Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Social Entrepreneurship Ecosystem Report in Mongolia

859 views

Published on

SOCIAL ENTREPRENEURSHIP, INNOVATION,
AND OPPORTUNITY
A Case study of the New Mongolian Entrepreneurship Landscape

Report by
Molly McKeon
Research Fellow
Center for Social Impact Learning
M.A. in International Environmental Policy
Middlebury Institute of International Studies

  • Thanks for sharing this great report! I'm currently trying to find information abbout social enterprises working in Mongolia and you report helped out a lot. It's also very interesting reading that light up many of the current problems in Mongolia.
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here

Social Entrepreneurship Ecosystem Report in Mongolia

  1. 1. 1 SOCIAL ENTREPRENEURSHIP, INNOVATION, AND OPPORTUNITY A Case study of the New Mongolian Entrepreneurship Landscape By Molly McKeon November, 2016
  2. 2. 2 This study would not have been possible without the incredible institutional support provided by the Executive Excellence International Business Center in Ulaanbaatar under Orgodol Sanjaasuren and with the guidance of Dr. Saha Meyanathan. Special thanks to Dulguun Bayartsaikhan for unfaltering friendship, impromptu interpretation, and her incredible generousity in helping me manage the basics. I would also like to acknowledge the support of Enkhmaa Baatar and Oyundari Ganbaatar in providng interpretation and logistical support as well as Enkhjargal Tsendjav for the inspired flashes of insight. Thank you to the team at the Middlebury Institute for International Studies’ Center for Social Impact Learning including Mike Ipson, Gerald Hildebrand, and Dorjnamjin Lhaajav for your feedback, guidance and support throughout this process. A special thank you to Annie Makela for being the soul of this project and to Erina McWilliams-Lopez for her consistent grounding influence. Within the entrepreneurship world, special thanks to four game changing contacts for taking the time to help me uncover the disparate pieces of social entrepreneurship in Mongolia and breathing fresh inspiration into the project. Thank you Enkhbolor Gantulga for acting as the gatekeeper to a dynamic community of entrepreneurs and innovators working with the World Bank Projects. Thanks to Badruun Gardi for helping me tap into an alternative community of young entrepreneurs with very fresh ideas and to Bat-Orshikh Erdenbat for helping me to understand the role of ODA in building this community. Most of all, a special thank you to Delgermurun Khankhuu for her passion and for inviting me to temporarily be a part of her dynamic world at Mongol Makers. Thank you to all those who made time to speak with me, especially the 30 entrepreneurs willing to walk me through their businesses. A special personal thanks to Tushinzaya Orgodol for the crash course in Ulaanbaatar living and her constant positivity. Finally, thank you to my unwaveringly generous cohort of colleagues, advisors, and friends from the Middlebury Institute including marketing and design guru Angelina Skworonski, entrepreneurship specialist Nenneya Shields and business plan advisor Mario Romero. This project would not be half of what it is now without you. ACKNOWLEDGEMENTS
  3. 3. 3 What is Social Entrepreneurship? Traditionally, business is thought of as a way to generate financial profits. The provision of social services is relegated to charities, NGOs and the government. The social entrepreneurship movement, however, seeks to reposition business as a force for transformative social and environmental good. Social entrepreneurs combine the best of the power of business with a commitment to addressing the world’s most pressing social issues. Social enterprises are businesses, or hybrid NGOs with revenue streams, that define success by their ability to create social impact in a financially sustainable way. The precise definition of social entrepreneurship continues to be hotly debated in the field, but the following three criteria are largely accepted, if overly broad: A business or organization that 1) includes social or environmental impact as a primary goal; 2) generates a new sustained equilibrium in a sector where there had previously been market failure; 3) pursues large-scale transformational benefit for society at large or a large underserved population1. 1Martin, Roger & Sally Osberg, “Social Entrepreneurship: The Case for Definition,” Stanford Social Innovation Review, Spring 2017. What is the Purpose of this Study? This study was commisioned by the Center for Social Impact Learning out of the Middlebury Institute of International Studies at Monterey. It is an effort to shed light on the emerging social entrepreneurship scene in Mongolia to better identify opportunities for further research, collaborations, programs, or investment by partner organizations. In addition, it hopes to contribute to the growing field of literature on social entrepreneurship in Post-Soviet and mining dependent economies. Why Mongolia? As an economy recently transitioning out of a socialist command system, Mongolia remains a question mark for many involved in international business. Recent economic volatility has increased investor concerns with many pulling out of the country altogether. As the light at the end of the recession tunnel approaches, it seems now may be the optimal moment to lay the foundations and build awareness for future social enterprises. With the promise of an enormous mining project to ignite a new boom cycle loom, now is the time to explore possibilities to profit and grow more sustainably together. https://ssir.org/articles/entry/social_entrepreneurship _the_case_for_definition ABOUT THIS STUDY
  4. 4. 4 Why Now? The year 2012 marked a high point for Mongolian growth; the country recorded the fastest growing economy in the world and was poised to offer promising future returns. The recession crashed the economy, but some commentators now credit this setback with inspiring a new movement among young entrepreneurs disillusioned and seeking diversification. In the last two years, startup culture is taking on new proportions and energizing the ambitions of this new generation. Businesses sophistication and innovation are on the rise as this new culture emerges. Many of these next-gen entrepreneurs are driven by more than profits and the survival instincts that characterized the Mongolian entrepreneurs of the 1990’s. This shift is beginning to create a new opportunity for impact driven disruption among businesses. Scope of Study? This landscape was assembled over the course of 3 months by a single researcher. The study is a first attempt to shed light on the foundations of startup culture, small and medium enterprise support networks, and the social and environmental issues with the power to catalyze social enterprises. In this sense the study is incomplete, but seeks to build connections and create awareness in the nascent sector, as well as provide insights into opportunities for collaboration and regional comparisons. The report relies on knowledge gained from substantial background research, due diligence, investment conferences, and personal interviews with candidates selected through a snowball strategy. In addition to active participation in the Business Council of Mongolia and attending the 2016 Invest Mongolia Conference, the researcher consulted: 30 18 9 6 Entrepreneurs NGOs Investors 10 4 Foreign Governments, Aid & INGOs Banks, MFIs & Credit Unions Researchers & Media
