BBDM3133 International Business Management

Tutorial 7
Case Discussion
Middle and Far East Investors Target Kazakhstan
The closing case discusses why Middle and Far East investors were drawn to Kazakhstan and
why after so much investment did the economy go bust. Kazakhstan is seen as an attractive
choice for FDI due to its natural resources and close ro!imity to "hina and #ussia.
Case Questions
1. What lessons should Kazakhstan learn from the collapse of the real estate market?
It is clear that Kazakhstan needs to develo its financial system so that there are
alternatives to real estate as investment oortunities. $anks% construction comanies and
real estate develoers need to take a longer&term view. 'hilst there will be sustained
demand for housing in Kazakhstan% due to the abundance of oil and gas reserves in the
country% the industry needs to cater for a broader range of home buyers than the middle
classes or investors. The lu!ury market in the country is saturated and was ket afloat by
seculators. This means the government needs to kee a closer watch on the construction
sector and the banking sector. The government also needs to ut in lace rotective
measures for home buyers that have been left without homes. In a swiftly growing and new
economy there were fundamental roblems and the government needs to ut in lace
legislation% rotection and monitoring of the markets so that they are no longer unregulated.
2. On average, how long does it take for goods to be shipped from hina to !urope and how
will the new route cut this time?
(hiing goods from "hina to Euroe takes aro!imately )* days. +sing the Trans&
(iberian railway it takes ,) days. The new route across Kazakhstan means that this will be
cut to - days. .owever% the Kazak /ine will tend to cater for goods being shied from
western and central "hinese rovinces and goods from northern "hina will still use the
Trans&(iberian route.
". #ow is Kazakhstan intending to raise the funds for the massive e$pansion and
modernization program of its railwa% infrastructure?
Kazakh Temir 0holy% the national railway oerator% will be raising its freight tariffs by ,)
ercent er year between 122- and 12,1 to raise around 3).** billion. The government
intends to bridge the shortfall by attracting rivate sector investment. FDI.
&. #ow does Kazakhstan intend to continue to forge relations with countries such as the
'nited (rab !mirates and )ulf *tates in general for their mutual benefit?
Kazakhstan already recognizes the fact that even though it is rich in oil% natural gas% gold%
iron ore% coal% coer% uranium and zinc% it has a oulation of only ,) million and needs
technical and economic e!ertise from countries that have already e!erienced raid
growing economies.
They also areciate the fact that they should not rely entirely on natural resources as the
long term building blocks for the Kazakhstan economy. The value of these natural
resources is unredictable% as is demand. Therefore% Kazakhstan wishes to learn from the
4ulf (tates% to attract funding and investment in ro5ects such as travel and tourism. 6f
mutual benefit is Kazakhstan7s otential as a source of food. It has an enormous amount of
land that is underutilized and is already a wheat e!orter.
The 4ulf (tates would be articularly interested in this as a secure source of food in a
market that is e!eriencing siraling food rices. They are also interested in diversifying
into real estate and construction% which would be mutually beneficial from Kazakhstan7s
oint of view% to imrove their infrastructure and attractiveness as a destination for tourists
and businesses and for the 4ulf (tates as investment oortunities.
Essay Questions
1. What are some of the basic issues a firm must confront when choosing an entr% mode for a
new foreign market?
'hen choosing an entry mode for a new foreign market% a firm must confront issues relating to
ownershi advantages% location advantages% internalization advantages% the need for control%
the availability of resources% and the firm7s global strategy.
2. What is international licensing? What are its advantages and disadvantages?
International licensing occurs when a firm% the licensor% sells the right to use its intellectual
roerty to another firm% the licensee. The rimary advantages of international licensing are its
relatively low financial risk and the oortunity it rovides the licensor to learn about sales
otential in foreign markets. /icensees like the arrangements because they are able to make
and sell roducts with roven success tracks% yet incur low #8D costs. .owever% the
agreements limit market oortunities for both the licensor and the licensee% and there is mutual
deendency between the two arties. Further% there is otential for roblems and
misunderstandings. Finally% licensors must be careful to avoid creating a future cometitor.
". What are three specialized entr% modes for international business, and how do the% work?
Three secialized entry modes for international business are management contracts% turnkey
ro5ects% and contract manufacturing. +nder a management contract agreement% one firm
rovides managerial assistance% technical e!ertise% or secialized services to a second firm in
e!change for a fee. 9 turnkey ro5ect is an agreement whereby a firm agrees to fully design%
construct% and e:ui a facility and then turn the key over to the urchaser when it is ready for
oeration. "ontract manufacturing involves outsourcing manufacturing needs to other
comanies.
&. +o %ou think it is possible for someone to make a decision about entering a particular foreign
market without having visited that market? Wh% or wh% not?
The resonse to this :uestion robably deends in art on the market in :uestion and the
degree of risk one is willing to assume. Tyically% managers will not be able to obtain all of the
information needed to make a decision about a foreign market from secondary sources. Thus%
managers have two otions; they can visit the market in erson and obtain information directly
from local e!erts% embassy staff% and chamber of commerce officials% or% hire consulting firms
to rovide the necessary information.