The strategy purity hypothesis argues firms will have better results pursuing a single, business‐level strategy of either cost leadership or differentiation rather than a mix of both. Since this claim implicitly assumes a developed‐economy context, we examine the efficacy of business strategies in transition economies. We find the benefits of a pure strategy are diminished when the institutional environment has a low degree of market orientation but are increased when the institutional environment is more market oriented. Our results indicate a boundary condition for the strategy purity hypothesis and support arguments for an institution‐based view of business strategy. Copyright © 2013 John Wiley & Sons, Ltd.