  5. 5. 5 Limitations The study has 3 primary limitations. 1) Limited knowledge of Mongolian language required the use of impromptu interpreters which may have affected the answers and candidness of respondents. The researcher possessed only basic language proficiency. 2) The entire study was limited to a single researcher over a three month period. 3) The concept of social entrepreneurship is only in a nascent stage in Mongolia. As a result, the featured companies and networks were selected at the discretion of the researcher rather than self-identified as social enterprises. Key Challenges Free Market Competitiveness Mongolia is a post-soviet transition economy isolated from global markets by geography until only recently Perceived Profitability Businesses are increasingly supporting parallel NGOs, however, engraining a social or environmental mission into the business is seen as jeopardizing business success Government Involvement Despite frequent political turnovers, the government is active in regulating business policy, making government relations a difficult area to navigate for foreign interests and export-oriented enterprises Market Size The population of Mongolia is just under 3 million with one of the lowest population densities in the world2, so country-specific products lack scaling potential Opportunities for Collaboration, Intervention and Disruption  Promote incubation and acceleration through technical and professional mentorships  Create awareness of competitive and targeted funding and training opportunities  Demonstrate potential for growth of social enterprises through a successful case  Strengthen business education and entrepreneurship programs in higher education Direct Implications for the Center for Social Impact Learning  Further potential for more targeted academic research  Lack of business skills means opportunities for impactful MBA student placements  Potential to participate in or organize business accelerators with local partners  Ability to contribute through research for local groups such as the Business Council of Mongolia 2 World Bank. http://data.worldbank.org/country/mongolia Accessed on 11/2016
  6. 6. 6 ACKNOWLEDGEMENTS 2 ABOUT THIS STUDY 3-5 TABLE OF CONTENTS 6 DEFINITION OF TERMS 7 CONTEXT 8-10 I. Historical Context II. Macro-Economic Situation III. Global Comparisons ENTREPRENEURS 11-15 THE SOCIAL ENTREPRENEURSHIP ECOSYSTEM 16-27 I. Community II. Spaces III. Finance IV. Information Networks V. Foreign Actors and Involvement FINDINGS 28-29 I. Sectors of Social Entrepreneurship II. Obstacles to Social Entrepreneurship III. Parallel Entrepreneurship IMPLICATIONS 30-31 CONCLUSION 32 ANNEX 1: List of Named Programs 33 I. Links to Case Study Businesses II. Links to Other Programs/Groups/Businesses TABLE OF CONENTS
  7. 7. 7 MONGOLIAN TERMS Aimag – The Mongolian equivalent of provinces, the country is divided into 21 Aimags and Ulaanbaatar municipality. Each Aimag also has an aimag center which generally refers to the largest town or city and the administrative center. Dzud – A particularly harsh winter that results in the death of livestock Ger – The traditional home of Mongolians, often known outside Mongolia as a yurt Ger District – Unplanned urban areas typically on the fringes of cities filled with gers Soum – The Soum designation is below aimag. It refers to established towns anywhere across the country. Soum is the smallest level of local governance. Tugrik (MNT) – Mongolian National Currency ACROYNMS ADB – Asian Development Bank DS – Development Solutions EEIBC – Executive Excellence International Business Center GIZ – German International Development Agency GDP – Gross Domestic Product IDA – International Development Association IFC – International Finance Corporation IRIM – International Research Institute of Mongolia JICA – Japanese International Cooperation Agency KOICA – Korean International Cooperation Agency MACU – Mongolian Artisan Cheesemakers Union MIT – Massachusetts Institute of Technology NBFI – Non-Bank Financial Institution NPL – Non-Performing Loan SDC – Swiss Development Corporation SIT – School for International Training SME – Small and Medium Enterprise UNDP – United Nations Development Program USAID – United States Agency for International Development USDA – United States Department of Agriculture WEM – Women Entrepreneurs of Mongolia DEFINITION OF TERMS
  8. 8. 8 I. HISTORICAL CONTEXT The name Mongolia conjures images of nomads mounted on horseback or camel, living off the land in the minimalistic tradition of their ancestors. While the nomadic way of life persists in the countryside, a modern Mongolia influenced by global trends is emerging. Forces of urbanization, globalization, and the ongoing transition to a free-market democracy are rapidly reshaping the modern, yet soviet style, capital Ulaanbaatar. Although a large country measured in kilometers, Mongolia is landlocked between the powerful and competing Russia and China. Despite a total population of less than 3 million people, Mongolia is culturally and historically distinct from either of these neighbors. Mongolians use their own language, similar to the one used in the 13th century by Genghis Khan. While Mongolian is now most often written in Cyrillic, the traditional script is taught in school and remains popular. After several decades of religious suppression, Buddhism and Shamanism are now experiencing cultural resurgences, particularly among the older generations. After the culturally defining conquests of Genghis Khan, Mongolia returned to a state of independent roving families and tribes, eventually falling under Chinese influence: an unpopular period. With the fall of the dynastic system in China, Mongolia fought for and won independence in 1921. The country quickly aligned itself with its northern neighbors and opted to join the Soviet Union. Mongolia remained a part of the USSR, until its dissolution in the early nineties. A new independent government, buoyed by protest against the socialist state, then ratified the current free-market democratic constitution. As a beacon of democracy in an otherwise autocratic region, Mongolia has become a strategically important partner for the United States. In the past 25 years, Mongolia has experienced a period of rapid change. Rural-to-urban migration, driven by economic opportunism and dramatic climate change, is accelerating. Extreme winters, known as “Dzuds” are increasing in frequency, decimating herds, and forcing desolate rural families to move into the fringe areas of the cities and aimag centers, creating chronically underserved, haphazardly planned, “ger districts”. Ulaanbaatar is now home to almost half the country’s population. On the other side of the spectrum, mining boom gains inflated disposable incomes and triggered new luxury spending. International trade is expanding and Mongolian businesses are competing in a global market. *Panel data extracted from the World Bank database and the 2016 Doing Business Report. CONTEXT
