Sample Business Paper on Strategic Appraisal of GAZ Group 2

Part I. Introduction

The GAZ Group is a multibillion-dollar Russian automobile company. The company
mainly majors in the production of light trucks, dominating the commercial vehicle market with
over 50 per cent market shares in light commercial vans and over 58 per cent in the medium-duty
truck segment. Much of the company's sporadic growth and expansion in the recent past have
been attributed to strong leadership under Bo Anderson, who took over the top post in 2009 amid
dwindling performance operations in the company. Since then, there has been a massive
turnaround in the strategic direction of GAZ, with the company mainly drawing its
competitiveness from focusing on satisfying the domestic needs and preferences. The company
has thus focused on producing low-budget customised light and medium trucks needed to fulfil
the needs of small and medium business owners who operate across the vast Russian cities. This
report is a detailed presentation of GAZ’s strategic direction and focuses on understanding the
company's business environment (external and internal), it's a business strategy and the
company’s strategic options for expansion.

Part II. External Environment

There exist certain factors that are external to the business, yet they have a significant
impact on the strategic operations of the company. Understanding these factors is crucial in
enabling strategic managers to make timely decisions concerning the directions of the company.
This report uses the PESTEL model by Issa, Chang and Issa (2010) and Porter's Five Forces
Framework developed by Porter (1985) to analyse GAZ’s external business environment.

Strategic Appraisal of GAZ Group 4

PESTEL Analysis of GAZ
Factor Impact
Political  Recent diplomatic constraints between Russia and major European
economies which would imply difficulty in expanding internationally.
 The relatively shaky domestic political environment as there are
increasing dissenting voices to Putin rule.
 Entrenched government's involvement in the economy, including setting
strict labour laws and rigid tax regime.
 Government’s protection of the domestic industries.

Economic  Unpredictable economic environment occasioned by US sanctions,
recessions and booms, and restrained trade with major European
 The ruble is subject to fluctuations in international exchange rates.
 Slowing inflation and accompanying cuts in interest rates.
 Entrenched corruption in the Russian economy.

Socio-Cultural  Slow population growth.

 Over concentration in major isolated towns vast distance apart.
 Cultural consciousness that has seen Russian develop habits of
overloading their trucks. This requires that manufacturers factor in
additional truck carriage capacity.
Technological  Global call on shifting towards electric cars.
 Automated and centralised production practices.

Strategic Appraisal of GAZ Group 5

 Increase in demands for the automated supply chain; including
customising trucks with tracking devices to enable business owners
(who make up the majority of the GAZ truck customers, to get a real-
time update on their delivery.

Environmental  Climate change concerns are forcing firms to adopt sustainable and
environmentally friendly production practices. This includes a reduction
in the mining of lead, which is a significant component in the
manufacturing of the car batteries.
 Need to reduce carbon emissions.

Legal The requirement to adhere to international legal standards when entering new
markets. This may include the obligation to adhere to the European emission

GAZ Group is operating in one of the most volatile political environment. There have
been intense diplomatic rows between Russia and major European economies in the recent past,
with the most elaborate case being strained relationship between Russia and the UK as a result of
the murder der of the Sergei and Yulia Skripal. The internal political environment in Russia is
also quite shaky, considering the political protests and detention of dissenting politicians. This
means that the international and domestic politics in Russia do not favour a stable business
environment that can guarantee a GAP in long-term expansion and growth. Economically, the
Russian economy is subject to US sanctions. The Russian ruble is also pegged on the US dollar,
which is the international reserve currency. This means that the Russian economy is at the mercy
of the US since sanctions and dollar manipulation by the US can directly bring. Looking at the
socio-cultural composition of Russia, the country is a vast terrain with people concentrated in

Strategic Appraisal of GAZ Group 6
major cities. These cities are up to thousands of kilometres apart, which means that road
transport is difficult and complicated throughout the country. Truck manufacturers must put this
into consideration and provide durable and affordable vehicles since the majority of the people
are also small and medium business people. Besides, rapid technological advancement in the
automobile industry means that GAZ must always restrategise on how to Keep up with the
industry. The most common trend currently in the automobile industry is the introduction of
electric vehicles. This means that GAZ must contemplate venturing into the production of
electric cars. The global call for.reduction further supports the need to venture into the creation
of an electric vehicle in carbon emission and adoption os sustainable production practices as a
means of advancing competitiveness.
Porters Five–Force Analysis of GAZ
Force Impact Strength
Competitive Rivalry There exists significant
competition from both
domestic and international
automobile brands


