Until twenty years ago this was a country with a centralized economy that was part of the wider Soviet economic system. There was virtually no private sector, and no individual entrepreneurship. Capitalism, and the private ownership of assets that stands at the heart of it, were regarded as the utmost public evil. Some things haven’t changed since those days, but others have. Kazakhstan is an eager learner. Foreign businessmen who first came to the country in the early 1990s will hardly recognize Kazakhstan’s business environment and practices today. Seemingly without regard to the downsides of the transition, things are moving forward and moving fast.
Business in Kazakhstan is now largely privately owned. Most of the larger companies were formed from state companies that were privatized in the early 1990s. The majority of them operate in the extractive industries, such as oil and gas, iron and steel, copper, uranium, aluminum, or gold. These companies function under the government’s close supervision, and are either funded by foreign investors or run by foreign management. Equally important are the services provided to the extractive industries, such as drilling or transport. These are divided between foreign and local companies that, again, are predominantly former state entities. Today the state sector accounts for less than 10 percent of the economy, but the government nonetheless controls significant assets in the country’s strategic oil, gas, and uranium industries, zealously protecting Kazakh interests.
Other major sectors of the economy include commerce, construction, manufacturing, agriculture, and transport. Foreign capital and expertise have a small but important share in these and other fields. In total, foreign companies account for about 5 percent of the country’s businesses. Most operate by establishing a branch in the country, which is permitted to carry out full commercial activities, whereas a representative office is allowed only to undertake representative functions and to protect the interests of its head office.
Small businesses—local and foreign—concentrate on imports, real estate, construction services, and agriculture. Many local firms last for no more than three to five years, moving from one type of business to another, or giving up entrepreneurship for good. Several factors contribute to this phenomenon: a business climate that critics say is unwelcoming to small business, frequent government interference, and underdeveloped legislation are possible reasons.
Another explanation relates to local attitudes and the general mindset (mentalitet, as it is often called here). As one businessman put it, “In Kazakhstan people don’t think long term. Everyone wants to have immediate results and profits. Commitment, reputation, business traditions that require years of hard work—these are undervalued. Make your money as fast as you can and move on, is the prevailing attitude. You never know what may happen tomorrow.”
This fear of the future derives from the instability of the early 1990s, when people could lose everything overnight. Add to this high interest rates and a culture of bribes, and the dilemma confronting the average small- or medium-scale businessman becomes understandable. One promising sign is that this sector is growing slowly, generating up to 21 percent of the country’s Gross Domestic Product, and employing about 30 percent of the labor force.
As a newcomer to the local working environment you may find the general pace to be slower than in the major world centers. Also, you will find that personal relationships are of great importance: loyalty to the boss and gaining his or her good opinion, or that of close colleagues, is a much more powerful motivation than loyalty to the company. This does not mean, however, that people expect preferential treatment or a pay increase based on personal relationships. Also, an understanding of the notion “privacy” is somewhat blurred, meaning much closer social space rather than individual privacy. This, however, may not extend to include a foreigner.
The World Bank compiles a set of indicators to compare business regulation environments across economies. In 2012 Kazakhstan was ranked fifty-eighth out of 183 countries for ease of doing business. Only four years earlier it had been twenty places lower. According to the World Bank, Kazakhstan is good for starting businesses, employing workers, getting credit, paying taxes, and enforcing contracts. Exporting and importing goods is the only sector that is poorly ranked, with the many and complex procedures in place.
Kazakhstan’s businesses typically have a strict hierarchical structure. Power is usually concentrated in the hands of a chief executive, who is the key decision maker. There is a self-explanatory popular dictum: “I am the boss, and you are a fool. If you are the boss, then I am a fool.” It is uncommon for subordinates to argue with their supervisors to defend their point of view, which could lead to their dismissal. Initiatives by lower-level employees are rarely supported. Information-sharing within firms is usually limited; information and networking are more often regarded as resources for competition between colleagues.
Larger companies are dominated by Kazakh managers in their fifties and sixties who have a heavy Soviet background. Medium-sized and smaller businesses are often run by younger people of different backgrounds. Thus there is a new generation of managers in their thirties and forties who hold senior positions in private businesses, national companies, and the government. They are the first graduates of Western universities who had won scholarships from the Kazakh government or Western nations. Naturally, there are conceptual differences between this new cohort of managers and the older generation of professionals who received their education and had most of their experience during Soviet times.
Not all companies will have long-term strategies or business plans. Even fewer have a corporate Web site. If there is a Web site, it is most likely to be outdated, or unavailable in English. However, this does not always mean that a company without a strategy or a Web site is low-profile locally. There are many businesses in construction, mining, and related services whose performance is of a high standard, yet they are not accustomed to marketing their services.
