Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
As distribution networks in Kazakhstan have been diversified and upgraded over the years, the major sales and distribution challenges for businesses have shifted from simply getting goods to market to more concern about legislative and regulatory issues. U.S. companies in Kazakhstan use a combination of marketing methods, including direct sales, working through a countrywide distributor or agent, working through more than one local-area distributor or agent and/or distributing or selling products directly from a warehouse. A recent development is the emergence of e-commerce (see section at the end of this chapter). Effective distribution channels require extensive training and after-market service, marketing support and project financing, such as leasing schemes for equipment.
Most of Kazakhstan’s population is concentrated in two geographic areas: the south (Almaty, Turkistan, and Zhambyl Regions) and the north/northeast (Akmola, Karaganda, Kostanai, North Kazakhstan, Pavlodar, and East Kazakhstan Regions). Average incomes are generally higher in these regions than in other parts of the country. The economic development of Kazakhstan’s oil-rich western regions has expanded the economies of the largest towns there, principally Atyrau, Aktau, and Uralsk, where major international oil companies currently operate.
Companies are advised to pursue a long-term strategy, as well as careful business development and marketing approaches. Certain factors should be considered, such as the presence of less expensive products from Russia and China, price sensitivity, and local content requirements.
Using an Agent or Distributor
Personal relationships figure prominently in Kazakhstan’s business culture. In an economy where rule of law is not yet firmly established, the quality and depth of business relationships are often your best protection against loss and your key to market access. Selection of a local partner (or partners) is one of the most important decisions your company will make as part of its market entry strategy. An on-the-ground presence is crucial for effective business development.
A good distributor/agent is the best way to solve a variety of problems including communication and providing after-sales service. Many exporters designate a Kazakhstani-based trading company as their local sales agent responsible for handling customs clearance of imported goods, dealing with established wholesalers and/or retailers, marketing the product directly to major corporations or the government and handling after-sales service. In some cases, especially when selling to the government, a Kazakhstani distributor is vital.
To learn more, access the ICS, visit the U.S. Department of State Investment Climate Statement website.
U.S. companies are encouraged to work with the U.S. Mission’s Commercial Section for assistance identifying pre-qualified distributors, product representatives and other local partners. For more information contact email@example.com.
Establishing an Office
Registration is the first step that should be undertaken by a company wishing to operate with a physical presence in Kazakhstan. Depending on the type of business, a company has several options in terms of its legal entity in Kazakhstan. The most typical is a branch office, limited liability partnership, or joint-stock company. Representative offices are also used as an initial step to enter the market but are not recognized as separate legal entities and cannot undertake commercial activities. There are a number of U.S. and local law firms operating in Kazakhstan that can help your firm establish a legal entity in Kazakhstan.
The government utilizes a “one-stop-shop” for registration and requires documents to be submitted to the local department of the Ministry of Justice. The latter sends all the required documents to the relevant statistical and tax committees via a computerized network. The process should take no more than ten days for registration, but according to the World Bank it takes five days on average.
The required package of documents includes, but is not limited to, application for registration, by-laws of the entity to be registered, by-laws of the foreign partner of the joint venture, application form and documents confirming the entity’s address. The registration process could be delayed due to submission of an incomplete package of registration materials or a subjective interpretation of the requirements. Submitting all mandatory documents at one time will help to facilitate timely processing. There is also a registration fee that varies depending on the type of organization being registered. It is recommended that experienced and well-established legal counsel be used to register a company in Kazakhstan.
Please see Franchising under the section on “Selling U.S. Products & Services.”
Direct marketing is becoming more common in Kazakhstan, especially in larger cities such as Almaty and Nur-Sultan. Some popular forms of direct marketing include distribution of free samples at points of sale and major cultural events and visits to households to promote consumer products. Marketing by mail is less popular, as mail is not considered a reliable delivery instrument.
