Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
Nearly half of Uzbekistan’s population of more than 34 million is concentrated in Tashkent and the Fergana Valley, the two regions that consumer product manufacturers should consider as the most promising entry points to Uzbekistan’s markets. Residents of Tashkent have the greatest purchasing power in the country. Other large cities include Samarkand and Bukhara, which benefit from tourism. Uzbekistan is a double-landlocked country, so getting goods into the country can be complicated, but once in, distribution is easier because of the dense population and relatively good transportation infrastructure. In February 2021, Uzbekistan, Pakistan and Afghanistan agreed the construction of a 573-km-long Mazar-e-Sharif-Kabul-Peshawar railway. Realization of the project will give Uzbekistan access to the Indian Ocean and should facilitate trade with South Asia and the world.
Using an Agent or Distributor
U.S. companies currently active in Uzbekistan most commonly use the following methods to get their product to the market: distributing or selling the product directly; working through a countrywide distributor or agent; working through more than one local-area distributor or agent; and distributing or selling products directly from a warehouse.
It is important to have an experienced and reliable local partner or agent who knows the local market, customs regulations, business environment and legislation. A U.S. based exporter that is new to the market may contact business associations such as the American Chamber of Commerce in Uzbekistan (www.amcham.uz) for general information on potential partners, agents or distributors.
Establishing an Office
To open a local representative office, foreign companies need to get accreditation from the Ministry of Investments and Foreign Trade (www.mift.uz/en). The following documents should be submitted:
- an application written on the letterhead of the foreign company containing information on its activity, business relations with companies and organizations in Uzbekistan, prospects for cooperation, and the requested time period for opening a representative office;
- constituent documents of the foreign company;
- the official registration certificate from the foreign company’s domicile country;
- a power of attorney issued by a foreign company to the head of the representative office, indicating the full passport data and the powers granted;
- regulations on representation, approved and sealed by the management of the foreign company;
- a letter of guarantee from a legal entity or individual of the Republic of Uzbekistan, which is the owner of the non-residential premises, confirming the readiness to lease or sell these premises to the representative office (indicating the conditions and terms of the lease or sale).
All documents must be legalized at the consular office of Uzbekistan in the foreign company’s domicile country. Legalization is not required if the documents are apostilled. Documents are submitted with a notarized translation into Uzbek or Russian language. If some of the above documents are not provided for by the legislation of the country of the foreign company, the company may submit to the accrediting body a confirmation from the Ministry of Foreign Affairs or the diplomatic mission of its domicile country in the Republic of Uzbekistan.
Accreditation can be issued for one to three years. The annual fee for accreditation is 48 times the basic calculation rate and amounts to $1,106 at the exchange rate of August 1, 2021. The decision on accreditation should be made within 10 business days.
Franchising agreements are subject to state registration, which is regulated by Decree #244 of Cabinet of Ministers issued on November 4, 2010. Uzbekistan’s market presents unexplored opportunities for franchises, where only a few international companies are now present. The most serious barriers to franchising efforts are quality control, lack of information, and weak intellectual property rights protections. However, there is a great interest from local businesses to develop franchising arrangements with U.S. companies, primarily in the restaurant, beauty, healthcare, and hospitality industries.
Direct marketing in Uzbekistan is predominantly used by beauty and health product companies. Herbalife pioneered this field in Uzbekistan with its well-known model. Uzbekistani entrepreneurs frequently promote their products to potential customers using social networks. Other forms of direct marketing include distributing free samples at points of sale, cultural events, and door-to-door. Marketing by mail is not used.
Uzbekistan’s current law “On Investments and Investment activity” was issued on December 25, 2019. Under this law, the Ministry of Investments and Foreign Trade (www.mift.uz/en) is the authorized state body in the field of state regulation of investments, making it the regulatory authority for joint ventures and licensing. Depending on the extent of foreign participation, a business can be defined as an “enterprise with foreign capital,” (EFC - less than 15% foreign-owned) or as an “enterprise with foreign investment” (EFI - more than 15% foreign-owned). Joint ventures are defined as a company with at least 400 million soums ($37,614 at the exchange rate on August 1, 2021) charter capital and at least 15% of foreign ownership. A foreign enterprise (FE) is a company with at least 400 million soums charter capital that is fully owned by a foreign investor. FEs and EFIs can qualify for some tax incentives.
Currently there are 11,781 EFIs operating in Uzbekistan. The largest number of them hold Russian (2,093), Chinese (1,799), Turkish (1,576), Kazakh (919) and South Korean (888) capital. Most (59%) EFIs are located in Tashkent. The number of newly registered enterprises with foreign investment amounted to 1,715 in 2020. Most new foreign investors originated in Turkey (305), Russia (265), China (147) and Kazakhstan (110). The largest number of EFIs operates in manufacturing (3,943), trade (3,113), construction (955) and agriculture (673).
A number of international express mail couriers are active in Uzbekistan, including DHL, FedEx, UPS, and others. Certain commodities are considered as “Non-Documents” and need to be accompanied by an invoice and, in some cases, additional customs documentation. In July 2018, the government introduced new taxation rules on imported goods valued at over $100. Transit times from major U.S. cities average around one week.
In accordance with Uzbekistan’s legislation on the protection of consumer’s rights, all products sold in the country must contain the following information in the Uzbek language:
- Name of the product;
- Manufacturer’s name and contact information;
- Ingredients and “best before” date (for food);
- User’s manual (if applicable); and
- Warnings (if applicable).
This information label must be applied on the product at the facility where it is produced. The government will not allow in-country labeling. Information on imported goods should be provided online in advance to the customs service’s information systems.
Due diligence is important in choosing the best market entry strategy and in selecting business partners and clients in Uzbekistan. Notable areas of concern include company solvency, import restrictions and procedures, rule of law issues, and limitations on government investment incentives. Interested parties may contact the American Chamber of Commerce in Uzbekistan (http://www.amcham.uz) or any of the major international audit companies with offices in Tashkent, including:
- Pricewaterhouse Coopers Uzbekistan
- Ernst & Young Uzbekistan
- Deloitte & Touche LLC Uzbekistan
- KPMG Uzbekistan
- Baker Tilly Uzbekistan