentions.
Regulative institutions and collision with informal institutions
Whilst public policy plays a major role for building favorable regulative conditions for
entrepreneurship, constant changes in legislation, inconsistent and ambiguous laws hinder
entrepreneurial activity (OECD 2005). Our study reveals that general attitude of entrepreneurs
towards current lawmaking policies in Russia is that when developing particular laws related to
their activities the government should better consult with business practitioners and entrepreneurs,
because the laws are often seemed impractical. Despite of this attitude, our evidence shows that
there is an enduring tendency to conform and at least formally adapt to a new legislation, though
largely at the cost of end customers (see Table 4).
12
Table 4. Regulative institutions
Conformity to impractical regulations at the cost of end customer.
BS16: These days, the views of retail chains and manufacturers are ignored by law-makers, and
legislators alone decide for the whole country how every price should be formed…They make
mistakes, then slowly correct them, but in the end, as always, it is the end customer who pays
for their mistakes.
 BS21: Legislators don’t have to understand all the intricacies of the business, because it is
impossible for them. I do this 24 hours a day, and they – 20 minutes. It’s normal that they do
not understand retail, what upsets me the most is that they don’t listen to the opinion of the
professional players in the market.
MD56: Today, in my view, the state is the biggest risk for any entrepreneur. Personally, I got
used to wake up thinking am I poor already or not yet? Because of legislative initiatives.
Especially, in the field of beer ... For six years while I was brewing beer, many things happened.
In general, the state is an everyday risk situation, with which we got used to live and find ways
to resolve. We are preparing for the bad. Just in case if this law (forbidding plastic bottles for
draft-beer shops) would be accepted, my friends from “Novosibirskprodmash” are developing
an alternative solution.
Lived experience refuting harsh regulative pressures
MD47: So far, I have not felt any excessive demands of any pressure from tax and other
authorities.
MD51: First, there are many empty niches, untilled field; second, there are almost no
impediments from the government.
MD54: I’ve never felt any repressions from the tax authorities.
MD58: I’ve never experienced any problems with the authorities or with the law. I simply do
not understand some of the discussion that there are obstacles.
An important observation is that entrepreneurs tend to complain about regulations in rather general
terms without providing examples from their lived experience. At the same time, when it comes to
practice, it feels like this negative institutionally-shared attitude towards regulative burden is
exaggerated or even refuted by their lived experiences (see Table 6). Although, we have been able
to find out few cases where entrepreneurs had to abandon the business because of the new
regulations (e.g. when police reform made street trade restriction more enforced), in these cases it
was not a fatal trouble and just a matter of time for entrepreneurs to reorient the business into more
legitimate one or, in the worst scenario, to change the sphere (see Table 5). This result highlights
the persistence of entrepreneurs relative to regulative burden. Specifically, the costs of regulative
13
burden entrepreneurs are faced with in Russia are oftentimes paid by the end customers, not the
entrepreneurs. This finding can serve as an explanation for insignificant impact of regulative
institutions on SMEs’ performance in Russia reported elsewhere (Volchek, Jantunen, and
Saarenketo 2013). Other studies highlighted surprising persistence and resilience of entrepreneurs
and their ventures through macroeconomic crises (Davidsson and Gordon 2016) and even danger
of war (Bullough, Renko, and Myatt 2014). Thus, we can infer that the persistence can be regarded
as a special quality attributable to (some) entrepreneurs. This capability to anticipate, adapt and
adjust their business can be considered as dynamic capability  of entrepreneurs in the realities of
constant institutional changes relative to their sectors of economy ( Teece, Pisano, and Shuen
1997).
In our interviews, we have not been able to identify any first-hand evidence of severe regulative
pressures ultimately affecting entrepreneurial actions. In particular, instead of revealing their own
experience entrepreneurs were referring to vicariously learned knowledge (Kim and Miner 2007)
based on exceptional cases and some gossip-like stories (i.e. social discourse). In few cases where
there were some minor tensions with regulative bodies and negative complaints, entrepreneurs
were able to respond in a conforming manner rather quickly and did not experience any dramatic
consequences regarding their entrepreneurial actions (e.g. BS 10). Furthermore, we have to admit
that our impression concerning these minor tensions with regulative environment is that if these
entrepreneurs were more informed about laws, rules and practices before they made their actions,
they would have easily avoided these problems. Additionally, we have found the evidence that
even acting entrepreneurs sometimes lack rather basic knowledge related to establishing and
operating new business (i.e. cultural-cognitive institutions as conceptualized by Busenitz et al.
