Kazakhstan Chamber of Commerce in the USA

KazCham


New focus on small and medium-sized enterprises

Posted on March 18, 2010 by KazCham

SAMRUK, THE POWERFUL state holding company  which controls the ‘commanding heights’ of the  Kazakh economy, from pipelines and power lines  to railways, telecoms and oil companies, also  sponsors KazNex, an export promotion agency set  up specifically at President Nazarbayev’s request to  encourage small and medium-sized enterprises (SMEs) to raise quality and compete in export markets.

The government is keen to encourage small  companies to help diversify the economy and reduce  reliance on the extractive industries. SMEs currently  account for well under 20 per cent of GDP and  limited knowledge and penetration of export markets is one of their biggest weaknesses.

“Our vision is to become a driving force for  building support for exports. We already export  raw materials, and we want to develop exports  with higher value added,” says the KazNex agency’s  dynamic deputy chairwoman, Saule Akhmetova.  “We started with a study of best practice in other  countries, especially South Korea, Singapore,  Australia and Malaysia where growth was export led,” Akhmetova says.

“The problem in Kazakhstan is very low  awareness of the importance of exports on the  part of government, society and business. As more  international companies, including multinational  corporations such as Procter & Gamble, enter the  market, local businesses have to raise their game and focus on quality and marketing to compete effectively on both domestic and export markets,” she adds.

One company that addressed this issue was  Bekker & Co, a Kazakh-German joint venture in the  food processing sector. Bekker’s general director,  Ivan Kravchenko, says that from the moment  of independence in 1991 he realised that local businesses would not be able to compete with foreign imports. He went to the head of the German food  company, Bekker GmbH, who agreed to create a joints venture, which almost two decades later employs 770 people with an annual turnover of ?35 million.  Every 24 hours, Bekker produces nine tonnes  of sausages and 1.5 tonnes of bread and bakery  products, as well as traditional foods such as Russian pelmeni and Kazakh manti (dumplings) – always with h the emphasis on high-quality ingredients and  hand preparation.

“We employ lots of people for our relatively small  output. Most is prepared by hand, which we think is a major contributor to quality – we want our products  to be the same quality as home-cooked foods,”  says Kravchenko.

“Quality begins with raw materials in the food  industry. If you buy poor meat, no amount of effort  will improve it. Therefore we work with the best  suppliers. We buy our meat in Kazakhstan but other  products are imported,” he adds.

Almaty and the surrounding area is the main  market, but Kravchenko says the company wants to  export to the EU. “We have a large territory and a  relatively small population so we can feed ourselves  and have enough left over to sell abroad without  heavy use of chemical fertilisers. If we produce  ecologically clean products, we can sell them anywhere,” he says.

Ms Akhmetova of KazNex believes there is very  good potential for companies in the food processing,  textiles, chemicals, pharmaceuticals and paper  products sectors to boost exports but admits that  the crisis has slowed things down. “Companies  have limited access to funds, and some have even  suspended their activities temporarily,” she says.

One successful exporter is Textiline, which  produces a line of sportswear for Swiss clothing  manufacturer Assos at its state-of-the-art factory  in Talgar near Almaty. The company is one of a  new breed of Kazakh businesses where focus on  quality makes it possible to compete effectively with -international firms both at home and abroad.

Producing workwear for blue chip customers  such as TengizChevroil, KazMunaiGaz and KazZinc  accounts for around 65 per cent of its business, but Textiline also provides children’s clothes for the  domestic market and niche projects such as  making costumes and fabrics for the epic Kazakh  film, Nomad. According to sales and marketing director Inna  Apenko, investing in technology and staff training  was the only way Textiline could compete with low  cost exports from China – a perennial problem for  Kazakh businesses. High labour and operating costs  mean it costs five times more to produce a simple  t-shirt in Kazakhstan than in China or Turkey. “A  cheap labour force is a big competitive advantage for clothes manufacturers, but unfortunately, we don’t  have this. Unlike Vietnam or Indonesia, we also have  a shortage of specialists in this field so we had to set  up special courses,” Apenko explains.

“Our advantage over China is in technology  and intellectual property,” she adds. “When Assos  selected Textiline, the company said it needed to  be confident of quality production, and we could  guarantee this. We employ a team of specialists in  design, engineering and technology, whereas in  Chinese companies this work is typically carried out  in Europe.” Today, Textiline is the largest clothes  manufacturer in Kazakhstan, with six factories,  employing 1,200 people.

In recognition of the difficulties of raising  funds for investment, or even working capital,  the government has set up a new fund, called  Damu, which works with banks to finance smaller  companies. It has 117 billion tenge to lend at a preferential 12.5 per cent interest rate and a further  3 billion tenge specifically to help small companies  take part in state tenders or produce goods for export. The EBRD has also been an active provider of finance  to Kazakh banks for on-lending to SME customers,  and ATF Bank President Alexander Picker says that  the UniCredit-owned bank is using its international  experience to develop small business lending in  Kazakhstan, partly thanks to EBRD fundings

Bekker and Textiline have both had to adapt to  the economic slowdown, like most other Kazakh  companies. “Before the crisis, demand exceeded  supply, so we don’t plan to reduce output or cut  staff. But we have paid more attention to marketing  recently,” says Kravchenko.  Ms Apenko agrees on the importance of  enthusiatically promoting the company’s products.  “We plan to work actively towards exporting our  products,” she says. “But our major customers have  reduced orders by around 30 per cent, so we intend  to use this spare capacity to launch new consumer products for the domestic market.”

A study by KazNex found that funding was  actually not the main issue facing SMEs. “Our  research showed that the top problem was not  a lack of money but the need for better access  to information, better marketing skills and an understanding of international trade procedures. The most important thing is to change people’s mindset,” Akhmetova concludes.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Page: 88-90.

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