Causal mechanisms of COVID-19 disruptive effects on liability of foreignness and the emergence of new firm-specific advantages

Abstract

There is the need for comprehensive research on the disruptive effects of COVID-19 on international business (IB) in preparation for future disruption. However, we know little about the causal mechanisms of the phenomenon which impacted IB. Based on a case study of a Japanese automotive firm in Russia, we investigate how firms tackle institutional entrepreneurship with firm-specific advantages to overcome the disruptive effects. Consequently, the pandemic increased institutional costs due to greater uncertainty in Russian regulatory institutions. To manage this, the firm developed new firm-specific advantages to deal with the increasing uncertainty of regulative institutions. The firm united with other firms to motivate public officials to advocate for semi-official debates. Our study contributes to extending intersecting studies on the liability of foreignness and firm-specific advantages through the lens of institutional entrepreneurship. We propose a holistic conceptual process model of the causal mechanisms and a novel construct for new firm-specific advantages.

1. Introduction

The COVID-19 pandemic is an unprecedented public health emergency with associated significant economic consequences, affecting all developing and developed countries (The World Bank Group (World Bank), 2021), comprising a decline in production and investments, as well as increased restrictions leading to global inequality and unfairness. The pandemic makes global institutions more volatile and creates uncertainty between home and host countries (Caligiuri et al., 2020; Doh et al., 2019; Hitt et al., 2021; Van Assche & Lundan, 2020; Verbeke, 2020), disrupting equity and fairness in the field of international business (IB) (Academy of International Business (AIB), 2022), whereby governments need to respond and rescue private sectors rapidly.

Consequently, the COVID-19 crisis calls for governments’ responses to epidemic prevention, primarily worldwide. Therefore, public policy initiatives attract much global attention (Ratten, 2021). Empirically, for private enterprises, there is a need for resilience building by extending the study on impacts and their mechanisms for IB to help manage future crises (Narula, 2020, Verbeke, 2020, World Bank, BRIEF). Theoretically, there is growing discussion on the significant impact of a host country’s institutional contexts on a firm’s performance (Rabbiosi et al., 2012, Steger et al., 2011) during the COVID-19 crisis. Moreover, the importance of investigating the linkage between COVID-19 and liability of foreignness (LOF) is highlighted in IB due to potential concerns of unfairness and discrimination in the international business arena (Ratten, 2021, Academy of International Business AIB, 2022).

Simultaneously, there is growing discussion on the intersection of LOF and firm-specific advantages (FSAs) (Halaszovich, 2020, Luo et al., 2002, Mezias, 2002, Rickley and Karim, 2018, Kostova and Zaheer, 1999, Zaheer, 1995, Zaheer, 2002, Wan et al., 2020) through the lens of institutional entrepreneurship (Cao and Alon, 2021, Narula, 2020, Newenham-Kahindi and Stevens, 2018). Furthermore, recent discussions are shifting to “how” and “when” multinational companies (MNCs) attempt to develop new FSAs to manage LOF (Adarkwah and Malonæs, 2020, Halaszovich, 2020, Wan et al., 2020). Additionally, scholars discuss differentiated FSAs of advanced economy multinational corporations (AMNCs) and emerging market corporations (EMNCs). In recent literature, AMNCs in emerging markets should be more sensitive to institutional conditions in a host country with regard to distance from their home country than EMNCs in advanced economy markets (e.g., Adarkwah & Malonæs, 2020; Awate et al., 2015; Cuervo-Cazurra, 2012; Giuliani et al., 2014; Surdu & Narula, 2021; Tsui-Auch & Chow, 2019; Wan et al., 2020).

Nevertheless, it is handled as a black box that demonstrates the process of causal mechanisms whereby FSAs can be effective for whatever source of LOF and how firms try to deal with these issues by applying institutional entrepreneurship. Further, there is room for growing discussion on the limitations of authentic FSAs and the emergence of new FSAs as it is still nascent in IB (Adarkwah and Malonæs, 2020, Halaszovich, 2020, Wan et al., 2020). Moreover, LOF and FSAs are tightly linked to each other since FSAs can be one of the solutions to mitigate LOF for MNCs (Rickley & Karim, 2018). Therefore, we are grounded in the questions: How has the COVID-19 pandemic impacted AMNC’s LOF in emerging economies, and how did FSAs help firms deal with the issues?”.

Therefore, this study attempts, through an institutional entrepreneurship lens (Cao and Alon, 2021, Narula, 2020, Newenham-Kahindi and Stevens, 2018), to open up this black box by exploring the complex mechanisms of the disruptive effects that AMNCs in emerging markets encountered and struggled with and how to offset this, firms used FSAs. More concretely, we investigate whether the traditional FSAs of an AMNC in emerging markets can help firms overcome the LOF based on a framework of sources of LOF and the causal mechanisms of emerging new FSAs (Adarkwah and Malonæs, 2020, Halaszovich, 2020, Wan et al., 2020) shedding light on the uncertainty based LOF among other LOF’s sources such as "unfamilarity" and "complexity" (e.g., Luo et al., 2002; Mezias, 2002; Kostova & Zaheer, 1999; Wan et al., 2020; Zaheer, 1995, Zaheer, 2002; Zaheer & Mosakowski, 1997).

To do so, a single firm case study of a Japanese automotive MNC in Russia provides an empirically appropriate context and methodological relevance by exploring deep insights into the phenomenon (e.g., Ikegami et al., 2017; Oliveira & Lumineau, 2019; Outila et al., 2021). An increasing demand for research on Asian MNCs, especially Japanese MNCs, is observed (e.g., Delios & Beamish, 2001; Li & Fleury, 2020). Equally, there is a lack of correct and sufficient information about doing business in Russia (Japan External Trade Organization (JETRO), 2020b). Russian institutional culture is one of the least understood in IB studies as it is often viewed through a Western lens despite its uniqueness originating in post-Soviet economic revolutions (e.g., Beletskiy & Fey, 2021; Chimenson et al., 2022; Mezias, 2002; Panibratov et al., 2022; Puffer & McCarthy, 2017; Ralston et al., 2008; Spillan et al., 2021). Japan is also a unique context in terms of economic ideology and systems as it has a longstanding history of capitalism since the late 1860 s, although Japanese capitalism is not the same as US capitalism (Ralston et al., 2008). Accordingly, regarding economic ideology and systems, the Russian economic perspective is relatively collectivist-oriented, while Japan has a more individualist-oriented economic orientation (Ralston et al., 2008). Thus, we interviewed our Japanese automotive case firm, Japan External Trade Organization (JETRO), and Russian, Japanese and third-country nationals, who know the contexts and institutions soundly.

Our study contributes, through an institutional entrepreneurship lens (Cao and Alon, 2021, Narula, 2020, Newenham-Kahindi and Stevens, 2018), to the growing debates on the intersecting studies on LOF and FSAs (Halaszovich, 2020, Luo et al., 2002, Mezias, 2002, Rickley and Karim, 2018, Kostova and Zaheer, 1999, Zaheer, 1995, Zaheer, 2002, Wan et al., 2020) through in two distinct ways. First, we present a holistic conceptual process model of the phenomenon's causal mechanisms of COVID-19, institutional distances, LOF and limitations of traditional FSAs, and the emergence of new FSAs. Since the existing theories do not describe them well, we seek other explanations for the phenomenon from relatively different angles (Welch et al., 2016). Second, we suggest “new” FSAs may help mitigate LOF in the toughest conditions with higher institutional distances (Rugman & Verbeke, 2005) and propose novel constructs of newly developed FSAs as alternative options under certain conditions in transitional economies. Accordingly, the resulting patterns may not be limited to the Russian institutional context, but can also apply to other emerging countries, particularly transitional economies such as Central and Eastern Europe (CEE) countries (e.g., Aray et al., 2021; Beletskiy & Fey, 2021; Fey & Shekshnia, 2011; Halaszovich, 2020; Puffer & McCarthy, 2017; Ralston et al., 2008; Rickley & Karim, 2018; Spillan et al., 2021; Steger et al., 2011). The paper comprises the following parts as we begin the discussion with: 1) Theoretical foundations; 2) Methodology; 3) Findings; 4) Discussion; and 5) Conclusion.

2. Theoretical foundations

2.1. COVID-19 pandemic and increasing institutional distances with uncertainty

The COVID-19 pandemic has impacted several aspects of distance and caused long-term consequences in IB with substantial uncertainty (Côté et al., 2020). The crisis has brought about significant changes that have altered the trajectory of MNCs’ strategies and practices (Hitt et al., 2021) because of epidemiological restrictions to organizational activities and cast uncertainty across the business environment (World Bank, 2021). Specifically, the crisis has resulted in production restrictions, an increased unemployment rate, and a decline in investments (Narula, 2020, Ranov, 2020), while lockdowns have taken place in many countries to control the spread of the virus, meaning that entire sectors have been shut down (Brakman et al., 2021). With GDP shrinking in most countries worldwide in 2020, the outlook for 2021 became very uncertain (International Monetary Fund (IMF), 2020). This situation of rapid change, including institutional changes, coincides with significant exogenous shocks (Verbeke, 2020). The institutional uncertain changes accelerated potential risk factors, such as underdeveloped tax and regulatory systems for MNCs (McDonald & El-Said, 2002).

Accordingly, governments have needed to respond rapidly to manage contradictory threats of epidemiological prevention and business support for private businesses and workers (World Bank, BRIEF). Many governments attempted to protect their economies and labour by implementing employee retention schemes as forms of compensation for private businesses (Butterick and Charlwood, 2021, Carnevale and Hatak, 2020, Stuart et al., 2021, Organisation for Economic Co-operation & Development OECD, 2020). Particularly, governments in advanced economies have provided emergency assistance with compensation for firms’ losses during lockdowns (Narula, 2020). In contrast, some emerging country governments have delayed their responses to private businesses or have been inconsistent and such uncertain measures confused people and private businesses considerably, varying at federal and regional levels (Mankoff et al., 2020; World Bank, BRIEF). Accordingly, governments became a significant source of uncertainty in addition to the institutional distances between MNCs’ home and host countries due to firms’ inability to control vital resources and opportunities (Hillman & Wan, 2005). It was because the role of the government with underdeveloped institutions rather affected the rules of the game by consolidating the power of MNCs (Panibratov et al., 2022).

However, the literature does not reveal the disruptive effects on a firm’s LOF and how, during the crisis, this was tackled using FSAs (Halaszovich, 2020, Kostova and Zaheer, 1999, Luo et al., 2002, Mezias, 2002, Rickley and Karim, 2018, Wan et al., 2020, Zaheer, 1995, Zaheer, 2002), nor the perceptions of institutional entrepreneurship (Cao and Alon, 2021, Narula, 2020, Newenham-Kahindi and Stevens, 2018). It has been relatively limited to investigation despite the significant importance of resilience building for future similar crises (World Bank, BRIEF; Narula, 2020; Verbeke, 2020). Thus, we study COVID-19 disruption, which exaggerated the uncertainty of regulative institutional distances, and stimulated increases in institutional costs due to the increased significance of LOF (Doh et al., 2019, Hitt et al., 2021, Van Assche and Lundan, 2020, Verbeke, 2020). Furthermore, we explored a firm’s top management's needs in responding to COVID-19 disruption threats quickly during the crisis (Caligiuri et al., 2020, Carnevale and Hatak, 2020, Collings et al., 2021). Bearing this in mind, we investigated the causal mechanisms of the complex phenomenon shedding light on fairness and equity of global competition during the pandemic as topical issues (AIB, 2022).

2.2. Formal institutional establishment in advanced and emerging economies

Domestic firms as institutional insiders in emerging markets perceive their home institutional environment as less challenging than foreign firms as institutional outsiders (Khoury et al., 2014). Past studies have identified the main risk factors that firms may face in foreign markets, including political, economic, legal and regulatory risks, and cultural and geographical distances (Aliouche & Schlentrich, 2011). Especially, formal institutional distances negatively affect more significantly when the host country’s institutions are less developed than those of the home country (Stahl et al., 2016, Trąpczyński et al., 2020, Zhou and Guillen, 2016). The formal institutional distances concern the enforcement of market-supporting rules, and differences between the shared norms, values, practices, and frames of interpretation between host and home countries (Abdi and Aulakh, 2012, Eden and Miller, 2004, Kostova et al., 2020, Kostova and Zaheer, 1999). Thus, contextual factors of formal institutions such as the development of regulative institutions, and market systems and orientation could impact a firm’s decision-making and performance significantly (Rabbiosi et al., 2012, Steger et al., 2011).

Institutional deficits are a core feature of many emerging markets and many scholars have discussed them in the IB literature (Halaszovich, 2020). The definition of emerging markets has changed over the past two decades and varied in several senses (Adarkwah & Malonæs, 2020). In general, high levels of GDP per capita are usually associated with highly market-based economies that rely on complex, modern political, economic and legal rules, and institutions (Rabbiosi et al., 2012). Emerging economies reflect highly dynamic and rather unstable or underdeveloped institutions because these economies are usually in an economic transitional process (Dunning & Lundan, 2008) and institutionally underdeveloped countries are usually delayed in deciding and implementing policies and measures (Mankoff et al., 2020). Though, in any case, emerging markets’ uncertain institutions are likely to harm a firm’s performance for both domestic and foreign firms (Halaszovich, 2020). Accordingly, MNCs are embedded in multiple institutional and competitive contexts and face a constant inherent tension between seeking consistency in global operations and adapting to the local environment by fully utilizing their FSAs (Beletskiy & Fey, 2021) to tackle institutional uncertainty and volatility (Rickley & Karim, 2018).

