ISSN 0798 1015

Vol. 40 (Number 22) Year 2019. Page 10

An evaluation of developments of e-commerce practices in Kazakhstan in the framework of historical process

Una evaluación de la evolución de las prácticas de comercio electrónico en Kazajstán en el marco del proceso histórico

SEN, Bulent 1; YDYRYS, Serikbay 2; MUNASSIPOVA, Malike 3 & KURALBAYEV, Almas 4

Received: 28/02/2019 • Approved: 07/06/2019 • Published 01/07/2019

Contents

1. Introduction

2. Methodology

3. Results

4. Conclusions

Bibliographic references

1. Introduction

During the 2000s which is defined as information age when the social and commercial relationships between countries has developed and reached a global dimension, the speed in communication has become an inevitable necessity. Developments in information technology and the electronics industry are providing solutions to meet this need. With the Internet, which can be defined as an international information communication network, today it has become possible by using a computer to access all necessary information, communicate, banking transactions and even shopping. There are dozens of different ways and means of utilizing Internet technologies that are at the center of all this development. The way of doing business in the past which was generally based on a face-to-face, written record system is becoming increasingly electronic based. At this point, the concept of electronic commerce (e-commerce) has frequently been the center of research in recent years (Akbulut, 2007; Aydemir, 2004; Budak, 2010; Dolanbay, 2000; Drucker, 2003; Elibol and Kesici, 2004; Kırçova, 2001; Korper and Ellis, 2000; Kuşçu, 2013). The main objective of this research is to establish a conceptual framework for e-commerce firstly (Napier et al.,  2001; Poirier and Bauer, 2001), then to describe the development of e-commerce applications in Kazakhstan and to define the current situation and finally to make proposals for commercial areas where e-commerce applications can be developed in Kazakhstan.

According to the World Trade Organization (WTO), electronic commerce is the production, advertising, sales and distribution of goods and services through telecommunication networks. According to a definition made by the Organization for Economic Co-operation and Development (OECD), "electronic commerce generally carries out business activities based on the transfer of digital data, including text, audio and visual images of individuals and organizations." If the above-mentioned definitions are to be assessed, it is possible to say that the overall objectives of E-commerce (1) are to make business operations easier on the local and international scene; (2) To increase the efficiency and sensitivity of the company; (3) to provide compatible and high quality electronic interaction and to electronize business activities in all appropriate fields (except hardware shipment) (Turban et al., 2002). In this sense, it is necessary to show the difference between e-commerce and traditional trade. Collecting information about the product to be purchased is carried out by interviewing companies in traditional trade methods, reviewing magazines or catalogs. In e-Commerce, however, information can be easily obtained from the websites of institutions that market product or service on web pages (Elektronik Ticaret Rehberi, 2013). A more detailed classification is given in Table 1.

Table 1
Comparison of Traditional and Electronic Commerce

2.1. A Historical Overview of E-Commerce Practices in Kazakhstan

When statistics related to the subject are examined, it is possible to say that online shopping in Kazakhstan, although it appeared in 2000s, shows that the industry has developed well below the expected level. In fact, the basic assumption frequently emphasized in the literature is that the frequency of e-commerce applications is increasing in parallel with the increase in internet usage. In this sense, it is important to put out the data related to internet usage in Kazakhstan (Table 2).

Table 2
Data on internet usage
in Kazakhstan

Source: Data obtained from the International Telecommunication Union (ITU),
World Bank, and United Nations Population Division data sets.

When Table 2 is examined, it is seen that the usage of internet in Kazakhstan has increased considerably especially between 2008 and 2011. The increase of 176.4% in 2008 is the highest in all years. Considering that population growth is almost the same in all years, 2008 and three years following this year can be considered as the most influential years in terms of internet use in Kazakhstan. At the end of the specified years, however, the number of people using the internet has reached 50% of the total population. Again in table 2 it is seen that this increase is considerably smaller than the other years in 2012 and the following years.