  9. 9. 9 II. MACRO-ECONOMIC SITUATION In 2012, Mongolia was recognized as the fastest growing economy in the world as construction began on phase 1 of the expansive Oyu Tolgoi copper and gold deposit in the South Gobi. Foreign interests flocked to invest in mining and real estate as estimates emerged of over $3 trillion USD of natural resource wealth buried throughout the country. However, an inconsistent regulatory environment and unfavorable attitudes to foreign investors profiting from the common heritage of Mongolia, combined with a drop in the demand for coking coal, Mongolia’s largest export, and an economic slow-down in China, Mongolia’s nearly monopolistic trading partner, sent the overly- optimistic Mongolian economy into another prolonged recession that continues today. The Gross Domestic Product (GDP) is dependent upon mining and although not victim to the resource curse, the economic history of Mongolia reflects the cyclical boom-bust of many primary economies. As of October 2016, Mongolia is in the process of applying for its sixth IMF bailout3. Their last bailout was in 2009. The impending debt requirements of the Genghis Khan bonds, issued in 2012 at the height of the mining boom, are forcing the government to weigh the implications of another bailout against the threat of default or rapprochement with China, both generally unpopular prospects. The dollar based Genghis Khan bonds were spent predominately on national road building projects to connect the major aimags to Ulaanbaatar. Before the project, road conditions were extremely poor with many of the aimag capitals serviced only by unpaved roads. While the projects are considered a success in improving transportation, they failed to generate the size of economic return necessary to repay the loans. Accusations of government corruption fueling frivolous spending and excess abound. For small businesses, these developments have several serious implications. Most alarmingly, the Mongolian currency is in a free-fall, depreciating quickly against the US dollar and by extension the Chinese yuan. Mongolia’s businesses are dependent on inputs, machines, and technology from outside the country and are feeling a tight crunch on domestic sales margins. Medium and large companies are feeling the sting as they struggle to pay off dollar based loans. The falling Tugrik compounds lack of confidence among foreign investors, thus slowing any re-ignition of interest in Mongolian investments. In an effort to protect the currency, the government raised interest rates in August to 15%. As interest rates climb, enterprises feel new financial stresses, making it difficult or impossible to finance expansion. The currency and interest rate pressures also affect the general population, increasing food costs (much is imported) and causing job losses. This year marked a political pivot for parliament. The Mongolian People’s Party replaced the Democratic People’s Party as the majority in the Grand Khural, the Mongolian parliament. This shift presents an opportunity for changes in both policy and attitude. However, it is too early and beyond the scope of this research to comment. Historically, the government has dabbled in several schemes to protect or support made-in-Mongolia products, but as they experiment, some business owners find it difficult to navigate the changing systems. There are calls for changes to the investment, taxation, and export laws to support Mongolian businesses4. In addition, the government is considering offering incentives to designated priority sectors such as technology. There is currently some hope that this new government will work to re-attract foreign investors in order to kickstart another economic growth cycle. Persistent corruption, however, remains a roadblock to progress. 3 After the term of the research an agreement was reached with the IMF, the ADB, and China that is, as of press, subject to parliamentary approval. 4 According to a the “First Annual Summit Proceedings” published by the Business Council of Mongolia available at https://bcmongolia.org/knowledge-base/reports/bcm-summit-proceedings
  10. 10. 10 III. GLOBAL COMPARISONS As a post-communist economy dependent on primary commodities, but without the technical expertise to exploit them, Mongolia offers parallels to several other economies around the world. Chile and Estonia provide examples of economies able to leverage entrepreneurship to successfully drive the diversification process, while other Central Asian nations such as Krygzstan, Kazakhstan, and Tajikistan, may be able to learn and experiment together with Mongolia on programs supporting entrepreneurial driven economic diversification and social entrepreneurship. In Chile, efforts to promote innovation and entrepreneurship were led by the Fundacion Chile, a partnership vehicle uniting investors, universities, and relevant government entities to foster synergy in key export oriented industries. In Estonia, the country leveraged a comparative advantage in technology to develop a high tech services hub. Both of these examples offer important lessons to Mongolia as the country seeks to find its own niche. Lessons on appropriate government involvement, transparent private sector engagement, and education reform may prove to be of particular relevance to Mongolia. In turn, lessons from Mongolia’s entrepreneurial development could have implications on the development of entrepreneurial ecosystems across Central Asia. Although Kazakhstan and Kyrgyzstan, currently have higher GDP per capita than Mongolia, these numbers speak to the relatively more developed trade connections and mining industries, oil and gold respectively, of those countries. Mongolia’s experience in diversification, innovation, and entrepreneurship may present some important parallels for these countries if they seek to pursue diversification and avoid the resource trap. The social pain points and market failures inspiring social entrepreneurs may demonstrate common themes, given the similar demographic, economic, and political contexts. The lesser developed, more remote Central Asian countries such as Tajikistan, may also find commonalities to leverage from the Mongolian playbook. For interested investors and social entrepreneurship supporters engagement in Mongolia could prove to be a launching board into other post-soviet primary resource driven economies. Although the Mongolian culture is highly distinct from both its East Asian and Central Asian neighbors, more influenced by Soviet cultural cues, it could provide an arena to field test approaches or build a regional hub in a relatively more stable environment.