Simultaneously, we acknowledge that governments strongly influence the institutional environment by defining rules and regulations in such uncertain and inconsistent institutional environments as they can control critical elements of business operations, such as information and security management resources (Zaheer, 1995). Furthermore, in most emerging economies, links to the government are highly crucial for private businesses, and governmental interferences in private businesses can be recognized as typical incidents (Panibratov et al., 2022). These features often emerge due to an institutional void created by the unfavourable legitimacy of a country’s formal institutions (Puffer and McCarthy, 2017, Spillan et al., 2021). Thus, MNCs depend on governments that can dramatically change the rules of the game in a local market as the interdependence and the dynamic nature of the relationship between firms and governments are highly critical in IB (Panibratov et al., 2022).

2.3. Sources of LOF and institutional costs for MNCs

LOF research has been presented as a critical success factor that MNCs embrace when going abroad for the earlier internationalisation process model (e.g., Eden & Miller, 2004; Johanson and Vahlne, 1990, Johanson and Vahlne, 2009, Johanson and Vahlne, 1977, Vahlne, 2020; Kostova & Zaheer, 1999; Vahlne, 2020; Vahlne and Johanson, 2017, Vahlne and Johanson, 2020; Verbeke, 2020; Wan et al., 2020; Zaheer, 1995, Zaheer, 2002). The origins of LOF go back to the Behavioural Theory of MNCs (Benito & Gripsrud, 1992), Resource-based Views (RBV) (Sekiguchi et al., 2016), Institutional Theory (Meyer et al., 2011), and Network Theory (Apaydin et al., 2020). Traditionally, formal institutions determine economic activity and the rules of the game, while reducing uncertainty risks and transaction costs to manage institutional distances (North, 1990, Kostova et al., 2020), but are not usually wholly met (Dorobantu et al., 2017, Panibratov et al., 2022). Institutional costs are associated with the foreign firm’s distance from the local institutional environment’s cognitive, normative and regulatory aspects (Eden and Miller, 2004, Kostova and Zaheer, 1999, Zaheer, 1995, Zaheer, 2002). AMNCs often suffer from competitive disadvantages due to their exposure costs to LOF in emerging markets due to uncertain and inconsistent institutions (Dorobantu et al., 2017, Eden and Miller, 2004, Mehlsen and Wernicke, 2016, Panibratov et al., 2022, Zaheer, 1995). Thus, LOF is considered an additional cost for doing business abroad (CDBA) for MNCs (Hymer, 1976, Hennart, 1982, Kostova and Zaheer, 1999, Zaheer, 1995, Zaheer, 2002).

Nevertheless, the deep mechanisms of firms’ challenges in tackling the issues are still unclear, whereby the institutional environment in which a company is embedded shapes its strategic response (Nuruzzaman et al., 2020, Panibratov et al., 2022). Thus, we explore the mechanisms in a classification of LOF sources such as uncertainty, unfamiliarity and complexity despite the occasional interconnections between them.

2.3.1. LOF originates in the “uncertainty” of a host country’s institutions

The overall uncertainty of the institutional environment in emerging markets is likely to hurt firms’ performances (Halaszovich, 2020). The uncertainty of formal institutions in emerging markets reduces and invalidates information available in the market, hampers its procurement, and makes firms’ performances, valuation and investment in the country more difficult for AMNCs (Rugman & Verbeke, 2005). It results in higher transaction costs in the market (Dorobantu et al., 2017, Eden and Miller, 2004, Mehlsen and Wernicke, 2016, Panibratov et al., 2022, Zaheer, 1995).

During the COVID-19 crisis, institutional uncertainty can be coupled with decreasing predictability of the institutional environment in a host country, and the increasing institutional costs for MNCs (Déjean et al., 2004). Under such disrupted circumstances in emerging economies, the need for new or different rules appeared because of rapid changes in epidemiological, business, and political circumstances, and that created additional transaction costs (North, 1990). This exacerbates the problem of limiting rationality by increasing the difficulty of collecting and processing information (Rugman & Verbeke, 2005). As a result, firms are more disposed to inefficiencies and mismanagement (Halaszovich, 2020). Firms need to invest in coordination and protection measures to reduce such uncertainty (North, 1990) since inefficient and potentially wrong decisions by firms, coupled with increased costs, harm firm performance (Panibratov et al., 2022, Wan et al., 2020). The ineligible uncertainty that firms face when confronted with a complex institutional environment requires continuous experimentation in the adaptation of institutions by creating new tactics (Cantwell et al., 2010). Nevertheless, the discussion on uncertainty-based LOF and institutional costs is relatively ignored in IB literature despite the ideal opportunity to investigate the topic during the crisis. In this study, we investigate in depth the “uncertainty” source of LOF by synthesizing other constructs such as FSAs and institutional entrepreneurship.

2.3.2. LOF with “unfamiliarity” of local institutions

LOF as an additional cost for MNCs can also be caused by the unfamiliarity of formal institutions, which is generated from unfamiliar social, political, and financial contracts among different institutions across geographic locations (Hymer, 1976, Hennart, 1982, Kostova and Zaheer, 1999, Zaheer, 1995, Zaheer, 2002). There is often a lack of access to necessary information and resources, and discrimination in the local market (e.g., Eden & Miller, 2004; Kostova & Zaheer, 1999; Luo et al., 2002; Mezias, 2002; Sato & Panibratov, 2022; Wan et al., 2020; Zaheer, 1995, Zaheer, 2002; Zaheer & Mosakowski, 1997). The unfamiliarity of a foreign company with the host country’s environment may lead to incorrect assessments based on insufficient or incorrect information in decision-making and strategic management (Eden & Miller, 2004) and also coupled with limited access to local networks or finding local partners, can be seen as the main cause of LOF in the institutionally vulnerable environment of emerging markets. As a result, firms may suffer from higher internal and external transaction costs (North, 1990) for dealing with such LOF (Kostova and Zaheer, 1999, Zaheer, 1995, Zaheer, 2002). In this study, we do not discuss unfamiliarity-based LOF, thus shedding light on LOF with its origins in “uncertainty”.

2.3.3. LOF concerns the “complexity” of discrimination due to the lack of legitimacy

Numerous institutional logics constitute a system of patterns that define the institutional environment and its complexity (Greenwood et al., 2011). In such a complex institutional environment, multiple actors play in the institutional environment and shape the complex institutional structures of emerging markets. Emerging markets’ complex institutional structures create uncertainty, and that exacerbates the problem of bounded rationality by increasing the difficulty of collecting and processing information on their operations and management practices (Rugman & Verbeke, 2005). Such complex institutional structures in emerging economies create uncertainty as increasingly complex and unstable structures of formal institutions, coupled with the decreasing predictability of the institutional environment, mean increased institutional costs (Déjean et al., 2004). Moreover, foreign firms may suffer discrimination in a particular country characterized by imperfect markets, inefficient judiciary, unpredictable and burdensome regulations, heavy bureaucracy, political instability and discontinuity in government policies, and sometimes local firms are favoured over MNCs, imposing constraints on the latter (Wan et al., 2020). Nevertheless, in most cases, firms can hardly control the institutional environment. As a result, the overall complexity of the institutional environment in emerging markets hurts both domestic and foreign firms’ performances (Halaszovich, 2020). In this study, we continue to discuss uncertainty-based LOF although institutional complexity often causes uncertainty and vice versa.

2.4. Firm-specific advantages as a non-market strategy

Non-market strategies can be seen as strategies that firms use to cope with the high institutional costs of using markets because the quality of the existing institutional environment in CEE countries is weak (e.g., Dorobantu et al., 2017; Marquis & Raynard, 2015; Mellahi et al., 2016; Rickley & Karim, 2018). The IB literature highlights several patterns of non-market strategies such as FSAs: knowledge and skill transferring from headquarters (HQs) and the capability building of MNCs in many locations through collaboration with their foreign subsidiaries. The FSA concept originates in the RBV (Wan et al., 2020). FSAs are defined as a firm’s competitive advantages (Awate et al., 2015, Mehreen et al., 2021) derived from specific assets, especially intangibles, and an ability to give a company a superior competitive position (Adarkwah and Malonæs, 2020, Sato and Panibratov, 2022). Traditionally, authentic FSAs in the host country consist of advantages outside transferred from another country, including the parent company’s HQs, as well as specific advantages from other foreign subsidiaries within the same business group (Arikan et al., 2019, Sato and Panibratov, 2022, Schaefer, 2020, Rugman and Verbeke, 2003). Simultaneously, these FSAs reflect a firm’s broad, multi-faceted advantages, including competitive advantages, corporate capabilities, core managerial competencies, and ownership advantages (Cantwell et al., 2010). Additionally, the unique institutional environment of emerging market countries has been identified as a key source of FSAs (Kubny and Voss, 2014, Luiz et al., 2017). For example, experiences with local bureaucratic and sometimes corrupt officials are useful for MNCs (Adarkwah & Malonæs, 2020). More detailed explanations regarding FSAs continue in the following sections.

2.4.1. Limitations of FSAs and the emergence of new FSAs in uncertain institutions

In this study, we differ between FSAs of AMNCs and EMNCs following increasing discussion on different patterns of behaviours and actions of AMNCs in emerging markets from EMNCs in advanced economy markets (e.g., Adarkwah & Malonæs, 2020; Awate et al., 2015; Cuervo-Cazurra, 2012; Giuliani et al., 2014; Surdu & Narula, 2021; Tsui-Auch & Chow, 2019; Wan et al., 2020). For instance, AMNCs tend to create and exploit their FSAs brought from their HQs in advanced economies, while EMNCs attempt to catch up with average per with rivals (Awate et al., 2015). Moreover, a recent study confirmed that AMNCs are more sensitive to the conditions of the host country’s institutional environment and prefer utilizing their superior FSAs rather than learning from past experiences abroad (e.g., Adarkwah & Malonæs, 2020; Awate et al., 2015; Cuervo-Cazurra, 2012; Giuliani et al., 2014; Sato & Panibratov, 2022; Surdu & Narula, 2021; Tsui-Auch & Chow, 2019; Wan et al., 2020).

Primarily, AMNCs hold solid FSAs, including various advantages, bringing them to favourable positions (Surdu & Narula, 2021), and with more experience in IB development, they are generally expected to absorb new knowledge and create new FSAs to adapt to new contexts (Adarkwah and Malonæs, 2020, Cuervo-Cazurra and Rui, 2017, Johanson and Vahlne, 2009, Wan et al., 2020). In particular, an intra-organizational knowledge and skill transfer foundation from HQs is crucial for AMNCs to develop a firm’s competitive advantages (Awate et al., 2015, Mehreen et al., 2021).

However, staying in very uncertain institutional environments, AMNCs may not become strong enough to overcompensate for their FSAs, whereby foreign firms cannot fully utilize traditional FSAs to deal with institutional uncertainty. The extreme uncertainty created by institutional volatility presents many challenges for corporate strategies and it cannot be parameterized or predicted beyond approaches available under an unstable institution (Hartwell and Devinney, 2021, Panibratov et al., 2022). It is because firms cannot control the uncertain environment they face in these markets (Halaszovich, 2020). In situations of high risk with uncertainty in formal institutions, AMNCs are likely to develop new tactics (Cantwell et al., 2010) such as market and non-market strategies (Darendeli & Hill, 2016) because AMNCs in emerging markets cannot easily outperform local rivals when they cannot fully exploit their superior FSAs among local rivals.

AMNCs potentially may improve and mitigate institutional costs and reduce institutional uncertainty through the new FSAs (Panibratov et al., 2022). IB scholars have initiated emerging discussions on “how” and “when” new FSAs are developed by MNCs under “what kind of conditions” (Adarkwah and Malonæs, 2020, Halaszovich, 2020, Wan et al., 2020). A firm’s experience and organizational learning in a host county can contribute to international expansion success because generally international experiences in a host country can create new FSAs that potentially can offset EMNCs’ LOF (Kubny and Voss, 2014, Luiz et al., 2017), but they would not be effective for AMNCs in a particular market (Bohnsack et al., 2021, Grøgaard et al., 2019, Sato and Panibratov, 2022, Surdu and Narula, 2021).

In contrast, EMNCs have been exposed to institutional hardship in their home emerging economies with weak institutions and that can develop their FSAs, transactional capacity and resilience to managerial practices in similar institutional contexts (Adarkwah and Malonæs, 2020, Rickley and Karim, 2018). Moreover, EMNCs even may prefer to go abroad to institutionally developed economies expecting to enhance and sophisticate their FSAs, given the advantages of such institutional distances (James et al., 2020). Therefore, these challenging and experimental features are what AMNCs fail to obtain from their institutionally developed home market conditions (Adarkwah and Malonæs, 2020, Choi and Beamish, 2013).

