Kazakhstan

Introduction to Kazakhstan

Kazakhstan is the ninth largest country in the world and the largest in Central Asia. The growth in the country is mainly driven by its huge oil reserves, which is estimated to be as big as Kuwait’s oil reserves. The goal for Kazakhstan by 2015 is to be among the top ten oil exporters in the world. The country is also rich on natural resources like gold, silver, aluminium, copper, zinc and possesses the largest uranium production in the world (The Washington Post, Feb.2010). By possessing this kind of resources, it has resulted in an economic boom since the year 2000 with an annual GDP growth of 10% (country report, 2007, p.7). However, like the rest of the world, Kazakhstan has been affected by the financial crisis and the annual growth has plummeted from 10% growth to 3.3% in year 2008‐09(The world factbook). Due to the last couple of years of economic boom, a big and rich middle class was created who requests to buy expensive design products. Kazakhstan is as mentioned earlier situated in Central Asia or Eurasia and it inhabits 16.2 million people. Its population is a mixture of Kazakhs, Russians, Ukrainians, Germans and other ethnic minorities from neighbour countries. Native Kazakhs are a mix of Turkic and Mongol nomadic tribes. Today 53.4 percent of the population is only native Kazakhs and 30% is Russian, 3.7% Ukrainians and 2.4% Germans. (The world Factbook). The reason for only 54.3% of the population are native Kazakhs is that many Kazakhs fled from the Soviet invasion in the 18th century. And due to this about 3.5‐4.5 million Kazakhs live outside the country (UNHCR, 2009). About 47% of the population are Muslims and 44% are Russian Orthodox and the rest is Christians, Jews and other religions. The religious groupings lives peacefully side by side with each other and the President has been a good rally point for the different religions. Kazakhstan is a democratic and secular state where religion and politics are separated. The capital of the country is Astana, the former capital was Almaty which is also the city that inhabits most citizens. The president is Nursultan Nazarbayev who has been in office since the independence of the country in 1991.

Political situation in Kazakhstan

According to the law the president serves a seven year period but this will be changed to five years period, and it would take effect when Nazarbajves’ terms ends. In 2007 Nazarbayev established a law, which meant he could be president for an indefinite period. Since Nazarbayev took office the country has been very stable, and he has been a very popular president since. At the last election in 2005 he managed to gain 91.1% of the votes. The reason for his popularity is partly because he is a feared leader but also talented. The freedom of speech is limited and the government is accused of widespread corruption and nepotism. Kazakhstan was ranked as number 120 out of 180 by the Transparency International’s Corruption Perceptions Index, 2009. Number 180 is the country with the highest rate of corruption. This was better than the year before as 145. Furthermore, by being blessed with vast natural resources, The President has been able to control the power in Kazakhstan. Moreover, Nazarbayev has been strategically wise as he has kept a good relationship to both Russia and America, granting American companies oil contracts in the Tengiz oil field which is one of the biggest oil fields in the world.

Economic situation in Kazakhstan

Since the independence of Kazakhstan in 1991, the country was in need of economic reforms specially after being under Soviet rule for several years. The main growth of the economy is the oil and gas sector, beside this there is a large production of agricultural products like grain, wheat, meat and wool. Kazakhstan is the seventh‐largest wheat producer in the world (World Factbook). Minerals like coal, metals are also a big part of the production. As mentioned before the country has been in an economic boom, which has created a big middle class who demands luxury products (Eksport fokus, 2005, p.10‐11). There are already Danish companies like B&O, Grundfos, Danfoss, MAERSK Oil and Gas in Kazakhstan. The financial crisis has hit Kazakhstan very hard. However, there is still growth in GPD with 3.3% annually primarily driven by oil and gas sector. But other sectors like food, telecommunication, construction industry, furniture’s are also in growth. In a recent report by Heritage Foundation’s Index of Economic Freedom, Kazakhstan was rated “moderately free” and ranked 82 out of 179 countries, this is even better ranked than China. (Doing Business in Kazakhstan, 2010, p.2). Furthermore, it is ranked as 63rd out of 183 countries by World Bank’s Ease of Doing Business Report.

