This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
A case study research method is the most appropriate approach to obtain deeper understanding of "how' and "why" companies investing in such, what impact they had on its economy, how they evaluate future attractiveness of this country. Case study approach contributes our better understanding of a complex problem or object, and can add strength or extend experience to what is already known from previous studies. Case studies emphasize detailed contextual analysis of a limited number of events or conditions, and their relationships. Case study research method is very popular among researchers, who have used this approach for many years in various disciplines. Expert Robert K. Yin defines the case study method as an empirical research that examines a contemporary phenomenon within its real-life conditions, when the boundaries between phenomenon and context are not evident, and in which several sources of information are used. (Yin, 1984, p. 23). 
In this study it was used a multiple case methodology, conducting two interviews with two international companies which are investing in oil industry of Kazakhstan. This chapter presents the interview results in chapters: advantages following OLI model by Dunning,
5.1 INTERVIEW PROCESS
As it was mentioned before study is based on a qualitative research method and conducted with interviews. Two foreign oil companies agreed to participate in research. The first one is Chevron with head office in US, and the second one is British Gas Group with head office in UK. The interview approach was guided by the following set of open-ended questions.
Please provide information about the market share of your company in
In terms of capital and employees number, what is the company size in global arena and particularly in Kazakhstan?
What are the main factors that influenced decision of your company to invest in Kazakhstan oil market?
What type of entry mode your company selected for entering oil market of Kazakhstan, and why?
What approaches have the company used for contribution with local companies in Kazakhstan? (strategic alliances, joint ventures)
What actions were taken by the company, in terms of market information in the Republic of Kazakhstan,
- before entering oil market of Kazakhstan?
- after entering Kazakhstan oil market?
What incentive have Kazakhstan government provided to your company during the investment process in Kazakhstan?
Please provide information about management advantages of your company.
In terms of new technologies, what innovations the company can bring in oil market of Kazakhstan?
How your company see Kazakhstan's -labor costs
Please provide information about political, economic and social situation of Kazakhstan oil market from the company's point of view.
How your company see infrastructure in Kazakhstan? Is it attractive for foreign investors?
How do you think what impact does FDI have on Kazakhstan economy? And what is your company's impact on oil market of Kazakhstan?
What do you think about future attractiveness of Kazakhstan oil market for FDI?
This list of questions was sent to every company in advance in order they could have overall picture of the contents and purpose of the interview and some time for preparation. These questions were adapted to objectives of the research, also to the context of industry and used as a basic framework for each session, which helped to build the results. Session started with general explanation of the purpose of the study, after that there was general discussion about the company's reasons of investing in Kazakhstan. Participants expressed their understanding concerning the determinants and motivation of investing and how such kind of network can help their internalization decisions. Every interview lasted approximately two hours continuously. The language used in the interviews was English and Russian. The main characteristics of the interview participants are listed in the table below.
Table 5.1 Characteristics of Interviewee companies
Chevron (Case study one)
BG Group (Case study two)
Oil and gas
Oil and Gas
Year of Foundation
According to the Table 5.1 it is obvious that companies were chosen by specific criteria. Both companies are leading players on global energy market and had very similar experience in oil sector on international level. The head office of Chevron is in United states, while for BG Group home country is United Kingdom. Both Chevron and BG Group were founded in mid-80th of last twentieth century. Chevron entered oil market of Kazakhstan in 1993, and BG Group in 1996. The initial entry mode of the followed companies was joint venture. Both chosen companies are huge with significant number of employee.
The following table represented below demonstrates very important information concerning key indicators such as oil reserves and resources, oil production, operating profit of Chevron and BG.
Table 5.2 Key indicators of interviewee companies
Reserves and resources (million of barrels)
5.2 THE RESULTS OF INTERVIEWS
5.2.1 CASE STUDY ONE
Chevron Corporation is one of the world's largest providers of energy, and involved basically in every sector of the oil industry, from exploration and production to transportation, refining and retail marketing, as well as petrochemical manufacturing and sales. The main reason of Chevron investing in Kazakhstan is that the Caspian region is one of the key growth areas in petroleum industry. The Caspian region has a very high level of exploration, as well as development activity. Nowadays Kazakhstan plays an important role not only in Chevron's global portfolio, but in portfolios of variety international corporations.