Labor relations are regulated by the Kazakhstan Labor Code. According to this, all employees must be given a contract that defines the terms of employment, including wage and benefits, working hours, and duties. Standard working hours are forty hours per week. The monthly wage is set by the employer but may not be less than the monthly statutory minimal wage (currently 17,439 Kazakh tenge, or around 115 US dollars).
Trade union membership—obligatory before and during Soviet times—is not common, and only the larger state-owned or formerly state-owned companies have managed to preserve their unions. Here workers have a so-called “collective agreement” with employers that protects them against dismissal. Most new businesses do not have anything like that.
The labor force accounts for about nine million people out of a total of sixteen million living in Kazakhstan. According to statistical data, every third member of those in employment has had higher education, and another third has had some sort of vocational training. The rest have at least completed secondary education. Judging from these figures, Kazakhstan has a highly skilled workforce. However, as mentioned earlier, the quality and relevance of the local education system is often criticized. In 2011 a World Bank press release highlighted “a mismatch of the demand and supply of skills.” In its official report on education in Eastern Europe and Central Asia in 2012 the Bank pointed out that while Kazakhstan scored well in basic skills such as reading, writing, computation, and the ability to use technology, in the higher-order skills—communication, thinking skills, problem solving, and the ability to work independently—it was lacking.
In technical fields, such as the construction and manufacture of plant and equipment and the extractive industries, there is the even more serious problem of aging engineers and technicians. The fear is that there will simply be no one in the country with the right skills to replace them. The government, job providers, and international organizations are working together to fill the gap, but still there are virtually no experienced professionals in the technical sciences below the age of fifty.
The human side is very important when it comes to doing business in Kazakhstan. Personal relationships matter. As we have seen, the business sector is highly volatile, especially at the level of small businesses: companies appear and then vanish within a few years, or new owners decide to change course. The government and public sector, which are both large, mainly due to the government’s heavy regulatory role, are also constantly changing. Thus, as a rule, the choice of a partner, subcontractor, or client is generally made on the basis of personal acquaintanceship with the head of the company.
Most businessmen, when meeting a prospective partner for the first time, want to know the sort of person they are going to be dealing with. To avoid possible fraud and misunderstandings in the future, it is essential to build trust. Business meals and other informal activities play an important part in making the decision to work together.
A few years ago, going to a banya (Russian sauna) was the most popular way for male businessmen to get to know each other and bond. What better way to open up someone’s personality than by heat, vodka, and kalyan (hookah)! Nowadays this may seem a bit extreme, but lengthy business dinners running late with lots of eating and toasting are still a must. Business lunches are not always appropriate—they tend to be too formal and not long enough—unless they last for half the day!
Doing business in Kazakhstan usually takes longer than in most Western countries, so a great deal of patience may be necessary. Foreign businessmen will feel this from the very first stage of establishing communication.
When setting up a meeting or negotiation it is best to target the highest management level. If you are dealing with a large company or government institution, prepare yourself for some cumbersome bureaucracy. First, send an official letter to the most senior executive, introducing your company and requesting a meeting. It should be signed by the CEO of your company and can be sent by fax. If you can arrange for your letter to be written in Russian, this will ensure that it won’t sit around waiting to be translated. This doesn’t mean, however, that it won’t sit around somewhere else.
The response may take a long time, as the permitted period for responding to an external letter is thirty days in most big companies. If you want to speed up the process you could follow up with a phone call to the personal assistant of the addressee, or to the company’s main office, but you might have to call several times, and speak to several people, before getting an answer.
Smaller companies may not require official letters. A phone call or e-mail will suffice to set up a meeting, but the introductory meeting is still important. There is a risk, however, that the addressee will not be able to understand a message written in English, or does not use e-mail as a means of communication. Thus hiring a local person who speaks Russian, English, and preferably also Kazakh would be the best way to arrange meetings and avoid the communication trap.
Be prepared for it to take more than one meeting at different levels to establish a partnership with a local firm. However, if you happen to establish a good contact with the right person, the whole process will move to the fast track. Among the “right” people are the senior management of the company concerned, highly ranked governmental officials, the company’s business partners, or even family members of the company’s CEO. Such a contact is best established in conversation on an informal occasion or chance encounter—for example, at a family party after an introduction by a mutual friend, or while traveling, or at a sports event.
It is important to dress suitably for a meeting, depending on the type of business. Usually formal business dress is preferred, but the smaller the company the less strict the code. Successful Kazakhstani businessmen appreciate style and expensive brands, so in order to make a good impression it might be helpful to dress accordingly, but in a conservative manner.
Shaking hands is an important element of greeting, so shake hands with your Kazakh counterparts when arriving at a meeting and again when leaving. Normally, the less senior person extends a hand first to show respect. While shaking hands, eye contact is essential—lack of eye contact shows disrespect. When greeting a female business associate, wait for her to initiate the handshake. A nod with brief eye contact will usually suffice.