Business Culture

Doing business in another country requires understanding and being open‐minded of the differences in cultures. What works in Denmark might not necessarily work in Kazakhstan. Culture can be difficult to explain, it depends on the person asked. Hofstede who is known for his cultural dimensions theory which demonstrates, that there are national and regional cultural groups that influence behavior of societies and organizations. Hofstede defines culture as following: “culture is a collective of programming of the mind which distinguishes the members of one human group form another”. (Hollesen, 2007, p.216) This means in short that there are a set of values that one group believes in and this distinguishes them from another group. Culture can be put into two levels: the tangible and intangible artefacts. The tangible are artefacts above the cultural iceberg, they can be seen and touched. The intangible are under the iceberg, they are hidden and these are behaviours, beliefs and values. And when companies are not aware of this, it might lead to a violation of values and beliefs and potential business partners might be offended. To prevent this happening, there is a short description of Kazakh culture and the differences between Danish and Kazakh culture. Furthermore, an analysis of the Kazakh culture in accordance with Hoftedes cultural dimensions is conducted. As there are no descriptions of the culture in Kazakhstan according to Hoftedes cultural dimensions, the Kazakh culture would be compared to countries that to some extent are similar to Kazakh culture.

Kazakh Business Culture

As mentioned in introduction about Kazakhstan, the country has been under Russian rule since the 18th century and this makes both the culture and the inhabitants very mixed. The official language in Kazakhstan is Kazakh. Nevertheless, the business language is still Russian, this is partly due to the influence from Russia and also the transformation from the Russian language to Kazakh has been very difficult. Kazakh people were forced to learn Russian and Kazakh language was forbidden when Kazakhstan was under Soviet rule. It is therefore a good idea to know Russian or be accompanied by a translator as English is not that widespread. The first phase of getting in contact with Kazakh companies are the most difficult one, it is here very important to always follow up, as Kazakh people are very relaxed if they have been contacted by mail, letter or fax. One also has to travel a couple of times and meet up with potential partners face to face, as it is a long process and hard work to enter the Kazakh market (Eksport fokus, 2005, p.12). Patience is a key element. Dress code is also important, it is recommended to wear suit and tie to negotiations and business meetings. Being proper dressed sends out the right signals it shows that you are the right person to talk with. Being too colourful is not recommended so a black suit with a white shirt is a good start, Kazakhs are very conservative when it comes to colours and it might send out the wrong signals. Businesswomen should dress modest and not to daring, it is a Muslim country even though they are moderate, there is still an ideal picture of how a woman should be and act. The meetings usually begins with exchanging business cards, a business card in Russian on one side and English on the other side is also a good idea, having a look at the business card before putting it away also shows that you show some interest in the person and that you are not only there to do business. When meeting the first time, shaking hands and using first names are very common it is not that formal at the initial meeting. Even though the structure of a typical company is very hierarchical built, and the decisions are usually made by one key decision maker. The hierarchical built structure also reflects the general society in Kazakhstan, where power and status is important. Once the negotiations have started it is a good idea to start with a high price as Kazakh people love to bargain. This originates from old times, when nomads went to the bazaars and bargained for everything from rice to horses. An extra bonus might be to give discounts because business people usually brag about how big discount they have achieved to their superiors and colleagues. One of the most important aspects when dealing with Kazakh culture is hospitality. This also originates back from the nomadic culture, where travellers were invited into the “yurt” a tent like house. Travellers were offered the best food from the hosts which they do not consume themselves, but are kept for special occasions. Today if one gets invited home or to a restaurant, they should definitely not reject the invitation. When accepting the invitation it shows that you are ready to go beyond of just being a business partner. When having dinner it is a tradition to make a little speech, to show that you are happy about commencing business with each other and that it should bring wealth, prosperity and a long‐term relationship. Kazakhs loves making speeches and it is a big part of their culture. Even though about 50% of the Kazakh populations are Muslims it is not unusually that the speech ends with a toast. Kazakhs have a relaxed relationship to alcohol which originates from the Russian culture. As mentioned earlier the structure of a typical Kazakh company is hierarchal and decisions are made by key persons. Furthermore, these key persons expect to meet with people who have the same rank as they have, it would be disrespectful to send a younger or less experienced employee. Making deals are time consuming because Kazakhs are like Spanish people when it comes to time, they are very relaxed. Kazakh culture can be characterised as polychronic, when negotiations are being done, they might suddenly change the topic and talk about another subjects or do multiple things at the same time. And finally at the end of a deal, giving hands to seal the deal is more important than doing a contract as it shows that there are a mutual trust between the parties, an oral agreement is very important for a Kazakh and is as binding as a written agreement, making a contract is just an extra thing. Kazakhstan can be compared to Japanese and Russian culture, there are still old traditions from the Soviet time which Kazakhs have inherited. Japan would be the other country which Kazakhstan has similarities with. The structure of a company is hierarchal and key persons make the decisions.