Chevron to enter to oil market of Kazakhstan took such entry mode as joint venture with local companies, because of lack in information of this particular country and its business operations. On April 6, 1993 Chevron established the largest joint venture between a Western company and a country of the former Soviet Union. The result of this is (TCO), which was created to develop the largest discovery in the past 30 years - the Tengiz oil field in western Kazakhstan. Chevron has a 50 percent share in Tengizchevroil (TCO) company, along with such companies as ExxonMobil (25 percent), Kazmunaigaz (20 percent) and LukArco (5 percent). Since that time, Chevron has made additional investments in other sectors of Kazakhstan economy, including petrochemical products manufacturing and retail gasoline marketing. Moreover, Chevron Corporation has a 20 percent share in the Karachaganak. In 2009, Chevron's average net oil production was 211,000 barrels per day, including 191,000 barrels of crude oil, 91 million cubic feet of natural gas. While, from operations around the world in 2009 Chevron produced 2.7 million net oil-equivalent barrels per day.
The number of employees in global oil market of the company is around 67,000, in Kazakhstan is approximately 2000 people. Interesting fact is that, from 1993 up to now, company's direct payments to entities of Kazakhstan, including employees, exceeded $16.7 billion, for example only in 2006 alone, those payments reached approximately $4.3 billion. Moreover, in comparison with 1993, when Kazakh citizens make up less than 50 percent of the Tengiz workforce, now there is more than 80 percent of Kazakh residents work in Tengiz and constitute more than 71 percent of its supervisors, managers and specialists, it means that citizens of Kazakhstan are now a fast growing part of the management structure. For faster development of this process TCO regularly sends employees with high potential on training assignments abroad, in such countries as the US, UK, Thailand and other. Currently, approximately 20 Kazakh employees are working on Chevron assignments outside the country.
For contribution with local companies of Kazakhstan, Chevron's activities are focused on building strong capacity to promote Kazakhstan's economic development and to establish stable, long-term relationships. Nowadays Chevron strongly invests in community participation initiatives and focuses on building institutional and human capacity in order to stimulate economic growth and enable communities to thrive. Chevron partners with national and local governments, various nongovernmental organizations, communities and other groups in order to deliver these targeted initiatives in three specific areas: basic human needs, education and career training, and support for local small and medium-size enterprises. The Small and Medium Enterprise program (SME) was created by Chevron in collaboration with the European Bank for Reconstruction and Development, the United Nations Development Program and the U.S. government. Already more than 1 million dollars was provided to SME "graduates" in form of small-business loans. In period from 1993 to 2009, Tengizchevroil spent more than $600 million for social projects funding in the Atyrau region for the community and local employees.
Chevron is committed to improve health and safety situation of Kazakhstan. Company finances mobile clinic in the diagnosis and treatment of tuberculosis in the Almaty and Atyrau Region. This activity contributed examination of 8,000 people and more than 80 percent of those found with TB have recovered. Moreover, Chevron delivers medicines and medical equipment for regional AIDS centers, Children's Department of Kazakh Research Institute for Oncology and Radiology and Kazakh Department of the Cardiology Research Institute.
Chevron pays a lot of attention to future generation of Kazakhstan, company supplies classroom equipment, textbooks, computers, provides student's scholarships and organizes trainings for teachers.
Foreign investors always bring to host country new technology and innovations. Chevron applies the most up-to date technology, equipment, methods and practices to its Kazakhstan's oil and gas business. These technologies were implemented with a view to reduce costs, accelerate development and increase reserves. The continuing migration of downstream processing technologies to upstream applications unsures that national workers are exposed to the latest developments in oil field operations. Tengizchevroil's Sour Gas Injection/Second Generation Plant uses a unique combination of conventional and newly developed sour-gas injection technology to process crude with a very high sour gas-to-oil ratio. This project may pave the way to applying the technology more broadly within the Tengiz reservoir, with the potential to increase recoverable reserves.