Given that the Internet users in the given years are around 50% of the total population, it is necessary to question the cause of this slowdown in growth. By 2016, the number of people using the Internet in Kazakhstan accounted for 55.8% of the total population, which is 0.3% of the world's internet users. Increasing Internet usage rates provide an excellent opportunity for the development of e-commerce.

Another important factor for the development of e-commerce is the increase in the per capita income of the countries. The distribution of Kazakhstan's per capita national income according to years is presented in Figure 1.

Figure 1
The distribution of Kazakhstan's per capita
national income according to years

Fig. 1 shows that the per capita national income in Kazakhstan shows an almost systematic increase over the years. The consequences of Kazakhstan's post-independence development (1991) are clearly observed today. According to the Statistical Agency of the Republic of Kazakhstan, GDP per capita, which was $ 696 in 1993, surpassed $ 11,356 in 2011 with an increase of more than 15 times. In 2011, Astana, an important center of the country, GDP per capita reached $ 13,193 and Almaty amounted to $ 14,388. Developments in Kazakhstan have not remained solely with the increase in GDP per capita. Infrastructure and superstructure projects in the country continue unabated and housing construction of 6.7 million m² has started in 2012. The country's transportation, communication, housing, public service buildings, energy transmission lines are being renewed. Given these economic developments, the momentum captured by the country and the prosperity of the coming period are better understood. Kazakhstan grew by 7.5% in real terms in 2011, but this ratio remained below the previous year's growth. The government of Kazakhstan has continued to determine the prices of natural resources such as oil, natural gas and mines in order to avoid sudden increases in commodity prices and inflation. The unemployment rate decreased slightly from 5.8% to 5.2%. Growing momentum of institutional firms in the country and social support programs that the government is running in order to prevent unemployment has led to a decrease in unemployment. Kazakhstan is perceived as a safe haven in terms of foreign direct investment (FDI) thanks to its economic performance and rich natural resources it has shown in recent years and the amount of FDI coming from Asia and Western Europe is steadily increasing. Tenge, the national currency of the country, is strengthening its position against the dollar with the efforts of the Central Bank.

However, inflation in the country has reached 6% in 2011. The main reason behind this situation is seen as the increases in natural gas and oil prices. On the other hand, the Kazakh government actively manages this situation. The per capita disposable income in Kazakhstan increased by 38.7% between 2006 and 2011 and reached USD 4,736. Consumption expenditures per capita exceeded this rate and rose by 46.7% to reach $ 4,812. It is estimated that disposable income will increase per capita by 8.4% in 2012, by 7.1% in 2013. Consumer spending per capita is expected to increase by 7.9% and 6.4% in 2012 and 2013, respectively. Table 3 shows the changes in the per capita income and estimated values according to years.  

Table 3
Income Per Capita
(% Change)

Source: Euromonitor

An important point here is to show the distribution of income which is rapidly increasing according to the regions. Table 4 presents the distribution of income by region.

Table 4
Distribution of Income
by Region

Source: Kazakhstan Statistical Agency

This situation makes the country an ideal candidate for the ordering sector on the internet, considering the wide land and low population ratio. Kazakhstan is a country which covers a very large geographical area and whose population is highly dispersed (6,15 km2). Almaty (1,129 million), Karaganda (437 thousand), Chimkent (360 thousand), Astana (313 thousand) and Öskemen (311 thousand), the five most populated cities in the country own only 15% of the total population. Considering the distance between the north and south and east-west of the country, it will be seen that the entry of Kazakhstan only is not enough, so the distribution of the products in the country should be well organized. Just as it is in other former Soviet countries in the state of transformation, Kazakhstan's geography is also built by railway networks. The country, which has a railway of 14.200 km, including 34% of double-tracked lines, is connected to Russia, Uzbekistan, Kyrgyzstan, Turkmenistan and China by railways. With the increasing use of internet in Kazakhstan, it is envisaged that companies will make significant contributions to their revenues by establishing internet platforms or developing their existing platforms.