Personal computer penetration used to be limited to urban areas, but through the development of the state program Digital Kazakhstan more and more people and organizations are enjoying easier and high-quality Internet access. In 2020, the proportion of internet users reached 86% largely thanks to affordable mobile data provision 3G and 4G/LTE though various devices (smartphones, personal computers etc.). The Government of Kazakhstan is planning to continue this increasing tendency of digitalization, placing emphasis on rural areas where 40% of the population resides. Untapped demand is high and the potential for growth is significant, particularly because of the digital development of the country. According to the Ministry of Digital Development, Innovation and Aerospace Industry of Kazakhstan, the transition to 5G in Kazakhstan will be phased, starting in late 2021.
Direct sales and sales through catalogs are particularly popular in the cosmetics sector. Leading direct sales companies such as Avon, Mary Kay, Faberlic (Russia), and Oriflame founded the Direct Sales Association (DSA) of Kazakhstan in October 2010 to jointly defend the term of network marketing and protect the rights of their consumers and sellers. At present, the association consists of nine companies: Amway, Avon, Faberlic, Forever Living Products, Herbalife, LR Health & Beauty, Mary Kay, Oriflame and Tiens.
Kazakhstan ranks 13th on the Global Retail Development Index by Kearney in 2021. However, retail sales are expected to drop dramatically in 2020-2021 due to economic fallout stemming from the COVID-19 pandemic. Most direct sales companies have launched online shopping portals, providing the firms with an important avenue for sales during the pandemic.
Joint ventures between foreign and local companies and/or individual persons are quite common in Kazakhstan, although the term “joint venture” is not used in legislation. Joint ventures are typically established as limited liability partnership (LLP) or as a joint stock company (JSC). Another form of joint business activity between legal entities is the consortium, an unincorporated form of partnership, based on a contract for joint activity.
Generally, shareholders are not liable for JSC’s obligations and bear the risk of losses associated with activity of the JSC within the value of owned shares. A company is formed on the basis of a charter. Initial capital is provided by contributions from shareholders and may take the form of cash, property and property rights assessed in monetary terms.
According to the Bureau for National Statistics of the Republic of Kazakhstan, more than 10,000 joint ventures with foreign partner participation currently operate in Kazakhstan. Many joint ventures have been established in the oil and gas sector in Kazakhstan. For example, some 390 joint ventures with partners from 55 countries currently operate in the Atyrau oblast, the oil-rich region in Western Kazakhstan. Other successful joint ventures are operating in the mining, agribusiness, transportation, and food processing sectors of the economy.
The international express delivery of documents, parcels, and freight is carried out by reliable express delivery firms, including international companies such as DHL, FedEx, UPS, USPS, Post Express, and several smaller international and domestic companies such as Ship Box, Nex, ShipW, CDEC, QSD, Asia Sky Express (ASE), Avis Logistics. The Kazakhstan national mail operator is Kazpochta, which has an extensive network and delivery fleet and is the only carrier able to deliver mail to the most remote corners of the country.
On average, international express delivery takes from two to ten days, depending on the type of dispatch, type of shipment, and destination. Kazakhstan does not have de minimus value below which no taxes and duties are charged; the entire invoice value is subject to taxes and/or duties.
Kazakhstan can be a challenging market fraught with obstacles for any company that does not take the time to learn about the business environment and choose local partners wisely. Taking shortcuts in evaluating business opportunities and selecting local partners is not advisable. Complicating these efforts is the fact that Kazakhstan is still transitioning to a more open, market-based economy. This means that basic business information about regulations, company ownership, and credit worthiness are not always easy to find.
In many cases, business in Kazakhstan is still based on family ties and personal connections. Knowing if your potential business partner can proactively negotiate these networks can help your firm better determine if this is the right relationship to take on. Finding a reliable, credit-worthy partner in Kazakhstan requires due diligence, caution and attention to a potential partner’s achievements and reputation. U.S. firms are advised to verify trade references offered by potential partners, check banking records and correspondent account capability with Western banks and verify the personal bona fides of key company officers.
The U.S. Mission in Kazakhstan’s Commercial Section can provide due diligence background checks on potential local partners. There are many U.S. and local accounting, law, and other firms that also offer due diligence/company verification services. Contact firstname.lastname@example.org for more information.