KAZAKHSTAN INSTITUTE OF MANAGEMENT, ECONOMICS AND STRATEGIC

RESEARCH
ORGANIZATIONAL BEHAVIOR, MBA

PROJECT
“MANAGEMENT IN KAZAKHSTAN”
based on a Kazakhstani company Meloman

(Music and Movie)

Checked by:
Dr. Jean-Gabriel Maurice

Prepared by:
Tundikbayeva Bakhytgul 20061883

ALMATY, 2008
PROJECT PLAN:

I. Introduction. Successful Management: From a stall to a hypermarket or the

Company that succeeded in the Kazakhstani Market.

II. Main Body. Using Fundamentals of Management:

1. Decision Making and Risk Management in Company Development
a) defining the problem
b) developing alternatives
c) choosing the alternative
d) implementation
2. Problem Solving Styles in a struggle with pirates
3. HR Management in Meloman

III. Conclusion. New Horizons, new ideas.

Resources

I. Introduction.
Successful Management: From a stall to a hypermarket or
the Company that succeeded in the Kazakhstani Market.

______________________________________________________________________________________________________________
Company Profile:
Company «Meloman» (Music fan) is the most famous in Kazakhstan large wholesale and retail seller of
music and films on carriers of various formats: CD, VHS, DVD, Video CD, MP3, Blue-Ray, and on such
programs as CD-Rom carriers, DVD-ROM and the accompanying goods.1
It was founded in 1993. The first firm retail shop was opened in 1996.

Company Uniqueness:
Company Meloman has managed to outstrip its competitors, having counted on new formats of
work with the consumer and playing by the rules accepted in the developed markets.

Company Aim:
At the moment the company aims to win competitive struggle against video pirates in the
Kazakhstani market.
______________________________________________________________________________________________________________

Meloman`s history could become a quite good basis for a success-story in

management. It successfully implemented all fundamentals of modern
Management, starting from risk management to motivating employees.

Within 20 years it has passed a way from a stall, selling videocassettes in

the northern town of Kazakhstan- Uskemen, to a network of 60 thematic shops
of the republican scale. Nobody yet has achieved the same scale in this
segment of the market in Kazakhstan.
The central office of the company has moved from the provincial small town
in the north of the country to business centre in foothill area of Almaty.

Today "Meloman" not only sells but also produces its own DVD-disks, has
managed to conclude distributing agreements with leading American film
manufacturers, including Warner Bros., Sony Pictures Home Entertainment, and
also "Close up" ("Moscow film"), "Union-video" and others2. Meloman is now
well-known and is invited to cooperate in the near abroad countries. Company’s
top management plans to issue the IPO.

The success-story of the company is interfered only by one circumstance:

meanwhile, by recognition of the chief executive of the company Vadim
Golenko, it was not possible to gain an absolute victory in competitive struggle
against street stalls and trays of video production - that is with what Meloman
once began. The company’s future depends on how this opposition will end.

II. Main Body. Using Fundamentals of Management.

1
<http://www.expert.ru/printissues/kazakhstan/>
2
www.meloman.kz
Decision Making Processes in the Company growth.
Life can be viewed as a constant series of decisions. Only by making rational
decisions do we "take charge" of our business and lives. Some decisions are made
alone and others are made under tremendous social pressure. All good decision-
making or problem solving methods as we know follow the same process: 3
1. Understand the problem and goals clearly, so you can consider a wide
variety of alternative courses of action.
2. The creation of many possible solutions to the problem. One can't use an
inventive solution unless it has been thought of.
3. Collect all the conveniently available information about the probable
outcome of each course of action. See if there aren't synergistic ways of
combining several promising solutions into potent solutions.
4. Weigh the pros and cons of each course of action (solution), then decide
on one that the organization and management can commit themselves to
fully.
Meloman management team has gone through all these procedures mentioned above.
Defining the Problem:
What was the crucial point, the important decision in the history of
Meloman, which allowed the company to reach the present level of
development?
It was the very beginning of the XXI century. By this time Meloman had
already been working in Almaty and other cities of Kazakhstan. Before the
company there came a choice: either to wait while our piracy market of video-
and-audio production slowly turns into civilized, or to change a work format, not
waiting for the market to change: to refuse selling counterfeit production and
move from small stalls to big shops. Each shop meant at least 300 thousand
dollars of initial investments into the equipment, the goods … even without
salaries. Plus still it was necessary to buy the rights and licensees for
distribution from the American movie companies. But Meloman management
equally chose the latter way, not foreknowing, if it succeeds or not. That was
the risk. That was the most important decision making process for the entire
business.
Why the company decided to change a work format? Did they look at
experience of neighbouring countries or were guided by own motives?
The company top management understood that modern trading halls with
qualitative production will soon be in demand with the consumer. Not for the
mass consumer. Originally their license product cost much - the first DVD-disks
were on sale each 5-6 thousand tenge, a videocassette - 2 thousand4. But then
gradually the prices started to decrease, the circle of buyers started to extend.

