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Doing Business in Mongolia: What They May Not Tell You

Some Realities of Doing Business in Mongolia

When attempting to talk up a place for investment, tourism or attracting people for some other reason the difficulties of a country is often downplayed or completely ignored, and Mongolia is no exception. At many of the numerous investor’s conferences that pop up here in Ulaanbaatar or in Hong Kong, London, or New York I think many panelists simply pay lip service to the fact that some aspects of doing business here are just plain difficult while ignoring the reality of the situation.

While I believe Mongolia has much to offer an investor or business person, in the interest of full disclosure I would like to present some of the difficulties of doing business in Mongolia. I was originally going to make this two parts, with part one will focusing on the way things actually operate in Mongolia and why this might make things difficult and part two focusing on why running a business may seem difficult to expats because things don’t work like they think they should. But it kept growing so now this is going to be part one of an unknown number in a series .

Attack of the Bureaucrats

One of the biggest difficulties in operating a business is dealing with the bureaucracy in Mongolia. Don’t get me wrong, I’m not talking Soviet-era bureaucracy, but Mongolia is a product of the Soviet system and there are many tell-tale signs of that when registering a company, applying for special licenses, or dealing with government agencies in general. Routine practices, such as submitting monthly income tax forms or social insurance sheets must all be handled in person at the relevant office. While much data can now be submitted online, agencies still require the accountant to personally deliver forms to an agency inspector in order to answer any questions.

One must also deal with ever-changing procedures on immigration issues, company registration, or tax issues, just to name a few. On more than one occasion I have had colleagues return from various agencies with stories of different regulations in effect or of the requirement of new, previously unneeded documents. Often these new requirements aren’t based on law or existing regulations but are usually the head of the agency willy-nilly deciding that a change needs to be made. Often the new requirements aren’t particularly difficult to follow, but are more of a nuisance, especially when you think you have everything you need and the curveball of a new document is thrown your way. The Immigration Office is often the worst offender, with the employees at times seeming as if they make up procedure as they go along. It is definitely still possible to get things done, you just have to be prepared for it taking just a bit longer than expected.

Legal System Woes

As with many developing countries, the Mongolian Legal system is not quite up to the standards that most foreigners expect from their home countries. While legally foreigners, foreign invested companies and Mongolians have equal protection under the law, a foreign-invested company should be prepared for the Mongolian courts may very well be biased towards a Mongolian company in a court case, however unfair that may be. “Foreign companies must learn to follow the laws of Mongolia” is a common refrain, while in my experience it is often the foreign-invested companies which often go above and beyond in order to comply with Mongolian law. I am not implying Mongolian companies do not follow the law, but many foreign-invested companies here are public and therefore must operate transparently and according to law.

Mongolia, and Ulaanbaatar by extension, is very small, and so many attorneys practicing also know many of the sitting judges as the judges are often professors at universities and law schools. Similarly parties are often related since in Mongolia is it probably more along the lines of three degrees of separation, not six degrees, as a friend once said to me. This can translate into having just the right attorney arguing your case make the difference between winning and losing.

Finally, regarding employment cases, if an employee who feels he was unfairly sues the company to get his job back he will most likely win the case. The Mongolian Labor Law is heavily pro-employee, which at times can make it virtually impossible to terminate an employee, even one who is completely useless. I work closely with a law firm and I have seen time and again employees be reinstated to their jobs simply because they are the employee, and several times when the reinstatement seemed to fly completely in the face of the Labor Law.

Cultural Misunderstandings

As anyone who has worked outside of their home country knows, cultural differences or cultural unawareness can make a business deal blow up in your face, and the same is true in Mongolia. There is no way I can list all of the to do’s in a paragraph, but I can point out a few things I have seen that have surprised foreigners.

In negotiations between a Mongolian company and a foreign company looking to possibly invest I have seen the Mongolian owner being extremely anxious, effectively pulling a Jerry Maguire yelling “Show me the money!” during the very first meeting. This, of course, can be a bit off-putting to foreigners as many of us have the idea that negotiations are usually done over the course of several meetings and may take weeks or months in order to finalize a deal. Of course Mongolians realize quickly that negotiations are going to take more than one meeting and settle in to  a pace we are used to.

On the other hand I have seen Mongolians put off time after time what was virtually a done deal. In one particular case the Mongolian party kept saying he was coming in to “sign the contracts.” In preparation for the signing multiple copies of contracts in both English and Mongolian were printed, equaling hundreds of pages of paper. Once he arrived he had actually come just to read the contract, and of course this brought up additional questions or issues, and the signing did not happen. After this repeating itself two or three times the foreign company finally realized that the Mongolian party was not in fact coming in to sign and they stopped printing in advance, and so preparation for actually signing the documents were not made until they were absolutely positive the contract was ready to be signed.

Mongolian Business Partners

Having a Mongolian associate to partner with or manage your company can of course be extremely helpful to help you navigate the sometimes rocky terrain of doing business in a foreign country. Mongolian partners can be especially helpful in dealing with the tax authority, licensing agencies or other government offices. They are also handy to have on board as they know the business environment and culture in Mongolia and can prove invaluable when acting as liaison with other Mongolian businesses.

On the other hand a Mongolian manager most likely will not have the same ideas about doing business as many foreigners do. Many Mongolians of a certain age have an educational background that is more Soviet in nature and so may be slightly at odds with how many foreigners think about doing business. Foreign companies also seem especially susceptible to the “need it yesterday” culture, especially in this age of Blackberries and being connected 24/7. In Mongolia there may not quite be that sense of urgency to get things done or that sense of connectedness,  with Blackberries being virtually unknown until the service was introduced just a few months ago. Of course all of this is slowly changing as more and more young Mongolians travel abroad and are educated at foreign schools and universities. And with the increased exposure to “Western” thinking through the internet, TV, and expats in Mongolia the changes are happening very fast indeed.

In my next blog I will continue with some of the realities of doing business in Mongolia.  Again I want to stress that my intention of these blogs is not to be negative about Mongolia, but I feel that often the whole truth may not be told when others are trying to lure investors to give up their money. I simply hope that these blogs will serve to give a fuller picture of what doing business is like in Mongolia, to balance the good with the realities.

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