STRATEGY IMPLICATIONS OF VALUE INVESTING, ORGANIZATIONAL CHANGE AND OPERATIONAL IMPROVEMENT IN THE SME FINANCE SECTOR
Strategy implications of value investing, organizational change and operational improvement in the SME finance sector
Small and medium-sized enterprises (SMEs) are the factors that determine the growth and development of various countries across the world. By promoting the SME sector of a country, the level of employment and generation of income is increased through which sustainable growth is achieved (Cameron and Green, 2019). The process of globalization and technological advancement has resulted in changing the business environment in the world hence the need for a change in which businesses are structured to increase their output and performance (Slack and Brandon-Jones, 2018). The changes have resulted in increasing the number of opportunities that exists but o the other hand introduced new challenges that require new measures and techniques in addressing them. One country whose economy has greatly benefited from the SME sector in Kazakhstan. This paper aims at providing a dissertation on the strategic implications of value investing, organizational change and operational improvement in the SME finance sector in Kazakhstan by using JSC Leasing Group JSC as the case company.
Value investing trends and market activity in Kazakhstan
One value investing trend that is currently experienced in Kazakhstan is the increased movement to cloud by SMEs operators in the country. The main reason for this is because of the wide range of benefits that the practice offers to the business owners including saving time, affordability and advancement of the companies’ operations. The cloud technology is still new to most companies in the country but the number of users has been increasing in the past three years, a trend that is expected to be witnessed in the future (Satti et al., 2015). Similarly, most SMEs are relying on social media to market their products. Additionally, the practice improves the competitiveness of the SMEs by making them more efficient in their operations thereby being more attractive to the customers. Increased globalization and technological advancement have resulted in increasing the number of individuals using technology both in communicating as well as engaging in commercial activities thus making it a requirement for the traders to find ways that they can use to easily access both local and global markets. The most commonly used social media platforms include Facebook and YouTube due to a large number of users that the companies have.
SMEs are also changing to forms that meet the need of the millennials. The millennial market has been increasing since 2015 and it is expected that by 202 it will dominate most countries across the world (Tidd and Bessant, 2018). For this reason, the focus of SME is now changing to provide services that are most needed by the generations thereby targeting active consumers of digital content. Additionally, many businesses have been going online in terms of their operations. Placing orders and purchase of the required inputs and commodities are now done online. Similarly, customers can place their orders online with some SMEs accepting online payments from their customers. The move to sell products online allows businesses to have a wider customer base through which they are able to increase the number of sales that they make (Adilova et al., 2015). The SMEs are also able to market their products by displaying the different quantities and brands that they sell to their customers. Due to the wide range of advantages that the SMEs gain from this practice, they are expected to keep on increasing their use of online means to run their operations.
Structure of the Dissertation
To analyse the SMEs sector in Kazakhstan, the dissertation will have a literature review section that will provide information from various authors on the topic of strategy implications of value investing, organizational change and operational improvement in the SME finance sector in Kazakhstan. In this section, the main areas of concern will be the importance of strategic change in practice, elements of the cooperation between private and the public sectors, optimal strategies that can be adopted by SME finance companies and corporate divestments. The dissertation will then provide a methodology to be used in the study in which case the research design and the paradigmatic considerations will be made. Additionally, the process of sampling and data collection will be addressed as well as the justification of the chosen method.
The fourth part of the dissertation will be focused on the results based on the collected data. In this case, data on evaluation and strategic options, environment, competitive positioning, portfolio, target markets and the impacts that strategic changes have on companies will be analysed. The discussion section will provide implications of the study. The interpretation of the results will be done to determine the foundations for corporate strategy and strategic plan, effects of change initiatives on developing strategic plans and asset-backed finance as one of the main instruments for the growth of SMEs. Additionally, the section will provide the contributions that the study will have on the research perspective as well as on the management perspective of SMEs. The conclusion section will provide the concluding remarks which will provide recommendations and implications of the study as well as the limitations and areas that future research studies should focus on. Additionally, the reflections of the researcher on the whole research study will be provided, information that can be used in determining the success of the research study.
Problem and Context
Finance Sector of Kazakhstan
Domestic commercial banks have dominated the financial sector of Kazakhstan for the past three decades. The banking sector in the country has most of the players being private institutions and individuals, with the top five banks constituting about 78% of all banking assets in the country (Cameron and Green, 2019). However, foreign banks also play a significant role in the economy since they have also increased their total share to 15% of the banking assets following increased acquisitions. The banking system in the country is two-tiered. In one case, the system has the National Bank of Kazakhstan (NBK) which reports to no other institution except the president. On the other hand, the second tier is made up of 28 commercial banks, including both state-owned and non-state-owned banks. Additionally, there are 12 banks in the country that are considered to be subsidiaries of foreigner banks. Even though the number of commercial banks is increasing every year, NBK plays a significant role in controlling their operations in the country.
