Franchising in Kazakhstan

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Kazakhstan, the most flourishing economy among the Central Asian States, is one of the countries where franchising is abundant. While its economy is predominantly based upon its vast natural resources such as oil, franchising is an increasingly entrepreneurial venture for businesspersons in the country.

Kazakhstan’s main trade partners include Russia, Germany, China, Italy, France, and increasingly, the United States among others (EEFA, 2002, pg 1). The Kazakhstan economy mainly imports is machine apparatus, products of metal and food items. On the other hand, its exports include oil and the oil products, grain, chemicals, wool and meat among others (Dicken, 2003, p. 4).

Even though it is a term that has been with us for sometime, franchising is a fairly new phenomenon is Kazakhstan, and therefore, it has not reached its full application and potential in that country.

Regardless of this, Kazakhstan is the leading country in franchising business in Central Asia just as it is the leading economy in that part of the world. A number of brands originating from the United States are already ingoing the Kazakhstan market even though at a small-scale level and rate (Parshina, 2009, p. 2). Entrepreneurs are thus becoming deeply interested, from not only United Kingdom, Italy and the countries aforementioned, but also the United States of America (Dicken, 2003 pg 4).

This paper therefore seeks to address franchising specifically focusing on Kazakhstan, and with relationships that it has with other countries such as Russia, United Kingdom, and the United States among others.

While at that, the paper explores the true meaning of franchising, legal dynamics of franchising especially in Kazakhstan, a critical assessment of franchising in the country with reference to competition both foreign and domestic, as well as the market bottlenecks and opportunities available for exploration in so far as franchising is concerned.

Meaning of the term of franchising

Brimer and Smith-Porter (2004) reckon that to ‘franchise’ is one of the terms, which is at the largest part distorted, misunderstood if not abused in the business world. The central argument here is that the word is often used in the portrayal of the assessment attached to an individual or a trade name or in the description of an association or a relationship.

Beyond that, it is often used in building in consequential proficient and vigorous economic existence and co-existence (Dicken, 2007, pg 49). The confusion he notes, predominantly relates to the fact that franchising involves two parties which are the ‘franchisor and the franchisee’.

The trendy press, however, always tends to be more focused on the strain, anxiety and the litigation associated with franchising. This, according to Birley et al (2004), is one of the reasons that a number of business schools lean on disregarding it and often times very few business schools are teaching franchising presently in popular business discourses (Silova, 2010).

In the context of Kazakhstan, it is a construct that is characteristically having a huge number of franchisees who operate on sub-franchising conformities. Often times, the pilot franchisers are having foot/ground predominantly in Turkey and Russia, and very limited number of foreign franchisers work with Kazakhstan business enterprises. In fact, pundits suggest that they always have had preference with the Russian working partners (Thomas, 2010, pg 4).

Domestic Franchising Companies in Khazkhaztan

At the moment there are the number of Kazakhstan brands which may compete adequately with the foreign ones are few. However there have been a number of domestic companies which have flourished in the face of competition. The examples of these include BeautyManiya which deals in toiletries, perfumes, and retail cosmetics, DLC Forex Trade, Bukhuchet Nap-which deals in offering accounting services to SMEs, Folding Space-which deals in furniture, as well as S.Mile together with Nails Club. (Parshina, 2009, pg 3).

Legal Origin of Kazakhstan Franchising

Legally speaking, the country’s legal framework stipulating franchising business has been wanting if not absent. The only part of the pack legislation only came into being in 2002, paving way for the country’s adaptation of the franchising law. This act is called ‘On Complex Entrepreneurial licenses, 2002’ (OECD, 2006, pg 1). Among others, the legislation spells out ’franchising contracts, and creation of various foundations for the government to support’ (Gillespie et al, 2010).

Largely, they are basically relational laws that define the rights and obligations of the Franchisor. Some of the rights include directing quality of services/goods. Others are pre-determining the procurement of the acquisition if the franchisee relocate or move his/her company and deciding if to call off the franchising deal in the event that the franchisee goes against the agreed set of plans (Sherman, 2004, pg 49; Dicken, 2007, pg 58).

These laws broadly operate in concomitance with international practices and at the core hubs a number of stipulations including that a franchisor has the legal right to direct, organize as well as manage franchises and entrepreneurial operations (Sherman, 2004, pg 48).