As we have a limited understanding of details about the emergence of new FSAs, we explore the non-market strategy under a highly unstable institutional environment in which firms are embedded in IB research (Dorobantu et al., 2017, Panibratov et al., 2022).

3. Methodology

The richness of qualitative data can come from interviews that scope deep causal mechanisms of the phenomenon incrementally (Welch et al., 2011) owing to the integrative understanding of particular institutional settings (Cunliffe, 2010, Gioia et al., 2013). The individual exploratory power of a single case study approach provides remarkable insights into meaningful outcomes (Ikegami et al., 2017, Oliveira and Lumineau, 2019, Outila et al., 2021). Therefore, a case study approach is suitable for developing causal explanations and revealing generative mechanisms.

However, there is a dilemma in balancing the “generalization" (Eisenhardt, 1989, Eisenhardt and Graebner, 2007) and “contextualization" (Welch et al., 2011) of findings if we pursue applying a single “template” for qualitative study (Harley and Cornelissen, 2020, Stendahl et al., 2021, Tippmann et al., 2022). Furthermore, the Uppsala model explains the process of internationalization, although there is little attention to the facet as a “process” in the previous literature (Welch et al., 2016). It may be interpreted as the regular model of causality mechanisms if rejected in favour of a more complex understanding that recognizes the contingent nature of causality (Welch et al., 2011).

Therefore, we avoided the application of a specific methodological “template”, which potentially constrains the capability of our study to picture multiple facets of the phenomena (e.g., Corley et al., 2021; Gehman et al., 2018; Gioia et al., 2013; Reuber & Fischer, 2022, Stendahl et al., 2021; Tippmann et al., 2022). Instead, we customized methodological rigour by referring to several templates by distinguished scholars such as “inductive theory building with the data structure” by Corley and Gioia, 2004, Corley and Gioia, 2011 and Gioia et al. (2013), “data validation with triangulation” by Eisenhardt (1989) and Eisenhardt & Graebner (2007), “process model” by Langley, 1999, Langley, 2007, and “contextualized explanations” by Welch et al. (2011).

To do so, we were dedicated to the discourse of “subject search for meaning (Corley and Gioia, 2004, Corley and Gioia, 2011)”, pursuing “contextualization (Welch et al., 2011)” to deliver “thick description (Corley & Gioia, 2004)” into a “process model (Langley, 1999, Langley, 2007)”. Our analytical stance was inductive in that it involved theorizing through open coding and data structures (Corley and Gioia, 2004, Corley and Gioia, 2011, Gioia et al., 2013), while it was abductive in that it was an argument based on empirical data and required looking for explanations for surprising discrepancies in the data that previous studies could not explain (Stendahl et al., 2021, Welch et al., 2011). To overcome the difficulties, we organized the data structure, essential for our theory building in this study, as this is already a “process” allowing us to jump in-depth into our informant’s world to uphold their voices by respectfully finding their meaning (Gehman et al., 2018).

3.1. Research contexts: Japan and Russia

There is a growing appreciation for understanding the impact of “contextualized (Piekkari et al., 2009, Welch et al., 2011)” institutions on business in emerging markets (Panibratov et al., 2022), whereby because of the difference between the host and home country higher LOF can occur (Zhou & Guillen, 2016; Wan et al., 2020). In this study, we use the term emerging economies as transitional economies that have been shifting their economic systems and ideologies from a planned and centralized economy in socialist regimes to a market economy such as CEE countries and Russia, because of the relevance for this particular study to highlight institutional distances between transitional and advanced economies (e.g., Halaszovich, 2020; Puffer & McCarthy, 2017; Ralston et al., 2008; Rickley & Karim, 2018; Spillan et al., 2021; Steger et al., 2011). In contrast, we suggest the term advanced economies as institutionally highly developed countries such as G7 countries, including Japan, that have for a long time run a capitalist regime and economic systems.

Japan and Russia are neighbouring countries and have been influenced by economic ideologies that have emphasized divergent orientations over the past 50 years, despite their respective ideologies and national cultures following different directions (Ralston et al., 2008). Nevertheless, there is often a lack of correct and sufficient information regarding the Russian market in Japan (JETRO, 2020b) despite their geographical proximity favouring IB development in the two countries (Gabuev, 2016, Nihon Keizai Dantai, 2021). Japan facilitates private businesses relatively independently aside from governmental interferences as Japan has a long history of running a capitalist economy, since the Meiji Restoration of the late 1860 s, while also being influenced by American values after WWII, although Japanese capitalism is relatively different from US capitalism (Ralston et al., 2008). In contrast, Russia has been transitioning from a centrally planned economy in the Soviet regime to a market economy over the past 30 years and has experienced many problems during the transitional process (e.g., Puffer & McCarthy, 2017; Ralston et al., 2008; Spillan et al., 2021; Steger et al., 2011). Russian institutional evolutions have increased volatility and uncertainty although Russia, based on its natural-resource based economy, has been trying to participate in the global economic community, may remain unbalanced and corrupt for some time (Fey and Shekshnia, 2011, Puffer and McCarthy, 2017, Spillan et al., 2021).

Nevertheless, formal institutional distances between Russia and its home countries exaggerate the uncertainty of doing business in Russia (Dikova et al., 2019). Japanese MNCs often struggle due to such uncertainty of the Russian institutions as they usually prefer an institutionally stable environment since underdeveloped institutions may cause extra costs (Delios and Henisz, 2000, Delios and Henisz, 2003, McDonald and El-Said, 2002, Zaheer, 1995, Zaheer, 2002). It is because Japanese firms generally prefer the political and regulative dimensions of a host country’s institutions to be stable and consistent although they usually do not much care about psychic distances from a host country unlike other countries’ AMNCs (Delios & Henisz, 2003). Thus, we consider that the unique institutional contexts of Japanese MNCs in Russia are relevant to this particular study.

3.2. Data collection

Based on our customized integrative approaches to analysing the complex phenomenon (Chang, 1995), we selected a Japanese automotive MNC in Russia as our case firm owing to its empirical relevance for this particular study (Delios & Beamish, 2001). Regarding the selection of a sector, historically, automotive firms have dominated exports to Russia in the form of automotive vehicles (26.9%) and automotive parts (14.9％) (Ministry of Economy & Trade and Industry of Japan (METI), 2018) and more than 40% of Japanese foreign direct investment (FDI) in Russia is invested in the manufacturing sector (JETRO, 2020b).

First, we listed all Japanese automotive MNCs in Russia and compared their operational status and geographical locations: some had already left Russia, while others had entered into joint ventures (JVs) with Russian partners. In selecting the case companies, preference was given to actively operating firms that had integrated into the local environment. Japanese MNCs with sole ownership by the Japanese headquarters operating their production site locally but who were not just importing products from Japan or elsewhere were a primary target for our case study. The primary listed firms and the final selection of our case firm for the case study are shown in Table 1.

Table 1.

Preliminary list of potential case firms.

	Firm	Location (by region)	Status (as of when conducting the field research)	Ownership
1	JP-MNC 1	Northwestern Russia	In operations	Sole Ownership
2	JP-MNC 2	Northwestern Russia	In operations	Sole Ownership
3	JP-MNC 3	Central Russia	In operations (in a joint venture with a European partner)	Joint venture
4	JP-MNC 4	Far East	In operations (in a joint venture with a Russian partner)	Joint venture
5	JP-MNC 5	Volga	In operations (in a joint venture with a Russian partner)	Joint venture
6	JP-MNC 6	Central Russia	Withdrawn plans for opening a factory due to practical issues	N/A
7	JP-MNC 7	Central Russia	In operations (sales and marketing only)	Joint venture
8	JP-MNC 8	Central Russia	Closed operations (sales and marketing only)	N/A

Source: Authors’ synthesis based on secondary sources as of when conducting this research.

Second, we interviewed the top local Japanese management in a Japanese automotive MNC in central Russia. The interviews were conducted online using Zoom, and the narratives were recorded. Although the COVID-19 crisis has been causing difficulties for researchers trying to execute qualitative approaches due to limited access to target firms (Carnevale & Hatak, 2020), we concentrated our efforts on maximizing the quality of interviews. To this end, we interviewed native Russian experts, including a research expert at a Russian university, a journalist at a Russian news agency, and a Russian entrepreneur with rich experience working with foreign MNCs and managing small and medium-sized enterprises (SMEs). We also organized interviews with a Japanese professor in a Japanese university who used to work in the Consulate of Japan in Russia, a Japanese consultant at the Big4 accounting firm in Russia, and a former managing director of JETRO. Furthermore, we invited third-country interviewees who knew the Russian institutions well: an Indonesian business person who had studied at a Russian university and a Palestinian IT engineer working in a Russian firm and studying in a doctoral programme at a Russian university. Additionally, we interviewed a newly dispatched director of JETRO. Consequently, we conducted 20 interviews with 10 interviewees between January and December 2021. The interviews were conducted via Zoom, taking 90–120 minutes each.

Third, we explored and applied archival data which consists of several types of sources. Archival data can significantly improve our findings’ validity for generalizability (Eisenhardt, 1989, Eisenhardt and Graebner, 2007), owing to the multi-faceted lenses employed to cover the scope of the phenomenon (Corley and Gioia, 2004, Corley and Gioia, 2011, Gioia et al., 2013, Stendahl et al., 2021), although the consideration of case studies needs to be understood within the context of a particular disciplinary tradition rather than as universal, discrete, and immutable methods (Piekkari et al., 2009). The list of interviewees is shown in Table 2.

Table 2.

Sources of actual interview subjects.

	Subject	Sector	Nationality	Location	Number of interviews
1	Local top management of JP-MNC 1 in Russia	Automobiles	Japanese	Online (Zoom)	2
2	Managing director of JETRO in Russia (1) (former)	Government	Japanese	Online (Zoom)	2
3	Business consultant at the Big4 accounting firm in Russia	Consulting	Japanese	Online (Zoom)	1
4	Research expert working in a Russian university	Academia	Russian	Online (Zoom)	3
5	Entrepreneur managing own SME having rich IB experiences	SME	Russian	Online (Zoom)	2
6	Journalist working as a correspondent in a Russian news agency	Mass media	Russian	Online (Zoom)	2
7	Business person having a diploma from a Russian university	Telecoms	Indonesian	Online (Zoom)	2
8	IT engineer working and studying at a Russian university	IT, Academia	Palestine	Online (Zoom)	2
9	Managing director of JETRO in Russia (2) (newly dispatched)	Government	Japanese	Online (Zoom)	2
10	Professor in a Japanese university in the Russian branch	Academia	Japanese	Online (Zoom)	2
	Total number of interview subjects: 10
	Total number of interviews: 20

We also explored the list of so-called backbone enterprises and the special measures and governmental support for these backbone enterprises, published by the Russian government. The listed backbone enterprises were systematically selected as they served essential domestic and foreign enterprises needed to improve the sustainability and development of the Russian economy (Ministry of Economic Development of Russia). The list of particular measures during the COVID-19 crisis was drawn up and published by The Federal Service for the Supervision of Consumer Protection and Human Welfare and The Ministry of Health of Russia (Federal Service for Supervision of Consumer RightsProtection and Human Welfare, and Ministry of Health of Russia). In addition, the ministries announced other measures and support for individuals, sole proprietorships, and SMEs. The list of archival data and secondary sources is shown in Table 3.

Table 3.

The list of archival data and secondary sources.

