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Purpose: The purpose of this paper is to examine the effects of Russian institutional upheavals on industrial development. Design/methodology/approach: The paper uses a longitudinal case study analysis of three Russian pharmaceutical firms exploring the role of state support in developing a self-sustained competitive innovation-dependent industry. Findings: Russia’s shock therapy transition to a newly liberalised economy the 1990s without a supportive institutional framework led to severe setbacks in its modernisation process. A weak institutional context was not conducive to development of its fledgling organisations. In late 2000s, Russian Government initiated large-ranging institutional support in favour of strategic industries. This resulted in a shift from short-term profit-seeking arbitrage strategies to long-term investment strategies towards vertical integration, R&D and human resource development. Findings indicate countries that wish to forge competitive industries need to develop a strong supportive institutional mechanism that allows targeted industries to modernise and compete on a global scale. To ensure the effectiveness of execution of strategic policies, coherent communication channels and collaboration between the industry and the state is necessary. Originality/value: While research on large emerging economies, such as China and India, is extensive, research on Russia and surrounding states is sparse. Most of the research on Russia is based around large resource-sector organisations. This study is novel in its uncovering various phases of development of an innovation-dependent industry.

Purpose: The purpose of this paper is to investigate the importance of political connections in the emerging market context. Design/methodology/approach: A 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. Findings: In 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/implications: Firms 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/value: The 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.