Technology is rapidly changing the world and specifically business models – this is favorable for startups, but for classic corporations it is a threat.
According to the globally popular Adizes Methodology for Organizational transformation system, the life cycle of a company is comparable to that of a human. A startup is born, grows, develops stability, and eventually becomes dated. However, the duration of these stages has rapidly decreased over the last twenty years. For example, even fifty years ago, the average duration of operation of companies in the S&P500 was 33 years; in the 1990s, it was 23 years; and now, it is less than 12 years.
This is due to the technological environment, which is rapidly changing almost all life processes. It used to take decades to increase turnover, increase the number of employees, and develop a client base, but now it only takes a few years. For young tech companies, this situation is an opportunity, and a threat for large corporations. Therefore, corporate innovations, capable of optimizing the procedures for the functioning of companies, become an indispensable tool for a large preservation of their activities.
Analysts FinReview.info found out how corporate innovations are developing in Kazakhstan and why they are so important for large companies.
Three reasons why there is no growth without corporate innovation
In the modern world, startups have begun to outpace their counterparts in large corporations in terms of the speed of development. The scale of operational processes makes large companies less flexible and often unable to identify promising new opportunities for growth and expansion. Startups, in turn, have a great understanding of how the industry can operate and develop. As a result, corporations strengthen their competitive advantage in the market through collaboration with the latter, owing largely to the implementation of innovative solutions. This is due to three factors.
For starters, corporate innovation generates economic benefits. For example, the profit of Kaspi.kz, a company known for its innovative solutions, increased by 55% in the third quarter of 2021, reaching 251 billion tenge. Simultaneously, financial technologies generated 150 billion tenge in revenue, a 35% increase over the previous year.
Second, innovation can be used to gain a competitive advantage. The e-commerce company ChocoFamily, for example, has expanded significantly in 2020. Due to the closure of offline sites, sales of the ChocoTravel travel agency increased by 20%, orders of the ChocoFood service doubled, and purchases through the Rakhmet app increased by 2.5 times.
Third, in today’s world, innovation is becoming a requirement for survival. Companies that are more technologically advanced are emerging, and their competition is changing not only the business models of companies, but also the sectors of the economy as a whole. For example, with the introduction of the Uber taxi call service, the Wildberries marketplace, or the Vinci Agency PR agency, Kazakhstani businesses’ attitudes toward the digital environment have shifted. It is now more difficult to compete if innovative solutions are not developed.
Let us now turn our attention to the situation on the Kazakhstani market.
Kazakhstani realities: corporate innovations are just getting started
To begin, it is critical to identify which large enterprises predominate in Kazakhstan. According to the Bureau of National Statistics, there were 2,357 of them as of October 1, 2021. However, these statistics only include businesses with more than 250 employees, and no unified data on company turnover is collected.
Earlier, we have already prepared a study in which we revealed an interesting fact – 46% of tax revenues to the budget are generated by fifty of the largest enterprises. Note that, 19 companies from this list are involved in the production of oil and associated gas.
It is quite clear that there is virtually no competition in these industries. This implies that businesses are uninterested in the development of corporate innovations. In fact, it is why the market is still immature.
According to the CorpUp Kazakhstan 2021, a report prepared by the Tech Hub of the Astana International Financial Centre, Corporate innovation is typically developed in countries where there is competitive pressure from more agile and faster players with disruptive technologies and business models. In Kazakhstan, due to the low level of competition in the main industries and the large share of the public sector, innovation is not always viewed as the primary tool for long-term advantage.
Nonetheless, innovative businesses continue to exist on the market.
TOP-10 innovative corporations in Kazakhstan
An online survey was conducted among more than 70 Kazakhstani startups as part of a study organized by the AIFC Tech Hub. The survey’s main goal is to determine which corporations, in the opinion of start-up projects, are leaders in the implementation of innovative solutions.
As expected, Kaspi.kz, ChocoFamily, Beeline, BI Group, and Kolesa took the top spots.
However, there is an interesting feature here: despite the fact that start-ups primarily single out private sector companies as the most innovative corporations, in most cases they still want to collaborate with system-forming quasi-state corporations such as Kazatomprom, KazMunayGaz, Kazakhtelecom, and so on. However, such cooperation is not always possible. High bureaucracy, a lack of a single channel through which startups can offer their solutions, a low innovation culture, and, as previously stated, a weak competitive environment are common barriers to this. Nonetheless, there are examples of successful market interaction between startups and large corporations.
Three successful cases
Let’s start with the most well-known: BI Group, the largest construction and innovation holding company, and the Smart Remont startup founded in 2018. Prior to their collaboration, only 10% of the apartments were sold with standard developer’s finish, and a limited one at that. Customers can now choose from over a hundred different apartment designs, as well as have a unique renovation done at their request. Already, the Smart Remont startup has successfully implemented over 2,000 objects, over 600 renovations are in progress, and approximately 1,500 contracts have not yet been completed and are awaiting the start of renovation work.
The next example is Sberbank, one of Kazakhstan’s largest banks, and Zan.Bar, a startup that has launched a marketplace to find lawyers and attorneys. Their collaborative operation enables the bank’s clients who are experiencing problems with suspension or restriction of movements on a bank account to quickly find a qualified lawyer or attorney. As a result, the client can resume using the bank’s services more quickly than if he or she searches for a suitable lawyer on their own. This, in turn, reduces lost profits while increasing the bank’s user loyalty. Already, approximately 80 Sberbank clients use the startup’s services on a daily basis.
The third case involves Alfa Bank Kazakhstan and the Webkassa startup, which offers online cashier services. The startup offered the bank’s clients a profitable and convenient solution – a cash register with no maintenance or registration fees. Entrepreneurs no longer need to purchase a POS terminal, and the cash register can now be accessed online from a mobile phone.
Following that, we will consider the impact of start-up projects on the national economy.
Startups may help increase the share of innovation in GDP to 7% by 2026
The primary impact of startups on the national economy is the expansion of innovative businesses. Start-up projects not only stimulate business activity in the country, but also help the real sector of the economy by developing and implementing technological solutions. For example, due to the developed start-up market in Eastern Europe, the United States, China, and Japan, the share of innovations in the GDP structure exceeds 25%.
This figure is only 2.4 percent in Kazakhstan. However, given that the start-up market, which is still in its early stages, is already expanding rapidly, innovative activity in the country could skyrocket in the coming years. Over the next five years, the share of innovation in GDP will reach 7% at least.
The CorpUp Kazakhstan 2021 report is available on the AIFC Tech Hub website by the link.