Editor’s note: GlobalAtlanta traveled to Mongolia last year. This story is part of a special report on the country, the second to be featured in our Emerging Market series.
When Mongolia moved to a free-market economy in the early 1990s, it was a revolutionary shift.
For about seven decades, the country employed (endured?) the economic policies of the Soviet Union, its patron and closest partner. The fall of the Iron Curtain left a vacuum now being filled by a thriving, peaceful democracy, but shaking off the legacy of a planned economy has proven tough.
Some building codes are still written in Russian, parliament and business often seem to be at odds and red tape has been persistent.
These factors show that while chucking the old system brought a clean slate, Mongolia’s economic story is still being written, said John Karlsen, CEO of Newcom Mining Services, an arm of Mongolian conglomerate Newcom Group.
It’s a “methodological battlefield,” Mr. Karlsen told GlobalAtlanta in an interview last year at the top of the Central Tower, a gleaming glass building on the main square that has become emblematic of the country’s directional shift.
“They didn’t really have a 20th-century format, so they’re just figuring it out as they go,” which makes doing business in Mongolia exciting, but not without a “reasonable appetite for ambiguity,” he said.
At the time of the interview, Mr. Karlsen was CEO of Wagner Asia, the Mongolian arm of a Denver-based vehicle and heavy-equipment distributor. Wagner went to Mongolia 16 years ago to serve a large gold mining firm. It’s now the authorized dealer for Caterpillar, Land Rover and other brands. In the north, it has even sold a few tractors for Atlanta-based AGCO Corp., though nearly all of its revenues come from mining and construction.
Mr. Karlsen a tall Montana native with huge hands and a no-nonsense disposition, said Wagner prospered by quietly going about its business.
“This is a place that was designed for us. It’s a great place to be an American,” he said at the time.
But Mongolia is also drawing talent from other parts of the world.
Jim Dwyer, executive director of the Business Council of Mongolia, a nonprofit advocacy group with about 200 member companies and organizations, said despite their bent toward heavy regulation, Mongolian officials are keen to look abroad for help fueling and managing their growth.
“They know they need (foreign direct investment), no question,” he told GlobalAtlanta in an interview at his office in Ulaanbaatar, the capital.
Ready to help, service providers like accounting firmPricewaterhouseCoopers LLP are flocking to Mongolia. The tiny Mongolian Stock Exchange is managing its breakneck growth by learning from the London Stock Exchange. Mining firms from Canada and Australia have embarked on projects worth as much as the entire Mongolian economic output of a few years ago.
These partnerships benefit home-grown Mongolian firms looking to expand their influence, Mr. Dwyer said in a later email.
In building its Mongolian bottling plant, Atlanta-based Coca-Cola Co. partnered with MCS Group, which started as an energy consultancy but has diversified in cashmere, real estate, fashion, restaurants, and of course, beverages – not only Coke, but vodka too.
Newcom Group – which manages a leading telecom company and an airline – in November signed a deal to purchase wind turbines from General Electric Co., whose energy unit is based in Atlanta. The $100 million wind farm will be located about 40 miles from Ulaanbaatar. GE called it a “strategic move” into the country.
“The examples of MCS and Newcom Group are not going unnoticed by the Mongolian private sector, which has a very strong entrepreneurial spirit,” Mr. Dwyer told GlobalAtlanta by email.
He cautioned that growth could be limited by the ability of small and medium-sized Mongolian firms to train workers. For example, Chinese workers built the Central Tower because Mongolians didn’t have the construction expertise, he said.
At Oyu Tolgoi and Tavan Tolgoi, two huge mines in the South Gobi province, foreign giants are pouring millions of dollars into training Mongolians who will make up the workforce. But it can’t stop there, Mr. Dwyer said.
“For Mongolia to compete, the supply chain has got to be upgraded, as do the vocational training schools,” he said.
Mr. Dwyer and other business leaders agree that infrastructure is another major hurdle to continued growth. At rush hour, it seems that everyone in Ulaanbaatar is cramming Peace Avenue, the main east-west thoroughfare. Traffic jams make it easy to forget that there are only a handful of paved roads converging in the capital. There are also few rail spurs. At the very least, Mongolia has to upgrade its rail infrastructure to export the minerals that are fueling growth – and congestion – in the first place.
Gateway Development International, a Virginia-based firm, sees this challenge as an opportunity.
Gateway matches building technologies with the unique construction needs of developing countries. In Mongolia, it has introduced ThermoBlock, a polystyrene form that can be stacked around steel bars and filled with concrete to create insulated walls. Houses using the product can be built quickly, an advantage given Mongolia’s limited building season. Each house would cost about $10,000.
Thanks to outdated building codes, an industry resistant to change and cumbersome bureaucracy, it took a year of wrangling to get the technology approved. But persistence paid off. In December, less than a month after receiving the government go-ahead, Gateway built the first Thermoblock house.
Adam Saffer, Gateway’s CEO, said those interested in Mongolia should be sure to find the right partners who can help navigate local issues and regulations.
“To come over here as a European, American or Australian and think you’re going to do it your way, you’re not going to get anywhere,” Mr. Saffer said. “You need a different set of skills to deal with the risks of working in the developing world.”