Current Affairs

Sarandavaa: “Many businesses in the country are not being innovative”

Myanganbuu SARANDAVAA, Deputy CEO of the Mongolian National Chamber of Commerce and Industry is the guest of this edition of our TMO Forum, hosted by Dr. N. Batnasan. This edition of TMO Forum focuses on the activities, the vision and mission of the National Chamber of Commerce and Industry of Mongolia, the challenges facing businesses in the country, and public-private partnership in advancing business development.

Photo, right to left: Mr. Myanganbuu SARANDAVAA, Deputy Chairman of the Mongolian National Chamber of Commerce and Industry and Prof. N. Batnasan of the Business School, National University of Mongolia hosting the fifth in the series of The Mongolian Observer Forum. Photo©TMO

Batnasan: Can you, please, first tell us briefly about the Chamber?
Sarandavaa: Our Chamber, which was set up 57 years ago, has become an exemplary international institution. During this period, the Chamber has been carrying out its activities in many different areas, in particular, in commerce, industry and especially after the country’s transition to free market, we assumed the official status of Mongolia’s national chamber of commerce and industry when the Law on Chamber was adopted in the 1990s.
Trade chambers around the world basically conduct two kinds of activities. One, key priority is given to addressing issues that create obstacles and problems to business and free market, issue that increase costs and waste time. On the other hand, chambers provide all-round support and assistance to all businesses – start-ups to transnational corporations.
Our Chamber is not an exception. In the last two years within the Chamber we have taken a set of measures designed at streamlining inner-Chamber development and management by way of building up capacity, improving the quality of some 64 different services that we offer to our members and customers.
Today we have more than 3,400 members starting from individuals to biggest Mongolian companies. They produce 72.3 percent of the country’s GDP and provide stable jobs to more than 200 thousand people. 65 thousand of the 130 thousand business entities registered with the business registry fund are operational. The Chamber wants to be the connector and pointer, in addition to be an influencer. We are working under these three and plus two aforementioned objectives.
The Chamber is present in all the 21 aimags of the country and we have two overseas representative offices.

Batnasan: Economic growth in 2016 was only one percent. This is directly linked with the profit and earnings of companies. What do you think of the present business environment, especially how is business environment impacting member companies of the Chamber?
Sarandavaa: The Chamber carries out research related to business and business environment once every half a year, annually and every two years. We have a study called Business Confidence Index which considers the business and investment environment. It carries a questionnaire that asks if a business plans to increase its investment to expand the business etc. A 10-year trend from this study shows business and investment environments have declined by almost 63 percent, and in some cases, had dropped to as low as 27 percent. In other words, business environment is extremely poor, there are too many obstacles and hurdles, there is red-tape, and pressure and coercion are still rampant. On the other hand, we do not see any sign that the businesses intend to expand and grow, as many are content with what they have achieved so far, and some may even be thinking of shrinking their business. For instance, a company with 500 workers had become smaller by 50 percent. Therefore, we may ask if the 1 percent growth and now the 5.3 percent growth of economy is a real figure or a data-based information only.
The business environment today has not improved as much. One can say that reform-kind of activities are not taking place in the business environment. Proceeding from this premise, the Chamber is proposing a number of policy-reform ideas.

