Recent Comments

Expats in Mongolia: You’re Not in Kansas Anymore

Following up on my previous two-part blog on difficulties and challenges of doing business in Mongolia, this blog will focus on why some expats may experience difficulties because of the way they think things should be done in Mongolia but aren’t.

That’s Not How We Do It

A major difficulty I see foreigners dealing with here, especially as managers of companies, is their wanting to run their companies according the legal system they are familiar with.  While we are all guilty of saying “Well, in the US we do this” or “In the UK we do that” unfortunately this just does not translate well to doing business in Mongolia.  The legal system in Mongolia is undeniably a product of the Soviet system, and while Mongolian lawmakers have pretty much rewritten most laws since the transition nearly 20 years ago, the major influence on many of the politicians remains the Soviet Union.  So while it is easy to fall into the mindset of “that’s not how we do it in…” you will only end up driving yourself mad thinking that way.

Laws in Mongolia can be extremely different from what we are used to.  For example, the Labor Law in Mongolia is extremely employee friendly.  The employer cannot really dictate anything to the employee as everything must be mutually agreed upon.  There is also no at-will termination, and based on Supreme Court interpretations of the law it actually leans towards lifetime employment.  That can be difficult for many foreign HR people to get their heads around.

Many expat workers also expect the Mongolian legal system to be comparable to either China or Russia’s legal system as well.  I am no expert in either one of those systems but I do know that Mongolia has a unique legal culture unto itself.  While the Mongolian legal system would share some characteristics from these countries, one no definitely not come expecting to understand the Mongolian legal system based on either one of these countries.

You Mean We Need it in Mongolian?

Many expat workers, unless they have experience working in foreign countries, also tend to forget about the translation issue.  While the Civil Code does allow for freedom of contract meaning contracts and agreements can be executed in any language, whenever your company is dealing with a Mongolian government agency, which will be fairly often, they require everything be translated into Mongolian.  For foreign-invested companies agencies usually want to see the original in English and a Mongolian translation.

It is also easy to forget that every Mongolian does not speak English equally well as the employees most foreigners work with.  Whenever meeting with Mongolian clients or doing business with other Mongolian companies, pretty much everything will need to be translated into Mongolian if originally produced in English or another foreign language.  The same rule applies equally to Mongolian documents.  It can easily slip the mind of an expat that the working language is not your native language and documents will probably need to be translated from Mongolian.  My bit of advice on this is to allow plenty of time to translate documents before meetings to make sure they get done in good time.

The Personal Touch

In our world of 24/7 connections via our computers, iPhones or Blackberries it often seems to slip our minds that we can actually meet face to face.  Well, in Mongolia they still believe in the art of the in-person meeting.  That takes a lot of getting used to for most foreigners who feel that their time may be better utilized by sending an email or making a quick phone call.

This is especially true when dealing with Mongolian government agencies.  Virtually everything, from submitting monthly tax reports to simply requesting the steps and documents necessary to apply for a license will require a trip to that office.  This drives more than a few expats mad as it seems like an enormous waste of time, as indeed it is.  But try calling Immigration for the procedure to apply for a tourist visa and see where it gets you.  There’s nothing like some good ol’ face-time in Mongolia to accomplish your mission.

We Don’t Need No Stinkin’ Employment Agreements

Well, yes you do.  As I stated above the Mongolian Labor Law is very pro-employee.  As such it is illegal to have someone work for you without an employment agreement/contract in place.  Although many companies in Mongolia are guilty of doing this and usually do not think twice about it, it can come back to haunt them if the employee were to ever bring legal proceedings against the company.  Dollars to donuts the employee will be returning to work if s/he were to sue the company for wrongful termination and there was no employment agreement in place.

It is very easy not to execute employment agreements when hiring a new employee.  Even companies with a dedicated Human Resources department can fail to properly comply with the Labor Law in this respect.  Most employees are most likely not that familiar with the Labor Law and do not know the company is legally bound to sign an employment agreement with them.  On the other hand, the company may think they are getting away with something by not having an employment agreement.  This definitely is not an idea that will work and will only be trouble in the future.

To deal with this issue it is highly advisable to simply have an employment agreement template that your company signs with every employee upon hiring.  A foreign contract/employment agreement could be used as a base but it will definitely need to be vetted by a law firm or an HR consulting firm in order to ensure it complies with Mongolian law.

The Mongolian Labor Law also makes a distinction between a contract, which can only be used for high-level employees, and employment agreements, which would be used for the majority of your employees.  These two documents have different regulations and procedures in the Labor Law.  There is also a Government Resolution that defines which positions can actually be contracted.  Yet another issue to contend with.

Foreigners Need Not Apply

Another issue many foreign-invested companies are often surprised by is the foreign-worker quota in Mongolia.  The quota is regulated by an annual Parliamentary Resolution that defines, by business sector, the number of foreign employees a company can have.  It can be as high as 90% of the workforce for petroleum exploration, but generally varies from 10%-20%.  The default quota, for a sector that is not listed in the resolution, is 5%.

This quota is based on the number of people the company has listed as paying social insurance for.  Every time a company applies for a work permit for a foreign employee it must get a Social Insurance reference letter that shows for how many employees social insurance is paid and how many expat employees the company has.  If the company has reached its quota then the Social Insurance office will not approve a work permit being issued.

Visit Early and Often – Getting Legal, HR and Other Advice

In more cases than I care to remember I have seen companies come to ICMC after a situation has already gone pear-shaped.  While most of the time there are no issues when a company relies on its own staff to handle matters, for some issues, especially those legal in nature, or those dealing with specialized areas such as labor matters, HR matters, immigration problems or company registration issues it can be better to consult with another party who may have more experience in the area concerned.

I probably see this most often relating to tax issues or labor matters.  A company may try to use its own employees to handle problems as they arise, which is perfectly understandable, but many times these issues are too complex for the average employee to be able to handle well.  Usually it comes down to having a law firm or another consulting firm help solve the problem.  All too often I have seen companies realize they will need outside help when it is almost too late to achieve good results.

The best advice I can give if your company is new to Mongolia, or even if it is not, is to find a good law firm to consult with when those pesky legal issues pop up.  It is also a good idea to find a firm this is able to assist with immigration issues, tax problems or company certificate renewal and other compliance issues.

We’re Going To Need That in Writing

My final topic is on corporate registration and any changes to a company’s State Registration Office (SRO) certificate or its Foreign Investment and Foreign Trade Agency (FIFTA) certificate.  Mongolian agencies require a Shareholder’s Resolution in order to register any changes on either certificate, including registering a new Executive Director, increasing the capital, changing shareholders (in which case you will need resolutions from the old and new shareholders), and adding a new business activity of the company.  Regardless of whether the shareholder of the Mongolian company is located here or not, the authorities will require an original signed resolution from the parent company.

In a similar vein official request letters are needed for virtually everything your company will want to do in Mongolia.  To open a new bank account, a request letter is needed.  To have a telephone line installed, a request letter is needed.  Even to get a detailed phone bill listing numbers dialed, you guessed it, a request letter is needed.  It can get out of control at times but at least you can’t accuse Mongolia of not continuing its socialist background of needing paperwork for everything.

This is a small list of what I see expats struggle with when working in Mongolia.  Some issues, like the legal system, are usually just a person falling back to what they are familiar and comfortable with.  Others, like translation or request letters, usually takes a little getting used to and then it ceases to be much of an issue.  Working in any foreign jurisdiction has both its challenges and its rewards and Mongolia is no different.

Leave a Reply