Competitive analysis of the Kazakhstan Franchising: Foreign Franchising competitors in Kazakhstan

The competitive analysis of franchising in the country, Kazakhstan must be examined within the confluence of the countries it predominantly trades with and the ones, which have franchising influence in the country so far (Dicken, 2007 pg 67).

While entrepreneurs in Kazakhstan identify USA as the bedrock of franchising, and the one, which has been on the forefront in franchising concepts/ terms, the trading proper takes biases towards Russia, Italy, the United Kingdom, and Spain, with the US market saturation lagging behind (Gillespie et al, 2010). Regardless, some of the United States enterprises in the country include KFC, Office one superstore, Intercontinental and Calvin Klein Jeans (USA Diplomatic Mission, 2009, pg 1).

Besides, the Commercial Services that are USA connected are already in progression of relating with a good percentage of potential franchisers, and are at the moment in the concluding phases of instigating accords with the Kazakhstan domestic franchisers/partners or are in the core of creating their openings.

Dicken notes, for instance, that the areas in high requirement and demands are the fast foods. In addition, the U.S market is also taking other components of business. This is exemplified with the presence of Costa Coffee and the American Grill; these include “Business related education, as well as business services” (Parshina, 2009, pg 6).

Apart from the USA franchisers, a number of them operating in Kazakhstan are from Western Europe and Russia. Some of the western European Countries include Spain, Germany, the United Kingdom, and Italy. Some of the companies associated with these include Hugo Boss, Lefutur, Mexx, Tony and Guy among others, while from Russia comes Rosinter Group, just to mention but a few (Parshina, 2009 Pg 6).

Competitive analysis focusing on Domestic Franchisers

At the moment, the number of Kazakhstan brands in the market and competing with their foreign counterparts are few. This is because the foreign ones have been very dominant especially in because of the fact that their names are already widely recognized (Gillespie et al, 2010). This, as a consequent, has led to the limitation of the domestic franchising business entities not only loosing autonomy in Kazakhstan but also failing to penetrate foreign markets (Dicken, 2007 pg 71).

Indeed, the already established brand names compete and make the entrepreneurs to prefer foreign franchising against the domestic ones. However, a number of business scholars and business analysis have noted that with the decline of the Kazakhstan currency, and tailored around the probabilities to the acquisition of products locally, some firms have risked to undertaking local franchising to race against their foreign counterparts (Finkelerstein et al, 2005, pg 77).

The only negativity and limiting factor in this endeavor is the fact that franchising is not based on cost but rather on brand reliability and stability. This thorny factor has informed a limited number of local firms in Kazakhstan establishing these kinds of enterprises. The numbers are indeed few and some of the successful ones include Exotic Tea, DLC Forex Trade, Beauty Maniya, Folding Space, and Nails Club among others (Gillespie et al, 2010).

Competitive analysis of the Consumer Market and the limiting factors

In Franchising Business, market availability is a lead factor in determining the success of an enterprise (Dicken, 2007). The prospective (in terms of potentiality and capacity) of franchising business in Kazakhstan seems to be enormous. This evidently comes to the fore especially when one factors in the rate at which shopping malls as well as retail infrastructure are being established and developed in the country (Brimer and Smith-Porter, 2004).

These include, for instance, the fact that hypermarkets are continually being developed and opened across the country, with most of them in Almaty and Astana. Other centers of trade are also on being developed. Therefore, the consumer market is steadily growing (Dana, 2004, pg 47).

However, there are a number of factors that inhibit the rapidity of growth of franchising in a number of countries. These arguably apply to Kazakhstan and they include the following: One, Kazakhstan, just like many other countries, has a small population, with it standing at about 16milliom people.

Moreover, its population density is also relatively low to adequately anchor and support Franchising businesses (OECD, 2006). Two, the country’s legal mechanism as far as protection of intellectual property is concerned is wanting. The only piece of legislation that is not so elaborate came to being only in 2002 (OECD 2006, pg 2; Harris 2001 pg 1).