The exchange of business cards is common practice. First and patronymic names are commonly used in addressing a senior person, especially if the person is of Russian origin, or you can just use Mr., Mrs., or Ms., followed by the last name. On receiving someone’s card you may have to ask which is the given name and which the family name, as they do not always appear in the order you might expect. A clue is that family names often end with –ov (as in Asanov), –yev (as in Usenbayev), or –in (as in Musin) for men, and –ova, –yeva, or –ina for women. These suffixes were introduced by the Soviets to make the names sound Russian. Some Kazakh names do not have them, and may instead end with –uly (son of), –kyzy (daughter of), or –tegi. If you are not sure how to address someone, just ask.
It is helpful if your own business cards are translated into Russian on one side. If you have no bilingual cards on arrival you can have them printed in any local copy shop.
It is best to bring your own interpreter to the meeting, unless you are sure that your Kazakhstani counterpart speaks fluent English. Even if the meeting is interpreted, however, you can be sure that your counterpart will understand at least 50 percent of spoken English, so be aware of this when speaking in English with your interpreter or colleagues.
In most cases it is better to wait for your host to start the meeting and give you the floor. It may be that he, or more rarely she, will want to begin with some small talk, but during first meetings it is usually straight down to business. The code of behavior at the meeting will depend on those present: it may be formal if you are meeting senior government officials, or spontaneous if meeting business representatives. During formal meetings there is usually firm protocol and an allocated time for speaking, so when you are prompted it is best to use your time to its fullest. It is likely that you will not be given a second chance to speak.
Be prepared for expressions of criticism and doubt, which may not be directly addressed to you but to foreigners in general. It is important that you don’t take this personally. If you feel you need to stand up for your point of view, it is better to address your arguments to the less senior staff—if they are present. In any case, never contradict or interrupt the main host or someone who is in a senior position to yours.
If any agreements are achieved by the end of the meeting, make sure you take note of the person in the host organization who will be responsible for their implementation. If the host invites you to a traditional Kazakh meal or to dine out, do accept the invitation, as this will consolidate further cooperation.
Smoking is prohibited in public places, but in male-dominated companies and gatherings people may smoke, even during a meeting.
The majority of senior Kazakh businessmen are not accustomed to doing business pitches, since most received their education in Soviet times. As anywhere else, the style of presentation will depend on the audience and the type of business. Older audiences prefer simple visual presentations with straightforward messages written in a large, clear font. It is important to remember to translate slides into Russian, even if the presentation is made in English. It is also advisable to print out a few copies of presentations in color (one page per slide) for senior management. Glossy presentations will go down well with a younger audience and with people in advertising, marketing, or design, for example, where visual presentation plays a key role.
A time span for a presentation will usually be discussed and set in advance. In a meeting with several presentations, time may be limited to ten or twenty minutes for each presenter. The timing may be extended to thirty or forty minutes at a meeting where you are the only presenter.
It is rare for a presenter to be interrupted, but there will normally be time for questions after presentations. In general, questions are a sign of interest and attention. A lack of questions might mean a lack of understanding or interest, but this will not necessarily be the case.
Be prepared for several rounds of negotiations before an outcome is achieved. Again, targeting the highest level of management is likely to be more productive, and decisions may be made on the spot. Negotiations with mid-level management will need more time before the final decision is made. Be confident but not aggressive, polite but not passive, and flexible but not weak. Demonstrating your expertise, and even showing off a little, may help you to get the contract, but, as anywhere else, negotiating styles differ depending on the circumstances.
If you asked local businessmen what sort of negotiation they see as ideal, they would tell you that it would be an open and confidential conversation, with direct and honest responses and no lies on either side. That is why the building of trustworthy relationships based on personal qualities is vital. Only then will Kazakhstani businessmen want to hear from their foreign counterparts that the product, technology, or service they are buying (and this is what most negotiations in Kazakhstan are about) is of good and reliable quality and that the company’s reputation—at home or worldwide—is spotless. Many foreign businessmen are surprised to find out that the cost efficiency of their product or service is not of first importance in Kazakhstan.
Some degree of bargaining (around 10 or even up to 20 percent of the cost) is normal practice in negotiations. Once the deal is brokered there should be no further return to the subject of price.
When doing business in Kazakhstan it is vital to have a signed contract. Although the Civil Code of Kazakhstan, which regulates contracts, acknowledges written correspondence and exchange of e-mails as a formalization of agreement, only a signed contract will ensure its enforcement. Although some businesses will accept scanned copies of signatures on contracts, it is always preferable for the contract to bear the original signatures and stamps of all the contracting parties.