  11. 11. 11 The idea of what it means to be an entrepreneur is changing quickly in Mongolia. After the transition from Soviet satellite state to free market democracy, the country lacked even basic economic infrastructure. The retreating Russians took everything with them. At that time, in the early 90’s, life was difficult in Mongolia. There was little domestic industry and overland trade was practically non-existent. With so little competition, a supply driven economy began to emerge: if you could make it in Mongolia or bring it to Mongolia, you could sell it. For most established business people there is a similar story. They began their careers as traders bringing goods from one place to another, sourcing cheap goods over the border from China and then selling them in Mongolia. As the profits rose, ambitious traders took out short-term bank loans to pay for inventories, and thus established strong credit records. When the state-owned assets went up for sale it was these traders that dominated. With such a small population and limited export capacity, these ambitious traders and business people soon saturated their core markets. Hungry for further profits, many expanded their businesses horizontally creating mini business empires of often seemingly unrelated endeavors. Small and Medium Enterprises (SMEs) – defined by the Mongolian government as any company with less than 200 people – account for 95% of businesses in Mongolia and 25% of GDP5. Within that, a third of those businesses are traders6. However, within the last 2 to 5 years, a new culture of entrepreneurship is emerging. A younger generation of globally educated Mongolians is returning to the country with new ideas about business, technology, and management that are changing the marketplace from the bottom up. As the business landscape evolves and becomes ever more influenced by and intertwined with global markets, the players are also becoming ever more sophisticated. The English word “entrepreneur” was transcribed directly into Mongolian as “ентрепренер”. It is a new term and a new idea for Mongolians. As such, the first step of this research was to explore how that term is evolving in this new context. Before any interventions or opportunities can be identified, programs designed, or finance mobilized, a critical step is to explore the people, ideas, and motivations pushing this new thinking forward. This study conducted 30 interviews with entrepreneurs across sectors of different ages, backgrounds, and genders. The interviews spanned 15 questions. They last from 11 to 92 minutes and yielded a wealth of individual experiences while also unearthing a number of common themes. Below are relevant highlights extracted from those conversations and grouped around what it means to be an entrepreneur, what skills are needed to succeed, what motivates people to pursue this path, and what obstacles entrepreneurs continue to face. 5 According to a joint Performance Report from Oxfam and Symbiotics on the Small Enterprise Impact Investing Fund in Mongolia, available at https://issuu.com/pearlworks1/docs/seiif_spreads_web 6 According to a Private Sector Assessment for the Asian Development Bank completed in 2009 ENTREPRENEURS
  12. 12. 12 What Does Being an Entrepreneur Mean in Mongolia? *Pictures are illustrative only and do not feature interview respondents
  13. 13. 13 QUESTION: Do you consider yourself to be an entrepreneur? How would you define the term entrepreneur to somone who had never heard it before? Even among the group of entrepreneurs selected for this study through a snowballing method of recommendations, a number of respondents reported never having heard the term. The culture behind entrepreneurship only gained traction in Mongolia within the last two to five years. Perhaps as a result, perspectives on the term range from treating it as a fad invented by overly privileged youth to regarding it as a mantle of respect worthy only of the business elite: those achieving impact, creating jobs, and igniting innovation. Somewhere between contempt and aspirational reverence, some respondents painted the nomadic Mongolians as natural-born entrepreneurs: Most respondents, however, insisted that entrepreneurs are defined by their uniqueness: Of the respondents, foreigners were quickest to claim the mantle, while those in the emerging entrepreneurship community tended to prescribe a more weighty definition and claim the term with more trepidation. Business owners outside of tech and finance, particularly those not educated outside of Mongolia, were the least likely to be familiar with the term. Despite some claims that Mongolians have a natural aptitude for entrepreneurial activity, it is also clear that a certain degree of stigma continues to be attached to that term. As one more experienced entrepreneur put it: QUESTION: What skills or qualities are most important for entrepreneurs in Mongolia? Given that the entrepreneurial playing field in Mongolia does not simply replicate the western construct, the skills required in that space also differ. The topic of teamwork and human resources regularly incited culturally unique discussions on how nomadic heritage may influence present leadership styles. According to some, the same nomadic self-sufficiency exalted for promoting minimal waste systems, open-mindedness, and independent thinking, may also taint the ability to trust or collaborate. Mongolians all want to be the boss, was a popular refrain. In an entrepreneurial context, this challenge manifests as a barrier to scaling a team, which can lead to shallow individual capabilities and thin organizational capacities. Despite those comments, a minority of respondents were working successfully in teams and cited their colleagues as a cornerstone of their success. A strong capacity for human resource development, finding and keeping the right people, was regularly cited as a challenge, while conversely successful development of corporate culture was regarded as a marker of success, or aspiration. “It’s not the brightest who make good entrepreneurs, they end up in more established positions. It takes a combination of guts and belief.” “Entrepreneurs are very active people; they are open minded. But to describe it that way, all Mongolians are entrepreneurs.” “Why do I have to explain that word? I don’t even understand it.” “Not imitating others” “Seeing opportunity where others don’t” “Persistently turning ideas into work that has societal benefit”
  14. 14. 14 While the value of some more traditional skills such as persistence, courage, and a dash of business savvy were acknowledged, success in the Mongolian business climate, reportedly requires a couple of additional skills as well: The two comments above speak to common struggles entrepreneurs in Mongolia face just to stay alive. One respondent told a story about a corrupt competitor lobbying government contacts for protectionist import policies to promote sales of their own “made in Mongolia” products. The newly protected product was an input for other Mongolian producers, and the increased cost of using that Mongolian product, as opposed to the cheaper Russia ones favored before the import policy, resulted in pushing several larger Mongolian companies into bankruptcy. It was commonly reported that if one hoped to grow beyond a small business, smart government relations management and a degree of political luck were key. QUESTION: What motivates you to be an entrepreneur? In post-transition Mongolia there was so little economy and connection to the global market, that bringing anything into the country could prove lucrative and impactful. Food importers, ger makers, and bakers filled voids in the market that improved people’s lives. As the business climate continues to evolve, many entrepreneurs are pursuing increasingly grandiose targets for personal wealth. The idea of getting rich first, and giving back later is gaining traction. In the context of the current recession, many are questioning where the place for social goals lies in this new economy. The majority of respondents cited some sense of duty to serve or improve Mongolian society. For some, their impact was building a successful business. For others, it meant building parallel Corporate Social Responsibility (CSR) projects or starting NGOs. For a few it meant building a business that provided a needed service or product to their community. Despite reporting values similar to those of the global social entrepreneurship movement, many of the entrepreneurs in that latter category had never heard of social entrepreurship: the values were directly embedded in entrepreneurship in their minds. “Corruption is essential if you want to grow” “It’s all about patience in an uneven and chaotic market” “I have access to the world to change people’s minds and that motivates me.” “I am just motivated to serve and to fill a gap, to do what others are not yet doing.” “Just creating a business is not enough, what is enough? To make a revolutionary product.” “Being able to empower others is really important to me.” “The most important thing is we are contributing to society”