In general, the developments observed in the sales of all branches of retailing in the developing and growing Kazakh economy are also observed in internet retailing. In terms of Kazakh consumers, online sales, which is a new selling method compared to direct sales and home shopping, reached 177 million dolars in 2011. But direct sales and home shopping, which have long been known in the country, are still marketing methods that maintain their popularity, especially in cosmetics and personal care products. Especially internet retailing has great potential in Kazakhstan for the future due to the personal computers that are increasingly used at home and the investments that the country makes to the internet access infrastructure. Increased urbanization rate and modern life encourage people to shop online.

On the other hand, especially in technological products, consumers are able to find cheaper products than both stores and also they can follow user comments and reviews about the products they will receive on their internet sites. According to the Ministry of Information, Internet usage rate in the country is increasing by 20% annually, and by 2011 the number of internet users reached 6.4 million. Thanks to the campaigns carried out by retailers selling electronic products and devices operating in the country together with banks, computers and other internet devices are sold at affordable prices and 0% interest rates. Internet service in the country is offered via free Wi-Fi in many cafes, restaurants and shopping malls, and internet distribution service provided by state and private companies is provided at very attractive prices. In Kazakhstan, ADSL, broadband distribution, wireless internet and 3G technology and the phones connecting via internet are very popular. These positive factors have a positive effect on internet retailing. However, factors such as the low number of personal computer owners, the widespread use of credit cards, the development of internet infrastructure other than cities, the low number of sites selling on the internet and the lack of development in Kazakhstan, there are currently more than 600 internet shops and commercial marketing companies operating between enterprises. of distribution networks are obstacles for the development of electronic commerce.

In general, it is possible to rank online products as follows: mobile phone line and internet cards, multi-media, books, computer hardware, computer accessories, software, cosmetics, clothing, electronics and airplane tickets. It is seen that the most developed purchasing situation in e-commerce applications is the purchase of airline and tram tickets and the payments are paid online via mobile services (International Telecommunication Union).

Companies selling electronic products such as Technodom Grubu TOO, Arena S TOO and Elektronika E-1 TOO and Arbuz.kz and Astykzhan CT TOO have made great progress in the past. Companies selling through the Internet are working with various payment methods such as credit card on the internet and cash on product delivery. At this point, it is considered important to establish retail sales figures in Kazakhstan other than stores (Table 5).

Table 5
Non-store retail sales figures
(Million Dollars)

Source: Euromonitor Int

In line with the developments presented in Table 7, sales of Internet retailing increased by 31% in 2011. In particular, the increase in the volume of consumer electronics and clothing products, which are non-food consumption goods, has been realized by stores aiming to diversify their sales. Firms determine the prices they sell on the internet at 5-10% cheaper than their stores. It is thought that sales of food products over the internet will increase in cities like Almaty and Astana in the coming period. Moreover, internet retailing, which is still in development stage in the current market, is seen as a marketing activity which is carried out by the firms which own the stores. In the coming period, a similar increase is expected in the number of companies that exclusively operate internet retailing, which is also found in our country and industrialized countries. Two of the most important retail outlets in Kazakhstan are Oriflame Kazakhstan and Avon Kazakhstan Too, which operate in the cosmetics sector. Oriflame is the leader in the sector with 33% share, while Avon's share is 21%. Both companies use direct selling techniques they apply in different countries. Mary Kay Inc and Faberlic Kazakhstan Ltd. are other important companies of non-store retailers. In Internet retailing, Arbuz ToZ's "arbuz.kz" and Astykzhan CT Too's "astykzhan.ko" are the leading online sales platforms of the country and they are engaged in the retailing of both food and non-food products. Percentage of non-store retailing company shares is presented in Table 6.

