Kazakhstan- 1991, western democratic political systems and free-market

 

Kazakhstan- An Introduction

Soviet Union Crumbled completely in 1991,
western democratic political systems and free-market economic structures
appeared in Kazakhstan.It is located in northern and central Eurasia,
was the ninth-largest country in the world in terms of area. Its area of
approximately 2.7 million square meters surpasses that of Western Europe. The
national culture of Kazakhstan was not just influenced by “Kazakhness” but also
by its history as a Russian colony, its 70 years of Soviet rule, and a range of
other forces. In the 1990s, the country experienced a large outflow of Russian
speaking people from the region. However, by 2000the population growth trend was
positive, mainly driven by immigrants and returnees. As a result of its
history, the country’s population of nearly 17 million included 120
nationalities, and only 63% of the population could claim Kazakh origins1.
Kazakhstan was a bilingual country: Kazakh had the status of the
“state” language, while Russian, which was spoken by almost all
Kazakhstanis, was declared the “official” language, and was used
routinely in business and day-to-day communications.

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The country, which was a member of the
Commonwealth of Independent States (CIS), was

officially a presidential republic and, owing
to its significant crude oil resources, it enjoyed

significant economic growth since
independence. In 2001 and 2002, in an acknowledgement

of Kazakhstan’s efforts to transition away
from the Soviet planned economy, the European

Union and the United States (U.S.) recognized
Kazakhstan as a market economy. Since 2000,

the economy had grown at an average annual
rate of 10%, which exceeded the corresponding

figures for most other countries in the
world2. This impressive development could be

attributed to Kazakhstan’s significant oil,
gas and mineral reserves. At the beginning of the

21st century, Kazakhstan’s oil and gas
reserves were estimated to be the third largest in the

world. At the same time, Kazakhstan was
acknowledged as one of the world’s top twenty oil

producers.

KazOil
was an oil production cooperation based in the small town of Kyzyl-Orda. It had
5,000 employees and was the town’s main employer. Even after the demise of the
Soviet regime, the Kazakh Ministry of Energy maintained control until 1996.

Current Situation and Employees

Nurlan Ospanov is  the Head of Corporate Finance at KazOil. He
faces difficulty in completing his daily tasks. His mind continually wandered
to other, more pressing issues that were affecting his day-to-day activities at
the office. In his 25 years at KazOil, he had never seen anything like what he
experienced at the social events put on by the new Chinese management team. He
feels that Chinese are unsuccessful in socializing with employees and their
events are just invain attempts to make a place in hearts and minds of people.
Nurlan’s sister-in-law, has a different point of view, she holds that Chinese
have developed better relations with government officials. Young marketer has
an opposite view, he wants it to be a progressive company. While old people are
against him they think that Canadians don’t give higher ranks to local people.

A women added that Canadians Introduced;

•          Training
measures

•          Customized
career planning

•          Safety
requirements across departments

•          Broad
and inclusive social events

•          English
courses.

The arguments in favour of Chinese included;

•          Increase
in insurance benefits

•          Introduction
of extended maternity leave(and more favorable for employees with children)

•          Very
less overtime

 

But Nurlan was facing a reality….Employees
reached him frequently because they feel lost!

Acquisition by Hydrocarbon inc. (A Canadian
Company)

In 1996, just five years after Kazakhstan began
its transition from the Soviet planned

economy to a market economy, KazOil was sold
for US$120 million by the Kazakhstan

government to Hydrocarbons Ltd., a Canadian
company. Under Canadian management,

KazOil initially flourished. Already in
January 1998, KazOil’s proved plus probable reserves

were independently assessed at over 429
million barrels, an increase in reserves of 10% since

1997. KazOil drilled 20 successful wells in
its southern field and obtained a 100% interest in

a 455,672 acre exploration license in 1997. In
1998, the exploration program included the

drilling of three unsuccessful wells and the
gathering of 290 miles of seismic data, data that

was necessary for future development. Plans
for future growth and long-term investor value

return focused on such initiatives as the
development of licensed areas, the acquisition of new

licenses, and the export of crude oil and
refined products to markets in Central Asia and

China.

Economic conditions and oil prices

However, oil prices on the Kazakh market
dropped dramatically during the last half of 1998

from a high of US$11.13 per barrel to a low of
US$5.89 per barrel. General market

conditions in Kazakhstan remained bleak into
early 1999. Although KazOil had examined the

feasibility of exports in 1998, the option was
not viewed as economically viable. However, in

the second quarter of 1999, KazOil entered
into three export contracts: one with Russia and

two with China. The Chinese contracts entailed
the export of up to 100,000 tons of oil per

month, representing approximately 30% of
KazOil’s anticipated production.