  15. 15. 15 QUESTION: What are the greatest obstacles for entrepreneurs? The largest complaint among respondents was about access to finance and funding opportunties. According to respondents: interest rates are too high; banks demand too much collateral; equity investors are non- existent, too inexperienced or only interested in takeovers; and angel investors are needed. Over 20 of the 30 respondents reported getting their seed funding from family and friends. A number of entrepreneurs pursuing more proven businesses such as textiles and small scale manufacturing were able to access second round funding through targeted SME promotion funds from the government and other international donors. A select few even reported then being able to borrow from banks based off the credit rating they had secured through the SME promotion loans. On the other side of the spectrum, a small number of entrepreneurs with substantial international ties reported tapping into international financing networks based on personal connections and networks. Other obstacles faced by entrepreneurs included lack of business knowledge, poor human resources, macro instability and corruption, and a small market size: depicted to the left according to the frequency which they were cited by the respondents. Lack of mentors or success cases was a commonly cited obstacle. According to many, there are no successful case studies to guide them and correspondingly few mentors that can realistically speak to the experience of overcoming the current obstacles facing entrepreneurs and more specifically social entrepreneurs. Respondents claimed a successful entrepreneurship expanding out of Mongolia could act as the confidence inspiring flagship to truly invigorate the field. Business Management Funding Human Resources Small Market Stability & Corruption Mentoring
  16. 16. 16 The following section outlines existing platforms that the social entrepreneurship movement may be able to leverage. The idea of business as a force for good in the community is new in Mongolia. The social entrepreneurship movement is even less clear. Without demonstrated value to declaring businesses as social enterprises, many leaders see no impetus to distinguish themselves from a purely commercial enterprise. However, foundations for future growth of social entrepreneurship are beginning to emerge. This section features entrepreneurial case studies, the communities bringing them together, the spaces where they gather, the available finance options, the relevant information networks they reference and the international partners supporting them. As the culture begins to form here, where are opportunities to support productive market disruption? SOCIAL ENTREPRENEURSHIP ECOSYSTEM Startup icons Bill Gates and Steve Jobs glamorized dropping out of university to found tech businesses; for the founder of New Media Group, however, the choice felt anything but glamorous. His grandparents broke into tears when he told them. After completing his undergrad studies in Mongolia, Mend-Orshikh decided to pursue his masters in the states. Beginning in California and later moving east, he was surprised to discover an age gap with his more experienced MBA cohort. While they had started companies, what had he done? To bridge this gap, he dropped out to jump directly into starting his own company in Mongolia. From those peers he retained lessons about the value of hard-work, dedication to giving back, and that business could be a force for good. Returning to Mongolia in 2010, he saw the untapped potential of social media to connect Mongolian businesses to new customers. Starting with $50 out of his own pocket he founded New Media Group. He built the business one account at a time: for every three paid accounts, the fourth project was pro-bono to support an NGO through the New Media Foundation. Breaking ground as a first-mover in Mongolia, the company grew quickly, their clientele creating a unique community of entrepreneurs. With growth, New Media Group deepened their commitment to social good by pursuing the rigorous B-corps certification. The founder heard about the B-corps movement in the United States and always knew it was the direction he wanted his company to go. Throughout a registration process that spanned over 6 months, his team worked tirelessly to complete their application. They were one of the first three companies to get the certification in Asia and continue to be the only certified B-corps company in Mongolia. B-corps is a collection of over 1,600 businesses spread over 42 countries that are seeking to redefine business success. In order to receive the B-corps certification each business must undergo a rigorous audit of social and environmental performance, accountability and transparency. It is often described as “fair-trade for businesses”. As an early adopter, New Media Group became a founding member of a global cohort of companies that is now championing the call for business to do more than serve shareholders. Facebook has since become the favored marketing tool of Mongolia, New Media Group continued to adapt and, as of writing, has 12 subsidiary companies with 10 products and over 70 employees. CASE STUDY 1: A B-Corps Founding Member
  17. 17. 17 I. COMMUNITY An increasing number of community building and networking NGOs are seeking to support entrepreneurs, such as Startup Mongolia and its sister group Women Entrepreneurs of Mongolia (WEM). These organizations are supported indirectly by the Techstars Accelerator program based out of Colorado. Their main strength is engaging youth in entrepreneurial communities through creative and design-based thinking workshops and networking events. Both organizations are currently without physical working spaces, lack deep reserves of technical expertise, and do not possess the ability to fund promising ventures. In terms of social entrepreneurship, with World Bank supported programs such as Code4GreenUB and the Green Nation Challenge, Startup Mongolia is beginning to make overtones towards supporting environmental entrepreneurship. WEM recently spun-off an organization called the Momtrenpeurs Union of Mongolia which focuses on supporting mothers starting businesses. Addressing more technical skills is an NGO called Development Solutions (DS). They provide business training, consulting, and support programs for strengthening market linkages, such as the USAID funded REACH program and the 2003 to 2008 Growing Entrepreneurship Rapidly Initiative. DS is a popular partner among the international aid groups. Their programs extend beyond helping entrepreneurs and include support programs for SMEs to access funding, connect to markets, and grow. The DS model shows some characteristics of an NGO Hybrid Social Enterprise. By focusing on supporting businesses and startups in relatively underserved areas, they ensure that their impact is felt long beyond the term of their project. As businesses phase out of philanthropic support, DS offers their services at reasonable costs. In addition, DS built an online database of business guides translated into Mongolian, composed a list of finance options and application guidelines for SMEs, and runs the women’s business center. They also engage with youth as the local implementer the Mongolian chapter of Youth Business International. This year their organization will sponsor an employee development course focused on social entrepreneurship.
