The paper examines the perceived role of emerging market institutions in the creation of firm‐specific advantages of local small‐ and medium‐sized enterprises (SMEs) supporting international expansion and competitiveness. Our objective is to deepen conceptual understanding of the complex link between emerging market institutional factors and an ability of emerging market SMEs to compete internationally. Our empirical evidence from Russian software SMEs operating in global niche markets reveals that managers perceive institutional influence on their firms' ability to compete internationally in a number of direct and indirect means. We find that, in addition to the well acknowledged negative impact of institutions, there are supportive and triggering forces that incentivize SMEs' international expansion and development of competitive advantages. We contribute to the literature by elaborating about the complexity of institutional influence on international competitiveness of emerging market SMEs. This research offers insights for managers about the prospects of international expansion of SMEs from emerging markets.