The main functions of the NBK include the implementation of the country’s monetary policies and financial regulation. For this reason, all activities undertaken within the financial system are supervised by the NBK including operations involving pension system, debt collection agencies, insurance, the banking sector, credit bureaus, debt collection agencies and microcredit organizations. The NBK presented a proposal in May 2019 to change the legislation that will result in establishing a new regulatory body that will be independent in the control and development of the financial markets in the country (Shahbaz, Bhattacharya and Mihalik, 2017). The main function of the body is to ensure that consumer rights are protected as the NBK concentrate on controlling monetary policies and inflation.
Foreign banks are prohibited from establishing retail branches of their banks in the country. The reason for this is to ensure that the giant foreign banks do not dominate the market to an extent that they will result in manipulating the activities of the citizens. Additionally, the restriction also allows low and middle-income citizens to come up with initiatives that will help them develop SMEs that will provide financial services in the country. However, the banks are still allowed to establish representative offices, retail banking, subsidiaries and joint ventures within the country, most of which work with the citizens as their partners. For instance, there are a total of 20 foreign banks that have established representative offices in the country. From the year 2005, the legislation requires that there should be equal treatment of both Kazakhstan as well as foreign investors thus having no restriction of any individual in the financial market (Côrte-Real, Oliveira and Ruivo, 2017). However, no one is allowed to have bank shares of more than 10% without seeking approval from the National Bank.
A report titled Regional Economic Outlook for Central Asia and September 2018 Staff Report on April 2019 indicated that the financial system is still affected by poor payment culture, the opacity of ownership, reliance on state support and weak reporting standards that affect its productivity (Sagiyeva, 2019). As a result, it is important to restructure the whole system by coming up with measures and policies that will promote the accountability and efficiency of all players in the financial system through which both the citizens and the Kazakhstan government will benefit. The main factor that has been affecting the performance of the financial system over the past is changes in oil prices. Drop-in oil prices result in depreciating the country’s currency, leading to an economic slowdown which has a direct impact on the banking sector, an important pillar of the financial system.
Despite the various challenges that have affected the financial system in the past, the banking sector is still among the top priorities of the government. As a result, the NBK has adopted several policies all of which are aimed at ensuring that both the current and future threats to the system are either reduced or eliminated. Through these policies, the NBK resolves bad assets, strengthens capital and oversight requirements, achieves de-dollarization and encourages consolidation of their policies (Aitbenbetova, 2018). There has also been the introduction of risk-based supervision technique which is currently being used in assessing the capital adequacy of banks and the establishment of follow-up measures regarding malpractice in the financial sector.
Case Company
The case company to be used in this research study will be the Leasing Group JSC. The company was founded in the year 2005 Almaty City and has been operational since then in Kazakhstan. The main operation of Leasing Group JSC is investments through financial leasing instruments where it leases transportation vehicles, mining and construction equipment as well as manufacturing equipment needed by businesses in the country. The company has a single shareholder which is “Aureos Central Asia Fund LLP” a direct investment fund. The reason for choosing this company is because of its large market size and financial operations that it undertakes thus having the required information on ways that can be used in improving the country finance sector. By the end of the year 2009, the company had financed projects worth over KZT 2.5 billion, through which it was able to increase the number of its leases thereby increasing its profits (Fink, Yogev and Even, 2017). Currently, Leasing Group JSC has an authorized capital of KZT 1.5 billion.
Since the company was founded, it has been able to achieve high levels of efficiency in its operations due to two main factors namely the practical experience and professionalism of its staff. The process of selecting suppliers is done carefully to ensure that the chosen companies are capable of providing the required services under the provided conditions. Additionally, the company hires highly qualified individuals to manage the processes of insurance and customs services through which they can put in place adaptive schemes that are relied upon in factoring transactions and optimizing leasing. Leasing Group JSC has also an improved operational structure characterized by the presence of project monitoring in all stages that their projects go through, individual customer approach and an efficient application procedure for the customers, suppliers and the company’s employees.
Key Research Objectives and Key Research Questions
In order to fully analyse the topic of the research, the study will be aimed at addressing the following research objectives.
1. To determine the strategic implications of value investing that have been experienced in Leasing Group JSC.
2. To find out organizational changes that have been made in the company and the impact that this has had on the strategy of the company in the SME finance sector.
3. To explore strategy implications of operational improvement in the Leasing Group JSC.
The key research questions that will be used during the study include the following.
1. What strategy implications has the company experienced due to the process of value investing?
2. How impact has organizational changes made in the company as a strategy implication had on the performance of the company?
3. What strategy implications of operational improvement have affected the company’s performance in the financial system?
4. Which strategy implication has the company greatly impact on the company’s productivity?
Key Concluding Insights
SMEs play a significant role in Kazakhstan’s financial sector. This research aims to determine the strategic implications of value investing, organizational change and operational improvement in the SME finance sector in Kazakhstan as experienced in JSC Leasing Group JSC. Value investing trends and market activities in Kazakhstan include increased movement to using cloud technology, the use of social media in marketing, targeting the Millenials market and online selling of products. Although the financial sector in Kazakhstan has both domestic and foreign investors, the domestic investors. The activities of these investors are controlled by the National Bank of
Kazakhstan (NBK), which ensures that no malpractice exists. The main factors that are attributed to the success of the JSC Leasing Group include the practical experience and professionalism of its staff through which its operations have become more efficient.
References
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