Developing Alternatives.
The company is in a constant search of relevant styles in the external and internal
environments to diversify itself. Here we want to show how Meloman diversifies itself in a
Kazakhstani market.

3
Fundamentals of management, Chapter 4 , Мaskon
4
<http://www.expert.ru/meloman/kazakhstan/>
1. After choosing its main niche, Meloman created its own manufacture - fusing disks from
a granule of polycarbonate. And soon this manufacture was put on the world
standards.
2. Two years ago the company bought a factory from Sweden with a line on
release of DVD and CD-disks. Total amount of investments made up about 1,5
million dollars.
The factory capacity is 600 thousand disks a month. Surely, the company will
not have such quantity of orders today, but in two-three years it will be quite
real. So, they are looking right into the future.
3. To invest in building of Meloman factory and shops the company used profits
from its different division. The company has a successful network selling
household electronics, building materials, goods for the household. This shop
network called "Comfort" is in Uskemen.
4. Business diversification proceeds - last year Meloman opened two cinema
halls on 200 places in Astana. By the end of 2008 they are planning to open two
more halls on 320 places as there is a great demand in cinemas nowadays,
especially in a new capital city.
Meloman loves to please people.
5. Meloman has also felt, that there are no normal bookshops – and launched
their own network called Booking in this segment in Almaty. All bookshops in
Almaty are post-Soviet and the literature there is for prepared bibliophiles, not
for the mass buyer. If you wish to buy «Sole less» by Minaev, instead of Andre
Mauro, the buyer is not clear where to find this book. Meloman started to
educate its customers here as well.
Atmosphere in new style Booking is different – it is closer to a club or a library
where people could rummage easily on book shelves, not hurrying up, to think
before choosing. Sit for hours drinking coffee, reading a book. Booking is not
simply a shop where one buys books; this is a rest spot for reading, a library. It
is a format of future.
The market gradually varies. Booking has appeared in Almaty practically
simultaneously with other networks - «Book mania» and «the Book city»,
Bookmart. All of them accustom new standards of work to consumers.

Evaluation of alternatives and Implementation.

As we know, the alternatives outcome is based on three main conditions:5
Certainty – is very seldom condition and cannot be implemented to Meloman style of work.
It was possible in the Soviet period when manufacturers knew that all their products would
be sold as they worked according to the state plan.
Uncertainty. In this condition the personal characteristics of a manager are very important.
Risk condition is actually normal for the market economy. An extreme example of this
condition is tossing the coin with probability of 0.5. What actually Meloman does.
Difficulty with evaluation – the manager cannot compare incomparable things. The only
way to compare alternatives in business is to define their affect on the private business.
Which alternatives did Meloman`s management want to implement?

Meloman wanted to create franchising business in order to reach the

regions of Kazakhstan. But the company understood that it would not work now.
There were cases when regional bankers wished to open Meloman franchise in
Shymkent, the large southern city of Kazakhstan. For two years Meloman had

5
Robert N.Lussier, Ch.F.Achua Effective Leadership
tried to be engaged in it. But Southern partners had little success and Meloman
turned down that project.
The music and movie goods are very short term of consumer interest. If active
sales go on within first two weeks, other three months the interest decreases
almost to zero. So, it is crucial to realize the product within a short period of
time. It is also necessary to calculate quantity of the product very precisely.
Otherwise investments into creation of modern, big shop will not pay off. And
here no franchiser has sustained this operating mode.

Also, Meloman started its advancing into the foreign market.

The company founded good relationship with a Kirghiz company "Union". The
CEO of the Union is Alexander Snikin. Though, from the financial point of view,
Kirghizia is not the most interesting territory, Meloman continues to work with
this country because of its stable partner there.
For five times Meloman tried to intrude Uzbekistani market but could not -
too high barriers. Nobody can give guarantees to business there. Turkmenistan
in general is closed.
Meloman had offers to open joint ventures in Russia, Ukraine, Georgia,
Azerbaijan. But, having analyzed recent situation in those markets, the
company decided to devote 2008 to our Kazakhstani market.