Hofstede’s Cultural Dimensions

Hofstede conducted a survey among IBM employees in 72 countries, he wanted to investigate the cultural differences in these countries and how they perceived their world in four dimensions: power distance, uncertainty avoidance, individualism and masculinity.

Denmark versus Kazakhstan

One needs to have cultural intelligence and awareness of one’s own culture and the country you want to do business with. If you understand the cultural differences and you are able to cope with it, you will succeed. In the following part there is an explanation of Danish culture versus Kazakh culture according to Hofstede’s four dimensions.

Power distance

In Kazakh society the power distance is high. There are a little elite of rich people who earned their money from the vast natural resources like oil and gas. However, the oil and gas has also created a rich middle group. It is not an egalitarian society, the two mentioned groups have the power and influence in the country. A typically Kazakh family can be compared to how the structure of a company is. The head of the family is the father, mother and the children are ranked after age, the younger brothers and sisters have to learn and be advised from the oldest one, so they are not treated equal. The children have to be obedient to their parents and have respect for them. Furthermore, parents are superior and they have the final decision. In regards to Denmark it is totally opposite, parents are equal to their children, but of course they have influence over their children, but they have their own will to decide. Furthermore, children are treated equal and they are consulted by parents instead of being obedient. Put in context with a Kazakh company, it fits very well. Kazakh companies are hierarchical built with the managers on the top and his/her subordinates under him. The manager tells them what to do and he is also seen as a “guru” who has all the answers. Decisions are made when managers are asked, and subordinates are not allowed to make decisions.

Collectivism versus individualism

Denmark is an individualistic country as mentioned in the power distance part, everyone is entitled to their own opinion and everyone is able to be the smith of their own happiness and they work for their own selfinterest. When making business the focus is on the task and not the relationship that might follow the task. Kazakhstan is a collectivistic country with strong relations to family and colleagues were they work towards a common goal. In Kazakh society everybody knows their neighbours and a key element is loyalty. If you gain trust from a Kazakh partner he would most definitely recommend you to others and would not leave you as a partner, even though if he receives a better offer by another company. Relationships prevail over task or orders. In a collectivistic society companies makes join decisions. However, this is not the case in Kazakhstan, the manager might listen to his employees. Nevertheless, he has the last word when decisions are made. In short Denmark is a middle rated individualistic country and Kazakhstan is a high rated collectivistic country.

Masculinity versus femininity

According to Hofstede Denmark is rated as a feminine country with a low power distance. This entails focus on relationship in families and solidarity. Furthermore, if conflicts occur it will be dealt with compromising and negotiations. The “Jantelov” is important to mention as no one should think that they are better than others, so you have to undersell yourself. The Kazakh society is a mix of both masculine and feminine society. It is feminine as in the Kazakh society men and women are equal to each other, women have top manager positions in Kazakh companies, which is very rare in Moslem countries. On the other hand, as mentioned earlier in the report status and power is important in Kazakh society. Children from successful parents needs at least reach jobs ranked as high their parents and attend in the same exclusive universities. If this is not the case it would be a disaster because they have to be competitive and get a step higher on the social ladder. In case of social failure no sympathy would be gained.

Uncertainty avoidance

The last dimension in Hofstede’s cultural analysis is tolerance for uncertainties. In Danish society uncertainties are dealt with curiousness and are taken with ease and low stress. In the recent years innovation has been one of the most important areas in Denmark. By being innovative describes a society who wants to be challenged and try out new ideas and findings. This is not the case in relation to Kazakh people. People in Kazakhstan want stability, structure and security and due to this they have a strong uncertainty avoidance. This can also be seen by the political situation in the country, where the same president has been in office for almost 20 years. However, this does not coincide with how they conduct business. As mentioned before Kazakhs are polychronic and so not follow an agenda.

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