	Name of sources	Distributer or publisher	Type of data	Year
1	Support for systemically important enterprises (the backbone enterprises)	Federal Service for the Supervision of Consumer Protection and Human Welfare, and Ministry of Health of Russia	The list of special measures during the pandemic	2021
2	The list of backbone enterprises	Ministry of Economic Development of Russia	The list of backbone enterprises	2020
3	Overview of the Sustainable Compensation Schemes for a full lockdown	Ministry of Economy, Trade, and Industry of Japan	Compensations for a full lockdown	2020
4	Overview of the Sustainable Compensation Schemes for semi-lockdowns	Ministry of Economy, Trade, and Industry of Japan	Compensations due to semi-lockdowns	2020
5	Compensations for employment adjustment schemes (Special cases due to the effects of new coronavirus infection)	Ministry of Health, Labour and Welfare of Japan	Compensations for employee retention schemes	2020
6	Outward / Inward Direct Investment, breakdown by Region and Industry	Ministry of Finance, Japan	Macroeconomic data of Japanese FDI in 2020	2021
7	World investment report 2020	UNCTAD	Economic outlook	2020
8	World investment report 2016	UNCTAD	Economic outlook	2016
9	Russia Economic Report No 45, Russia’s economic recovery gathers pace. Special Focus on cost-effective safety nets	World Bank	Economic outlook	2021
10	OECD Policy Responses to Coronavirus (COVID-19) Job retention schemes during the COVID-19 lockdown and beyond	OECD	Economic outlook	2020
11	World economic outlook updates	IMF	Economic outlook	2020
12	Survey on Japanese Companies Expanding Overseas in FY2020 (Russia)	JETRO	Surveys with Japanese MNCs in Russia	2020
13	Survey on Japanese Companies Expanding Overseas in FY2021 (Russia)	JETRO	Surveys with Japanese MNCs in Russia	2021
14	Discussing various issues related to trade between Japan and Russia, holding a “working group” for the first time in three years (Russia, Japan)	JETRO	Press release for a bilateral meeting of Japanese and Russian authorities	2021
15	Results of surveys on the Business Environment in Russia (FY2021)	Keidanren	Surveys with Japanese firms about the Russian market	2021
16	16th Japan-Russia Joint Session of Economics Memo Random.	Keidanren	Press release of the bilateral meeting of Japanese and Russian authorities	2020
17	JAPAN-RUSSIA RELATIONS IMPLICATIONS FOR THE US-JAPAN ALLIANCE	Sasakawa Peace Foundation USA	A report on Japan-Russian relationships	2016
18	White paper on Trades and Businesses 2018	Ministry of Economy, Trade, and Industry of Japan	Overviews of trades and doing businesses in Russia	2018
19	Regarding the result of the urgent questionnaire “Impact of the spread of new coronavirus infection on the business”	JETRO	Survey results of Japanese MNCs in Russia during the COVID-19 pandemic	2020
20	GovData 360: Comparison in regulatory quality of Japan and Russia3	The World Bank	Statistical data of comparison in a country’s institutions	N/A

Then, we investigated a list of special measures for compensations during full/semi-lockdowns imposed by the Japanese government. We used the results of surveys by JETRO and Nihon Keizai Dantai Rengoukai (Keidanren) regarding Japanese firms’ views and opinions concerning the Russian market. JETRO is a subsidiary of the Ministry of Economics, Industry and Trade of Japan (METI). It operates 50 domestic and 70 overseas offices, pursuing the promotion of investment in Japan, offering support for the overseas expansion of small and medium-sized enterprises, and contributing to Japan’s corporate activities and trade policies. Keidanren is an organization that brings together Japanese firms, advocating the “voice” of Japanese large-capitalized firms and lobbying the government and beyond. It is considered to be one of the Japanese business’s most conservative and influential organizations. However, it has also had a long history of substantial political donations to the Japanese Liberal Democratic Party. In addition, it has continuously organized surveys with its member firms regarding perspectives, motivations, and issues regarding the Russian economy and its markets every year since 2005 (Keidanren, 2021).

In March, JETRO conducted urgent surveys of 135 Japanese firms in Russia, which were designated by the Japan Moscow Club (the Japanese Chamber of Commerce in Moscow) and the Japanese Chamber of Commerce in Saint Petersburg (the valid response rate was 56.2%) regarding the impacts of the spread of COVID-19 on businesses (JETRO, 2020a). JETRO also organized its annual survey of 120 Japanese companies expanding into Russia in September 2020 and received responses from 93 companies in Russia (a valid response rate of 77.5%), asking questions about the operating profit outlook, the business development over the next 1–2 years, managerial and operational issues, the investment environment, and the impact of COVID-19 on businesses (JETRO, 2020b). Accordingly, we used both annual survey results by JETRO in 2020 and 2021 to compare the disruptive effects before and during the pandemic on views of Russian regulatory institutions by Japanese MNCs in Russia. Simultaneously, Keidanren conducted surveys concerning perspectives, motivations, and problems for 150 Japanese firms in the Russian market. Additionally, in April-May 2021 it organized surveys with 150 Japanese firms (members of the Moscow Japan Club and the Japanese Chamber of Commerce in Saint Petersburg) to acquire an accurate picture of issues affecting the Russian business environment, the results of which they submitted to the Russian government (Keidanreni, 2021).

Finally, we also applied other relevant statistics and reports published by United Nations Conference on Trade & Development (UNCTAD), the World Bank, IMF, OECD, and the Ministry of Finance of Japan, and survey results from JETRO and Keidanren were used. We also utilized press releases by JETRO and Keidanren, outlooks and reports by the Sasakawa Peace Foundation USA, among others, and various news articles from leading international newspapers.

3.3. Data analysis

To expand our findings to be normalized, legitimized, and standardized within the discipline (Piekkari et al., 2009), our approach to theory building is pursued both inductively and abductively by applying multiple templates to our study (Corley et al., 2021, Corley and Gioia, 2004, Corley and Gioia, 2011, Eisenhardt, 1989, Eisenhardt, 2021, Eisenhardt and Graebner, 2007, Gehman et al., 2018, Gioia et al., 2013, Langley, 1999, Langley, 2007, Reuber and Fischer, 2022, Stendahl et al., 2021, Tippmann et al., 2022, Welch et al., 2011). The approaches allow us the systematic presentation of both primary analysis derived from informant-centred terms or codes, and secondary analysis derived from the quirky concepts, themes and inspirational dimensions of the primary and secondary terms (Gehman et al., 2018).

3.3.1. Detailed and synthesized case description

In the first phase, we developed case descriptions based on information from observations, interviews and archival material. It is critical to generalize our results through triangulation and the coding of data and information to extend existing theories. We pursued a customized and synthesized qualitative study that considered contextual sensitivities (Piekkari et al., 2009, Welch et al., 2011) and generalized the findings (Eisenhardt, 1989, Eisenhardt, 2021, Eisenhardt and Graebner, 2007) through open coding and data structuring (Corley and Gioia, 2004, Corley and Gioia, 2011, Gioia et al., 2013, Stendahl et al., 2021). Our data analysis proceeded in parallel with data collection, giving us the flexibility to explore themes and unfold events in subsequent interviews. Following the use of the theory building of the case study (Eisenhardt & Graebner, 2007), our focus on the practices of traditional FSAs to mitigate LOF, designated as uncertainty in a host country’s regulative institutions during the crisis, was evident from the data. Additionally, the process of typical qualitative data analysis was highly iterative, involving constant reversion to data and theory (Stendahl et al., 2021). Although iterative, our data analysis proceeded in three broad steps.

3.3.2. Open coding with data structures

In the second phase, open coding and structuring data allowed us to capture micro-level behaviours and activities (Tippmann et al., 2012), which are included in the summarized form as empirical observations, whereby the recorded data were coded and categorized thematically. We reviewed all of the narrative data recorded and developed comprehensive and simple thematic codes (Newenham-Kahindi & Stevens, 2018). After multiple interpretations of the data, we combined segments of descriptions reflecting similar content, wording and activities into primary categories. As the research progressed, we began to seek similarities and differences between the new categories (Gehman et al., 2018). Next, we considered the constellation of first-order codes. Once all the primary codes and secondary themes and dimensions have been assembled, a foundation is laid for building data structures (Gehman et al., 2018). Simplifying the complex phenomena was the key to reaching contextualized explanations (Welch et al., 2011). Our data structure is summarized in Table 4.

Table 4.

Data structure.

Empirical observations	1storder implications	2ndorder themes	Aggregate dimensions
Phase 1: •The COVID-19 pandemic called for governments’ responses to epidemic prevention. •Governments’ measures required firms to operational restrictions during lockdowns.	The pandemic incurred governmental responses	Disruptive effects of the COVID-19	Overcoming disruptive effects on LOF through institutional entrepreneurship
Phase 2: •Confusion in rapidly changing measures and inconsistent information delivery by the government. •Discussions and information exchange activities among other firms.	Rapidly changing regulations and inconsistent information delivery
Phase 3: •Suffering from operational costs during lockdowns. •Seeking information about governmental support for private business sectors. •Expectations for financial compensation from the host government.	Increasing operational costs and financial losses
Phase 4: •Insufficient and ineffective governmental compensation and financial support for private business sectors. •Gaps in governmental support for private business sectors between home and host countries.	Increasing institutional distances	Increasing institutional distances and costs
Phase 5: •The burdened institutional distances and increased institutional costs for the firm. •Increasing institutional costs that could negatively impact the firm’s performance.	Increasing institutional costs
Phase 6: •Strong pressures and urgent need for managing institutional costs to get reduced. •An urgent need for utilizing effective FSAs to tackle the issues.	Strong pressures and urgent need for mitigating institutional costs	The emergence of new FSAs
Phase 7: •Utilizing traditional FSAs to tackle the issues. •Ineffective traditional FSAs to manage regulatory institutions at the government level.	Limitations of traditional FSAs
Final phase: •Getting united with other Japanese MNCs in Russia to find alternative solutions. •Facilitating diplomatic talks between government officials.	Organizing institutional entrepreneurship as new solutions

The data was then structured using axial coding conceptually informed secondary themes (Stendahl et al., 2021). Based on our coding procedures, we identified the most frequently occurring keywords in the narrative as regulatory issues, governmental restrictions, and governmental interferences (Gabuev, 2016, Surdu and Narula, 2021), special measures and compensations for sales losses during lockdowns by the Russian government, and employee retention schemes (Brakman et al., 2021). Once they were identified, we integrated the obtained data into a “within-case analysis” (Newenham-Kahindi & Stevens, 2018). Then, to ensure the validity, we triangulated the data with other interviewees’ narratives and archival data (Corley and Gioia, 2004, Corley and Gioia, 2011, Gioia et al., 2013, Stendahl et al., 2021). The coded themes were then used to create synthesized findings balanced with contextualization (Piekkari et al., 2009, Welch et al., 2011). The related categories were compiled into themes corresponding to practices that coordinate control. Each secondary theme or practice was triangulated (Eisenhardt, 1989, Eisenhardt, 2021, Eisenhardt and Graebner, 2007) and carried out and synthesized across observations, interviews and archive data. Finally, to increase the theoretical value abstraction, we identified three overarching aggregate categories. It is probably the most important step in the overall research approach because it marks the progression from raw data to first-order codes and second-order theoretical themes and dimensions, demonstrating the rigour of qualitative research (Gehman et al., 2018).

3.3.3. Conceptual process model building

In the third stage, Langley’s (1999) strategy for analysing process data allowed us to consider dynamically adjusting the control approach in terms of significant events, activities, changes and temporal evolution (Gehman et al., 2018, Langley, 1999, Langley, 2007). We built a process model to coordinate the analysis based on the ordering of constructs and themes that precede others (Langley, 1999, Langley, 2007). Our conceptual process models exist as building blocks that lay out a series of constructs and causal mechanisms that explain events and outcomes in thick description (Stendahl et al., 2021). We analysed descriptions of relationships and links between constructs and incidents to help our explanation building. Thus, this process modelling phase resulted in identifying how incidents and key constructs such as institutional distance and costs, LOF, FSAs, COVID-19, and institutional entrepreneurship, are processed and interconnected with each other and how they are consolidated (Stendahl et al., 2021).

4. Findings

4.1. The COVID-19 disruption impacts the Russian economy

Russia experienced COVID-19 disruption, negatively impacting approximately 3.3 million out of 5.6 million companies, 59% of small, medium, and large enterprises and sole proprietors (Ranov, 2020). Nevertheless, the decline in Russia’s GDP growth has been relatively small compared to the world average and that of CEE countries as Russia’s GDP declined by 3.0% in 2020, compared to an average of 3.8% in the global economy, 5.4% in developed and 4.8% in commodity-exporting countries (World Bank, 2021).

“The GDP growth rate does not properly show the reality of the Russian economic situation since the oil and gas sector has accounted for about 40% of the Russian GDP over the last decade. Thus, the recent economic recovery should be owed to upbeats of oil and gas prices” (Russian journalist).

The figure showed that negative impacts on the Russian economy had been relatively light. However, the projections for Russia’s GDP decline differed and varied significantly from those of the Russian National Research University Higher School of Economics (HSE) (−4.3%), and the IMF (−6.6%) (Ranov, 2020).

“I think most businesses in Russia seemed to recover from the initial lockdowns rapidly” (Palestine refugee business person, a current doctoral student in Russia).

The Russian government’s significant macro-fiscal stabilization efforts before the COVID-19 crisis supported its ability to respond effectively to the pandemic’s adverse social and economic impacts (World Bank, 2021). Furthermore, these efforts strengthened Russia’s ability to respond to the pandemic’s most severe economic shocks.

“The Russian government has utilized the reserve budget from its sovereign fund to stabilize its economy following COVID-19 and recovered quickly” (Russian entrepreneur).

Nevertheless, the threat of pressure on the Russian economy was more severe than in other countries, primarily due to the comparatively low vaccination rates (Grinkevich, 2021). This poor uptake rate created the risk of newly introduced restrictions at a later date. At the same time, economic recovery with a high proportion of the manufacturing industry (Grinkevich, 2021), as well as continued vulnerable consumer consumption, inflation, and unpredictable currency values (JETRO, 2020b), were the main areas to improve. Growing concerns about the Russian economy’s sustainability continued as gas and oil prices plummeted (Taniguchi, 2016, p.41). However, the crisis potentially incurred an opportunity for Russia to strengthen its ability to protect and improve the living standards of its citizens in the long term (World Bank, 2021).

“Recently, my friends have been complaining about inflation – massive cost rises of ordinary foods and products that make us struggle” (Russian research expert).

“There are many issues that directly affect ordinary people’s everyday lives, such as inflation, low incomes and salaries, high living costs, and economic recession due to sanctions since 2014. It is not easy to survive in a big city like Moscow” (Russian journalist).