Three, there are limited measures for development and utilization of long-term financial opportunities as well as lack of precision and accountability benchmarks in the business setting. The other issue is on awareness and awareness creation tools. There is a low level of wakefulness of franchising prospects. Moreover, the mold and the franchising tools by the domestic entrepreneurs is not well grounded and developed (Finkelerstein et al, 2005)

Further, the rapid grand augmentation and development in real estate as an entrepreneurial endeavor option in the recent past has been an impediment. It has incredibly exaggerated franchising business in terms of reducing its profit, observably, impacting on the latest outlets, particularly ‘the high traffic areas’ (Parishana, 2009, pg 6; EEFA, 2002 pg 1).

The good news to this effect has been that, because of recent recession, the market prices of real estate have deteriorated noticeably and significantly and the expectation is that they are likely to keep at that if not lower over the next few years (Parishana, 2009, pg 6)

The other good news is that domestic consumption potential of the Kazakhstan people is progressively on the increase as well (Dana, 2004 pg 37). Therefore, there is an increasing demand for more services, a number of these services imply the use of franchising services, and this is becoming huge.

The areas with have evidently had immense prospective and attraction in this include ‘’Sales of business support services such as business consulting, building development’’, advertising, Personnel and related services in technological matters (Dicken, 2007).

Others are schooling services including teaching and foreign language discourse. Broadly, other tenets related to holiday and diversion in term of the entertainment industry and fast food are also flourishing, just as health and beauty services, retail sale, and clothing repair services have been (Feiler, et al., 2007 pg 67).

Certainly, the opportunities are much more than threats since franchising fits into the larger call of globalization. Dicken (2003) observes that this is perhaps realistic because of three issues.

One, each constituent blocks in the line-process of production and distribution must now rely upon technological impetus, which is further compounded with the consumer society and consumerism. Besides, every production chain across the board is propped with a system of financing and capital operations. In addition, all of them require regulation, control, and much more synchronization and management than in the previous historical epochs (Dicken, 2003).

Conclusion

Obviously, the strengths of franchising in Kazakhstan are many just as the impediments to it. Franchising, just like in many countries, has laid the groundwork of business opportunities and provides the span of capacity for individuals and businesses in Kazakhstan (Dicken, 2007).

This has increasingly led to pursuit and discovery of openings to meet their financial objectives and entrepreneurial penetration even though not to full potential. Of course, franchising allows business entities to construct affluence to changeable levels according to the scale of the business enterprise. Franchising in business is of course a clarion call to meet the demands of globalization since globalization is a buzzword; franchising in all countries can as well be buzzwords with the globalization itself.

Reference List

Brimer, J. and Smith-Porter, L. 2004. Annual Franchise and Distribution Law Developments. NY: America Bar Association.

Dana, P., 2004. Handbook of Research in International Entrepreneurship. Northampton: Edward Edgar Publishing Inc.

Dicken, P., 2007. Global Shift: Mapping The Changing Contours of The World Economy. London: Sage Publications.

Dicken, P., 2003. Global Shift: Mapping Reshaping the global economic map in the 21^st Century, Fourth Edition. London: Sage Publications.

EEFA, 2002. A Comprehensive Resource for Effective Franchise Business in East and Central Europe. EEFA. Web.

Feiler, G. et al. 2007. Investing in Russia, the Ukraine, Latvia, Lithuania and Kazakhstan. Portland: Sussex Academic Press.

Finkelerstein, W. et al. 2005. Intellectual Property Handbook: A practical guide to franchising and Business. NY: ABA Publishing.

Gillespie, K. et al. 2010. Global Marketing. OH: Cengage Learning.

Harris, H. et al. 2001. Competition Laws outside the United States. NY: American Bar Association.

OECD, 2006. Local Capital Markets for Environmental Infrastructure: Prospects in China, Kazakhstan, Russian Federation and Ukraine. NY: OECD.

Parshina, O., 2009. Franchising in Kazakhstan. US-Commercial Service. Web.

Sherman, A., 2004. Franchising and Licensing: Two powerful ways to grow your business in any Economy. New York: AMACOM.

Silova, I., 2010. Globalization on The Margins: Education and Post socialist Transformations in Central Asia. NY: Information Age Publishing.

Thomas, A., 2010. Franchising Culture for Kazakhstan Television: Producers’ Ambivalence and Audiences Indifference. Web.

USA Diplomatic Mission, 2009. Kazakhstan Franchise Forum 2009 offers Unique Business Opportunities. United State Diplomatic Mission. Web.

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