Batnasan: Competitive edge of our business is an important issue. Extractive industry and agriculture raw materials account for 95 percent of the country’s export, the remaining 5 percent comes from different products and the total export is in the region of 2 to 300 million US dollars. We have export-related problems, such as the high transportation cost and on top of this our market is so small that an investment may not yield any substantial return. Under such circumstances, what must be done in Mongolia’s business to improve its competitive edge?
Sarandavaa: I think this matter must be considered at two levels. At the policy level. This relates to say transport, about which you just mentioned, which is an inter-governmental issue. In other words, the government must talk with other governments to remove obstacles on the way of business. This happens in say Korea and Japan. Today we are talking with Eurasian countries. The tariff In Russia is 36-48 percent, which is unmanageable by our companies. Therefore, such matters must be taken up at the government level as a first step.
In the last 8 years roughly MNT760 billion were invested in the small and medium enterprises (SME), but because of the absence of perhaps policy or research, the outcome, although it is there, is insignificant.
Today our businesses are lacking information as to what is on demand on the foreign markets, whether the goods they are manufacturing would be bought and for how much, in what kind of package, size etc. and our sight is only on the domestic market. A research carried out in all the aimags in 2015 showed that the country needs to develop 325 thousand SMEs in 17 different sectors, but we have SMEs working in only 6 export-related business. WE must, therefore, talk about competition not by looking at our small market but to other bigger markets. Worse still, we do not have information. We must have managers with foreign language skills who can read those information, understand that market, and in the least, be able to understand the executives of foreign companies with which we are competing. And we must know their rule of game, which is negotiation.
Mongolia is a member of the World Trade Organization. We have signed 44 international agreements on tax exemption, promotion of trade etc., but where is the outcome? Many Mongolian companies are ignorant of these agreements, many don’t know how to take advantage of them.
The Chamber has a foreign trade academy through which we are trying to give and share information, but this effort must be intensified and strengthened.
Big Mongolian companies, I will not name them, take part in international fairs and exhibitions. But the sales or the marketing managers sitting in the exhibition stall, say in the United States, cannot speak in English. Recently I took part in a fair in Manchuria. I must talk about it. Our stall, for example, had nothing other than hand written price tags. The managers who had come to the fair must surely have spent days and nights in preparation for the exhibition and at the end of all this the only message is ‘price’.
In view of this, the Chamber believes it has a challenging task ahead.
I can say that our companies must pay heed to quality as well as other constructive ideas.

Batnasan: 2016 statistics is out. Looking at statistical data related to manufactured goods, I have found that the variety of goods is extremely small in the country’s industrial sector, especially in the processing sector. In other words, we are continuing to manufacture goods and products that we used to produce when we were a socialist country. I agree with you that companies of small markets must study big markets and if they fail to adapt contemporary business innovation and technology then the question of competition would become an insurmountable obstacle. Where are our companies in this respect? Where are we in terms of business innovation, entrepreneurship, study and research? What needs to be done to improve them? Is the Government providing incentive, if any?
Sarandavaa: This is a very important question. At the 2016 Davos World Economic Forum, US Vice President announced that the Fourth Industrial Revolution has begun. I regard this statement as a question as to how to take advantage of the impact of technology on business and human development.
Therefore, whether we like it or not, technology is making strong inroad. This means without technology we will not be able to predict business for a long term.
Today our Chamber has an award called TOP150. We use 5 basic indicators to assess a company. We have found that only a handful of companies in the country have their own research department or unit.  Others don’t. 5-10 years ago, there were only a few companies in the country that had marketing department. Today, we do not have the system that promotes innovation, entrepreneurship, start up, boom. We require many other regulatory mechanisms. Secondly, I feel that the understanding of our companies is somewhat traditional, that is, they are satisfied with what has been accomplished so far and kind of have a wait-and-see policy if there is any need to progress any further. When I look at this matter from this angle I feel that relatively young small start-up companies are more innovative especially in the IT, services and hotel businesses. In the other so-called industry sector, machinery and technology are being changed but there is no ‘boom’ there. I suppose this issue must be seriously considered at all relevant levels.
However, I am not trying to say that all of some of the old and well-established companies are not being innovative and looking for something new. Take for example the Ulaanbaatar brewery company APU and the pharmaceuticals company Monos. They are leading the pack with their innovative approaches to production and marketing.
I’d like to specifically note that from among the start-up companies, IT companies are going in the vanguard. For example, one Mongolian IT company has developed a smart system and these young Mongolian entrepreneurs are overhauling the hotel system in Kazakhstan. They are being offered opportunity to set up their plant in Kazakhstan and as a down-payment this company has received $6.2 million. Take for example another new Mongolian company Lh’amour, which was placed first last year in the Asian-Pacific Region Start-up business. Young Mongolians are going for innovation-based business while the businesses of the previous generations are staying put.

