Kazakhstan Institute of Management Economics and Strategic Research

Introduction

Our project is devoted to the JSC “Rakhat”. “Rakhat” JSC is one of the largest manufacturers
of confectioneries in the Kazakhstan with more than 60-years of history.
I.Current Situation

A. Past performance to date

Ownership structure: “Rakhat” is Joint Stock Company (corporation).

Revenues and Profitability for the period of 2001-2008

1 200,000

1 000,000 974,826
946,785
(in thousands)

800,000
revenue

717,115
600,000
545,28
Revenue
477,79
400,000
311,604 307,262
200,000

0,000
2001 2002 2003 2004 2005 2006 2007 2008

year

ROE

25

20

15
Profitability
10

0
2001 2002 2003 2004 2005 2006 2007 2008

year

The data for table we took in the website of Kase from the audited report. The 1st table

shows the revenue of “Rakhat” JSC from 2001-2008. As you see the revenue in 2001 was 311

mln and that by the year 2008 it had grown to 1,673 mln. There was sharply increase in their

revenue from 2004-2005, whereas after the year revenue started to decline to approximately to
200mln from 946 mln to 717 mln. From 2007 the revenue increased from 717mln to 1,673mln.

So, nowadays this company is the successful producer and distributor of sweeties.

The 2nd table illustrates the profitability of the company for the same period as in the

above table. We calculated ROE (return on equity- profitability ratio) by dividing Net Income to

Stockholder’s Equity. For example: ROE for 2001 is 311,604,000/1,997,151,000=15.6%. By

observing this line graph we can see that profitability had decreased from 15.6% (2001) to 9.17%

(2008). In the 2003 the indicator of profitability was in its highest degree almost 17.92%. Then

from 2003 till 2006 there was significantly fall by 8.59%. This period indicated the poor

performance of the company. Although, next 2 years the company made a little progress.

B. Current mission:

The Company’s mission from their website:

“Our destination is to afford the gladness to people with our delicious products. Our activity is

directed on the maximum satisfaction the great number of people that are in need of high-quality

confectioneries, cherishing the ancient traditions of the past, and being the most up-to-date. We

know how to produce excellent confectioneries, and we will upgrade for these purposes.

We want to become the partner to our employees, therefore we think much of every our

employee, create the social oriented conditions for the labor, strive and make our company the

place of full-fledged and prestigious employment.

To consumers: satisfaction of needs of the wide spectrum of consumers (wholesales, retails) in

the Kazakhstan and abroad with the high-quality goods.

To stockholders: creation the effective mechanism of corporate and financial managed company

with the purpose of transparency, sustainable development of business and profit earning.

To employees: increase of effectiveness of the personnel performance at the expense of more

specifically problem definition and division of responsibility. Entering the system of motivation
and stimulation of employees according to their execution of assigned tasks and to results of

company activities. Corporate culture creation”.

The JSC “Rakhat” has a broad mission statement. They specified missions to each

stakeholder, including consumers, stockholders, employees, which affect the organization’s

actions. The company’s mission reflects their current position, because they deliver to customers

high quality products with the system of the quality management (SQM), based on the standards

of ISO 9000. They provide stockholders with positive returns. Today the company employs over

3000people ( taking into account the stuff of subsidiaries total number of employees reaches

3500) and all are provided with decent working conditions, health care, adequate remuneration

for work.

Goals of the company:

Short-term goal: The upcoming Asian Games in 2011-Their goal is to offer to guests of

Almaty very high quality products and packaging to match the best international standards,

produce products like souvenirs with the symbol of Kazakhstan and symbolism of the Games.

It is very smart, relevant and achievable goal. It is a great opportunity for the company in terms

of advertising and production image about Kazakhstan. This is positive factor to the company.

Intermediate-term goal: The Company’s plan to increase the proportion of products

supplied to foreign markets and begin to explore the Chinese market.

Increasing the proportion of products supplied to foreign market is a good objective, by doing so

they can increase their market share; however it is very risky because of competitors, therefore it

has a possibility to not being achieved. They should be very specific, to investigate where they

have opportunity. So, it can be positive factor for the company, if they will be able to use their

opportunities very smartly.

Exploring Chinese market is a very risky and not smart goal. In any case company can not

produce products as efficient as China. If they will afford prices like Chinese producers, they
will incur a loss. Therefore it is not achievable goal. So, we think that this goal can return

negatively for the company.