Bargaining power of the

The company has developed a
vast network of supply chains
with a robust supply chain
relationship strategy. This
network has ensured that they
have access to relatively
cheaper automobile parts


Strategic Appraisal of GAZ Group 7

while being at liberty to shift
supply chain whenever one
supplier has a problem

Bargaining power of the

The CEO, Mr Anderson, has
established a robust code of
engagement with the
Suppliers that favours the
company. For instance, he
went to the extent of
compelling the dealers to
make mandatory upfront
Consumers’ power, on the
other hand, is moderated by
the economic situation


Threats of Substitutes There are no threats of
Substitutes. The foreign
vehicles are way expensive
than the domestically
produced ones. This is mainly
due to government subsidies
and protection policy on the
automobile industry


Strategic Appraisal of GAZ Group 8

The threat of New Entrants It seems like the Russian
automobile industry is already
saturated. Further, the only
way to enter the market would
be through a partnership with
the domestic companies
bearing in mind the enormous
costs of establishing the
manufacturing plant and the
protection policy put in place.


From Porter's five–force analysis above, it is evident that GAZ is already facing stiff
competition from domestic firms such as AvtoVaz. While AvtoVaz models are primarily cars,
there also exists KaMaz, which specialises in light and heavy-duty trucks. GAZ also faces
competition from foreign brands such as the French company, Renault, and Toyota. It can also
be observed that GAZ's suppliers have little bargaining power to the extent that Anderson
compelled them to wait for payments for up to 60 days after delivery (Schotter, Alenushkin and
Teagarden, 2013). Buyers also have limited powers over the company going by Anderson's skills
to force them to commit to paying a certain percentage of the prices upfront. In the assessment, it
is also clear that there is a low threat of Substitutes. The cheapest Chinese and Korean trucks are
still 25 per cent more expensive than the GAZ trucks, while the most affordable European
vehicles are 40 per cent more expensive. Bearing in mind the vast Russian terrain that cannot be
traversed easily with any other means of transport, it can be concluded that there are limited
substitutes to GAZ trucks.

Strategic Appraisal of GAZ Group 9

Opportunities Threats
 The huge international market for
expansion especially in Africa, Asia,
and Eastern Europe

 Strict regulatory laws such as the
European Emission laws
 An unpredictable economic
environment characterised by
recessions and boom
 Entrenched corruption in Russia

Part III. Internal Business Environment

Value Chain Analysis

Firm’s Infrastructure
 Headquarters in Nizhny Novvorod in Russia
 57,000 employees
 Hierarchical organization structure
 428 buildings spanning 3 million Sq. feet

Human Resource Management
 Intensive internal training and development of employees
 Technology Development
 Implementation of the electronic payment platform
 Installation of new manufacturing machines to enhance production


 Supply
ile parts
from a

 Assembly
of trucks
and other
 Quality
 Repair


 Shipping
of the
order to

ng with

and Sale

m that

on of the
trucks to
 Consistency
in quality

Strategic Appraisal of GAZ Group 10




on of the

that include
t of
 Managing
third party

s to

 The
s that
to the
 Issues

and timely
when it
comes to

Competency Framework
Threshold Resources
 Manufacturing plants (building,
technology, machines, and

Threshold Competencies
 Quality vehicle models that meet
the needs of the target market

Strategic Appraisal of GAZ Group 11

equipment)  Sound leadership under Bo

 Established supply chain

Distinctive Resources
 Large pool of talented and well-
trained employees as compared to
their competitors.
 The vast product portfolio for
customers to choose from (Gazelle,
Gazelle Business, Gazelle Next),
among others.
 Precise knowledge of the consumers'
preferences (experience, just like
technology, is an essential resource
for competitiveness). GAZ
understands the needs of the
ordinary average Russian people
who use their trucks to manage their
small businesses.
 Technology especially in the
harmonised payment system.