  18. 18. 18 II. SPACES Physical space to work and gather is an important enabling feature of an entrepreneurial ecosystem, particularly in Ulaanbaatar where real estate and offices run sky high rents. The government dabbled in providing space for entrepreneurs by building incubators around the city. Poorly managed and offering mismatched incentives, most of these original incubators went under or lost funding in the recent government transition. The Information and Technology Park (IT Park) in the city center is an exception to that. The IT Park is home to Startup Mongolia and a host of other tech and consulting startups. Though not a true incubator, the IT Park provides discounted and shared spaces along with access to technology and training for tech startups. This year, seeking to support a new productive niche, the City Government of Ulaanbaatar launched the Women’s Business Center (WBC). The WBC is run in conjuction with the Asia Foundation and with funding provided by the Korean Aid Agency (KOIKA). The WBC is administered jointly by DS, Golumt Bank and the Mongolian Chamber of Commerce. It is a shared space with computers and basic tools where women can come work or attend business trainings for free. In an effort to cater to working moms, the space also includes a kids corner with toys. The majority of businesses in this space are small handicraft, sewing, or educational toy oriented. A couple of women, however, are leveraging the resources to launch web-based marketplace apps. Beyond that, the WBC will offer grant funding to support the 25 most promising ventures. In the private sector, two additional kinds of co-working spaces emerged. On the more formal, high- end side of the spectrum is the Executive Excellence International Business Center (EEIBC). On the less costly, more youth oriented side is CLUB Co-Working. Though not social enterprises, these shared spaces allow businesses to collaborate in new ways for the benefit of the overall community. At EEIBC members are working together to support forums on Innovation and Entrepreneurship, as well as to launch a think tank supporting entreprepenurial developments. The collaboration at CLUB Co-working shows concerted efforts to provide for young leaders exploring the intersection of business and philanthrophy by housing groups such as Tomujin Academy, TOM Inc, the Nomadic School of Business and GerHub (See Case Study 2 below). Tomujin Academy is an education NGO with diversified revenue streams looking to expand opportunities, social conciousness and the
  19. 19. 19 spirit of volunteerism for Mongolian high school students. The Nomadic School of Business is a leadership consultant seeking to incorporate aspects of nomadic thinking into the business world. TOM Inc is a budding incubator seeking to create a community for emerging entrepreneurs to practice collaboration in order to develop stronger business plans. Startup Mongolia is planning to open a similar, though larger co-working space, targeting tech companies. Startup Mongolia hopes that by implementing a new kind of financial structure for office/space leasing they can move closer to an accelerator and eventually an incubator model. An organization called Mongol Makers is supporting the development of collaborative Makers’ Spaces throughout the city. In theory, these makers’ spaces provide builders, engineers, artists, and prototypers with the tools and space they need to create more innovative physical products through iterative and collaborative processes. By bringing these previously disconnected communities together, it engenders transdisciplinary collaboration. Mongol Makers may prove to an interesting entry point or partner for social entrepreneurs in the future, particularly if they can overcome cultural reluctance to collaborate and connect their creativity with business basics. The cultural and historical legacy of Mongolia is long and colorful, but moving into a modern globalized market, how can Mongolia preserve its past while embracing a competitive future? The ger, or yurt as it is known in English, is a treasured symbol of that heritage. Gers were designed for a nomadic lifestyle, to be packed and carried as the season changes. They consist simply of a set of wooden beams, a felt cover with a waterproof canvas shell, tethering cords, and a stove. A ger can be fully assembled in less than an hour. Though undeniably practical, this all season shelter was not designed for urban living. As urbanization gains speed, recent rural-to-urban migrants crowd the fringe districts of the cities with their gers. These ger districts lack basic infrastructure, particularly water, heat, and sanitation. The founder of GerHub, a not-for-profit social enterprise, saw this as a challenge worth solving. In what ways could the ger be incrementally and cost effectively modified to alleviate some of these burdens? His first project is the development of a ger “plug-in”, an attachment to the ger to improve access to sanitation and provide an efficient heating system. In an effort to champion a whole new type of ger he networked heavily with the foreign education sector to bring in fresh perspectives and innovative designs from schools like the University of Hong Kong and Stanford University. His ambitions, however, don’t stop there. After noticing disconnects between the many projects, foundations, and aid organizations operating in the ger districts, he envisions turning his initiative into a hub of activity and information to promote collaboration and to maximize the synergy and sustainability of ger district oriented programs. Not a donor-funded and commissioned project, but also not a totally self-sustaining enterprise, GerHub is an example of the hybrid NGO model of social entrepreneurship. Gerhub itself is a registered NGO, but rather than focus solely on securing external funding, they plan to combine earned and donated revenues to maximize their ability to do good within the ger districts. Despite lingering mutual skepticism between businesses and NGOs, earned revenue streams are becoming an increasingly popular element of NGOs seeking to minimize funding volatility while bolstering their ability to ignite sustained social and environmental progress in their target communities. Improving the quality of life in the ger districts is as central to the success of GerHub as eventually covering financial outlays. This approach is characteristic of the global social entrepreneurship movement that uses a double or even triple bottom line to do business while prioritizing the creation of social benefits. The founder of GerHub is leading a growing pack of entrepreneurs asking more of businesses in Mongolia. CASE STUDY 2: Modernizing Mongolia
  20. 20. 20 While some of these spaces include or plan to include various financing options for resident entrepreneurs, they lack the full-blown culture of business guidance, technical support and venture capital critical to developing true incubators. While there are efforts to move towards that type of business culture, most start-ups lack the internal capacity to pitch, plan or project with the sophistication required to attract venture capital. III. FINANCE The most common complaint of entrepreneurs is a lack of affordable financing at the seed stage. Contrary to these complaints, Mongolia is a relatively heavily “banked” country and shows signs of a rapidly developing financial system including emerging private equity. The banking sector, however, is limited by the size of the population and cumulative domestic wealth. Overall, the sector remains relatively small and vulnerable to the demands and interventions of the international financial sector, particularly to the large Chinese banks south of the Mongolian border. In order to protect their sovereignty, and keep their non-performing loan portfolios under targets, the majority of the banks have adopted conservative collateral based lending practices. This is challenging in the Mongolian context where land ownership is limited, particularly outside cities. Some banks and other financial institutions have developed schemes to accept mobile assets such Sitting at a desk covered in bank statements and sketches, in an office full of diagrams taped haphazardly to the wall, the CEO and founder of Natural Essence LLC and the Lhamour brand strikes the classic image of an entrepreneur. Her story of boot-strapping from brewing bath balms in her parents’ kitchen, to the first organic skincare company in Mongolia with a staff of over 30 makes her a poster-child for entrepreneurship in Mongolia. Beyond