Long-term goal- They want to become a company number one on the market of the

Central Asia. This goal itself is very good, it is a good opportunity for them to expand

internationally, but it can not be achieved. Going into foreign market should be very carefully

analyzed. They should investigate tastes of each country and so on. They should consider

competitors; otherwise they will be crushed by them. This goal can be not so smart; maybe it is

better to stay leader in KZ, and master further here. If they achieve their goal it is positive factor

for them to grow, otherwise it is likely to be negative.

Strategies:

Current corporate strategy for JSC “Rakhat” is growth.

As to long-term strategy of the company its basic priority is updating of production potentialities

and active investment in development. Only in the last three years wholly or partially

reconstructed all production manufactories of the parent company, which had significantly

increased production capacity and improved working conditions. The process equipment (it is

made both at the expense of acquisition of new lines, and at the expense of reconstruction and

modernization of already existed equipments) is considerably updated also.

At present JSC "Rakhat" delivers its products to Germany, Russia, Turkmenistan, Afghanistan,

Ukraine and Kyrgyzstan. Exports of the company have a tendency of a small but steady growth.

They're not highly competitive, and politico-economic conditions do not hinder international

trade. As mentioned before the company’s goal is to increase the proportion of products supplied

to foreign markets.

In the last five years the annual growth of sales of the company averages about 15-20%.

Corporate strategy of growth is positive factor for the company.

Business or competitive strategy of the JSC “Rakhat” is differentiation.

Universal nature of the manufacture, its scale and own line of the cocoa beans processing enable

the company to hold the broadest assortment of the confectioneries among the domestic

manufacturers. As of today the backlog of assortment of “Rakhat” JSC includes more than 250

names of various confectioneries, which refers to 10 various groups. Purchasing capacity of

population reflected the assortments of the products sold. Customers started to prefer low cost

products like caramel, waffles and cookies. They are time by time introducing new products to

meet customer expectations.

The company is constantly concerned about the health of consumers, and therefore the

development of new and traditional confectionery uses the latest scientific research and

recommendations of the domestic and foreign doctors, nutritionists, environmentalists. Thus,

pectins used in the manufacture of sweets to facilitate removal from the body of heavy metals.

The glucose syrup replaced sugar to reduce the load on the system of metabolism. “Rakhat” JSC

is the singular confectionery enterprise in the Kazakhstan, which developed special production

focused on the people, who suffer from diabetes. Assortment includes several items of

chocolates, candies, cookies and waffles with the low calorie content and substitution of the

sugar for equivalent natural food raw materials.

Business strategy of differentiation is positive factor for the company.

Current policy:

“Rakhat” JSC fulfills the policy of the maximum accessibility of its products on the internal

market. Sales geography of “Rakhat” JSC covers whole Kazakhstan, as far as the company

realizes the goods in 18 cities, including 14 regional centers. Production distribution in the

Almaty realizes by heavy bulk buyers as well as by company retail outlets. Accessibility of the

products of “Rakhat” JSC in the other regions has been provided by the establishment of the

wide network of distributors (branches), those sale high-quality company products. Hereby sales
geography of “Rakhat” JSC covers whole Kazakhstan and neighboring Kyrgyzstan, where the

company has the trade branch.

This policy is positive factor; however they should improve the distribution channels to foreign

market by considering their rules and regulations.

II. Corporate Governance

A. There is BOD which consists of 3 chairmen:

• Sholpan Dauletova - Chairman of board of directors

• Anatoly Popelushko - Member of board of directors

• Meirembaev Zheksembay - Independent director

According to charter of the corporation BOD is active. Every year they have meeting of BOD

B. Top Management

Anatoly Popelushko has held the position of chairman of the board – President of “Rakhat” JSC

since 1992. In the 1970 he has been directed to work at sugar factory of Aksu in Taldykorgan

region being the chief of machine-shops. From 1972 to 1976 he worked on the position of deputy

chief engineer, and from 1976 to 1977 he was the deputy director. From 1977 to 1983 he was the

director of Alakul sugar factory in Taldikorgan region. From 1983 to 1984 he worked on the

position of director of sugar enterprise in Karabulak, from February to March 1984 he was the

deputy director of Mercken sugar enterprise in Dzhambyl region. From March 1984 he has been

appointed the chief engineer, and from August 1984 was appointed the director of the

confectionary plant of Alma-Ata. He has become the President of the Union of food and

processing industry of Kazakhstan since 2002 and the member of the Bureau of Employer’s

Confederation of Kazakhstan. During the period from 1999 to 2004 he was the editor of
magazine «The food and processing industry of Kazakhstan». He has been the deputy of the

municipal Maslikhat of Almaty in the 1999, 2003, 2007 years.