Distinctive Competencies
 An established brand that underlies
all the Gazelle models
 Excellent customer service. GAZ
takes warranty seriously, partnering
with third parties to customise and
deliver to the customer expectation
on time. For instance, 96 per cent
of all vehicle services, including
extensive repair, are done on the
same day (Schotter, Alenushkin
and Teagarden, 2013).
 Cost advantage: The company
revamped the supply chain system,
which saw a reduction in vehicle
parts prices by almost $470, while
it increased the rates of
manufactured vehicles by $1000.
Even with this, GAZ vehicles are

Strategic Appraisal of GAZ Group 12
far much cheaper than foreign

GAZ’s vast resource pool and advanced competencies are not a surprise going by the
numerous years of operations overseen by government support as well as boom periods that have
seen tremendous growth in the Russian automobile industry even as the global industry
dwindles. The real competitiveness of the company, however, can be attributed to its CEO Bo
Anderson who took charge in 2009 and implemented drastic changes ranging from overhaul
revamp of the human resource and streamlining the value chain. This has seen the company
streamline its production processes as well as the supply chain management practices.

VRIO Framework

Valuable? Rare? Difficult

by the


Large pool talented and
well-trained employees as
compared to their

Yes Yes Yes
in Russia
people live

Yes Sustainable

Strategic Appraisal of GAZ Group 13
towns wide

The vast product portfolio
for customers to choose
from (Gazelle, Gazelle
Business, Gazelle Next),
among others.

Yes No No Yes Competitive

Precise knowledge of the
consumers' preferences

Yes Yes – Yes Sustainable

Technology in the
harmonised electronic
payment system

Yes No No – Temporary

An established brand that
underlies all the Gazelle

Yes No Yes Yes Sustainable

Excellent customer

Yes Yes Yes Yes Sustainable

Cost advantage

Yes Yes Yes Yes Sustainable

Strategic Appraisal of GAZ Group 14
The table above illustrates GAZ’s key Competencies and resources analysed according to
Barney and Hesterly’s (2010) VRIO framework. Most of the GAZ's Competencies and resources
amount to sustainable competitive advantage. As Barney and Hesterly (2010) put it, sustainable
competitive advantage comprises assets, capabilities, and attributes that are difficult to imitate or
exceed, and are capable of putting the firm in a pole position in the market for a long time. As it
is evident in the table above, most of GAZ's resources and Competencies are challenging to
imitate since they are customised to meet specific customer needs. For instance, it would be
difficult for any other firm to provide trucks at a lower price than GAZ owing to the cost
advantage that the firm enjoys. The fact that the company also clearly understands the needs of
the Russian people, and have embarked on customising trucks to suit such needs also put them at
a pole position in the market. For instance, most foreign competitors would be reluctant to
provide additional carriage capacity at a reduced price. Yet, it is evident that Russians value
extended carriage capacity owing to the long distance between the major towns.
This section provides a detailed analysis of GAZ Group’s strategic direction using the
Ansoff Matrix. Strategic direction includes the plans and actions that the company has put in
place to ensure it attains its goals, visions, and strategies (Anderson and Schroder, 2010).
Strengths Weaknesses

 A vast pool of highly trained and skilled
 Huge production space and facilities
 Technological capability especially in the
financial management system

 Non aggressive research and
development strategy

Strategic Appraisal of GAZ Group 15

 Strong leadership with Bo Anderson at the top
 In-depth knowledge of the market structure,
including the specific needs of the customers
 Excellent customer service

Part IV. GAZ’s Business Strategy

GAZ’s business strategy can be understood using Bowman and Faulkner's (1997)
Strategy Clock. Bowman and Faulkner (1997) developed the strategy clock as a reaction to
Michael Porter’s generic strategies framework. They particularly sought to expand a variety of
options for business positioning in the market as opposed to Porter’s narrow view of 4 generic
positioning strategies. Bowman and Faulkner (1997) Strategy Clock recognises the dynamic
business environment that business operates in, and seek to provide expanded options for
strategic managers to position themselves in the market (Núñez-Cacho Utrilla et al., 2012;
Johnson et al., 2010). The figure below illustrates Bowman and Faulkner’s (1997) strategy clock.

Using Porter’s generic strategies model, it would be argued that GAZ has adopted the
cost focus strategy since the firm has concentrated on the smaller target of small and medium
Russian business people, made sure that it understands their needs, and ensured that costs remain
as low as possible.

