GROWING PAINS: Entrepreneurship in a State-Controlled Economy

Case Solution

Yuliya V. Ivanova, Joan Winn
North American Case Research Association (NACRA) ()

This case describes the process of establishing and developing a joint venture in the United States in Belarus that will manufacture wood pellets in Belarus for sale in European Union countries. The combination of the high demand for biofuels in EU countries and the potential to make a good product at a low price in Belarus offers brothers Victor and Aleksey Kruglov an attractive business opportunity. Victor, who lives in the United States, has had business experience in the United States and has access to capital. Aleksey, who lives in Belarus, has experience in the production of wooden products in Belarus and has access to skilled labor. With a well-organized operation and continuous demand for its products, the company grew rapidly. But the growth put the company in state-controlled Belarus at risk. Local institutions (municipal and regional governments) saw successful businesses as a source of income to solve urban infrastructure problems. Central institutions viewed successful corporations as potential parts of their state-controlled economy system. Most likely, government involvement will require the company to follow certain guidelines, establish certain procedures to export deals, and share the revenue. To avoid the threat of state control, the partners saw three options. If they stayed the course, your business could continue to grow and play the role of a major contributor to the city’s needs and become part of the largest state-owned carpentry industry. Alternatively, you could control your growth by slowing down or breaking up into several smaller companies in different regions and remain largely invisible. A third option was to fully relocate operations to a country that offers a friendlier environment for doing business but offers similar cultural and economic benefits.

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