Problem Solving Management

Defining the problem: Impatience limit
The main problem that Meloman faces today is a piracy.
Because of this reason, the Russian-Kazakh best seller, "Mongol", couldn’t be
sold properly by Meloman in Kazakhstan.
There are 15 million people living in Kazakhstan now, it was possible to sell one
million copies of the film. Meloman planned to sell a hundred thousand disks,
but sold twice less. Selling of "Mongol" was simply discouraged by video pirates
who within two days supplied all street stalls and trays with more than a
hundred thousand copies of the film.
The piracy problem is very sharp today. Two years ago it was not like that.
Illegal product was carried only from Russia, from frontier cities into our market.
Barnaul, frontier town between Kazakhstan and Russia was simply a piracy
epicenter.
Since summer 2007 all has sharply changed. In Barnaul, Novosibirsk, Astrakhan
Russian frontier piracy points have almost disappeared. But our dealers have
put manufacture of disks on a stream, opened underground studios. Almost all
trays working in Kazakhstan, sell the disks cut in the Republic. And our market
became now more interesting to the Russian pirates, than it was before. They
strengthen their presence. It is delivery of disks of format MP3, master copies,
polytrophic packing for the piracy studios situated, as a rule, in Almaty, and
also financial support from Russian pirate studios takes place. They cover 70
percent of the market. And its share extends.
This does not mean that Meloman could not convince the buyer to buy a
licensed product; it is simply convenient to buy a DVD or CD in a tray which is
on the way home. And Meloman shops are placed in several central streets
where it is necessary to go specially.
Advantage of pirates is that they stand in streets, everywhere. Daily trays only
in Almaty are supplied with 200 thousand units of production. Meloman has a
network of shops, contracts with the Kazakhstani, Russian, European, American
studios; its own manufacture of disks. And pirates who do not have anything
mentioned above are gradually winning the market. This year Meloman closed
two Almaty shops - they have not sustained a competition to pirates.
Choosing Alternatives and Implementing Them:
To appeal to an administrative resource or to bring up the buyer…

It is the hardest part. Unfortunately, managers never have one single alternative,
which can fully solve the problem. Thus optimal decision is rarely possible. But Meloman
tries to overcome this and put forward the following decisions.

-Meloman is now expanding its market share. They have put new points of sales
in supermarkets, shopping centers. The buyer too should be brought up. And an
impatience limit will be soon reached. It is said that piracy disks are cheaper.
But the customer should come to the point that the stolen will be always
cheaper, a disk, a mobile phone or a radio tape recorder.
- Today the company’s products do not cost much as it was before. DVDs cost
990 tenge, on sales - 500. Some goods which have remained in a considerable
quantity can even cost 300 tenge6. Pirates in many cities sell at the same price.
Consumer cannot at the moment understand that a pirate disk with fifteen
movies on it can be of awful quality. And the buyer still goes to the pirate tray
as it is on a way, it is more convenient. It will not last long.
Meloman is working towards this problem and sees the following
solutions:
- The first considerable step that Meloman did is, it warned the Almaty Akimat,
that if the situation will not change, the company will have to close the shops.
The State simply should start protecting intellectual property. Akim-Mayor
promised to help. The first antipiracy staff has recently been created who
regularly gathers and analyzes a situation on the market. Today it is very
important to destroy the corruption schemes connected with this shadow
business. We know that many local inspectors collect money from tray or stall
holder in order they could continue selling pirate production. The staff is looking
into this.
- And here the problem is not only in a competition of legal and illegal
businesses. It is necessary to pull out our youth from this environment. Today
youngsters and children get used to criminal schemes since the childhood. They
work as sellers in those trays without documents. Brought from villages, they
work literally for nothing. If the state wants, it will quickly deal with this problem
caused by pirates. This all is real.
- In order it is possible to raise competitiveness of legal business, the company
introduced new discounts, especially for the youth. After all it is not the most
active category of buyers. People segment aged from 16 till 25 years prefer to
copy films and music from each other. Therefore Meloman together with VIP-
club organized the action, which allows giving to its members the discount in 25
%. The company can lose on sales, but will definitely receive additional visitors.
And where there is a visitor - there is a buyer. And where there is a buyer -
there is a steady customer.
- Meloman now is actively reducing costs, is engaged in optimization of
business processes, has introduced ERP-system. Actually it is the first ERP,
developed by Microsoft, introduced in Kazakhstan. This is a very important work
6
www.meloman.kz
direction of Meloman. Many Kazakhstani firms suffer from the fact that they buy
a similar expensive product and simply give it to its experts on IT. The IT
department does not have enough power for this purpose. Therefore Meloman
decided that this field will be supervised by one of owners of the IT Company.
And this has given positive results. Meloman is never afraid to change. The
same was, when 1C was introduced. And today it gives the company the
possibility to look at the sales in any of Meloman shops in any city at any
moment. It is very convenient.