Strategic Appraisal of GAZ Group 16
However, using the Bowman and Faulkner (1997) Strategy Clock, it can be observed that
GAZ has managed to progress from the low price and low added value stage before Bo Anderson
joining the company and has since managed to move to the hybrid stage. When Anderson joined
the company, he quickly streamlined the production processes and the supply chain, enabling the
firm to move to a low price category by ensuring economies of scale. Anderson first provided
that the cost of vehicle parts is reduced by $470 per vehicle in a bid to achieve this position
(Schotter, Alenushkin and Teagarden, 2013). The company rapidly moved to the hybrid position
by not only lowering costs but also adding value to the trucks to meet customer needs. For
instance, the fact that customers could now get a brand new Gazelle Business at the same price
and with additional carriage capacity added implied that they were bound to opt for the brand as
opposed to the competing brands. Recently, GAZ has strategised on moving to differentiation,
where they intend to offer the highest level of value to the customers with the introduction of the
Gazelle Next model.

Part V: Issues and Challenges and Strategic Option for Growth
Bo Anderson, through his charismatic, transformational leadership, has eliminated many
of the weaknesses that were ailing the company and has continued to focus on advancing the
strengths of GAZ. With limited deficiencies, GAZ has strived to improve its technological
capability, with the company not only adopting the electronic payment system but also venturing
into the electric car industry. GAZ Group had projected that it would supply Moscow with 511
electric vehicles in 2020 (, 2019).
The company, however, faced one of the most tumultuous external business environment.
The diplomatic rows between Russia and the UK and Germany, some of GAZ’s most prestigious
international markets, means a considerable threat to the firm's global business interests. The

Strategic Appraisal of GAZ Group 17
endless sanctions from the US and the possible manipulation of the exchange rates by the US
government also pose a threat to GAZ’s financial performance.
Bearing these issues in mind, this report uses the Ansoff matrix developed by Ansoff
(1988) to determine the most suitable strategic option for growth for GAZ Group.
Ansoff Matrix analysis of GAZ Group (Ansoff, 1988).

Strategic Appraisal of GAZ Group 18

Market Penetration
 Intensify advertising of the
new Gazelle Next model

Product Development
 Develop new models
such as the Gazelle

Market Development
 Entering new markets in Asia such
as Indonesia, and North America
such as Mexico as well as Africa

 Enter the electric car

Market Penetration
This strategic direction that involves advancing a firm’s competitive advantage by
intensifying the market capture with already existing products. It is an expansion design intended
to gain more market share by expanding the presence of the firm or brand in the market. GAZ
can penetrate the vast Russian market by intensifying its advertising strategy. The company has
the upper hand in gaining more market share through advertising since it has agreed with its
global suppliers to use their image in their adverts (Schotter, Alenushkin and Teagarden, 2013).
This means that people will be attracted to the fact that the GAZ brands are using high-quality
international automobile parts brand while at the same time managing to produce affordable
Product Development


Existing New

Strategic Appraisal of GAZ Group 19
This is a market growth strategy where new products are introduced to existing markets
to advance the firm’s market share. GAZ has the option of adding high-quality models to the
existing market, with the promise that these models will meet customer's needs. The case of
adding the Gazelle Next is a perfect example of a product development strategy adopted by
Market Development
This strategy involves getting existing products into new markets. GAZ has the option of
expanding its market to Africa, Asia, and North America. With a vast product portfolio that suits
the conditions for these markets, market development would be a viable expansion strategy.
This is an expansion strategy that involves introducing completely new products in new
markets. GAZ would diversify by entering the electric car industry and help to satisfy the
overwhelming demand for electric cars across the globe.