The Russian economy suffered from its highest inflation rate of 8.1% in October 2021, even though the Central Bank of Russia was striving to accomplish its 4% target, despite fears of potential stagflation worldwide (The Moscow Times, 2021). Russia’s rate of inflation has accelerated by 8.73% year-on-year in January 2022, following rapid price rises, especially in foods and consumer goods over the past 20 months due to the robust economic recovery from the COVID-19 recession (The Moscow Times, 2022). The question of how long the abnormally high inflation would remain offered potential new shocks to the Russian economy (Grinkevich, 2021), whereby the continuity of domestic demand positively impacted the production of food, the chemical industry, pharmaceuticals, medical equipment, devices, and equipment (Ranov, 2020).

“The Russian private business sector has struggled for a long time, since before the sanctions and pandemic, due to miscellaneous issues. During the pandemic, Russian state-owned enterprises recently produced air fighters and aircraft domestically. The government recently decided to apply double taxes for foreign electric vehicle-makers, but are they reasonable options?” (Russian entrepreneur).

The protectionist trade-oriented measures associated with COVID-19 have affected MNCs through increased business costs (Van Assche & Lundan, 2020). In addition, to achieve external legitimacy in a host country, local regulatory agencies may create a compulsory isomorphism to pressure foreign MNCs to adopt social patterns (Eden and Miller, 2004, Kostova and Roth, 2002) because LOF can also increase from environmental changes leading to the sudden loss of legitimacy of a particular enterprise from a particular home country (Zaheer, 2002). Recently, the Russian government increased the required percentage of local procurement of auto parts in Russia (localization), causing other struggles. Furthermore, many Russian practitioners have pointed out that political leaders and diplomats are unrealistic in combining political issues and economic development (Gabuev, 2016, p.121). Nevertheless, many Japanese MNCs in Russia are attracted to the potential market growth in Russia, even after the initiation of sanctions in 2014.

“A Japanese expatriate once told me that there is no other country in the world where the market size fluctuates as much as in Russia. Therefore, although the current automotive market is quite depressed, some firms may believe in the potential growth of the Russian automobile market that may overwhelm the German automotive market of three million units a year, and that would become the largest market in Europe” (Newly dispatched Japanese director of JETRO).

According to JETRO’s annual survey results in December 2020, Japanese MNCs in Russia evaluated some features of the Russian market positively, as they stated that “market size/growth potential was attractive at 60.2%, despite a decrease of 6.8 points from the previous year” (JETRO, 2020b). In addition, Japanese MNCs made a positive evaluation of the “high quality of employees”, the “abundant land/office space, low land prices/rents”, and the “enhancement of infrastructure (electricity, transportation, telecommunications)”, thus increasing the advantages of the Russian market (JETRO, 2020b).

4.2. Regulative institutional distances due to the uncertainty of Russian institutions

Japanese FDI has led to investments in emerging economies (Delios and Henisz, 2000, Delios and Henisz, 2003), and its outward FDI has strengthened over recent decades, even during the pandemic (United Nations Conference on Trade & Development (UNCTAD), 2020). The top destinations for Japanese businesses are the US (30.7% in total) and China (8.9%), whereas Russia amounts to relatively small volumes (0.4%) (Ministry of Finance of Japan, 2020). However, the uncertainty of doing business in the private sector increased during the pandemic, and there was a growing awareness about how to turn this into potential opportunities (Ratten, 2021). The influence of a host country’s cultural dimension on Japanese MNCs’ internationalization is almost non-existent, but they strongly prefer political and regulative dimensions in a host country’s institutions to be stable and consistent (Delios & Henisz, 2003).

To show the evidence of existing institutional distances between the two countries, we explored statistical data published by the World Bank regarding the regulative quality comparison index. The data was collected between 1996 and 2020 and indicates perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development, according to terms and definitions by the World Bank. Higher scores suggest sound policies and regulations supporting private sector development; lower scores mean reverse effects. The data regarding regulative institutional distances between Japan and Russia are summarized in Chart 1.

Concurrently, we explored the “voice” of Japanese MNCs in Russia as evidence to support our argument, according to annual survey results by JETRO in 2020 and 2021, which potentially reflected the disruptive effects of COVID-19. In the survey results for 2020, we found that Russian regulative institutions are still one of the main concerns and negatively impact their motivation to increase capital investment in Russia: “Uncertainty of formal institutions, including regulative ones, has been maintained negatively over the years before and during the pandemic as Japanese MNCs answered, while the results indicated “unstable political/social situation” (68.5%), “unstable exchange rate” (66.3%), and “complexity of administrative procedures (permits and licences)” (60.9%) continued to be the top three items (JETRO, 2020b)”.

Furthermore, the issues continued to cause Japanese MNCs’ concern in 2021: “unstable exchange rate” (71.1%), “complex administrative procedures (permits and licences, etc.)” (62.7%), and “unstable political/social situation” (50.6%) continued to be the top three items (JETRO, 2021b). As JETRO summarized in the survey in 2021, “In particular, the manufacturing industry expanded by 14.3 points. ‘Unclear inspection system’ also increased by 7.4 points. More companies in both the manufacturing and non-manufacturing industries pointed out the complexity of customs clearance and the unclearness of the inspection system as problems (JETRO, 2020b)”. In the survey results of 2021, “the largest number of companies continued to cite ‘complicated procedures such as customs clearance’. In particular, the manufacturing industry increased by 7.9 points from the previous year, and the majority responded that there would be no change, the same as in the previous year (JETRO, 2021b)”.

Notably, Japanese automotive MNCs commented in the JETRO survey, “an enormous amount of time is required for completion for administrative procedures to deal with regulatory issues, and the cumbersome licensing procedures are obstacles to expanding into Russia (a Japanese automotive MNC)” and “in the case of the automobile industry, investment in product development must take into consideration the severe winter environment in Russia (another Japanese automotive MNC in Russia) (JETRO, 2021b)”. Therefore, we suggest regulative institutional issues in Russia for Japanese MNCs have existed before and during the pandemic.

4.3. Struggles of the Japanese MNCs in Russia during the crisis

COVID-19 has significantly impacted Japanese MNCs in Russia, forcing them to change strategies and practices. Increased political impacts and differential economic consequences of governmental responses during the pandemic increased distances and limited IB’s activities (Côté et al., 2020). Russia’s responses to COVID-19 disruption have been inconsistent and delayed and lacking the initial clear direction at the federal level (Mankoff et al., 2020). The JETRO survey results reported that “more than 60% of Japanese MNCs in Russia said that they have been revising their business strategies (or plan to do so) in response to the new COVID-19 era, while 80% of Japanese firms answered that they predicted adverse effects of COVID-19 on their businesses in Russia for 2020" (JETRO, 2020a).

It was criticized if the government prioritized rescuing state employees, state-owned enterprise (SOE) employees, and large controlled firms but ignored small and medium-sized firms, self-employed and other ordinary workers (Mankoff et al., 2020). However, for Japanese MNCs in Russia, most of the issues concerning the Russian regulatory institutions are clarified in the JETRO and Keidanren survey results. Japanese MNCs in Russia claimed that there are many unclear points in the rules, procedures, conditions, and processing time, which confuses Japanese firms; therefore, Japanese firms request the Russian authorities clarify these issues and provide a sufficient transition period (Japan External Trade Organization JETRO, 2020b, Nihon Keizai Dantai, 2021). Our Japanese case firm’s top local management provided insights illustrating specific aspects of the Russian institutional setting and Japanese management practices during the pandemic. We asked them about their significant struggles during the pandemic.

“The governmental authorities often came to our factory for inspections to check if we followed epidemiological instructions, such as social distancing, and epidemiological restrictions. Therefore, it interrupted our operations and made lower production efficiency. We followed all the restrictions but did not receive any compensation and support from the Russian government” (Japanese local top management of JP-MNC 1).

In this case, the Russian government and authorities were implementing strict requirements for social distancing in the offices of foreign MNCs (Surdu & Narula, 2021), which reduced production efficiency. Moreover, the Russian government did not implement job protection schemes and financial allowances to protect workers in foreign firms from losing their jobs. As a result, it impacted our case firm and other foreign firms in Russia, although they followed all of the restrictions and requirements laid down.

“We must continue following Russian labour laws and regulations without exception. In the extreme, we are prepared to stop all factory operations and production, in the worst-case scenario. As a precaution, we have been notified to do so by the head office in Japan” (Japanese local top management of JP-MNC 1).

It indicates that under the rare circumstances of the COVID-19 crisis, the institutional distance between the home and host countries (Eden and Miller, 2004, Kostova and Zaheer, 1999) was significant; foreign MNCs had difficulties in overcoming the regulatory issues in the host country (Stahl et al., 2016, Trąpczyński et al., 2020, Zhou and Guillen, 2016). Furthermore, the Japanese local top management mentioned the regulatory requirements of the Russian local labour laws prohibiting the hiring of temporary workers from replacing employees infected with COVID-19.

“In our factory, we had our employees infected with COVID-19. Thus, we wanted to hire temporary workers to fill the positions on our lines and maintain the same level of production efficiency as before. However, Russian labour laws prohibit this to protect Russian workers. There is no problem hiring temporary workers in Japan” (Japanese local top management of JP-MNC 1).

According to the OECD, as of May 2020, 50 million jobs worldwide were protected by employee retention schemes (Stuart et al., 2021, Organisation for Economic Co-operation & Development OECD, 2020). Simultaneously, the Japanese government widely organized schemes to maintain employment by paying special allowances to companies that agreed to protect workers’ jobs. In our interviews, we asked the top management if there were measures and if the firm could obtain compensation from the Russian government, as in the Japanese employee retention scheme.

“Regarding staff retention schemes during the lockdowns in March-June, 2020, including compensation to protect workers from losing their jobs, there was nothing of that. The Russian government does not pay us or cover any costs for us. So, we had to manage this situation independently, without Russian governmental financial support” (Japanese local top management of JP-MNC 1).

The Russian government did not implement employment retention schemes, including paid leave or financial allowances for Japanese firms. The situation directly and negatively impacted management issues of Japanese MNCs’ subsidiaries in Russia. They were forced to seek new and innovative solutions to overcome Russian regulatory issues, which differ from Japan’s. Inevitably, missing workers from a factory line would directly impact production efficiency and increase costs. Beyond this example, our case firm confessed frustration with gaps between other measures implemented by the governments of Japan and Russia.

“Instead, the government required our firm to pay the same salary during lockdowns. Our employees stayed at home, but they were mostly factory workers – how can they work from home for factory operations? Thus, we had to pay the full salary even though our employees did no work” (Japanese top management of JP-MNC 1).

Our case firm told us of other struggles regarding insufficient support from the Russian government during the full and semi-lockdowns of March-June 2021. When the Russian government ordered the full or semi-lockdowns and the “stay at home” requirements, our case firm expected the Russian government to implement the same level or package of measures as the state’s programme needed to offer adequate support as the measures were crucial for firms to survive this situation (Ranov, 2020). The case firm’s logic was that it should be compensated for losses in sales during the period because the government had forced private firms, shops, and restaurants to close or to restrict operations, given their power and responsibility.

“I guess the Russian firms were not likely not to pay at all or at least to pay a less than full amount of salary to Russian employees. Japanese firms were diligent and concerned about employee lawsuits because the Russian labour law favours Russian workers. Lawsuits may be risky and hurt Japanese firms’ brand images. Japanese firms paid full salaries, even though their employees did not work” (Japanese professor in Russia).

Government job retention schemes attempt to prevent unemployment surges and provide economic stability (Butterick and Charlwood, 2021, Carnevale and Hatak, 2020, Stuart et al., 2021, Organisation for Economic Co-operation & Development OECD, 2020). The Japanese government attempted to implement various forms of financial support and compensation for all the firms. Furthermore, they attempted to protect workers in many advanced economies by implementing employment retention schemes, such as paid leave schemes.

As a result, large-cap firms could receive compensation for approximately 66.6–75.0% of their employees’ salaries, regardless of the occasional lay-offs during employee retention periods, lockdowns and semi-lockdowns (Ministry of Health, Labour and Welfare of Japan). Additionally, small and medium-sized firms received compensations for their sales and rent totalling approximately 2 million Japanese yen as a one-off payment (METIa) and 200 thousand Japanese yen per month as long as the semi-lockdowns continued (METIb).

“I pointed out our actual situation and struggled during the COVID-19 pandemic, but I think the same or very similar situations were likely to happen to any other manufacturing firms coming from advanced economies in emerging countries. Thus, it should not be just for the automotive sector or our company” (Japanese local top management of a JP-MNC 1).

The Japanese business community has been constrained not by territorial disputes but by excessive administrative restrictions, arbitrary interpretations of legislative and administrative acts, and complex immigration procedures that did not provide favourable conditions for doing business in Russia, resulting in its costly and unreliable infrastructure (Panov, 2016, p.36).

“At the beginning of the COVID-19 pandemic, Japanese MNCs in Russia were keen on helpful measures and financial support from the Russian government, as well as the Russian government’s policies to support foreign firms. However, they soon lost interest and tended not to expect governmental financial support” (A former Japanese director of JETRO in Russia).