2000), as you can see from the dialog below:
14
MD4: Recently I have been trying to register a new enterprise in Moscow and it is just
terrible. The prices for registration services are extremely high, it cost me ten times more
than in St. Petersburg. Ten times!
Interviewer: Is it a simple limited company?
MD4: Yes.
Interviewer: Actually, you can do it free of charge.
MD4: Oh really? Where?
We can interpret the story above in a way that the knowledge about more efficient ways of
establishing new business has not been institutionalized so far or in other words have not yet
become a part of a shared social knowledge. Accordingly, we may infer that cultural-cognitive
dimension of institutional environment collides with regulative institutions thus inhibiting
efficiency of entrepreneurial activity in Russia. However, if the end customer is ready to pay for
this inefficiency as a result of low level of industry-based competition, eventually it gives an
entrepreneur a chance to survive and succeed. Likewise, there is also clear evidence that normative
institutions may also undermine proper functionality of regulative framework. An interesting
example how recent changes in formal institutional environment affected entrepreneurs in Russia
happened in 2013, when the government decided to double the amount of tax-like pension and
social insurance contributions. The consequence of this change was that more than five hundred
thousand individual entrepreneurs closed their legal entities and presumably converted their
businesses to black and gray markets (Safonov 2014). Notably, this kind of socially acceptable
isomorphic collective behavior reflects the institutionalized practice of converting businesses to
informal economy as opposed to abandoning it (DiMaggio and Powell 1983; March and Olsen
1989). One of our interviewee provide another similar example of how regulative changes may
activate previously latent but easily awaken norm of going to and operating in the black market:
15
BS6: I am sure that sooner or later gambling business will came back to Russia. In fact, it
has never been closed. It has had to adjust, and the government eventually has got a huge
illegal industry.
Influence of normative and cognitive institutional pillars in relation to regulative one and as main
effect onto entrepreneurial intentions and behavior are examined in the next sections.
Cultural-cognitive and normative institutions for entrepreneurship
In relation to cultural-cognitive pillar of institutional environment, our data lead us to several
important considerations. Different cultural values make people different in what is important for
them, particularly in relations to their entrepreneurial intentions people from different cultural
backgrounds put emphasis onto different things. For example, in more universalistic societies, the
law is the law and if it is forbidden to pursue certain entrepreneurial opportunity, then people would
most likely abandon their intention. In the particularistic society like Russia, the laws themselves
are not so straightforward and entrepreneurs may find a way to go around or stay unnoticed
(Hendley 2012). Non-universally inclusive nature of regulative institutional environment (e.g.
arbitrary and non-mandatory provisions on law enforcement) was mentioned many times in our
interviews and several entrepreneurs even referred to the same quotation by famous Russian 19th-
century satirist and ironically civil servant Mikhail Saltykov-Shchedrin (cited in Barber, Buckley,
& Belton, 2008):
‘The severity of Russian laws is alleviated by the lack of obligation to fulfil them.’
Having in mind these particularistic social norms and values spread in the society, putting too much
effort on building regulative environment at the cost of informal institutions seem to be inefficient.
Maintaining costly high-standard and favorable legal framework pays off only where it actually
works in practice.
16
Another interesting observation concerns the norms related to the quality of produced goods and
services. While the times when the Russian market was starving for whatsoever goods and services
have passed, the experimental evidence from our interviews shows that comparing to various other
countries in most industries there is low (or even no) competition for goods and services of proper
quality. From the institutional perspective, this finding reflects the absence of normative
institutions supporting and incentivizing delivery of high-quality goods and services. There are
common idioms and jargons describing this kind of attitude such as ‘people have it’, ‘grannies eat
it’ or ‘people like it’ in relation to any low-quality, but mass-market and commercially viable
product, from music and programs to skim margarine and political agenda. In this view, majority
of people here are thought to be unsophisticated and lacking any demand for better quality. Without
arguing on the issue, we may blame historical path dependency and specifically the soviet period
when people did not have any choice in what they consume and now when they are overwhelmed
with variety of goods and services they are still in the initial stage of framing their preferences for
quality:
MD11: People are still fine buying lower-quality goods, but when they start asking for
quality then it will be different.
The following quotation vividly shows the segment with formed demand for sufficient quality from
people of above average income who had the experience of proper level of service elsewhere:
MD45: Even when I come to the official BMW dealer in Moscow for ordinary maintenance,
I have to give some money on top to ensure that they will put effort to make everything fine.
That is because so often I had left the dealer not on my wheels, with different rugs, etc. I just
want to be served OK. There is no need for wow-effects, no need to be surprised. What I
need is a service that I pay for, nothing more! Just do not screw it up, come on time, call on
time, deliver a product, call to find out if everything is in order – this level of service would
make people said, ‘Wow, it’s unbelievable, how come you are so good?’
