Peter McDonald, John McCormack and Neil McKain
“Learning by doing” is a key principle of the Cambridge Executive MBA – and the EMBA 2013 participants have been putting their skills into practice as far afield as Azerbaijan
The economy of Azerbaijan has long been dominated by the booming energy sector, but a team of current Cambridge Judge Executive MBA students is helping to develop a private-equity model that would help broaden the economy into areas as diverse as soft drinks, tomato production and furniture making.
“That’s what potential investors see as the future – diversification of the economy away from oil and gas,” says Neil McKain, who leads the team of Cambridge Judge students producing a feasibility study for a private equity fund in the republic.
The study is part of the students’ Cambridge Judge Team Consulting Project, a vital and distinctive component of the EMBA programme.
Based in Baku, Azerbaijan, McKain is heading up the study for the private equity fund on behalf of a group of local and international investors, and he enlisted three colleagues from the EMBA 2013 cohort to put together the project brief.
We have a very strong team with expertise in marketing, finance, private equity and emerging markets. This allowed us to look at what sort of private equity model might work in a country like Azerbaijan, and what would attract investors.
He adds: “It’s a challenging place to do business. There are certain cultural and regulatory conditions that mean a traditional PE structure is not possible. These conditions also give investors with some knowledge and experience in the country a significant advantage.”
Azerbaijan is rich in natural resources. Revenues from oil exports, mainly via the Baku-Tbilisi-Cheyhan (BTC) pipeline (made famous in a James Bond film The World is not Enough) have made the country wealthy over the last decade. Oil revenues are declining, however, and diversification of the economy is crucial. The non-oil sector is growing rapidly, but mid-sized companies are constrained by lack of available finance locally.
With this in mind, the team from Cambridge Judge visited TAJ LLC, a soft drinks maker which also had the honour of supplying the official mineral water for the Eurovision song contest in Baku in May 2013. The team took a tour of the largest furniture maker in the Caucasus, Embawood, which makes mid-range flat-pack furniture.
The team also visited a 40-hectare state-of-the-art greenhouse which had automatic picking and driverless trains to carry tomatoes to a robotic packing line and then for export in the region. This company was created by a well-established food processing and packaging group, which is vertically integrating into primary agriculture.
Finally, the team travelled to the Caucasus mountains in the north of Azerbaijan to see the new ski resort at Shah Dagh, a beautiful complex of five-star hotels which is entering its second phase of construction with 350 rooms and 14 kilometres of ski runs ready for next season.
Our sponsors don’t want a hefty report from us, they need a tool they can use in order to keep moving this project forward, a workable structure and a pitch book. All the members of the team are eager to be involved in an advisory capacity in the future.
A second Team Consulting Project in Azerbaijan involving Cambridge Judge EMBA students is headed up by Konstantin Nemnov, whose team of five includes both financial professionals and practitioners from other sectors. Their task is to come up with recommendations to help Pasha Bank, Azerbaijan’s third-largest bank, with its corporate lending and risk-management procedure.
There are two phases to the undertaking, he explains.
“The first was the research part in Baku, meeting over three days with multiple stakeholders in the bank including senior management and the investment, risk and legal teams. We had extensive discussions on their current model and operations.”
In the second phase, we’ll go back to deliver our recommendations on their organisational structure: how they could adapt their existing expertise, and what else they need to bring on board to be successful in the project financing area.
The project has proved valuable for every member of the team.
“For the people from finance, it was very fulfilling to bring their international expertise to a local market and make a significant impact through their culture and best practice,” says Nemnov. “For those with a non-financial background, it was interesting to bring transferable skills to a sector that was new to them, and get a practical feel for what finance is all about. And for all of us, the cultural experience was very interesting as it’s a former Soviet nation that’s rapidly developing.”
A great advantage of basing the Team Consulting Projects in Azerbaijan was the access granted to influential figures, says McKain.
Because it’s a small country which is ambitious and developing rapidly, we had access to many decision makers in the private sector and the government to test our ideas and assumptions. The central bank and the state oil fund, for example, have been particularly supportive and generous with their time.
And because the two teams coordinated their trips, they were able to come together for a gala reception at the Fairmont Baku, Flame Towers, in September 2014.
Attendees included leading entrepreneurs, government officials, diplomats, members of Baku’s financial community and local business schools, plus a sprinkling of local Cambridge alumni. “It was a very good mix,” says McKain. “It was a chance for us to sit around, relax and talk through the projects in an informal setting. We all gained a lot of good advice.”