Employees viewed the transition to Canadian
ownership as positive, and perceived

Hydrocarbons corporate culture as highly
professional. For its part, Hydrocarbons worked

hard to gain the acceptance of KazOil
employees. In the five years following the acquisition,

most employees were offered the opportunity to
take part in a large-scale training program, which was provided by the Canadian
headquarters. All operational fields – from field

operations to safety to management skills –
were covered in the training program. There were

numerous team building exercises and social
events, some of them open to the general public.

The human resources (HR) department employed a
Canadian instructor to run a three-hour

seminar on Canadian culture every Wednesday
afternoon for about one year. The seminar

was open not only to KazOil employees but also
to their relatives, friends and anyone

interested. English language courses ran on a
continuous basis for employees at all levels.

The management also supported English language
courses at local schools and kindergartens.

The training program assisted KazOil in
achieving its goal that was stated in the Corporate

Philosophy of Training: “to build employee
confidence, broaden the employees’ business

perspective and increase job satisfaction”.
Furthermore, Canadian expatriates at the KazOil

unit coached employees on a day-to-day basis,
making themselves available for open

discussions and encouraging employee
initiatives. Numerous local managers were soon

included in KazOil’s succession planning for
the region, with the aim of eventually replacing

expatriate managers with a local management
team. Already in June 1997, in a formal survey

of management, 26% of local managers stated
that they fully supported the changes, while

52% indicated their belief that the company
was moving in the right direction.

The Canadians also implemented a detailed
human resources strategy, with the immediate

goal of developing common, but locally
adapted, HR policies and practices for all business

units. As a part of this move, policies and
procedures related to recruitment, job descriptions

and performance appraisals were introduced. As
a result, the local HR department found

itself directly involved in the strategic
decision-making process.

Local employees were also directly involved in
the decision-making process and encouraged

to provide feedback. This familiarized them
with the company strategy and enabled them to

work towards fulfilling that strategy in their
day-to-day activities. A middle manager from

KazOil’s IT department described the impact:
“There was a company spirit. There was a

unity, cohesion. You worked not only for
yourself, for your salary”. The strong company

spirit was present despite the fact that, at
the end of 1999, KazOil had three business units in

three different cities. The company
headquarters were located in Almaty, but the main

production field and the support offices were
located in Kzylorda, some 900 kilometers

north-west from Almaty, and the newly
purchased refinery plant was in Skymkent, 600

kilometers south from Almaty. All three units
had vastly different organizational cultures.

These differences were caused by labor market
dynamics, regional variations in economic

development and diversity in employees’
educational backgrounds.

KazOil employees referred to the working
environment under the Canadians as professional

and informal, characterized by open lines of
communication, unity, and an interest in

employee development and well-being.

Acquisition by Chinese

Hydrocarbons agreed to sell KazOil to China
Petrol, a state-owned company in 2005. By

offering US$4.2 billion, China Petrol beat out
its competitors from Russia and India. The

transaction was the largest takeover ever
undertaken by a Chinese company and, together

with China Petrol’s agreement to cooperate
with a Kazakhstan’s state-held oil company, was

designed to provide the 3,000 kilometer long
Sino-Kazakhstan oil pipeline with a “reliable

supply”.

Soon after the acquisition, China Petrol
transferred 30 managers to KazOil. Despite the

introduction of the Chinese management team,
China Petrol retained the existing personnel

and maintained, in general, the company’s mode
of operations.

However, approximately half of KazOil’s
international employees resigned shortly after the takeover.

When China Petrol took over KazOil, the latter
was widely viewed as a successful “western”

subsidiary. It owned a total of 12 oil fields
and exploration licenses in Kazakhstan. KazOil

had just experienced several years of a
“western” style of management, which included

individual-focused compensation schemes and
incentives. The new owners were different.

China Petrol shared many traits with
state-owned enterprises in the Soviet Union. Both were

characterized by high levels of bureaucracy
and hierarchy, allegiance to set rules and

practices, centrally set goals, and the
distribution of resources on grounds other than market

efficiency.

Within two years of the acquisition by China
Petrol, many of the local managers who had

flourished under Canadian management left soon
after the acquisition, citing such grounds

for leaving as the “non-professional Chinese
management” and the possibility that staying

with KazOil might “slow down their career”.
Headhunters were known to approach KazOil

managers directly, easily luring them off to
more western-inspired companies.The Chinese

management team did little to retain
employees, especially those who were highly skilled.

One effort towards retaining employees was to
boost the bonuses during the first two years:

bonuses were paid once or twice a year and
represented up to 50-70% of the monthly salary.

The employees’ negative perceptions of the
top-down decision-making style adopted by

China Petrol were strengthened by the lack of
transparency and almost complete dearth of

communication, which was compounded by the
lack of language skills among the Chinese

managers. They viewed the new management team
as secretive. As one senior manager

stated, “The Chinese culture is a culture of
silence. Nothing is explicitly articulated”. As a

result, decision making was slow and
frustration was growing: “In the eyes of the Chinese

managers, we are doing a good job: we follow
the law, fulfill the budget and obey the rules”.