In our interviews, we have been able to find multiple experience-based evidence showing this kind
of attitude, explicitly claiming that there are many niches where improved quality of goods and
17
services would easily convert currently latent demand into a viable business. Alongside, many
times in the interviews entrepreneurs have expressed simple heuristic that in order to stay safe from
possible interventions of various powerful actors it is better to remain small and not stand out too
much. Together with this normative constraints towards growth and visibility, there are also
similarly working norms related to being politically active and doing business in some particular
sectors of economy (Table 5).
Table 5. Normative institutions
Normative constraints towards growth and visibility
MD4: In Russia, the business can be done. I do not know, however, up to what volumes. Perhaps,
my business have not yet reached the volumes that we would be interesting for a variety of
parties, but in principle, they allow me to work.
MD20: …I think no one bothered me much so far, and I hope that after your program, too, no
one will…
MD47: When a business crosses some point in size and becomes interesting for those people
who have the right to decide something in the bodies, perhaps there could be some questions
and difficulties. At my level, it is easily possible to do business in Russia.
Normative constraints towards political and sectoral activity
MD 9: I think, if you do not meddle in politics and don’t participate in dubious projects … then
the business can be conducted in Russia
MD 45: It’s rather easy to do business here. If you do not cross the line interfering with the
government and not striving for political power, they will be loyal to you.
Notably, we have not found any practical experiences of entrepreneurs sharing their own real-life
stories describing how growth and visibility made them more exposed to opportunistic attention
from  the  authorities.  Table  5  also  highlights  the  dissonance  between  real  experience  and
institutionally shared opinion, where an entrepreneur presupposes what could happen based on
some common knowledge, without providing their own lived experience.
Notably, while the attitudes for growth-constraining norms were found in both samples of
interviews, restrictions on political and sector-specific activities mentioned in the second set of
18
interviews were extended to additional spheres. Whereas previously the restrictions concerned
mostly the oil and gas sector of economy and political activities at the highest levels (e.g. Mikhail
Khodorkovsky case), the second set of interviews revealed the expansion of this institutional norm
to other sectors of economy (e.g. related to national informational security) and increased
opportunities for local officials to intervene local enterprises. Hence, our analysis point to the
development or expansion of normative institutions constraining entrepreneurial actions in
particular sectors of economy and increased political pressure.
Institutional determinants of entrepreneurial internationalization
Comparison of internationally-active entrepreneurs with national and local ones allowed us to
highlight several important differences. While in the cohort of domestic entrepreneurs featured
both necessity- and opportunity-driven entrepreneurs in rather equal shares, international
entrepreneurship in our sample predominantly implies opportunity-driven motives.  Furthermore,
international entrepreneurs were more talking about competitive characteristics of their offerings,
rather than about regulative constraints and obstacles.
The perception of the harsh domestic institutions may eventually push the firm to internationalize
and search for internationalization assistance from abroad. As in the case mentioned before, when
a person had to start a private school because he was unable to realize his idea within rigidly
regulated public schools, negative “push forces” from regulative environment may lead
entrepreneurs to establish a business abroad (Table 6).
19
Table 6. Institutional escapism
Exemplary evidence
MD48: I have another hobby I want to bring to life, it is moonshining. I am planning to open up
a factory for the production of spirits. The only thing is it is impossible in Russia, because the
licensing is very complex, so in the near future the plan is to start in one of the neighboring
countries.
MD21: I think that even in IIDF2 they understand that the realities of Russian law are such that
it is very difficult to enter the company and somehow arrange the relationship between the
shareholders. It is just impossible to do so in the way that everyone would be satisfied and
without dramatic ending. Today, of course, it is better to work under English law jurisdiction,
but I hope all this will change for the better in one, two of three years.
The above-mentioned tendency of institutional escapism in order mitigate the poor institutional
contexts have been attributed to countries with institutional voids in their home country
institutional contexts (Witt and Lewin 2007; Yamakawa, Peng, and Deeds 2008). While
internationalization due to institutional escapism has negative consequences on national economy
and leads to brain drain, the government should provide opportunities for efficient international
operations while keeping these ventures within legal boundaries of the country.
Noteworthy, while general entrepreneurship and SME support programs have been discussed to
have positive impact on venture creation multiple times in the interviews, internationalization
support agencies or practices have never been mentioned. This may stem from the fact that Russian
formal institutions do not provide much support for the internationalization or entrepreneurs driven
by informal institutions don’t bother knowing about available support or feel better avoiding it.