commercial success, her commitment to crafting environmentally sustainable products in Mongolia makes her company unique. The founder of Lhamour isn’t an entrepreneur by trade: she studied renewable energy systems. When she came back to Mongolia after her studies she wanted to do something for the economy and the country. Recognizing the potential for organic products in Mongolia, she quickly founded Natural Essences LLC. While deciding what direction to take within organics, the harsh Mongolian winter brought inspiration: average skincare products proved no match. Hours of slaving away over the stove in her parents’ kitchen and prototyping her first product led to the launch of the Lhamour brand. She brought three new things to the Mongolian market: she used all Mongolian ingredients and kept the production local; she certified her products organic from the beginning and committed to zero-waste; and she paid attention to packaging. These specific areas of focus set her product apart from others, but also exposed her business to new challenges, namely in relation to a lack of ability to transport her products and a nascent organic infrastructure limiting consumer awareness and input compliance. The vast majority of the 73 million heads of livestock in Mongolia are grass-fed on the steppe, making their meat and dairy prime for organic certification. Domestically, the demand for organic products is growing. The organic certification process, however, is new to Mongolia. No certifiers licensed to the USDA standards for exporting organics to the United States currently operate in Mongolia. At the moment, the Mongolian Chamber of Commerce handles certification checks. The certification process comprised a site visit, a fee, and a certificate. Khulan and Lhamour are leading the charge for a stronger movement. After 3 years in business, the company is still in startup mode, but the giants are taking note. The small niche success she built for herself has sent ripples through some of the big Mongolian soap companies. Since her emergence on the scene these companies have begun paying far more attention to packaging than they used to. It’s a prime example of how even small players can led to productive disruption and innovation in markets. For the founder of Natural Essences LLC, however, her real hope is that these companies will follow suite with her environmental practices as well. CASE STUDY 3: From Kitchen Soap-Maker to Challenging Giants
  21. 21. 21 as livestock, appliances, or other goods as collateral. The disconnect between financiers and entrepreneurs is in part due to a lack of experience around business plan based funding, both in how to prepare a pitch and evaluate it. Private Equity: Despite some claims by entrepreneurs and non-banking financial institutions (NBFIs) that private equity does not exist in Mongolia, a number of companies are actively working to change that. The two firms at the forefront of this revolution locally are Schulze Global and the Mongol Opportunities Fund. Both firms are actively seeking investments in Mongolian companies. Schulze is considered an impact investing firm and includes socially conscious metrics in their investment criteria. While the investment profile for Schulze Global requires companies to present a proven concept and detailed growth plan, they are willing to work closely with promising enterprises to build the necessary capacity. A number of other international investment firms are active in Mongolia’s finance sector: MCE Social Capital, Microvest, Blue Orchard, Symbiotics, and others. This second group of investors is primarily active through investments at Xac Bank and in a select group of NBFIs including Transcapital and BID. The largest barrier for entrepreneurs seeking to access this type of funding is a lack of understanding of what private equity is and how it works. Most companies are unable to provide financials with the scope and specificity required for this investment class. As business plans and pitches are not part of the banking system, most entrepreneurs also lack experience presenting their companies and ideas in that format.
  22. 22. 22 Banks: In 2000, Mongolia remained a relatively underbanked country with only 300 depositors among every 1000 people in the country. Since then, the financial sector has exploded reaching 3,629 depositors per 1000 people. There is now an average of 71.7 commercial bank branches per 100,000 people and 3185.15 bank accounts per 1000 people, indicating multiple bank accounts per person and a number of joint or shared accounts.7 Part of this growth is the formation of new banks, with 13 now active in Mongolia. The other part of that growth involved outreach initiatives by banks to rural communities. The most famous example is that of Xac Bank which evolved from a NBFI grown out of a UNDP program offering merit-based microloans earned through the completion of financial trainings. Xac Bank is built on the premise of People, Planet, Profits. Though currently focused on diversifying a microfinance heavy portfolio, Xac Bank remains a strong presence in microfinance, a popular choice among western investors, such as MicroVest, and the leading choice for financial aid program implementation, such as the Social Entrepreneurship Impact Investing Fund (SEIIF)8 in partnership with Oxfam and Symbiotics. Khan Bank is one of the top three banks in the country and possesses the largest network of rural retail bank branches making it able to provide better services and opportunities outside of cities. Banks are also beginning to embrace the idea of corporate social responsibility. One of the smaller banks, Arig Bank leads the pack in investing in needed community initiatives, reaching not only into the ger district, but also supporting numerous environmental initiatives and businesses. Environmentally responsible banking and finance, particularly for projects targeting reductions in carbon emissions, are growing quickly in Mongolia. Xac Bank is leading the progression in this field as well. Their Eco-Banking department partnered with MicroEnergy Credits in 2008 to act as the sustainable financial distribution channel for small scale carbon reduction projects. Through various international partnerships, Eco-Banking at Xac Bank is now able to support carbon reduction projects of all sizes. They are one of the few accredited entities able to disperse funds through the World Bank Green Climate Fund. For SMEs and entrepreneurs interested in pursuing 7 ADB, Framework of Inclusive Growth Indicators 2014. https://www.adb.org/sites/default/files/publication/42813/figi2014-mon.pdf Accessed 11/2016 8 Performance Report from Oxfam and Symbiotics on the Small Enterprise Impact Investing Fund in Mongolia, available at https://issuu.com/pearlworks1/docs/seiif_spreads_web
  23. 23. 23 environmental bottom lines in their business, this is great news. In theory, these funds could provide an impactful complement to the green startup programs run by the World Bank. Despite this marked growth in the banking sector, many small entrepreneurs still lack the collateral necessary to secure a loan. Even when credit guarantees are offered to promote lending to SMEs the banks are reticent to extend loan offers without collateral, as failure to pay, even if it doesn’t hurt their bottom line, smears their record on NPLs. Particularly in the recession, Mongolian banks are under a lot of pressure to keep their NPLs down, thus contributing to a highly risk averse approach. Non-Bank Financial Institutions and Microfinance: To fill the gap between what banks can offer and what smaller borrowers need, a robust micro-finance sector has emerged. As of October 2016, 509 NBFIs were registered with the Mongolian government. Since the recession began in 2012 things have been difficult for NBFIs, but that hasn’t stopped new players from entering the field. While a small number of these NBFIs operate with social aims to extend the financial system and empower borrowers, most are motivated by purely financial gains. Two areas identified as high impact for concessionary lending were for single-mothers and ger district residents. Typically, these NBFIs offer rates of 2.5% to 5% a month on loans, unless they have a source of concessionary funds. As the banks see the microfinance sector as carrying increasingly large operational costs and risk, they are moving out and leaving greater space for the NBFIs, Given their proliferation, however, the government recently increased the capital requirement to qualify as an NBFI. It is rumored this new policy will