Table 6
Non-store retailing
company shares%

Although direct sales and internet retailing, favored by consumers in middle and upper income groups who have been adapting to modern city life and working with long working hours, have a small share in the total retail market today, in addition to the increasing income level and urbanization in the coming period, it is expected that the government will increase its sales by an average of 26% per annum as a result of the policies that the use of technology is widespread. It is expected that the most important contribution to the development of the sales channel will be provided by the ready-to-wear sector, which is projected to increase its sales by 33% in the coming period. Trade between businesses also seems to have developed rapidly after the Kazakhstan companies becoming aware that having web pages is an indispensable application for the market. This kind of trade is defined as '' Business to Business - B2B '' in the literature, and in the e-commerce organization, if the product and service pass to another seller to operate, then the inter-enterprise trade can be mentioned here (Elliot, 2001). “Trading made between the franchisees, distributors and suppliers of institutions, that is a company's trade with another company, is called inter-enterprise trade electronic commerce.” Examples of e-commerce are electronic data interchange (EDI), product data exchange (PDI), consulting databases, on-demand information exchange between business and business. It is seen that some companies in Kazakhstan are publishing their product catalogs on the internet pages for the inter-enterprise e-commerce described above. In the literature, most companies are said to be unable to design applications on the web in order to conduct their business online. Businesses prefer e-commerce software instead. Statistical information of companies providing infrastructure to websites with .KZ extension using e-commerce technologies in a limited number are given in Table 7.

Table 7
Preference ratios of websites with .KZ extensions
used for e-commerce purposes

Table 7 shows that companies in Kazakhstan prefer OpenCart software in e-commerce applications (51.51%). This proportion corresponds to half of e-commerce enterprises in Kazakhstan. In 2004, Kaskommertsbank and Commerceone, Kazakhstan's local banks, launched the first Electronic Commerce Infrastructure to manage the transaction process via the Internet with the support of IBM. By 2017, 38.900 transactions have been realized by 27.940 members over the electronic commerce infrastructure. It can be concluded that the increase is very large when compared with the data of 140 transactions with 126 members in 2005.

Experts state that online transaction practices increase by 25% per year and that this increase will continue in the next three years. Figures of the Ministry of Transport and Communications show that in Kazakhstan e-commerce transactions can amount to 3.6 million dollars. It is predicted that this amount will reach 5 million dollars by the end of 2015. It is seen that 39% of the goods are from the United States, 12% from Europe and 11% from Russia. It is determined that eBay is the most preferred Internet intermediary institution in Kazakhstan. Only 29% of the $ 2 million is paid to Kazakhstan's product providers. It is seen that only 10-12% of internet transactions performed in 2016 are for on-line shopping. Most of the international courier services are represented in Kazakhstan and use online sites in the delivery process. In 2007, Air Astana, one of Kazakhstan's leading international airline companies, began offering online transaction services. Air Astana's online sales have reached 10% of total sales. The company aims to increase its electronic transactions to 30% within 5 years. PayPal has announced that it has started commercial services in Kazakhstan. This will enable Kazakh operators to offer their customers a cheaper, faster and safer way for online payments.

3.1. Sectors that may be suitable for electronic commerce in Kazakhstan

At this point, non-food retail sales in Kazakhstan will be useful to show in which areas e-commerce can be effective (Table 8).

Table 8
Distribution of percentages of non-food
retail sales in Kazakhstan by years

Source: Euromonitor

Ready-to-wear retailing is the largest market in Kazakhstan with a sales figure of $ 1.76 billion among the major sectors. Retail sales of electronic goods following ready-to-wear are in second place. The share of these two business lines in total retail activities is 18% and 15% respectively as of 2011. Ready-to-wear retailing has gained an impetus for international clothing brands to start operating in Kazakhstan. In the past period, foreign brands evaluating the market in terms of purchasing power were positioned on the market by targeting the upper income group. Today, foreign brands are evaluating the market in terms of total sales and are located in the parade parallel to the developing middle class. This situation is regarded as a new development in terms of Kazakh consumers.