Japanese MNCs are frustrated with Russian regulatory issues, especially during times of COVID-19 disruption. Based on JETRO’s survey results during the COVID-19 pandemic, the Japanese MNCs strongly requested that the Russian authorities and governmental parties act: “We request an immediate update of the regulatory announcement and a simultaneous announcement in English translation; that the expected measures of the authorities be announced in stages or in advance; regarding various preventive measures, that they specify whether they are recommended, requested, or compulsory, and that all concerned parties are treated equally by the Russian authorities” (JETRO, 2020a).

However, the MNCs gradually became aware that there was almost no adequate governmental financial support despite their businesses remaining restricted due to epidemic controls imposed by the Russian authorities. This approach was significantly different from the stances and actions the Japanese government took, which had executed business restrictions coupled with governmental financial support.

“The situation of the Russian market seemed somewhat similar to the Indonesian market. For instance, there is corruption in doing business in Indonesia when foreign firms are concerned, and the local mafia appears and requires money for doing business all the time” (Indonesian business person).

This case study can apply to other manufacturing AMNCs in emerging economies wherever there is an institutional gap between the host and home countries, especially in rare circumstances like the COVID-19 crisis (Stahl et al., 2016, Trąpczyński et al., 2020, Zhou and Guillen, 2016). The problems for AMNCs concerning doing business in Russia during the pandemic could be considered universal and found in other contexts and firms where AMNCs operate in institutionally (regulatory) distant emerging markets.

4.4. Governmental support for systematically important firms

We proceeded to examine the interview remarks made by our case firm’s participants: that the firm was not satisfied with what the Russian government had offered regarding compensations and allowances for large-cap businesses in Russia. The main concern was how COVID-19 had triggered the expansion of economic protectionism and that increased institutional distances between Japan and Russia since, in general, COVID-19-related policies, combined with an already underlying trend towards more apparent state protectionist policies, could impact increasing distances (Côté et al., 2020).

Foremost, we investigated the Russian government’s special measures. Second, we sought evidence of governmental support for private business sectors. Finally, we also attempted to clarify whether the Russian government favoured domestic firms over foreign firms regarding benefits from the extraordinary measures implemented or not, given the economic protectionism perspectives (Van Assche & Lundan, 2020). Consequently, we explored the list of backbone enterprises the Russian government created to identify “strategically important enterprises” that potentially support the Russian economy. The list of backbone enterprises, including domestic and foreign firms is presented in Table 5.

Table 5.

The list of backbone enterprises.

	Company’s name in English	Company’s name in Russian	Domestic/Foreign
1	CJSC “Renault Russia”	ЗАО "Рено Россия"	Foreign (France)
2	LLC "AUTOTOR Holding"	ООО "АВТОТОР Холдинг"	Domestic
3	FSUE "NAMI"	ФГУП "НАМИ"	Domestic
4	LLC “Nissan Manufacturing Rus”	ООО "Ниссан Мэнуфэкчуринг Рус"	Foreign (Japan)
5	LLC "Hyundai Motor Manufacturing Rus"	ООО "Хендэ Мотор Мануфактуринг Рус"	Foreign (Korea)
6	Joint Stock Company "VOLVO VOSTOK"	Акционерное общество "ВОЛЬВО ВОСТОК"	Foreign (Sweden)
7	LLC "PSMA RUS"	ООО "ПСМА РУС"	Foreign (JV: France/Japan)
8	OOO “Volkswagen Group Rus”	ООО "Фольксваген груп Рус"	Foreign (Germany)
9	OOO “Toyota Motor”	ООО "Тойота Мотор"	Foreign (Japan)
10	PJSC "GAZ"	ПАО "ГАЗ"	Domestic
11	LLC "Ford Sollers Yelabuga"	ООО "Форд Соллерс Елабуга"	Domestic (JV: Russia/US)a
12	PJSC "Kamaz"	ПАО "Камаз"	Domestic
13	JSC "Avtovaz"	АО "Автоваз"	Domestic
14	JSC "OAT"	АО "ОАТ"	Domestic
15	LLC "Ulyanovsk Automobile Plant"	ООО "Ульяновский автомобильный завод"	Domestic
16	JSC "Automobile plant" Ural "	АО "Автомобильный завод "Урал"	Domestic
17	PJSC "Autodiesel" Total: 7 foreign and 10 domestic firms	ПАО “Автодизель”	Domestic

Source: Ministry of Economic Development of Russia.

^aThe Russian Sollers takes a majority of stakes leading initiatives, therefore we consider the firm as “domestic”.

The backbone enterprises are domestic and foreign companies that significantly impact the development of a country’s economy, provide the most significant employment in their industries, and are the largest taxpayers (Ministry of Economic Development of Russia). The Russian government decided to integrate the ministries from the dynamic sectoral lists, which were approved to improve the sustainability of the development of the Russian economy. The list was then synthesized into one with six sectors.

As a result, it consisted of a total of 1151 companies: 523 firms were proposed by the Ministry of Industry and Trade, 162 firms by the Ministry of Transport, 98 firms by the Ministry of Energy, 96 firms by the Ministry of Agriculture, 91 firms by the Ministry of Telecom and Mass Communications, and 76 firms by the Ministry of Construction (Ministry of Economic Development of Russia). We filtered the list of the backbone enterprises to show only the automotive sector. As a result, the total number of backbone enterprises in this sector was 17, involving 7 foreign and 10 domestic firms, including our case firm. As our interviewee mentioned, the Russian government was not inclined to differentiate between domestic and foreign firms. The list of special measures for backbone enterprises by the Russian government is presented in Table 6.

Table 6.

The list of special measures for backbone enterprises by the Russian government.

	Measures	Descriptions
1	Concessional loans	Concessional loans to replenish working capital and maintain employment can be provided. The rate on such loans, subsidized from the budget at the rate of the Central Bank, will be no more than 5% for the borrower. It is planned to allocate up to 400 billion rubles for the programme and 50% of loans will be secured by state guarantees. They will be issued to firms in the most affected sectors such as transport, heavy engineering, metallurgic, retail, and non-food products. Firms can use the loans for wages, insurance premiums, rent of premises, and equipment.
2	Moratorium on bankruptcy	A moratorium on bankruptcy for 6 months is possible for the backbone enterprises. The same conditions apply to all firms from the most affected sectors of the economy. Within 6 months, the courts will not accept bankruptcy petitions from creditors proceedings on accepted cases for which bankruptcy proceedings have not yet been launched. The debtor will not be penalized, and late payments will be charged. In addition, enforcement proceedings on property penalties will be suspended.
3	Special conditions for tax payments	Special conditions for obtaining a deferral or instalment plan for tax payments due in 2020 are offered, except for MET, excise taxes, and tax on additional income from the extraction of hydrocarbons, in the event of a decrease in income by 10% or more. If the revenue falls by more than 50%, companies can be provided with an instalment plan for 5 years.
4	Reimbursement of production costs for firms operating in special risk zonesa	The backbone enterprises in the zone of a particular risk can also apply subsidies to reimburse the costs of production, work, and provision of services and state guarantees, which are necessary for restructuring existing loans or issuing new and bonded loans.
5	Additional loans	Subsidiaries of the backbone enterprises can obtain loans at a preferential rate. The total amount of loans issued to a group of firms should not exceed 3 billion rubles. The rate of interest for loans should be 5% annually. The rate of subsidy period will be 1 year from the agreement date of loan issuing.

Source: Federal Service for the Supervision of Consumer Protection and Human Welfare, and Ministry of Health of Russia

^aFirms in operating in special risk zones means a city-forming enterprise that has a significant impact on the development of the region; the main performer or performer of the first level of cooperation under the state defence order; carries out activities for the operation of critical infrastructure and (or) security in the territory of the Republic of Crimea, the city of Sevastopol, the Kaliningrad region and the Far Eastern Federal District; develops and implements critical technologies, develops critical software; ensures information security, provision of services for the development and operation of state information systems, socially significant services on the Internet; provides transport accessibility to remote areas; the dominant position of the organization on the market for a certain product was recognized in accordance with Article 5 of the Federal Law of July 26, 2006 No. 135-FZ “On Protection of Competition”. Source: Ministry of Economic Development of Russia.

Accordingly, the extraordinary measures introduced by the Russian government were mainly interest-free loans, tax referrals, and bankruptcy moratoriums rather than an injection of direct cash supplies (otherwise called “helicopter money”). However, this non-cash-based support by the Russian government led to complaints and other struggles for foreign firms, including our case firm, because such measures were not practically supportive or helpful. The Japanese firms possibly did not realise the context-specific issues, such as almost everything can be negotiated in Russia. In negotiations, each firm and individual should make special efforts to reach critical people and discuss individual conditions. This approach could have been applied concerning the special measures during the pandemic.

“Firms should maintain additional efforts to negotiate the details of measures even if they are listed officially as backbone enterprises. It should not be automatic to validate them, while all domestic and foreign firms should face the same situation. It should not be the end of the story when the firm is listed and is offered such packages. The details of the packages are likely to vary from company to company” (Russian research expert).

According to Japanese norms, most Japanese firms are likely to expect, more or less, a complete process that should continue consistently; they may not imagine there to be some flexible but unpredicted spaces, given extra negotiations. Nevertheless, in the Russian context, primary efforts being included in the list and additional efforts to negotiate for maximum packages would seem mandatory.

“There were some optimistic expectations for measures and support from the Russian government, but some disappointment in Japanese MNCs in Russia appeared due to the rules, requirements, and conditions consistently changing. Moreover, it required extra time and costs for individual negotiations over details concerning the measures and support” (Japanese consultant at Big4 accounting firm in Russia).

“At the beginning of the COVID-19 pandemic, Japanese MNCs often gathered formally and informally to exchange information about the government’s restrictions and measures. However, such discussions disappeared sometime later” (former Japanese director of JETRO in Russia).

Regulatory issues in Russia, in general, change rapidly with inconsistency and might vary from region to region since Russia has a vast territory, and it is challenging to integrate and execute it on a wide scale (Grinkevich, 2021). It could be one of the reasons for such inconsistency in the Russian regulatory issues. For example, the Russian authorities required them to adhere to miscellaneous regulatory restrictions early on in the COVID-19 epidemic when the fragility of the economic system was exposed. Initially, Japanese MNCs in Russia were sensitive to and interested in gathering information on regulatory issues. However, Japanese MNCs in Russia have faced following rapidly changing regulations in Russia, including the inconsistency of the Russian authority’s orders. Consequently, they were aware of the significance of these requirements.

“Japanese MNCs in Russia need to catch up with the uncertainty and inconsistency in drastic changes in the Russian regulatory issues” (Japanese consultant at the Big4 accounting firm in Russia).

In Russia, economic ideology is more collectivist (Ralston et al., 2008), however, Japanese MNCs have not used this form of economic activity. Furthermore, the Russian government often intervenes in private businesses (Gabuev, 2016). This was why Japanese MNCs sought to collect and share information regarding practical solutions for dealing with the Russian authority’s restrictions and interferences, which included occasional on-site inspections with other Japanese counterparts in Russia. Simultaneously, the MNCs expected the Russian government to provide them with special measures, including compensation, like the Japanese government did, as long as they followed the restrictions and requirements during the semi- and full lockdowns. However, they were unaware that their expectations of the Russian government regarding the special measures were not realistic.

4.5. The emergence of new FSAs

We confirmed that the primary struggles of our Japanese case firm originated mainly from the differences in special measures imposed by the governments of Japan and Russia, which led to the visualization of institutional distances between Japan and Russia becoming greater (Dikova et al., 2019, Narula, 2020) during the pandemic. Therefore, we asked the top local Japanese management of a Japanese MNC how the firms were dealing with the challenges and if any solutions were available to overcome them.

“We attempted job rotations among various departments and teams. However, we could not stop production and daily operations and had no other option but to deal with regulatory constraints by hiring temporary staff. That is why we needed to create new solutions, somehow” (Japanese local top management of JP-MNC 1).

Because of the overall situation, the firms needed to break through the original standards and institutional constraints of regulative institutional constraints (Kostova et al., 2008, Tsui-Auch and Chow, 2019, Wu and Salomon, 2016). Accordingly, they created new solutions to tackle the problem (Caligiuri et al., 2020, Carnevale and Hatak, 2020). The new solution improved local employees’ learning capacity through internal job rotations to fill staff vacancies brought about by the pandemic. In this case, the local employees struggled with new tasks and roles. They explored new facets of their daily operations by exchanging them for different roles and responsibilities in other departments. However, due to higher institutional costs, self-determination might not be sufficient to help a firm’s recovery from LOF.

“We assigned our local employees to engage in new knowledge and experiences through job rotation in their daily work. Thus, it should positively impact us, upgrading their learning capabilities through a mutual learning process in cross-functional operations and routines” (Japanese local top management of JP-MNC 1).

Accordingly, we attempted to seek other solutions to tackle LOF during this period. We asked a newly arrived director of JETRO about these issues. We found that JETRO and Keidanren had consistently advocated the voices of the Japanese firms to the host country’s government and its relevant authorities and encouraged them to take appropriate measures (Keidanren, 2021).