Batnasan: There is a Russian children’s fairy tale about a giant turnip. The moral of this story is that of collaboration, and that if we all work together, we can do anything. Similarly, in business too I feel we need to see public, private and research institution collaboration, which is wanting. What must be done to promote, let’s say, collaboration of the private sector and the research institutions so that they go in the same direction, in other words, how do we ensure that research institutions come up with decisions and solutions that meet the interests of businesses and the academic institutions realize the value of such a collaboration?
Sarandavaa: Let me share with you examples of global practice rather than my own thoughts. We all know in what situation our businesses have been working in the last couple of years. Majority of businesses have had challenges and obstacles and the belief that businesses and business environment can be improved only if business enter into politics. This has been the prevailing notion and our Parliament is a case in point. Despite this, the business environment and style have not changed. Although the CEOs and top managers of our companies are receiving education overseas, things are not picking up in business as they should which makes it incumbent on the research and academic institutions to step up their activity so they have more contribution to business development.
Looking at the practice of many industrialized countries, they seem to have an in- and exit- mechanism called public-private dialogue. This is a platform not for just talking. I think in the past up until today we have done a lot of talking on literally all possible topics, we know them all and even criticize them, but they had not led to anything new. Therefore, on the contrary, what we need urgently is to create an in- and exit- consensus, provide access to more information, based on which create mutual trust and then promote collaboration. In other words, the government, private business and the academic, all must come together for collaboration, and set up a mechanism that measures and assesses the outcome. But nothing will come out of the old mechanism where we have a grand meeting, where an issue is taken up, people talk about it, make suggestions and proposals, but without any feedback.
In order to promote the principle of dialogue our Chamber is working in collaboration with the and involving the Secretariat of the State Ikh Khural, the Cabinet Secretary, and also some of the leading academic institutions of the country, such as the National University, the Finance and Economic University in creating such a platform for consensus and we are confident in a positive outcome.
On the other hand, there is a lot of criticism against our education system and academic institutions. They must be made more healthier and we must stop looking at them through the prism of politics. Research institutions and the private sector need to come together, talk together to set up a mechanism that focuses on innovation, which links innovation to industry and business, which increases value addition and without such a mechanism and collaboration, we may not be able to make much progress, and the more so, but talking and talking.
Excuse me, I am a young man, I don’t want to waste my entire life just blabbering. That is why we need an effective mechanism, platform of collaboration, we need reform. And we can do this.

Batnasan: I personally feel that there could be different mechanisms to lend an ear to the business. For example, it is my perception that the economic forum is a platform where the government listens to the business. Take for example, the economic forum organized by the National University on entrepreneurship, which is a kind of platform where we want to listen to the business. In the United States, they have the business council, a major platform that brings together major research institutions and big businesses.  Our Government has an Economic Council but we know that in terms of mechanism, economic council is somewhat different from a business council, so I feel that the American model of business council could be introduced effectively in our country too. What plans, if any, does the Chamber have in this regard?
Sarandavaa: There is one point which I did not clarify earlier on in our dialogue today and that is our Chamber is presently working on more than a dozen policy documents, that is on laws and legislation, rules and procedures, and regulatory instruments. Businesses make proposals and suggestions and although such a mechanism is new and innovative, the work approach especially from the government side tends to be old and traditional. There are instances when we are given a draft document with a request to give our suggestions and inputs within 2 hours after we receive the documents.
The Chamber believes that the government and private business collaboration must be considered quite seriously and substantially. And this can be possible if the academic institutions are involved. Let me cite an example from Germany where the business council tells, advices and proposes to the Government. In Germany, the business council there meets face-to-face with the Cabinet once every year. To illustrate, the Council would meet the new construction minister to discuss the state of the construction industry when the minister has taken office, the price of the construction material, the state of investment etc. and at the end of the year there would be another meeting with the Minister to assess the progress and the failures in the sector. After this the question arises whether the performance of the minister is satisfactory or not, and if not, should the minister be replaced etc. Such progressive mechanisms are plenty in many countries.
In our country, for example, we have an investment protection council under the Cabinet Secretariat but the roles and responsibilities of the council are not clear, the council does not have authority and whatever the council members say are never materialized. Therefore, we feel that in a small business environment like ours, issues and problems can be easily addressed only provided such a mechanism has the authority to take decisions, when it is acknowledged and it provides leadership.
Leadership initiatives are coming from the private sector. Not long ago, the Golomt Bank developed a national strategy on lowering interest on loan. This is an initiative coming from the private sector. But the question arises and that is, does the Government have a policy in this regard, what is its official stance on the matter and how is the Government going to support such initiatives coming from the private sector. If appropriate support is given to the private sector then the Government would also benefit and its operations can be streamlined.
I therefore believe that the Government should be able to collaborate with the private sector, and together work to improve the economy and support positive initiatives in this regard.

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