As seen in the table above, "Other" retailing has the largest share in non-food retailing with 33%. This group consists of individual entrepreneurs, supermarkets and hypermarkets that sell products that can be entered into other groups but whose sales have not been classified because they are not specialized. Individual entrepreneurs are retailers who sell apparel, footwear and electronic products brought to the country by way of suitcases, giving them the opportunity to negotiate prices. They operate in the form of "no name, no concept" which is expressed on the previous pages. In terms of hypermarkets and supermarkets in this group, the share of non-food consumption in total sales was 23% for hypermarkets and 21% for supermarkets in 2011. In Kazakhstan, non-food retailing is developing steadily, but it is far behind food products in terms of sales figures for supermarkets and hypermarkets. Distribution of the percentage change in non-food retail sales in Kazakhstan by years is presented in Table 9.

Table 9
Distribution of percent change in non-food
retail sales in Kazakhstan by years

Source: Euromonitor

When the chart of changes in non-food retail sales between 2006 and 2011 shown in Table 11 is examined, it is noteworthy that sales in the cosmetics sector increased 106% over 5-year period. In 2006, cosmetics sales totaling $ 66 million in total sales amounted to $ 1.35 billion in 2011. In the cosmetics sector Kazakh consumers are highly aware of the brand and international companies are active in the market. Despite a twofold increase in the cosmetics sector in the mentioned period, ready-to-wear is the leader in non-food retailing with sales of $ 1.78 billion according to 2011 data.

As a result of the research, it is identified that e-commerce applications in Kazakhstan appeared in early 2000s. Although e-commerce practices have been found to be in line with other countries in terms of exit time, they do not show an increase in line with the parameters related to years of development, internet use, technological infrastructure development and per capita income growth. In addition, the demographic characteristics of Kazakhstan, such as its surface area and population appear as the other reasons that increase the expectation of e-commerce applications to develop. Large land and low population make the country an ideal candidate for internet order sector. However, this situation is accompanied by the fact that the products are not only enough to enter Kazakhstan, but also the distribution within the country must be well organized. For this purpose, railways which are widely used in Kazakhstan geography should be used more effectively. In this sense, the country is connected to the country with 14,200 km railway, Russia, Uzbekistan, Kyrgyzstan, Turkmenistan and China with 34% of which are double-tracked lines.

As stated above, the technological infrastructure in Kazakhstan has developed rapidly. In particular, with the increasing use of personal computers in homes and investments made in the internet access infrastructure of the country, internet retailing in Kazakhstan has become a great potential for the future. According to the Ministry of Information of Kazakhstan, internet use rate in the country increases by 20% per annum. Parallel to this, it is observed that there are more than 600 internet shops and commercial marketing companies in Kazakhstan. In general, it is possible to rank online products as follows: mobile phone line and internet cards, multi-media, books, computer hardware, computer accessories, software, cosmetics, clothing, electronics and airplane tickets. In e-commerce applications, it is observed that the most developed purchasing situation is getting airline and train tickets, and payments are paid online via mobile services.

When we look at the data on electronic sales of non-food retailing, it is seen that the ready-to-wear sector has a leading position with sales of $ 1.78 billion. Consumer electronics retailing is second. The share of these two business lines in total retail activities is 18% and 15% respectively. An increase of 106% in sales in the cosmetics sector over the 5-year period can also be considered remarkable.

Sectoral distribution of non-food retail sales ratios can be considered as one of the important steps for the development of e-commerce. In order to improve this situation, it is considered to be another important step to implement the legal regulations first.

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1. Department of Management, Khoja Akhmet Yassawi International Kazakh-Turkish University, Turkestan, Kazakhstan

2. Department of Economics, Khoja Akhmet Yassawi International Kazakh-Turkish University, Turkestan, Kazakhstan

3. Department of Finance, Khoja Akhmet Yassawi International Kazakh-Turkish University, Turkestan, Kazakhstan

4. Department of Management, Khoja Akhmet Yassawi International Kazakh-Turkish University, Turkestan, Kazakhstan