Alexander Zenkov - Executive director of “Rakhat” JSC. He has become mechanical engineer

since 1980, then senior mechanical engineer of iris workshop, and then he became the executor

of the master mechanic duty on the confectionery plant of Almaty since 1984. He was appointed

the chief since 1992, and then the director of marshmallow-dragge workshop, reformed by

“Rakhat” JSC, since 1995. He was an executor of technical director’s duty since 2002. He has

become the executive director of “Rakhat” JSC since 2003.

Natalya Khilchuk - Chief Technologist of “Rakhat” JSC. From 1994 till nowadays she has

work on the position of the chief technologist of “Rakhat” JSC. Before this position she had

many experiences in that sector.

From this information above we can see that key people in JCS “Rakhat” have adequate

experience in order to occupy such important positions.

III. External Environments (EFAS): Opportunities and Threats (SWOT)

A. Societal Environment (PESTEL)

Political-Legal

The Civil Code of the Republic of Kazakhstan: Article 10 states: The Government guarantees

the freedom of entrepreneurial activities and ensures its protection and support. We think that

this factor is very positive for the development of the company.

The formation of the Customs Union between the countries of Kazakhstan, Russia and

Belorussia which is aimed at the development of free exchange of goods and fair competition in

one hand is positive factor because they will able to export their products freely to foreign

market, on the other hand it is negative factor because Russian and Belarusian manufactures of

confectionaries can dominate Kazakhstani market.

Economic

- A strong price competition from outside import production. This factor is negative we think

because it will lead to decreasing of sales.

- A high share of imported raw materials as a result of absence or backwardness of the local raw-

material base. This factor is negative for our company because putting industrial and financial

activity of the enterprise in dependence on a conjuncture of the world markets.

- Economic development of republic in modern conditions is characterized by stability and

the steady tendency to growth. According to Republic Kazakhstan Agency according to the

statistics, in 2007 manufacture of a total internal product (GNP) in comparison with 2001 has

increased almost in 4 times Industrial output in 2007 in comparison with 2001 has grown almost

in 3,9 times. For the accounting period it has been made an industrial output on 30619782

million tenge. We think it is good because it will lead to positive influence on industry

development and to the company itself.

- Increase in number of the competitors attending to sale of similar production. This factor is

negative for our company because that can lead to decrease in production volumes

- Inflation and a rise in prices for raw materials, materials, fuel and other basic components

of expenses of the enterprise. We think it also negative because that can cause growth it is

wholesale – transfer prices of production and to lower its competitiveness in the market

- Because of financial crisis the company faced the problem of shortage of working capital. Also

there is reduced demand for confectionery products. This is negative factor. However, the crisis

could play a positive role. So, developing manufacturers will give away to major companies.

Sociocultural

- Preservation of regional disproportions in a standard of living and purchasing capacity of the

population. We also think that this factor is negative because it will different spreading of

resources, difficulties and mistakes with calculating this spreading.

Technological

- The increasing number of innovations. We think that it is the positive factor because it will

lead to increasing number of products, product development, and economic use of resources.

A. Task Environment (Industry Analysis)

Competitors

JSC “Rakhat” have domestic and foreign competitors. Today it owns 21% of total domestic

confectionery market. Domestic competitors include Karaganda, Aktobe, Kostanai confectionary

manufactories. We suppose the main competitors are foreign ones like Swiss Nestle, Belorussian

Roshen, Russian confectionaries and so on.

Consumers:

Their main target market is allocated the following consumer groups:

1) people of an average prosperity,

2) children of the woman from 25-45,

3) people with the high prosperity,

4) Diabetics.

For each their segments the enterprise manufacture various production. So, for people of

middle class they offer low cost products like caramel, waffles and cookies. To diabetics and

women from 25-45 years they developed products with low caloric content with use of sugar

replacement.