Contracts are usually strictly observed. According to the Doing Business Report 2012, Kazakhstan ranked twenty-seventh out of 183 countries on the enforcement of contracts.
A contract must specify the governing law for resolving disagreements between parties when one of the parties is a foreign entity. Local businessmen would certainly suggest local courts as an option but do not usually insist on it.
If something goes wrong on a personal level, it is better to start trying to resolve it through a frank and confidential discussion. If the matter is raised via written correspondence it is advisable to follow it up with a face-to-face meeting, or at least over the phone. This is the fastest way to resolve most disagreements.
When problems arise in the workplace between colleagues or between management and members of staff, approaching the aggrieved colleague directly—in private—is favored. Local people are rather direct when dealing with stressful situations and can get emotional. Raising disagreements publicly might cause a scene and damage reputations on both sides.
By law, women in Kazakhstan are given equal opportunities in business and politics. However, in reality, the phenomenon of the “glass ceiling” is still present, reflecting the country’s past as a strictly patriarchal society. In large corporations top management is mostly comprised of men, with women occupying mid-level positions. Still, almost every top management team will have at least one woman on the board, most probably responsible for accounting, budget planning, or legal affairs. In a few cases women are leading large corporations, as in Kazcommertsbank and Halyk Bank.
There are more businesswomen in small and medium enterprises, mainly in trade and the service sector. During the hard times of transition in the 1990s, just after the collapse of the Soviet economy, women demonstrated greater resilience to the stress. They often took on the role of breadwinner by moving from low-paid or no-paid teaching, engineering, or social-sector jobs to the retail or “buy and sell” sector, which had not been highly respected in Soviet times. Currently, the most successful businesswomen started out by importing clothing from China, Turkey, and later from Europe as so-called chelnoki, or traders. There is also a trend for the wives and daughters of men in power to open their own businesses, such as boutiques or restaurants.
The same rules apply to businesswomen as to men in Kazakhstan. If the meeting is led by a female executive, one should be careful with personal remarks, as in any society, but a brief, courteous comment on her business qualities or even her personal appearance may be well received. A greeting card or bunch of flowers sent by a courier the day before March 8, International Women’s Day, would be a good gesture of respect and partnership.
In a society where position and power are almost cults and kinship ties are piously maintained, corruption is almost inevitable. The country’s economy is still in a transitional stage, and has a long way to go to create a perfect business environment operated by clear legislation, an impartial judiciary, and a transparent government. The Corruption Perception Index (CPI), compiled annually by Transparency International, measures perceptions of corruption by businesspeople and independent experts. Kazakhstan’s current (2012) rating is not impressive: the country scores 2.7 out of the maximum of 10, with a ranking of 120 out of a total of 182.
The most badly affected areas are those of the judiciary, licensing and permits, customs, public procurement, and environment regulation. The good news is that the situation is improving year by year. Kazakhstan has ratified the UN Convention Against Corruption, has passed a number of laws to create a strong legislative base to fight corruption, is steadily introducing new technology into the public service sector, and is continually increasing the salaries of its civil servants. There is a separate agency for fighting economic and corruption crimes (the financial police) and an Ombudsman’s Office that, at least in theory, is free from any political interference. In practice, however, this may not always be the case, and both bodies face strong criticism from the business sector and the general public.
Progress is being made, and everyone understands that corruption is a two-way street: if no one gives bribes, no one takes bribes—and vice versa. The country will eliminate corruption only when its people can hold the government accountable. In Kazakhstan, however, history has been such that it has always been the government that has held the people to account, and not the other way around.
New Year gifts between close business partners are a must, ahead of the celebrations. Cards may suffice if the relationship is important but not close enough for the exchange of gifts. Gifts are valued if they are expensive and practical. Designer ties, expensive perfume, and vintage pens are popular. Colleagues may exchange symbolic presents, such as souvenirs or sweets.
The other big occasion is March 8, International Women’s Day. Every woman around you will expect at least a smile and warm congratulations. Female managers are usually snowed under with flowers and presents, and no gift will be perceived as too much or too little. Men are expected to chip in for flowers and gifts to all their female colleagues in the office.
If you know your colleague well enough, or if you have an established business partner with whom you’ve built a personal relationship, it is in the local culture to buy him or her a gift on his or her birthday. Again, women are often given flowers or perfume. Men usually get ties, pens, notebooks, or something similar. Colleagues in the office may buy a collective present, and anyone celebrating his or her birthday brings cakes or sweets to share, and often treats colleagues to a full lunch or dinner. There is also a tradition of celebrating anniversaries with a toi on a grand scale, with a guest list running to well over a hundred. It is common to invite business partners to such events, and guests usually give money (in envelopes) instead of presents. If you are invited to one of these occasions, it would be suitable to give between 100 and 500 US dollars.