Much of the responsibility for HR issues was
moved from the individual units to the

company’s headquarters in Almaty, a move that
was generally not well received. One

manager was overheard complaining that “HR
managers meddle in everything”. In addition,

the bonus system was systematized, the
English-language courses were discontinued, and

Chinese-language courses were offered only to
a select group of managers. These moves

resulted in a general lack of trust between
employees and the new owners, and the

widespread opinion among employees that they
could “not learn much from the new

owners”.

 

 

 

 

 

 

Problems being faced largely after Chinese
acquisition

1.      Anticipating the upcoming poor top management
decisions half of the employees left.

2.      It was under a western free style management,
while the Chinese came from a communism based economy.

3.      Local Managers accused the new administration
to be non-professional and non-developers of career.

4.      The Chinese failed to retain employees largely!

5.      Lack of transparency.

6.      Increased bonuses (extrinsic factor) without
considering the intrinsic motivation.

7.      Lack of communication due to language barriers
and therefore it created a secret image (In human) of top management.

8.      Despite being far away HR managers try to
meddle with lowers level decisions.

All these issues caused frustration
and lack of trust which obviously leads towards lower productivity and
retention of employees. Thus leading towards a unhealthy corporate culture.

 

To increase motivations a few points have been
discussed below;

 

The less value
variables, which are recognition & rewards, opportunities to excel,
cooperation, communication, and performance & appraisal, represent
employees of PT. SKM feel there are lack of recognition and rewards after done
a job, opportunities to improve personal performance to be competent in excel,
and fair appraisal in accordance with the performance that affect their
engagement to the company. In the other side, there is unclear communication in
some information given and less cooperative in working process. Giving more
control and pay attention to the employees can build better management system
by creating the better working environment in order to increase their
employee’s performance, such as communicating and cooperating well to make
harmony and give recognition and reward directly to their employees to make
them feel what is being done in accordance with what is expected and can be
appreciated.

(Lavigna, 2013)

To date, there is no generally accepted
definition for employee engagement. However, there is growing consensus among
the authors that the construct is distinguishable from related concepts in
management such as employee commitment, organizational citizenship behaviour
and job satisfaction in such a manner that employee engagement clearly reflects
the two-way exchange of effort between employees and employers, and it has stretched
meaning beyond the aforementioned constructs. Research on engagement is still
on its infancy, attempting to come up with more clear-cut and acceptable
definition.

Most studies demonstrate that feeling valued
by management, two-way communication between management and employees,
management’s interest in employees’ well-being and giving more opportunities
for employees to grow are the top drivers of employee engagement. Nevertheless,
as studies indicate, employees do not give much importance to pay and benefits.
This might be the case because almost all the surveys were made in companies working
in economically-well-to-do countries. The priorities of drivers might have
varied if similar surveys were undergone in other third world countries, like
African countries. Therefore, there is a need for more global surveys including
more number of countries. The literatures indicate that employee engagement is
closely linked with organizational performance outcomes. Companies with engaged
employees have higher employee retention as a result of reduced turnover and
reduced intention to leave the company, productivity, profitability, growth and
customer satisfaction. On the other hand, companies with disengaged employees
suffer from waste of effort and bleed talent, earn less commitment from the
employees, face increased absenteeism and have less customer orientation, less
productivity, and reduced operating margins and net profit margins. Most
researches emphasize merely the importance and positive impacts of employee
engagement on the business outcomes, failing to provide the cost-benefit
analysis for engagement decisions. As any other management decisions,
engagement decision should be evaluated in terms of both its benefits and its associated
costs, without giving greater emphasis to neither of the two, not to bias the decision
makers. Thus there is a need to study the cost aspect of engagement decisions.
The remarkable fact is, the findings of today’s researches, can be used as corner
stone for the building of complete essence to the construct. Furthermore, much
of the works related to “employee engagement” construct is attributed to survey
houses and consultancies. Therefore, there is a need for academia to
investigate this new construct and come up with a clear definition and
dimensions that will be used for measuring employee engagement justifying the importance
of engagement concept. Otherwise, it will pass away shortly as many other human
resource fads did.(Nohria,
Groysberg, & Lee, 2008)

 

 

 

 

 

 

 

 

 

 

 

 

Conclusion

KazOil  was an
oil drilling company in Kazakhstan, in the years after the dissolution of the
Soviet Union. It  was bought by the
Canadian corporation Hydrocarbons Ltd in 1996, They used new human resource
strategies for corporate culture and management style, it seemed to be more
successful and liked by employees than in 2005, when China Petrol acquired the
assets. The case opens up with Nurlan – a company’s long-time employee – talking
about the recently introduced changes by the Chinese management, wondering how
he should adapt in order to ensure employee’s motivation despite the lack of
corporate spirit. We need efficient strategy and human resources management and
cross-cultural management.