Chevron, of course, has management advantages and management team that offers these advantages consists only of high-profile professionals, with a great international experience. Company widely promoting ethical and moral behavior of every employee, also conducts training for all personnel of the company concerning quality, health, safety, environment system (QHSE).
In terms of market information in Kazakhstan Chevron as was working before and after entering to the country's market keeping the same position. Chevron is a strong player on global energy market and its main target is producing oil and gas. The incentive that government of the host country (Kazakhstan) provided to Chevron are low tax regime, growth of the economy of the country, political stability, accessibility to its oil sector, significant amount of the resources, low land price, low labor cost and huge potential for growth and development. Although the government of Kazakhstan provided such incentives, it has a great power, which appears as a strong control in financial regulations, strict environmental standards, strict supervision over financial reporting.
Kazakhstan is developing country with huge natural resources and potential in oil sector, but there is a lack of experienced and qualified specialists in oil sector. Company recognizes the cheapness of labor, but there is such significant weakness as these employees are not so effective. And we found a solution to these problem - trainings of employees and graduates, which also include sending them abroad and lots of scholarships for education as in Kazakhstan and abroad. Land costs of Kazakhstan are cheaper than in other countries and it was of the most attracting advantages that influenced investment decision. But it is necessary to mention that nowadays the price of the oil fields is growing dramatically, mostly owing to oil price growth and high competition. The price of oil field depends on exploration and quality of oil fields and its capacity.
The company saw Kazakhstan as politically stable country with the same president since gaining independence; Kazakhstan can be positively characterized by stability in tax regime that was playing big role as well. It is important that Kazakhstan has good political relations with Europe, Russia, and China. Kazakhstan is developing country with fast growing economy, significant amounts of FDI inflow. Moreover, Company sees Kazakhstan as democratic, multinational country. But there is some point concerning culture and mentality of people, they afraid to trust to international companies and investors, these problems makes it hard sometimes to work
Company sees Kazakhstan as a democratic and stable country with stable president since independence. Kazakhstan is development country with growing economy, especially in oil sector. Kazakhstan has a few populations; most of them have a high education.
The infrastructure in Kazakhstan has improved since the company came here. There is still a huge perspectives for millions investment. And its is important to mention a necessity of improvements in financial sphere, legal field and transportation infrastructure in order to make operations more efficient.
5.2.2 CASE STUDY TWO
BG Group has been active in Kazakhstan for more than 15 years, from 1997. Company is joint operator of the giant Karachaganak gas condensate field, one of the biggest fields not only in north-western Kazakhstan, but also in the world. Moreover, British Gas is a shareholder in the Caspian Pipeline Consortium (CPC), the pipeline of this consortium links reserves in western Kazakhstan to the Black Sea, providing access to world markets.
The influential factors that company have considered in its investment plan in Kazakhstan are fast growth of economy, big potential in oil and gas industry, effectiveness, which can deliver adding value. Kazakhstan is a progressive and dynamic partner for BG Group which is committed to market reforms and development. Kazakhstan with its huge and rich natural resources coupled with great strategic location, motivated workforce provides great investment opportunities. Kazakhstan is also impressed BG Group by its stable political and investment climate; also company sees its clear commitment to long-term economic growth and improving standard of living.
British Gas group owns 32.5 percent of Karachaganak field, along with such huge companies as Eni with its 32.5 percent, Chevron - 20 percent and Lukoil 15 percent. BG is also a shareholder (14.29%) in the North Caspian Project, with Agip KCO as the operator of the North Caspian PSA, which includes the discovery of Kashagan. In the next project CPC the company has 2 percent and partners with Russian Government 24 percent, Kazakh Government 19 percent, Chevron 15 percent, LukArco 12.50 percent, ExxonMobil 7.50 percent, Rosneft - Shell 7.50 percent, Omani Government 7 percent, Eni 2 percent, Oryx 1.75 percent and KPV 1.75 percent.
BG Group is one of the most successful huge companies, which is known all over the world. It's employee number reaches approximately 6100 people globally, and in Kazakhstan this number is around 2000 employees.
