Nomads in the global market

By bne IntelliNews August 24, 2011

Oliver Belfitt-Nash in UlaanBaatar -

Signs of how Mongolia is in its capitalist infancy are everywhere in UlaanBaatar, but a flood of investment in the country's natural resources over the next few years promises to pit engrained cultural attitudes against the demands of modern business. Can Mongolians' "nomadic mentality" adapt quickly enough to this new environment?

In Mongolia, cleanliness of shoes is the best indicator of a person's status and personality. Given dirty shoes means dirty businessman, you'd expect the shoe-shining business on the mucky streets of Ulaanbaatar to be thriving, but you'd be wrong: the lonely shoe-shiner on the corner of the central Sukhbaatar Square scoffs at the dusty shoes walking past him in an attempt to get business, but only rarely does it result in a customer.

This correspondent agreed a price of MNT2,00 for a shine, thinking that £1 was expensive but a fair enough price for status to be restored, and after a few minutes my left shoe was as good as new. "Next foot, MNT10,000," the shoe-shiner said.

Not a very sophisticated trick, but notable for its rarity. Scams and haggling are commonplace on the streets of developing markets around the world, yet Ulaanbaatar remains largely devoid of such practices 20 years since Soviet rule and far fewer under the glare of global investors. Rather than engaging in the haggling game, vendors will look confused and say, "no, you must have misheard, it's..." and restate the original price.

Herd mentality

Some attribute Mongolians' innocence of the rough-and-tumble ways of the marketplace to deeper cultural reasons. With a traditionally nomadic population and small communities of herders, there was no need to undercut your competitors when you were the only source in town. Your word was your bond and each individual customer was a friend. "Doing business in Mongolia is always interesting," says Harris Kupperman, CEO of Mongolian Growth Group, a Canadian-listed company active in Mongolia since the beginning of this year. "You never really know what will happen when it comes to closing a property transaction. Every deal has its nuance. You would be surprised at how often a little old lady wants to be paid in cash, and walks out of the bank with hundreds of millions of tugriks in a shopping bag. In America, you couldn't even get that much money out of a bank - nor would you want to walk home with it in a shopping bag."

This "nomadic mentality" tends to limit plans beyond the immediate needs of friends and family, the herd and the environment. However, the country is now widely discussing subways for 2016 and nuclear plans for 2017, washing plants and thermal power plants are announced on a regular basis, and there's an industrial city in the works. Mongolia's ambition is growing, and it's business methods are having to rapidly adapt to this huge international interest.

Howard Lambert, head of investment banking for ING in Mongolia, has been proposing deals to Mongolian companies since 2010. "Doing business in Mongolia has been like pulling on a cotton thread from a sleeve. To begin with, it was just thread, but now we're getting the full sleeve and shirt. People are coming back to us asking about financing, and things are taking off," he says.

However, the shortage of experienced managers promises to be a bottleneck. "The quality of top management is amazing," Lambert states, "but at some point there will be a [human resources] crisis."

People might be "hungry for education," as Lambert says, but the education sector has a long way to go if Mongolia wants to fulfil its HR needs domestically. Although statistics boast a 98% literacy rate in Mongolia, the educational needs of the 2.8m Mongolians lie in technical training to support the mining boom. The information that drives students to study is still outdated, and statistics are not readily available to those wishing to alter the system.

However, with the added international scrutiny comes a general awareness of what foreign investors are looking for and a push for data-gathering. "At the moment, data comes from personalised views, there is so much contradiction," says Lambert. "Every tugrik spent on improving the data stream will be for the core development of Mongolia."

The Mongolian press, too, needs to raise its standards. The press is rife with inaccuracies, with an unsubstantiated rumour from one source quickly amplified by others, until the next day when a reported "denial" will circulate. This is especially important given the susceptibility of Mongolians to negative reports about foreign investors "stealing" the country's natural wealth.

However, with improved transparency, tighter data collection and more reliable information sources, confidence in the market among ordinary Mongolians should grow and good practices will become the norm. Coupled with a culture of innate honesty and the ambition to develop into an Asian powerhouse, there is a bright future ahead for these descendents of nomads.

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