To make all segments of market sufficient JSC “Rakhat” uses differentiated strategy.
External Factors Weight Rating Weighted Comments

score
Opportunities:
1) Formation of Customs Freely exchange of
Union products, increase in
exports to other countries
2)Asian Games 2011 in
The great opportunity for
Almaty.
the company in terms of
advertising and production
image about the KZ

3) Entering to WTO in the Possibility of expanding

future internationally

4)Financial Crisis Other developing

competitors may be
destroyed, competition will
fall

Threats: Absence of some raw

1) Weak domestic source of materials like cashew
raw materials (foreign suppliers may fall
to deliver or increase
prices)

2) Formation of Customs Russian and belorussian

Union confectionaries
competitors may dominate

Lead to shortage of
3) Financial Crisis
working capital
4) Earthquake in Almaty Almaty, where located
their main manufacture, is
highly seismological
region
5)Water-flood Close to Almaty and
Shymkent there were the
cases of water-flood

6) Instability of political students of universities

situations arrange meeting against
a rise on price of
education

Total Score

IV. Internal Environment (IFAS):

 Strengths and Weaknesses (SWOT)

A. Corporate structure

The organizational structure for JSC “Rakhat” is Functional structure. It is positive factor,
because employees within the functional divisions of an organization tend to perform a
specialized set of tasks. However it could also be negative factor because it will lead to a lack of
communication between the functional groups within an organization.

JSC “Rakhat” uses process departmentalization. It is positive factor, because they groups
activities on the basis of process. These each process requires different skills, however if one
process will be interrupted, all others will have to stop their activities. The process of making
chocolate: roasting, winnowing, milling, pressing, refining, tempering, molding.

Corporate Culture:

The JSC “Rakhat” has its own unique culture or value set. They didn't consciously try to
create a certain culture, but with the help of the top management and the founders they think that
corporate culture is exist. They do not just care about result, but try to emphasize on established
processes to complete a task and to be attentive towards all departments. The management of the
company is hands-on. They always control and direct the operations of employers; they also
spend a lot of time with their people and to communicate with them in a variety of ways. The
management encourages employees to be more responsible and act and think like owners, in
exchange for more flexible work schedules. So it is positive factor, because the corporate culture
is open. The company is domestic and its corporate culture is monoculture, because they have
common values, principals, and standards of doing their business.

Demographic diversity. After analyzing structural subdivisions there is an evidence of that the
most of the employer’s gender is woman. As for age diversity there is no such an explicit
significance in the company. As for head of departments there is an average age between 40 and
55.

Corporate resources

Marketing

Market development: Besides saturation of a home market, good prospects of joint-stock

company "Rakhat" sees and in development of the next markets that confirms the successful
beginning of its activity in Central Asia. The formation of Customs Union will be beginning of
this strategy.

Market penetration: Demand for production of joint-stock company "Rakhat" grows, great
volumes of sales testify to it. For example, only confectionery products which assortment makes
more than 240 names, it is annually realized over 60000 tons. The Asian Games in 2011 will be
a new opportunity to increase production.

Product development: The Company offers sugar-free products for diabetic and women. Also
they can make different sweeties in form of souvenirs, presents for foreign people.

Kazakhstan chocolate

Kazakhstan (a tile 100)

 • Product. Milk chocolate with the greater maintenance of cocoa grated, with vanilla aroma. Power value 100
г a product of 531 kcal.
• Price. Price is available for all consumers. Price is nearly 140 KZT.
• Place. The Kazakhstan chocolate is available at all supermarkets, small shops, markets. As company’s
marketing strategy is maintain with availability all consumers.
• Promotion. The product is popular; design is applicable to the title of the product. Nevertheless there was
no special promotion or distinctive advertising for this product. The most important fact that the stimulator
for preferring this product is patriotism.

Financial strategy:

The JSC “Rakhat” is more equity financing. According to the audited Balance sheet of 2008, its 77% of assets were
financed by the equity, 23% was its liability which includes tax payable, unearned revenue and the minority of them
was debt approximately 5%.

Research and development

The company constantly cares about health of consumers that is why by development new and release of traditional
kinds of products applies last scientific researches and recommendations of domestic and foreign physicians,
dieticians, ecologists. So, at manufacturing sweets the pectins promoting a conclusion from an organism of the
person of heavy metals are used. With the purpose of decrease in loading on system of a metabolism replacement of
sugar by glucose syrup. It would be desirable to emphasize, that joint-stock company "Rakhat» is the unique
confectionery enterprise in Kazakhstan, mastered release of special production for the people, suffering diabetes.

As to long-term strategy of the company its basic priority is updating a production potentialities and active
investment in development. Only for last three years industrial shops of headquarters plant that has allowed
increasing essentially capacities are in full or in part reconstructed all and to improve working conditions. The
process equipment (it is made both due to purchase of new lines and due to reconstruction and modernization
already available) is considerably updated also.