BG Group continuously provides new technologies, paying great attention to delivering appropriate level of experience to the local engineers and specialists. Company has a huge experience of operating in international oil market and sharing it with Kazakhstan by providing integrated way of process for getting international experience through specialist's rotation between different countries. Bg Group actively invests in various social projects and education of future generation of Kazakhstan.
Moreover, community involvement programmes of BG are mainly driven by company's corporate responsibility business principles and focused on protection of the environment of host country, education and skills transfer. Today BG Kazakhstan is a member of such associations as: Kazakhstan Foreign Investors Council Association, European Business Association, Kazakhstan Petroleum Association, and American Chamber of Commerce.
Today BG Kazakhstan is supporting the development of post graduate programmes at one of the well-known universities of the country - Kazakh British Technical University (KBTU). This sponsorship has been undertaken in collaboration with Shell, 3 universities of Great Britain and the British Council.
BG Kazakhstan has organized a nine-month training and educational programme in Uralsk for orphaned young adults in order to equipt them with, important nowadays, computer skills necessary for IT specialists and web designers, also organized Kazakh and English languages courses all over the country.
One of the most important projects of BG Group is Chair of Environmental Technologies at the very developed Almaty Institute of Energy and Telecommunications, which promotes research in the understanding and possible remedies for some critical environmental problems in Kazakhstan. In 1996 in cooperation with the University of Southampton was created a masters course, intensive programme of this course provides environmental scientists, managers and engineers with experience and qualifications for management in Kazakhstan.
Bg Kazakhstan realizes that the safety and health of its employees, along with protection of the environment are very important for overall success of the company. Company's business policy and principles commit to achieving the highest levels of performance concerning health, safety, security and the environment (HSSE), that is why this remains a paramount performance for BG.
Company hiring only qualified specialists or training not prepared of them abroad before and with oil field in the beginning BG was the first who invested on it. The government of Kazakhstan provides the most attractive point is number of legal tax that is one of the lowest in the world.
Infrastructure of Kazakhstan is quite convenient for doing business there, as an evidence for that is a quite sufficient number of attracted and active investors. The labor and land cost are corresponding to the needs and demands of the market and BG Group is also quite satisfied and don't see any inconveniences. Company tries to recruit only qualified employees, while those who in the opinion of BG are not well prepared usually are sent for training to local educational centers or abroad. BG was the first who invested in Kazakhstan's oil sector of economy, and first realized that the Government of the Republic of Kazakhstan provides very attractive conditions for the foreign companies' functioning, for example legal tax, which is one of the lowest in the world.
BG has a very rich experience in operating in Kazakhstan's oil market and don't see any problems related to local aspects.
5.3 THE ANALYSIS BASED ON INTERVIEWS
ADVANTAGES FOLLOWING OLI MODEL BY DUNNING
As it was mentioned before there is an approach the OLI Paradigm (Buckley and Casson, 1976; Dunning, 1977) that is strive to create an overall framework to explain why MNEs choose FDI rather than serve foreign markets through alternative modes such as joint ventures, licensing, management contracts, strategic alliances and exporting.  According to so called Dunning OLI Paradigm (1988) FDI arises when there are satisfied three conditions: ownership, location and internalization.
A firm must have competitive advantages in its home market. These must be firm-specific, not easily copied, and in form that allows them to be transferred to foreign subsidiaries.
Chevron and BG Group are well-known companies all over the world and have a good reputation in international oil market. Moreover, these companies have rich experience and maturity of operating in oil industry. Both these companies made decisions to invest in Kazakhstan guided by certain influential factors, inputting new technologies and innovations in production processes, bringing management on international level, passing new information and new experience that contributes growth of Kazakhstan, provide employment for the local workforce. All these ownership advantages were determined during the interviews. The table 5.3 below demonstrates picture of ownership advantages.