HR Management in Meloman

Human resources policies and practices – such as employee selection, training and
performance management – influence an organization’s effectiveness. Selection of the
right personnel, training and development programs, and performance evaluation
organized by human resources department of the organization plays crucial role in strategy
creation.7
Considerable changes in organizational structure of the company followed with
improvements in human resources strategy of the company.
The basic idea of HR policy in Meloman is to maintain optimal number and high quality
level of personnel in the company provide professional and social development, and retain
qualified personnel and recruit “the best” in order to provide solutions for strategic and
tactical issues of the company.
Today there are 1500 employees in the company.
And Human resources policy of Meloman directed to:
1) Bring to correspondence with market demand. Human resources - intellectual
capital of the company.
2) Guarantee the best human resources strategy to fix leading position of the
company in local and foreign markets.
3) Raise the level of positive image and trust of partners and customers to the
company.
Human resources and development depend on administration (on orders, decrees,
responsibilities, job regulations, sanctions), economic (incentives, insurance, trainings,
bonuses), sociological (work conditions, social norms, non-monetary motivations, corporate
culture) methods, and balance of these methods to create healthy corporate atmosphere in
organization.
The main aim of human resources is to organize highly qualified team that meets the
challenges of the company having increased the productivity and efficiency of employees.
It compiles:
 Identify explicit and tacit potential of the employee (part of team)
 Utilize his/her intellectual and creative ability for company’s development
 Recognize the motivate employees contribution and build long term
mutual relationship with each employee.
Following issues are discussed to reach above aims:
 Create healthy corporate atmosphere, provide high level of customer
service as well as mutually beneficial supplier relationship.
 Sustain qualified personnel, and recruit “the best” available employees in
the market, and provide carrier growth for each employee.
 Provide favorable working conditions for newly recruited employees in
order to ease adaptation process.

7
Robbins. S and Judge. T Organizational Behavior Prentice Hall 12th edition 2007
Having discussed human resources strategy of Meloman partially we want to introduce the
training center created to train Meloman employees to follow up changing technical skills.
All Meloman employees work to:
 Support business in order to reach the mission of the company
 Provide employees with full set of trainings according to company’s
strategy
The training center tries to balance relationship between trainings and business processes,
and motivate employees to contribute more to excellence of the organization in the
industry. It provides:
 Training of company employees in communication area
 Prepare technical specialists for use and maintenance of equipment
 Training to market services of the company
 Development of management and personal skills
Meloman develops different training sessions for all employees in all levels.
According to Robbins and Judge ‘competent employees don’t remain competent forever’ 8.
Nowadays changing world demands qualified personnel who can follow up the tendency
and way to success lies via trainings and introduction of all necessary skills and techniques
to employees within training sessions and in long term company contributes to human
resources that become an intellectual capital of the company.

III. Conclusion.

New Horizons, new ideas.

Meloman today is finding new ways of reaching the customer.

• It is now implementing information terminals in its shops. Thus, the buyer
will find out immediately if there are necessary goods available and it will
lower loading on the personnel.
• The company is also thinking of the Internet. It will make the electronic
catalogue on a site
• But the most important issue is that the customer visits shops personally,
as Meloman offers variety of books which can be taken together with the
movie.
• Meloman is also developing a manufacture segment of the company: it
has started offering the market the new line of production such as DVD-
disks in format Blue Ray. It is a production of a «Premium» class and is
expensive enough. But within two years it will be reduced in the price.
The further prospects of the company are:
• passing the international audit
• transformation of Open Company into joint-stock company
• to issue the IPO
• to develop both a local platform and a foreign one
• to start thinking of entering stock-exchange
• gaining an absolute victory in competitive struggle against pirates and
winning the preference of customers by providing the highest standard
service.

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Robbins. S and Judge. T Organizational Behavior
 Company Meloman has managed to outstrip its competitors, having counted
on new formats of work with the consumer and playing by the rules accepted in
the developed markets. And this is the brightest example of successful
management which has chosen the highest standards, has founded new
management styles and serves the people who deserves the high quality
service and serves the Country which step by step is exploring new developed
markets and is entering the international organizations thus making itself
revealed to the entire world.
Only such devoted to high standards company can show the development of the society
and the country as a whole!

References:

1. Fundamentals of management, Chapter 4, by Maskon

2. Robbins. S and Judge. T Organizational Behavior Prentice Hall 12th edition 2007
3. Robert N.Lussier, Ch.F.Achua Effective Leadership Thompson 3rd edition 2007
4. Internet resources:
<http://www.expert.ru/authors/176832/>, information for March 18, 2008
<http://www.expert.ru/meloman/expert/>, information for March 18, 2008
<http://www.expert.ru/printissues/kazakhstan/> information for March 21, 2008
www.meloman.kz information for March 20, 2008