Flowers of adversity: Institutional constraints and innovative SMEs in transition economies

Prior research has shown that institutional constraints, present in many emerging and transition economies, decrease the performance of firms. However, how resource-restricted small-and medium-sized enterprises (SMEs) deal with these institutional constraints and potentially overcome them is currently not well understood. We combine an institutional perspective with a relational view and argue that innovative capabilities, along with networking activities enabling these firms to tap into crucial resources external to their organizations, are important means of dealing with institutional constraints. Our unique dataset of a total of 518 SMEs from Ukraine and Russia reveals that a firm's innovativeness coupled with local partnerships and resource sharing activities can help to mitigate the negative relationship between institutional constraints and firm performance. This study provides a more-nuanced understanding of how innovative SMEs in highly turbulent transition economies deal with institutional constraints and increase their performance.

Automated summary

Previous research has shown that institutional constraints decrease firm performance. However, it is currently not well understood how resource-restricted small- and medium-sized enterprises (SMEs) deal with these constraints. This study combines an institutional perspective with a relational view and finds that innovative capabilities and networking activities can help SMEs mitigate the negative impact of institutional constraints on firm performance.