“I think there are some potential occasions that the Russian government will improve its hearing of the voice of Japanese firms in Russia. I do not know how much the voices of foreign firms influence the Russian government’s decision-making since Russian regulations are supposed not to have improved much to date. However, as Russia wants to attract foreign direct investment, the voices of foreign firms doing business in Russia are being heard” (Newly dispatched director of JETRO in Russia).

The sixth meeting of the Japan-Russia Working Group on Institutional Issues Related to Improving the Trade and Investment Environment was held at the Japanese embassy in Moscow in October 2021 to discuss institutional and industrial policy issues that Japanese companies faced when doing business in Russia. JETRO described the “voice” of Japanese firms in Russia and raised requests with the Russian authorities to improve regulatory issues (JETRO, 2021a).

The meeting was co-chaired by the Japanese Ambassador to Russia, Toyohisa Kozuki, and the Russian Deputy Minister of Economic Development, Vladimir Ilyichov. The attendees were the Moscow Japan Club, JETRO, Japanese firms, and Russian representatives from the Federal Service for Supervision of Consumer Rights Protection and Welfare (Rospotrebnadzor) (JETRO, 2021a). Unfortunately, the Russian side explained only the Russian policy and position. However, they positively responded to improvements in several practical issues, such as the self-isolation period for Japanese expatriates and obtaining work visas (JETRO, 2021a). The agendas for the sixth meeting of the Japan-Russia Working Group in Moscow are shown in Table 7.

Table 7.

Agendas for the 6th meeting of the Japan-Russia Working Group in Moscow on 19 October 2021.

	Agenda	Description
1	The COVID-19-related restrictions and inspections issues	To ease epidemiological restrictions on activities due to measures against infection by COVID-19.
2	Custom clearance and administration issues	To improve issues related to customs clearance, including crackdowns on counterfeit goods and customs clearance administration on the Russian side.
3	Localization of auto parts procurement issues	To resolve automobile industry issues, and raise local auto parts for particular investment contracts (localization).
4	Local transaction issues	To clarify regulations related to the trading system, including approval of a netting settlement of payments with foreign countries and permission for refunds in foreign currency from Russian firms.

Source: JETRO.

Moreover, we found there were semi-formal diplomatic talks with the Russian government concerning the issues raised here. For example, in 2020, talks between the Federation of Russian Industry and Entrepreneurs (RSPP) and Keidanren were held (Keidanren, 2020). Both sides shared the latest information on the current state of trade and investment between Japan and Russia and discussed the views of Japanese firms as they continued to face challenges in Russia (Keidanren, 2020).

It can be seen that Japanese MNCs in Russia attempted to tackle management issues caused by the Russian regulatory institutions mainly through semi-formal diplomatic talks with the Russian authorities. However, the primary issue on the Japanese side was that because information issued by Russia was minimal, it negatively impacted communications between the Japanese firms and the Russian authorities (JETRO, 2020a). In addition, some Japanese MNCs mentioned that the shortage of pertinent information could easily lead to misunderstandings about Russia and the Russian market (JETRO, 2020a). One area requiring greater understanding by the Japanese firms might be rooted in the opposing economic orientations of Japan and Russia, as Japan follows individualistic pathways, and Russia operates collectivistic practices (Ralston et al., 2008). Similarly, on the Russian side, one broader issue of Russia’s policy toward the Asia-Pacific region should be focused on the lack of an independent, large, and influential expert community, such as independent consultants and advisers, along with a small number of in-house experts to help the government establish a realistic strategy (Gabuev, 2016, p.121–122).

5. Discussion

5.1. Theoretical implications

From an institutional entrepreneurship perspective (Cao and Alon, 2021, Narula, 2020, Newenham-Kahindi and Stevens, 2018), this study attempts to explore the complex mechanisms of the disruptive effects that AMNCs in emerging markets encountered and struggled with, and how to offset this by utilising their FSAs. More concretely, we investigated the causal mechanisms of whether traditional FSAs of an AMNC in emerging markets can help firms overcome LOF with the emergence of new FSAs (Adarkwah and Malonæs, 2020, Halaszovich, 2020, Wan et al., 2020). We shed light on uncertainty-based LOF in highly volatile formal institutions during the crisis (e.g., Luo et al., 2002; Mezias, 2002; Kostova & Zaheer, 1999; Wan et al., 2020; Zaheer, 1995, Zaheer, 2002; Zaheer & Mosakowski, 1997).

The resulting patterns may not be limited to the Russian institutional context, but also can apply to other transitional economies such as CEE countries (Halaszovich, 2020, Puffer and McCarthy, 2017, Ralston et al., 2008, Rickley and Karim, 2018, Spillan et al., 2021, Steger et al., 2011). Additionally, the top local Japanese management of the case study firm suggested that their overall situation was likely to occur among other foreign MNCs in Russia. Consequently, this study contributed to the emerging discussion on the intersecting studies of LOF and FSAs (Halaszovich, 2020, Luo et al., 2002, Mezias, 2002, Rickley and Karim, 2018, Kostova and Zaheer, 1999, Zaheer, 1995, Zaheer, 2002, Wan et al., 2020) through the lens institutional entrepreneurship (Cao and Alon, 2021, Narula, 2020, Newenham-Kahindi and Stevens, 2018) in two distinct ways. More details are presented in the following sub-sections.

5.1.1. Holistic conceptual process model of the phenomenon’s causal mechanisms

Due to a limited understanding of the process of causal mechanisms that determine which FSAs are effective against which LOF sources during the crisis, we discuss the findings more theoretically and present a holistic conceptual process model of the phenomenon synthesized into the causal mechanisms of COVID-19, institutional distances, LOF and limitations of FSAs, and the emergence of new FSAs. Our conceptual process model of the causal mechanisms is shown in Fig. 1.

Fig. 1.

The conceptual process model of causal mechanisms of the phenomenon.

Generally, regulatory institutions are formally codified and formalized informal rules and procedures, and they may be the most manageable guidance for foreign firms to observe, understand, and correctly interpret (McDonald & El-Said, 2002). Yet, the institutional structures with high uncertainty in transitional economies go beyond individual deficits such as political stability or corruption (Halaszovich, 2020). However, as we described in the Findings section, there were institutional distances between Japanese and Russian formal institutions before the pandemic as a consequence of Japan maintaining a capitalist market economy since the 1860 s and, during the last 30 years, Russia’s rapid economic ideology transition from a centralized and planned economy (e.g., Aray et al., 2021; Beletskiy & Fey, 2021; Fey & Shekshnia, 2011; Puffer & McCarthy, 2017; Ralston et al., 2008; Spillan et al., 2021; Steger et al., 2011).

The COVID-19 pandemic hit global private sectors, shedding light on AMNCs in emerging markets that are institutionally distant from their home advanced economies.

The disruptive effects exaggerated the uncertainty of institutional distances and they became more apparent and significant (Doh et al., 2019, Hitt et al., 2021, Van Assche and Lundan, 2020, Verbeke, 2020). Furthermore, the vulnerable institutional frameworks of the Russian regulative institutions drove a greater institutional distance between Japan and Russia (Kostova and Zaheer, 1999, Zaheer, 1995, Zaheer, 2002) as institutional distance reflected critical institutional changes in countries around the world (Kostova et al., 2020).

During the crisis, AMNCs suffered unpredictable and burdensome regulations, heavy bureaucracy, and discontinuity in Russian government policies (Wan et al., 2020). AMNCs have struggled to understand institutional contexts in transitional economies such as Russia because of the rapidly changing regulative institutions, the strong governmental interference and restrictions for their businesses (Gabuev, 2016, Surdu and Narula, 2021), and insufficient compensations for operational and business losses. Practically, AMNCs complained about governmental interferences during the pandemic such as restrictions on their factory operations and continuous inspections on site, which incurred significant negative impacts on firm performance despite following such orders by the Russian government without sufficient compensation. AMNCs were likely to consider that governmental orders, including restrictions and interferences to their businesses during lockdowns and sufficient compensations for fulfilling their business losses, should be a trade-off or else they were taken for granted. This was because their home government (Japan) rewarded their losses with massive compensations during lockdowns. These differentiated responses by the respective governments to private businesses have highlighted greater institutional distances and this has incurred increasing institutional costs for AMNCs in Russia.

The phenomenon can also be explained by the literature since institutional distances negatively affect foreign firms’ performance by providing institutional constraints for their operations during lockdowns and institutional costs (McDonald & El-Said, 2002). Moreover, regulatory institutions were more impactful on firms’ motivation than normative and cognitive institutions (Eden & Miller, 2004), whereby uncertainty in the regulatory institution ultimately is likely to increase transaction costs for doing business and harm a firm’s performance (Zaheer, 1995). It is because underdeveloped formal institutions such as transitional economies (Rickley & Karim, 2018) may cause higher institutional costs for dealing with the uncertainty of their weak institutions (Delios and Henisz, 2000, Delios and Henisz, 2003, McDonald and El-Said, 2002, Zaheer, 1995, Zaheer, 2002). The overall uncertainty of the institutional environment in transitional economies directly affected the performance of foreign companies negatively and the extent of incurred LOF increasing institutional costs (Déjean et al., 2004).

To tackle the issues, firms needed to gradually adapt to the environment as the institutional changes require coordinated responses leading to adjustments and to invest in coordination and protection measures to reduce uncertainty (North, 1990), which may generate new FSAs (Adarkwah and Malonæs, 2020, Halaszovich, 2020, Wan et al., 2020) for overcoming extraordinary institutional uncertainty. Best practices from this experimentation gradually permeate the environment as the changes in logic require coordinated responses leading to adjustments in logic. AMNCs need to catch up when entering emerging markets (Choi & Beamish, 2013) although AMNC's FSAs are generally brought from their HQs and other foreign subsidiaries units within the same business group.

Nevertheless, their authentic FSAs, which are transferred from HQs or other foreign subsidiaries within the same business group, did not help firms overcome such complex regulative institutional issues. After all, companies could not control their institutional issues (e.g., Halaszovich, 2020) because these were at the government level. As a result, firms’ LOF could not be mitigated easily by their control capacity, as foreign firms couldn’t fully utilize FSAs in an uncertain institutional environment in transitional economies such as Russia during the crisis. They suffered from competitive disadvantages with institutional deficits due to their exposure to LOF in a volatile and uncertain institutional environment (Eden and Miller, 2004, Mehlsen and Wernicke, 2016, Zaheer, 1995).

Consequently, we have confirmed limitations of the effectiveness of their superior FSAs (Bohnsack et al., 2021, Grøgaard et al., 2019, Sato and Panibratov, 2022, Surdu and Narula, 2021) in such turbulent circumstances as their authentic FSAs did not help firms solve their issues (e.g., McDonald & El-Said, 2002; Delios and Henisz, 2000, Delios and Henisz, 2003; Zaheer, 1995, Zaheer, 2002). This might have been because of a combination of COVID-19 disruptive effects and the special conditions of transitional capitalism as well as the regulative institutional context highly influencing the activities of foreign subsidiaries in CEE countries and Russia (e.g., Halaszovich, 2020; Puffer & McCarthy, 2017; Ralston et al., 2008; Rickley & Karim, 2018; Spillan et al., 2021; Steger et al., 2011). Alternatively, firms comprised political empowerment such as advocating their “voices” as requests for improvement to government officials and organizing a semi-official place for discussion of the issues. Accordingly, AMNCs motivated governmental authorities to organize advocacy and semi-official meetings via diplomatic pipelines.

To sum up, especially when AMNCs deal with the economic transition process in CEE countries and Russia, their dynamism is still highly challenged (Steger et al., 2011, Halaszovich, 2020). AMNCs are likely to face institutional costs for doing business in transitional economies such as CEE countries due to limitations of institutional freedom and unfavourable investment conditions rather than experiencing Russia’s optimistic market growth (Tokunaga & Suganuma, 2020), whereby AMNCs are more sensitive than EMNCs to the uncertain institutional environment and volatile conditions (e.g. Adarkwah & Malonæs, 2020; Awate et al., 2015; Cuervo-Cazurra, 2012; Giuliani et al., 2014; Surdu & Narula, 2021; Tsui-Auch & Chow, 2019; Wan et al., 2020). Consequently, AMNCs may try to develop alternative solutions, such as employing new FSAs to motivate government officials and utilize diplomatic pipelines rather than learning about the institutions to enhance their knowledge about the local market (Delios and Henisz, 2000, Delios and Henisz, 2003, McDonald and El-Said, 2002, Narula, 2020, Surdu and Narula, 2021). Accordingly, the performance of firms in emerging markets is highly dependent on the uncertainty of the institutional structures of the host market and the ability of firms to control these structures when the host country’s institutional environment is volatile and uncertain (Halaszovich, 2020).