They may feel that there is no need to use national support organizations (Bell 1997), or they may
think that primary information from the market is more beneficial (Seringhaus 1987).
Conclusions and further research
Existing research on institutional theory in the fields of entrepreneurship (Bruton, Ahlstrom, and
Li 2010), international business (Jackson and Deeg 2008) and its intersection - international
20
entrepreneurship (Szyliowicz and Galvin 2010) is lacking studies which focus on informal
(normative and cultural-cognitive) dimensions of institutional environment. This study aimed at
comprehensive analysis of practically relevant institutional factors regarding major entrepreneurial
decisions such as venture creation, growth and internationalization. Through the course of our
analysis we were able to examine elements of institutional environment relevant to particular
entrepreneurial intentions, as acting entrepreneurs perceive these.
Main contribution of our study stems from building a general model for entrepreneurial cognition
based on experience and institutions, and from deepening existing knowledge on intertwined
influences of various institutional combinations on entrepreneurship and internationalization
(Figure 1).
Figure 1. An integrative model of entrepreneurial cognition
The aforementioned framework was gradually developed through synthesizing the knowledge
from the available evidence persistent throughout all sections of conducted analysis. The model
implies that before making a particular decision (venture creation, growth and internationalization)
entrepreneurs evaluate previously identified opportunity through the prism of their own experience
as well as against expectations from the institutional environment. This mechanism of cognitive
21
assessment embodies an interesting duality between institutionally shared opinions and own
experiential knowledge of entrepreneurs if the latter is present. Supported by the analysis of 213
interviews, the study propose that the impact of institutional pressures on entrepreneurial
cognitions is moderated by entrepreneurial experience and level of industry-based competition. In
other words:
Proposition 1: The more experience an entrepreneur has, the lower the negative
impact of institutional pressures on his cognitions regarding intentions to create,
expand and internationalize their venture.
Proposition 2: The higher the level of industry-based competition, the lower the
negative impact of institutional environment on entrepreneurial cognitions
regarding intentions to create, expand and internationalize their venture.
Implementation of policies according to the abovementioned propositions should decrease and
alleviate the negative consequences of domestic institutional environment, thus triggering new
venture creation and entrepreneurial internationalization. Likewise, the study shows that the
negative impact of institutional environment largely stems from informal institutions, such as
unsupportive social pressures towards entrepreneurship and various normative and cultural-
cognitive constraints. Additionally, our analysis revealed an intertwined impact of particular
institutional factors, thus emphasizing the need to study institutional environment as a set of
configurations (“bundles”) rather than trying to separate the impact of certain institutional factors
or dimensions. Besides, the currently absent trust between entrepreneurs and the government is a
high-priority challenge to overcome in order to enhance efficiency of implemented policy measures
and improving regulative framework. The fact that governmental support relative to
internationalization activities has never been mentioned may also be due to the lack of trust and
deliberate attempt to hide from the ‘radar’ until ventures become more independent (institutional
escapism).
22
While our phenomenological analysis does not allow us to generalize the results to other countries
in the statistical sense, we have shown that more nuanced context-sensitive approach to institutional
forces relevant for entrepreneurs in relations to their intentions to create, grow and internationalize
their ventures brings deeper and more practice-oriented understanding. By providing examples
how formal institutional forces interact with informal, eventually turning towards an opposite
direction than it was expected on the basis of “theory”, we warn policy-makers from transition
economies like Russia, where formal and informal institutions are not aligned, against any
simplistic and partial benchmarking. Alternatively, they should carry out more tailored and
nuanced measures that fit to a particular country. In this respect, research may further look onto
different configuration of institutional factors to identify congruent patterns valid across countries
(Puffer, McCarthy, and Boisot 2010). Despite the fact that discussions of specific political-
economic reforms go beyond the boundaries of this study, we have been able to show that policies
directed to promotion of entrepreneurial experience, increased competition and supportive informal
institutions must be regarded as an inevitable part of institutional changes in Russia. More
harmonized development of institutional environment that encompasses particular combinations of
factors conducive towards entrepreneurship would help to utilize currently hampered potential of
Russian economy.
23
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1 The arbitrary year 1973 is chosen as year of birth for people who turned 18 at 1991 (collapse of the USSR)
2 The Internet Initiatives Development Fund (IIDF) is a Russian venture capital fund established by the Agency for
Strategic Initiatives as it was suggested by Vladimir Putin. The Foundation invests in technology companies in the
early stages of development, develops a network of start-up accelerators, and is involved in the development of
methods of legal regulation of the venture industry.