Table 5.3 Ownership advantages (X - presence of advantage)
Brand name /fame
It is obvious that both companies have advantages in all criteria, mainly because they entered Kazakh oil market already being experienced and successful, with its own way of business, technology, patents and innovations. For example Chevron has been actively engaged in "bringing energy to people" for more than 120 years. Company is giant in terms of capital and employee number and operating in more than 90 countries worldwide. When company entered Kazakhstan there was no any doubts concerning it's' ownership advantages. Technology and innovations, experience and knowledge that company bringing in Kazakhstan are legendary and unique. British gas also one of the largest and famous companies in the international market. Company is operating since 1984, and in Kazakhstan if functioning more than 15 years. As we can see from the interview BG brought significant number of innovations and technologies for host countries oil market development, sharing its experience with local employees through trainings and social projects. British Gas involved in exploration of the worlds biggest oil field and quite succeeded in it, as it still increasing production and development.
Location-specific advantages typically include market imperfections or genuine comparative advantages that suppose to attract FDI to specific locations and influence extend to which companies choose to locate production outside of national boundaries. The main location advantages of Kazakhstan are listed below in Table 5.4.
Table 5.4 Location advantages (X - advantage)
In general, both companies made their investment decision under various considerations, including their personal goals and interests of each company. According to the interview results the main investment reasons that were important motivators of FDI are low tax regime, huge resource capacity, stable political situation.
Chevron also agreed that land cost and labor cost are cheap comparing to other countries. British Gas admitted that considerable advantage for them was stable economic growth of Kazakhstan. Although there were some risks as, for example, undeveloped technology of Kazakhstan, lack of experience in oil production and exploration, foreign investors revealed that they can overcome such problems and considered them as insignificant issues.
There were also questions concerning the shortage of qualified workers. As it was mentioned in interview results both companies noted that labor costs are cheap, but most of the time not effective. For solving this problem companies provided training courses, as they understood importance of hiring local employees. Local employees are more familiar with local culture, language and business rules of Kazakhstan.
Infrastructure of Kazakhstan seems had a little negative effect, especially problems with oil transportation. As it was mentioned oil from Kazakhstan can be transported only by pipeline that is expensive and there is a lack of pipeline's directions in Kazakhstan.
As a result it should be mentioned that all challenges and risks were overcome and, what is more important, investment should pay back all the costs in less than three years.
Internalization advantage derives from the difficulties that can arise in writing controllable and enforceable contracts with potential partners that create an income which approximates the real worth of marketed advantage. "I" advantages are benefits arising from producing internally to the company, since they allow it to come over external markets and transaction costs.
The internationalization process of international companies is usually characterized as an incremental process from a domestic base to high international market involvement due to limited resources and local knowledge (Johansson and Vahlne, 1977). It has been suggested that international companies are also more likely to take lower control entry modes due to investment risks at the initial stage of internationalization (Palenzuela and Bobillo, 1999).
A joint venture is a strategic alliance where two or more people or companies agree to contribute goods, services and/or capital to a common commercial enterprise. Teaming up with other businesses in a joint venture allows to extend your marketing reach, more easily and clearly access needed information and resources, build credibility with a particular target market, access new markets that would be inaccessible without the partner.
According to the interviews both companies formed joint venture with local partners in Kazakhstan (Table 5.5). The main reason of this is the fact that foreign companies did not have enough experience and knowledge of operating in oil industry of Kazakhstan. It is easier to work with partners, which can be useful to overcome such difficulties as: language barrier, culture barriers, reduce risks. Companies needed guidance at the initial levels. Companies started operating together with local partners because of common interests, opportunities to avoid competition with Kazakhstan's home firms or other international enterprises. Moreover, since 2002 there is law and governments strategy of the Republic of Kazakhstan according to which home national oil company should participate in all international oil project in order control the whole process.