Part VI: Evaluating Strategic Option for Growth

In this section, the report adopts the SFA framework to understand the most suitable
strategic option for Growth for GAZ Group. SFA Framework analyses the stakeholders’ ability
to implement the given strategic option based on the suitability, feasibility, and acceptability
score of the vital choice.
Criteria Strategic option
1: Intensify
advert campaign
of the Gazelle

Strategic option
2: developing
new models such
as the Gazelle

Strategic option
3: entering new
markets such as
Asia, America,
and Africa

Strategic option
4: enter the
electric car

Suitability 3 4 3 5
Feasibility 4 4 2 4

Strategic Appraisal of GAZ Group 20

Acceptability 3 4 2 4
Total 10/15 12/15 7/15 13/15

Option 1: Intensifying the Advert Campaign of the GAZ Brand
Suitability: The GAZ brand is already a household name in Russia. The company accounts for
almost 50 per cent of the total light trucks sold in Russia and has an even more significant market
share for other models. While advertising may increase the brand’s market share, especially with
the inclusion of foreign automobile spare brands in their advert campaigns, it may not do much
to utilise the already existing strength of the company, such as the massive capacity for
production that lies underutilised in the company. For instance, it is said that the company has
large production facilities and rooms that lie idle, which needs to be utilised.
Feasibility: Carrying out an advert campaign for the GAZ brand is as easy as putting ad contents
on television and websites. The company can also utilise the emerging social media platform to
help with reaching a broader target audience.
Acceptability: The fact that most adverts will include names of many foreign spare parts brands
means that the ad messages will be warmly welcomed by Russians, and may increase the brand
value of the company.
Option 2: Developing New Models such as the Gazelle Next
Suitability: Developing new models will mean providing customers with a wide range of choices
to satisfy their needs and meet their preferences.
Feasibility: The company has the production capacity and the technology to produce the new
Gazelle Next model. The extensive network of partners, excellent financial performance and

Strategic Appraisal of GAZ Group 21
function, and efficient production capacity and technology means that creating new GAZ models
is feasible.
Acceptability: With the new model promising additional features that will add value to the
customers, it can be assumed that the customers will readily accept it. The original Gazelle Next
promises other features that will guarantee comfort and durability, two essential factors that
Russians value considering the road conditions and the long distances in the country.
Option 3: Entering New Markets such as Asia, Africa, and America
Suitability: Entering new markets does not solve any of GAZ’s threats. Entering new markets
will add the pressure of having to deal with different political regimes and conflicting interests of
other countries. Therefore, this is not a suitable strategic option for GAZ Group.
Feasibility: It is tough to establish a market in either of these new target markets. Penetrating
these new markets requires substantial investment in terms of advertising and price reduction,
which may not be a suitable financial option for GAZ.
Acceptability: It is not guaranteed that other markets will readily accept a Russian brand. The
fact that most countries and influenced and controlled by the US and that the US influences
economic, political, and even social decisions of most countries across Asia, Africa, and South
America implies that these countries will not be ready to accept the GAZ brand.
Option 4: Entering the Electric Car Market
Suitability: Since GAZ has an enormous capacity for production, including substantial
manufacturing rooms, which it is leasing and/or partnering with other foreign companies to
utilise, putting up an electric car assembly line will not be a significant problem. It will help the
company use its enormous financial muscles and production capacity. Put simply, entering the
electric car market will help the firm exploit its available opportunities.

Strategic Appraisal of GAZ Group 22
Feasibility: With the proper partnership, GAZ can acquire the needed technology to produce
electric cars. Learning this technology is feasible since the compony already collaborates with
other major global automobile companies that have already established an assembly line for
electric vehicles.
Acceptability: While the Russian people may not readily accept electric vehicles due to the road
conditions, long distances across the country, and the purpose for which they need the cars, GAZ
can start producing electric vehicles to satisfy the increasing global demand. Since the world is,
moving towards the age of electric vehicles. At the same time, there are few companies with the
capacity to produce them, GAZ entering the global electric car market will be met with the warm
reception and readily accepted.

Part VII: Conclusion and Recommendations

The appraisal presents a detailed overview of GAZ’s strategic direction. From the report,
it is evident that GAZ, under the leadership of Bo Anderson, has been able to capitalise on its
strengths and completely minimised the weakness that surrounded the company. The company
has since been able to revamp its human resource, integrated technology in its operations, and
adopted new production practices, all who have contributed towards its competitiveness.
However, GAZ operates in one of the most dynamic business environments characterised by
violent political scene and unpredictable economic situation. These factors threaten the firm's
global growth and expansion strategy. Looking at these factors, it would be recommendable for
GAZ to diversify into the electric vehicle industry. With the available technological capacity and
government support, as well as the shifting global trend towards electric vehicles, diversification
will be the most appropriate, sustainable, and profitable growth strategy for GAZ.

Strategic Appraisal of GAZ Group 23


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