5.1.2. The emergence of new FSAs: Introducing a new construct

There is growing discussion on the emergence of new FSAs to address LOF in the IB area, but it is still nascent having much capacity to be advanced (Adarkwah and Malonæs, 2020, Halaszovich, 2020, Wan et al., 2020). We illustrated the process of the emergence of new FSAs in Fig. 1. Accordingly, we suggest a novel construct for new FSAs: institutional entrepreneurship such as gathering and empowering their advocacy impact and motivating government officials to negotiate with counterparts diplomatically. It is a departure from previous constructs of AMNC’s FSAs comprising either superior knowledge and skills delivered from HQs or other foreign subsidiary units, or learning and experiencing local contexts and institutions.

As discussed in the Findings, institutional distances existed between Japan and Russia before the pandemic. This was because the special institutional conditions of CEE countries’ transitional capitalism, as well as the regulative institutional context, highly influence the activities of foreign subsidiaries in CEE countries and Russia. Equally, their dynamism is still highly challenging (Steger et al., 2011). Then, the COVID-19 pandemic occurred. Many governments attempted to focus on epidemiological situations first to order the operational shutdown of private businesses worldwide. At the same time, governments proposed compensations, including financial allowances to fulfil operational and sales losses following governmental lockdown orders. At the beginning of the pandemic, the Japanese attempted to gather and exchange information on measures for epidemiological situations and compensations, including financial allowances for operational and sales losses during Russian government lockdowns, but they soon realized that there was not such sufficient governmental support for private business sectors despite following epidemiological restrictions. The institutional distances between host (Russia) and home (Japan) countries were generated through “gaps” in governmental support, including financial allowances during lockdowns.

Even though it was challenging for AMNCs to overcome such institutional issues, they needed to “do something” because the issues would cause extra costs that impact a firm’s performance negatively (Hennart, 1982, Hymer, 1976, Kostova and Zaheer, 1999, Zaheer, 1995, Zaheer, 2002): this was a serious problem for firms, generating significant pressures for firms to take whatever actions needed to resolve issues. In such an urgent situation, AMNCs attempted to manage the issues by utilizing their traditional FSAs. In general, an AMNC has a solid FSA that includes various advantages and is well-positioned (Surdu & Narula, 2021). Also, with extensive IB development experience, it is generally expected to absorb new knowledge and create new FSAs that adapt to new contexts (Adarkwah and Malonæs, 2020, Cuervo-Cazurra and Rui, 2017, Johanson and Vahlne, 2009, Wan et al., 2020). In particular, a knowledge and skills transfer base within the organization from headquarters is essential for AMNC to develop a competitive advantage for the firm (Awate et al., 2015, Mehreen et al., 2021).

Hence, traditional FSAs did not help AMNCs in certain institutional contexts such as CEE countries with high volatility and uncertainty in formal institutions (e.g., Halaszovich, 2020; Puffer & McCarthy, 2017; Ralston et al., 2008; Spillan et al., 2021; Steger et al., 2011). This was because: 1) such issues were at the government level but not at the individual firm level and the overall uncertainty and complexity of the circumstances surrounding firms could overwhelm the capacity and capability of AMNCs’ authentic FSAs, and firms cannot exploit the control power over such issues; 2) their FSAs originated in knowledge management and practical skill integration in foreign subsidiary units and the invention of core competencies in HQs in Japan such as improving production efficiency in factories at overseas and management practices for multinational employees by managing cross-cultural foreign subunits focused on the same corporate goals; 3) Russian regulatory changes have been extremely rapid and inconsistent and firms could not sufficiently catch up with the changes.

Eventually, the AMNC realized the limitations of their authentic FSAs (Bohnsack et al., 2021, Grøgaard et al., 2019, Sato and Panibratov, 2022, Surdu and Narula, 2021), and decided to change their tactics for gathering and advocating unitedly with other AMNCs in the same host country to motivate negotiation through diplomatic connections with Russian government officials instead of learning from local institutions and adopting them into the local institutional environment (Delios and Henisz, 2000, Delios and Henisz, 2003, McDonald and El-Said, 2002, Narula, 2020, Surdu and Narula, 2021). This finding is contradicted by a recent discussion that AMNCs prefer to utilize their superior FSAs rather than learn from past experiences abroad (e.g., Adarkwah & Malonæs, 2020; Awate et al., 2015; Cuervo-Cazurra, 2012; Giuliani et al., 2014; Surdu & Narula, 2021; Tsui-Auch & Chow, 2019; Wan et al., 2020).

To sum up, we have confirmed the new FSAs could emerge through a combination of the known limitations of AMNC traditional FSAs (Bohnsack et al., 2021, Grøgaard et al., 2019, Sato and Panibratov, 2022, Surdu and Narula, 2021), and the urgent need and massive pressures to overcome the issues by reducing significant regulative institutional costs that arise from increasing uncertainty in such turbulent circumstances (e.g., McDonald & El-Said, 2002; Delios and Henisz, 2000, Delios and Henisz, 2003; Zaheer, 1995, Zaheer, 2002). We have also found that at the level of individual firms, the impact of the COVID-19 crisis has resulted in unfairness and inequality (AIB, 2022); OECD, 2020). It might have been because of a combination of the disruption effects of COVID-19 and the special conditions of transitional capitalism as well as the regulative institutional context highly influencing the activities of foreign subsidiaries in CEE countries and Russia (e.g., Aray et al., 2021; Beletskiy & Fey, 2021; Fey & Shekshnia, 2011; Halaszovich, 2020; Puffer & McCarthy, 2017; Ralston et al., 2008; Rickley & Karim, 2018; Spillan et al., 2021; Steger et al., 2011). Consequently, we propose a novel configuration of the new FSAs such as institutional entrepreneurship that AMNCs should gather and use to empower those advocacy clouts to mobilize government officials to negotiate diplomatically with their negotiating partners when institutional distances from their host country are significant during remarkable times. The new FSAs are likely to help mitigate LOF in the toughest conditions with higher institutional distances (Rugman & Verbeke, 2005) in the adaptation of institutions by creating new tactics (Cantwell et al., 2010).

5.2. Managerial implications

This study attempted to open up this black box by exploring the complex mechanisms of the disruptive effects with which AMNCs in emerging markets struggled and encountered and how firms overcame this with FSAs during the COVID-19 crisis, given the lens of institutional entrepreneurship (Cao and Alon, 2021, Narula, 2020, Newenham-Kahindi and Stevens, 2018). Our study revealed the causal mechanisms of the emergence of new FSAs (Adarkwah and Malonæs, 2020, Halaszovich, 2020, Wan et al., 2020) shedding light on the uncertainty of regulative institutions (Panibratov et al., 2022) because one of the main consequences of the COVID-19 crisis is the increasing uncertainty of formal institutions between home and host countries.

We suggested that foreign firms may not be able to benefit from AMNCs’ traditional FSAs in the highly volatile and uncertain institutional contexts of transitional economies such as CEE countries and Russia (e.g., Aray et al., 2021; Beletskiy & Fey, 2021; Fey & Shekshnia, 2011; Halaszovich, 2020; Puffer & McCarthy, 2017; Ralston et al., 2008; Rickley & Karim, 2018; Spillan et al., 2021; Steger et al., 2011). For instance, the Japanese firm struggled with increased institutional costs for doing business in Russia due to the limitations of institutional freedom and unfavourable investment conditions instead of enjoying Russia’s optimistic market growth (Tokunaga & Suganuma, 2020).

Therefore, large-cap foreign MNCs and SMEs should be advised to monitor Russia’s overall business environment closely and balance the opportunities and risks carefully (International Trade Administration US Department of Commerce). Simultaneously, AMNCs may be advised to consider the firm’s potential capability to invent new FSAs Adarkwah & Malonæs, 2020; Halaszovich, 2020; Wan et al., 2020) such as uniting with other AMNCs and advocating government officials and counterparts, requesting semi-official meetings with the other counterparts of a host country’s government through diplomatic pipelines), and predicting that traditional FSAs may not favour the firm in such volatile and uncertain markets due to exceptional risks that may cause additional institutional costs for firms (Panibratov et al., 2022).

5.3. Limitations and future research agenda

The firm’s ability to cope with different aspects of an underdeveloped institutional environment is the subject of a range of empirical studies potentially (Halaszovich, 2020). Yet, unfortunately, we do not have enough space to include the study in this paper. Therefore, we would like to suggest to scholars several limitations of this study and then propose a future research agenda.

First, a single firm case study may have certain limitations regarding unfavourable generalizability, despite its superior advantage of exploring deep insights into the phenomenon (e.g., Ikegami et al., 2017; Oliveira & Lumineau, 2019; Outila et al., 2021). We suggest scholars use multiple case studies as there is potential space for exploring the findings from different multifaceted angles, given the advantages of a comparative study (Eisenhardt, 1989, Eisenhardt, 2021, Stendahl et al., 2021) on firms’ struggles and challenges in tackling high institutional volatility and complexity during the COVID-19 pandemic. Especially, it should be helpful that scholars focus on human resource management because the pandemic has been mainly a human crisis (Butterick and Charlwood, 2021, Caligiuri et al., 2020, Carnevale and Hatak, 2020, Stuart et al., 2021, Organisation for Economic Co-operation & Development OECD, 2020). We need to progress in resilience building for future similar crises and pandemics (Narula, 2020, Verbeke, 2020, World Bank, BRIEF).

Second, we propose scholars explore the causal mechanisms of informal institutions during COVID-19 which are designated to societal and cultural orientations (Narula, 2020). During interviews, we have often heard that societal-cultural roots could significantly impact formal institutions (Apaydin et al., 2020), especially with Russian native interviewees. The Russian formal institutions are favourable examples for confirming that informal institutions influence even regulative institutions. After the collapse of its communist regime, Russians relied heavily on informal institutions (Chimenson et al., 2022, Puffer and McCarthy, 2017), which were more or less invisible. There may be other emerging economies for further research, in which informal institutions overwhelm formal institutions in terms of organizing international business abroad, such as CEE countries or Latin American countries (e.g., Panibratov et al., 2022), whereby formal institutions are volatile and uncertain, and informal institutions may be more favourable and reliable than formal institutions in some situations.

6. Conclusion

Through an institutional entrepreneurship lens (Cao and Alon, 2021, Narula, 2020, Newenham-Kahindi and Stevens, 2018), this study attempted to open up a black box by exploring the complex causal mechanisms of the disruptive effects with which AMNCs in emerging markets struggled and encountered and how, during the crisis, firms offset this by using FSAs. We joined the growing discussion on the causal mechanisms behind the emergence of new FSAs (Adarkwah and Malonæs, 2020, Halaszovich, 2020, Wan et al., 2020) to tackle LOF shedding light on uncertainty-based LOF in the Russian volatile institutions during the pandemic (e.g., Luo et al., 2002; Mezias, 2002; Kostova & Zaheer, 1999; Wan et al., 2020; Zaheer, 1995, Zaheer, 2002; Zaheer & Mosakowski, 1997). Accordingly, we explored such disruptive effects on IB, which needs to be extended for resilience building for future similar threats (Narula, 2020; Narula, 2020, Verbeke, 2020, World Bank, BRIEF). We presented a holistic conceptual process model of the causal mechanism and introduced a novel construct of institutional entrepreneurship for new FSAs. Additionally, we participated in the debates on the emerging agenda, which distinguishes between AMNCs and EMNCs, in terms of responding to institutional hardship in a host country by dealing with LOF and utilizing differentiated FSAs (Adarkwah and Malonæs, 2020, Awate et al., 2015, Cuervo-Cazurra, 2012, Giuliani et al., 2014, Surdu and Narula, 2021, Tsui-Auch and Chow, 2019, Wan et al., 2020).

Our study contributed to advancing the emerging discussions on the intersecting studies of LOF and FSAs (Halaszovich, 2020, Luo et al., 2002, Mezias, 2002, Rickley and Karim, 2018, Kostova and Zaheer, 1999, Zaheer, 1995, Zaheer, 2002, Wan et al., 2020) from the institutional entrepreneurship perspective (Cao and Alon, 2021, Narula, 2020, Newenham-Kahindi and Stevens, 2018) in two distinct ways. First, we presented a holistic conceptual process model of the phenomenon’s causal mechanisms of COVID-19, institutional distances, LOF and limitations of FSAs, and the emergence of new FSAs. Second, we suggested the emergence of new FSAs (Adarkwah and Malonæs, 2020, Halaszovich, 2020, Wan et al., 2020) as new FSAs such as institutional entrepreneurship that may help mitigate LOF under the toughest conditions with higher institutional distances (Rugman & Verbeke, 2005) in the adaptation of institutions by creating new tactics (Cantwell et al., 2010). Consequently, we suggested the resulting patterns may not be limited to the Russian institutional context, but also can apply to other transitional economies such as CEE countries (e.g., Aray et al., 2021; Beletskiy & Fey, 2021; Fey & Shekshnia, 2011; Halaszovich, 2020; Puffer & McCarthy, 2017; Ralston et al., 2008; Rickley & Karim, 2018; Spillan et al., 2021; Steger et al., 2011), as the local Japanese management of the case study company suggested that their overall situation was likely to occur among other foreign MNCs in Russia.

Appendices

See Appendix Chart 1.

Chart 1.

Comparison in regulative quality in Japan and Russia.3

Source: GovData 360 by the World Bank.

Data availability

The data that has been used is confidential.