Joint Ventures (JV's) have successfully made and sold goods ranging from soft drinks and ice cream to elevators, oil, sport-utility vehicles, and jet engines. Some Canadian firms use JV's to lower costs or gain a measure of local identity—useful in a culture where some still view foreigners with suspicion. Some local-content mandates (for example, in the oil sector) require a certain percentage of locally-sourced goods and services. Firms that can creatively help buyers meet such rules gain an advantage in Kazakhstan’s market. However, joint venturing is not for everyone.
The JV concept is often viewed differently by Kazakh and Canadian partners. Firms often see JV's as a means for securing local marketing experience. Kazakh managers, on the other hand, often view foreign partners chiefly as a source of capital. Although there are many successful JV's in which both partner's goals have been met, undertaking a venture with a partner that does not share your goals can set the stage for a problematic or frustrating business relationship.
Kazakhstan features labyrinth registration rules, arcane accounting, tricky taxes / tax reporting, and other hurdles that call for seasoned counsel. Although good advice is costly, letting problems appear before devoting resources to them is a mistake.
Immeadiately after the Soviet era, when JV's with foreign partners first appeared in Kazakhstan, foreigners were often barred from control. Usually, this is no longer the case. Be aware that minority shareholders have had trouble protecting their rights in Kazakh courts. If your potential partner company wants a 50 percent or greater share, ask yourself: "Is its contribution likely to merit the share it seeks?" In some cases, the answer will be “yes,” but not always
A recipe for disaster is to Form a JV with a new partner after limited acquaintance, grant him authority for purchases, marketing efforts, accounting statements or expenses, then return to the Canada in expectation that he’ll implement your business plan and wire home your agreed-upon share of profits on schedule. If your partners need your approval on these matters, not only do they have incentive to maintain a cooperative relationship, but the resulting interaction helps them to learn from your experience—and you from theirs.
A popular refrain holds that “Kazakhstan is different—you can’t operate here like you do in the West.” Still, apply the same standards in evaluating a partner in Kazakhstan as you would elsewhere. A handshake is no substitute for a contract. Identify in advance your terms for settling disputes. Research local conditions affecting foreign investment. Meet not only with local officials but also with other foreign investors and associations whose advice may prove instructive.
An oft-heard corollary to the “Kazakhstan is different” mindset is “It’s impossible to do business here legally.” Anecdotes abound of Westerners tacitly condoning bribery or other illicit tactics by partners. A warning is found in the experience of the Canadian partner in a failed JV who, to his subsequent regret, gave in to his partner’s insistence on hiding sales from tax officers. He had intended, he explained, to get the business going, then correct accounts later. When his partner later moved to oust him from the venture illegally, the Canadian found himself unable to approach authorities for help, fearing this would reveal his complicity in concealing revenues
JVs demand meticulous planning and sustained commitment. In Kazakhstan, other forms of alliance are often preferable, especially for smaller companies. If it’s factory space or retail storefront you want, do you really need to enlist the owner of the factory or store as a partner, or would you be better off renting? If it’s a reliable distributor you need, must you offer a partnership, or will a contract suffice? The answers may vary, but be sure to explore such questions.
One last possibility that has found success is the franchise. Although never thought of for service sector companies in Canada it has been well received, and successful, in Kazakhstan and limits the expenditure from the franschisee at the same time generating an in country income. Usually specialized services are not not included in the franchise but, although offered locally, are contracted back from the Canadian firm.