Table 5.5 Entry mode
British Gas Group
- Chevron 50%
- ExxonMobil 25%
- LukArco 5%
- Chevron 20%
- BG Group 32.5 %
- Lukoil 15%
- Eni 32.5 %
BG Group 2 %
- Russian Government 24
- Kazakh Government 19
- Chevron 15
- LukArco 12.50
- ExxonMobil 7.50
- Rosneft - Shell 7.50
- Omani Government 7
- Eni 2
- Oryx 1.75
- KPV 1.75
- BG Group 32.5 %
- Eni 32.5 %
- Chevron 20%
- Lukoil 15%
-BG Group 2 %
- Russian Government 24
- Kazakh Government 19
- Chevron 15
- LukArco 12.50
- ExxonMobil 7.50
- Rosneft - Shell 7.50
- Omani Government 7
- Eni 2
- Oryx 1.75
- KPV 1.75
IMPACT OF CHEVRON AND BG GROUP ON OIL MARKET OF KAZAKHSTAN
Since the collapse of the USSR, Kazakhstan was able to made a huge progress in terms of country's stability and attractiveness for foreign investments, so it is not a surprising fact that now Kazakhstan is recognized by the global community. When Chevron entered Kazakhstan in 1993 with the formation of the Tengizchevronoil it was the first major foreign firm to enter oil market of the country. Since that time the total oil production from the field has increased significantly, to be exact by more than 4 times, from 60,000 barrels of oil extracted a day when the company was formatted till 260,000 nowadays.
The company brings to the budget of the country a significant amount of nearly a billion of USD a year. Company has the ability to contribute a lot to the economy of the Kazakhstan through such instruments as employees' salaries, purchase of local goods and services, taxes, tariffs and fees paid to both state-owned companies and government, as well as the new technologies and practices brought to the country by leading world specialists.
Now, more than 83 percent of the people working for Chevron in Kazakhstan are locals, comparing to only 50 percent back in 1993, and these employees are not only the ordinary workers, more than 75% of management are also Kazakhs. Now, Kazakhs are able to get the precious first-hand experience from the best technological and business practices, they are able to work for the multi-billion dollar projects, and we could say that this experience is priceless and for sure would help them and prepare for the productive employment in the future.
Chevron is using the most up-to-date equipment on its production units, as well as the latest methods and expertise; this shows the great example to the local companies and promotes the competitiveness among them.
The company also pays a lot of attention to the support of the local community. For example in course of last 10 years Tengizchevroil contributed more than $600 million to fund social projects in the Atyrau oblast for the community and employees.  Company actively support schools and different infrastructure projects (new clinics, houses for homeless, etc.).
BG Group, as well as the Chevron was one of the first large foreign companies to invest into Kazakhstan oil market. BG has been working very close with the government of Kazakhstan for all these years and was interested in the development of the country as much the country itself. Company is the joint operator of the Karachaganak condensate filed and a shareholder of the Caspian Pipeline Consortium, which is providing the access for the company to the world gas market. The company actively support the environmental programs in the region as well as participate in the development, together with the government, of the special economic programs. Company is ready to contribute to the processes of development through capacity building and support - the instruments it has been using since it came into the market.
Company provides the oil market with the long term, stable jobs by this demonstrating the commitment to the country and its plans to continue to invest into it.
CHEVRON, BG GROUP AND KAZAKHSTAN : FUTURE TOGETHER
Company sees its future in the country rather flourishing, it is already known for sure that in the course of next years there will be huge investments into the Tengiz field to increase its production by 19 million tons per year. It is estimated that the total amount of the investments done would be arounf $2 billion.
Company would continue to actively support the local communities of the exploration areas and Chevron together with Kazakhstan would continue to grow together, as the y did for the last 17 years, built on the history of the support, trust, success and equal partnership which would help to develop both company and country in future.
The company strongly believes that the current good relationship with the government would enable it to bring more benefits to all parties interested - government, local people and company itself.
Natural gas would be in constant demand all over the world due to the economic and environmental benefits it is able to provide. So BG Groups view its together future with Kazakhstan as rather prosperous. Company would continue to work in accordance with the long term goals set by the Kazakh's Government and would support the government in every possible way. That would make the investments climate more attractive.
Company would operate under Karachaganak facilities till the 2038 and is planning to invest heavily into continuous development of the field. The completion of the project with 13 wellsby the beginning of the 2011 would increase the expected export volumes to around 10mtpa and develop gross reserves of 300 mmboe. 
Also the Caspian Pipeline Consortium would make it possible to enlarge the market access, with the huge potential of the Atyrau-Samara tie in, which is worked actively on currently. The completion of the project is planned to be in 2013.
Company would continue to provide the efficiency and international expertise as well the support for labour forces and locals communities in future, to move to the brilliant and prosperous future together with Kazakhstan.