On "Rakhat" the economic scheme of a municipal and technological heat supply is realized, the freeze provision
system is radically advanced. All this provides rhythm of work of shops, allows to support necessary parameters of
productions, and also to apply more perfect technologies. As result - production potentialities of factory have
increased almost in one and a half time. At the enterprise works on creation of own logistical complex adequating to
growing industrial volumes of the company are actively conducted.

Operations and Logistics

Production facilities are allocated on the two sites - Almaty and Shymkent. For safety of production in joint-stock
company norms and requirements which are necessary for supporting in manufacture of confectionery products are
observed all. For this purpose strict observance of a compounding, use of initial materials only high quality is
necessary. "Rakhat" positions itself, first of all, as the enterprise of high-quality chocolate production. “Rakhat”
carefully approaches to quality of initial raw material and we buy it from solid constant suppliers with good
reputation. They do not dare to release the parties of raw material mismatching necessary requirements. Then
ourselves we process initial raw material - beans, therefore all processes of creation of chocolates and chocolate is
under the rigid control over the enterprise. From here, first of all, high responses about quality of chocolates.

Full integration

"Rakhat" is a first enterprise in Kazakhstan, having a full chain on manufacture of chocolate - from processing
cocoa-beans before release of finished articles and semi finished items. The high-efficiency equipment which is not
having analogues in territory of the Central Asia, allows letting out not only traditional tiled chocolate, but also tiles
of a new European format with large fillers: raisin, nuts, air rice, and also porous chocolate.
As Mrs. Gordienko, director of marketing department has emphasized: foodstuff, except for flavoring qualities,
should be convenient in the use, with good periods of storage and in worthy packing,.

Their activities are not only in Kazakhstan. In Kirghizstan the affiliated representation of joint-stock company
"Rakhat", for example, works, partner attitudes with Tajikistan, Afghanistan, Russia are well adjusted, working off
of the Mongolian market is studied. Production of the Kazakhstan enterprise is delivered and to Germany, the truth,
volumes small: the main obstacle id still the distance between our country and the Europe.

Human Resources

There is more than 3500 people work on “Rakhat” JSC. Workers mostly consist of women so that’s why for security
the company pays a strong attention. The company’s main idea for workers is good working conditions and secured
workplace.

Information Technologies

One of the important tools of using new technologies is ordering of information streams for
increase of management efficiency by the company. So, at the moment "Rakhat" has begun
introduction of modern system of automated management by the enterprise on the basis of ERP-
decisions. Special value is given also to improvement of professional skill of workers of the
company, including the main experts and heads of an average part. The system of the quality
management (SQM), based on the standards of ISO 9000, has been developed and introduced on
“Rakhat” JSC. The compliance of SQM of “Rakhat” JSC with the requirements of standards ST
KR 9001-2001 has been confirmed by certificate of AB (Almaty Branch) of «National center of
examination and certification» JSC.
The system of the quality management is the system of the company’s processing control.
Contemporary customers appreciate the goods as well as the company, which produces it. When
the customer choices the goods he is guided by following principle: «Well-handled and well-
managed company produces the good-quality goods».

Well-formed and functioned SQM guarantees:

• Stability of the product quality;

• That company’s processes are managed;
• That company’s activity is directed on the quality assurance.

What about the site of Rakhat Company http://www.rakhat.kz/.

After analyzing Rakhat company’s site there is a conclusion. The site is not on the high level of development.
Possibility of using the site on full capacity is low because there is not enough information to see what Rakhat
represents on the market. The design is very simple and typical. There is no customer interaction except guest book.
Rakhat can use its site to reflect new customers and also new partners in Kazakhstan and abroad. While the site is
the face of the company by the language of information technology it should avoid these defects. Nevertheless the
reputation can be even more highly accepted by IT possibilities.
Strengths:
• Strong corporate structure, efficient use of departments
• Brand recognition on KZ market and in central Asia
• Highly demanded products
• High quality
• Future international orientation
•

Weaknesses:
• Corporate culture is not enough strong and well designed
• Information technologies are not on strong level
• There is no additional promotion for less demanded products

VI. Alternatives and Recommendations.

A. Strategic Alternatives
 Joint-Stock Company “Rakhat” is necessary to adhere further to the following directions

leading to its further and dynamical development:

• constant and flexible work with buyers;

• cost reduction of production at the expense of reduction in expenditure;

• labour efficiency increase;

• perfection of forms of government;

• a permanent job over range;

• a permanent job and the strict control over quality of manufactured production, production,

processes on all phases of production;

• use of the highly technological equipment and new technologies, intensive modernization;

• search and the conclusion of new contracts with the dealers attending to wholesale and

jobbing trade in regions