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Doing Business in Mongolia: What to Expect

August 4, 2009

Foreign Expectations of Doing Business

Often foreign businessmen come into Mongolia with the expectations that doing business in Mongolia is going to the similar to working in the US, Europe, or Australia, or at the very least like China or Russia.  While there are definitely similarities between Mongolia and the rest of the world, doing business here is usually very different from what many foreigners expect.

Companies often expect Mongolia to be similar to China or Russia because of the proximity to these countries.  There are definite similarities, especially bureaucratically, to the old Soviet system, and there are hints of Chinese business practices, in no small part due to the amount of Chinese investment in Mongolia.  Despite this, Mongolians maintain their own brand of doing business that is a blend of past influences mixed with future ambitions.

Many people lose sight of the fact that Mongolians have only really been doing business in a fully capitalist system for 20 years.  The West has been practicing capitalism for centuries, making it very easy for those of us who have grown up in capitalist societies to forget about the newcomers.  Capitalism is ingrained in most of us who grew up in the West and therefore we perhaps have fewer problems with capitalist business models than those who grew up in different systems.

New Kids on the Capitalist Block

As we know, Mongolia was closely aligned with the Soviet Union from the early 1920s until its collapse in 1989, when Mongolia suffered one of the worst peace time economic collapses of the 20th century.  Because many Mongolians who went overseas for university or training during this time went to Russia, East Germany or other Easter bloc countries, they were, of course, trained in the Soviet economic system.  After the Soviet Union fell apart Mongolian businesses and businessmen had to change their style of doing business in short order, or not live to fight another day.

This is slowly but surely changing as time goes by.  An increasing number of Mongolians go abroad to study each year.  As these students return to Mongolia, bringing with them different ideas of how businesses should be run, the Mongolian business environment naturally changes into something that is perhaps a little more recognizable to Western companies.  As these students grow older and become the power-brokers in Mongolia the differences between business in Mongolia and the West will lessen.  Ideas also flow fast and free across boundaries in a way not seen before, giving the average Mongolian access to new ideas and innovations, allowing them to better compete in the Mongolian and international markets.

Proud Businessmen

Foreign companies must also bear in mind that Mongolian businessmen are very proud of their companies.  Being landlocked between two competing giants it is easy to understand why.  Much like homegrown companies in the US, Mongolian companies are proud of being locally owned and operated.  Like companies anywhere in the world, Mongolian companies do not want to give up too much power or control to others.  That said, Mongolians realize working with foreign companies on an international scale is often a necessity in order to survive.  While possessing a small domestic market, no direct access to ports and a small work-force from which to pull makes it an imperative they work closely with foreign companies in order to reach bigger markets with their goods, import technology and build the capacity of the Mongolian workforce.

Foreign Investment in Mongolia

Foreign companies invest in many sectors of the Mongolian economy, from mining and exploration to education and services.  Companies with at least 25% of its shares held by foreign investors are considered foreign-invested companies and companies can be 100% foreign-owned.  As stated in the Mongolian Foreign Investment Law, foreign investors and business owners enjoy the same legal protection as their Mongolian counterparts.

Foreign companies have invested in wide-ranging sectors of the Mongolian economy, from the service industry to mining, infrastructure and construction.  Foreign companies can invest in virtually any sector of the economy with few restrictions.  Of course, just as they enjoy equal protection under the law so must foreign-invested companies comply with Mongolian law.

It’s an exciting time in the Mongolian business world.  The country is attracting attention from international companies due to the minerals and mining sector as well high-end retailers to cater to a growing middle class.  Now is certainly the time to consider investing in this up-and-coming economy.

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