put up to one half of the existing NBFIs out of business. Credit Unions: Credit Unions are another popular choice in Mongolia, with over 250 currently active. Credit Unions tend to be a more committed choice than doing business with an NBFI, as they usually require some type of membership. However, in return they offer substantial community building programs and favorable lending. Government Support: The Mongolian government, as well as a number of international governments, have sought to provide financial aid to struggling SMEs in the form of grants and concessionary loans through the existing financial structure as a way to promote economic diversification away from a resource-based mining dependent economy and kickstart activity out of the recession. These funds are typically channeled through existing financial infrastructure such as banks or NBFIs, but come with differing application processes. The complexity, variance, and intermittence of these funds are the greatest barriers to access for small business owners as each funding cycle or project comes with its own process and requirements which can be confusing particularly for small business owners. To date, none of the funds provided were earmarked specifically for social entrepreneurship. A common non-financial target, however, was job creation and the USAID Growing Entrepreneurship Rapidly project was cited by a small handful of project implementers as a seed for social entrepreneurship thinking. IV. INFORMATION NETWORKS Mongolia is a nascent democracy with respect for the principle of free media. There are a wide variety of new outlets, both foreign and domestic, within the country. The influence of money, however, remains strong on what content is published and in what light it is portrayed. Many news outlets rely on publishing paid content to remain financially solvent as there is not a strong market for advertising. Many consumers complain that the prevalence of paid content is destroying media objectivity. Unsurprisingly, many lack confidence in the news. When it comes to entrepreneur specific news and updates on business trends, technology, or startup culture, there are few reliable outlets. While present in the Mongolian market, franchises of
  24. 24. 24 Bloomberg, Forbes and the Economist have all adopted paid content models in response to tough economic realities. Unread.today is an up and coming blog-turned-news site challenging that norm. Founded by three entrepreneurs frustrated at the lack of reliable information and news in the Mongolian language about entrepreneurship, they saw an opportunity for disruptive innovation and launched Unread.today. Their model features seven types of original daily content totally unique from any other competitor offerings, including features on startup of the week. They hope the site will allow and inspire more Mongolians to understand and engage with the entrepreneurship community. As their audience grows, they hope to take advantage of access to new advertising revenues to move out of paid content and provide truly objective content. A commonly cited obstacle for entrepreneurs in Mongolia is the lack of a success case. Many entrepreneurs reported feeling that if they could see just one successful case of innovation and entrepreneurship in Mongolia leading to a regional or global scale company or technology, it would invigorate the entire community. Through their local updates and entrepreneur spotlights, Unread.Today aspires to provide that spark of encouragement to invigorate entrepreneurs. The Dakar Rally is widely considered one of the toughest endurance motorcycle races in the world. Competitors push themselves over 5,600 km through the deserts and mountains of South America. The founder of Nomad Invest, an amateur rider with only two months of experience under his belt, found himself staring up an impossibly high sand dune. Pro riders zoomed past him making it to the top in under half an hour. After six hours of exertion, at times pushing his bike, he arrived exhausted and dehydrated at the ridge only to realize with a sinking heart that hundreds of dunes still lay ahead. Over the course of three sleepless days he passed many accomplished riders throwing in the towel and calling rescue helicopters. He kept going. He wanted to see the race through to the end. Ten excruciating days later, he finished the race. When asked about his biggest obstacles in business, he responds that if he kept going in the desert those three days, nothing can stop him now. Much like riding up a dune in South America, as the first financial technology (fin-tech) company in Mongolia Nomad Invest is facing an uphill battle on shifting sands in foreign territory. The company is uniting mathematicians, coders, and the financially savvy to innovate an algorithm leveraging smart phone data to judge credit worthiness and disperse loans in a matter of hours. If successful, his program would revolutionize inclusive finance across emerging markets. It’s an ambitious plan, but dreaming big is at the foundation of his team. He hopes to make the company a success story for other young Mongolians looking to build businesses competitive at the global level. The business isn’t just about turning profits, it is about changing the way people think. Lending in Mongolia is almost entirely linked to collateral. What if instead, lending were linked to responsible behaviors? What if borrowers could quickly build up their credit record by starting with small high interest loans and move incrementally to loans at rates even lower than what the banks could offer? If viable, this technology is capable of scaling rapidly and creating widespread social benefits. Innovating in fin-tech is the definition of a high-risk, high-reward business. In order to get the data needed to inform their algorithm they must grow quickly, relentlessly pushing their business even at the risk of assuming many small non-performing loans. It is a new model for Mongolia where non-performing loans have long plagued the banks. Domestic support for the idea is tepid at best. For the founder of this team, however, this isn’t the first time he has overcome disbelief. Despite never finishing college, at 23 he built a mobile network that challenges the two giant service providers, started a leading game development company in Mongolia, and believes firmly that since unlocking his potential in the desert, he and his team are capable of much more. CASE STUDY 4: Overcoming 100 Sand Dunes to Build a Case for Success
  25. 25. 25 V. FOREIGN ACTORS AND INVOLVEMENT OFFICIAL DEVELOPMENT ASSISTANCE Mongolia is a beneficiary of aid from around the world. The Japanese Aid Agency (JICA) and KOIKA are the largest donors. Switzerland, Germany, Australia, the US and the International Development Association of the World Bank were also active contributors to the $379 Million USD in official development assistance or $108 per capita received by Mongolia in 20149. Most of these agencies are supporting some type of income generation or SME support program, sometimes with a second environmental bottom line. The chart below highlights some examples: In 2014 the World Bank elevated Mongolia to an upper-middle income country based on growth projections from the boom period. Given this, USAID, Millennium Challenge Corporation and others were forced to reconsider their involvement in the country. The World Bank since reversed this decision, reclassifying Mongolia as a lower-middle income country. However, USAID operations remain scheduled to close with two final projects, one through long-time partner Development Solutions supporting business linkages and consulting for SMEs. MCC is planning to restart programming in the water sector in 2018. The plans of other government aid agencies are similarly complicated in terms of how to balance aid between growth and development goals. The SDC took on a challenging 13 year project to develop sustainable artisanal mining in Mongolia. Their project is particularly noteworthy in the context of social entrepreneurship for two accomplishments. First, they succeeded in transforming an occupation that was initially regarded as a nuisance into a value-adding sector of the economy. Second, they created a new market in 9 According to the latest data accessed 10/30/2016 from the OECD on Development Finance Data at http://www.oecd.org/dac/financing-sustainable-development/development-finance-data/
  26. 26. 26 Mongolia, and beyond, for high quality Fairmined10 Eco-Gold11, a product that had previously never been produced in Mongolia despite their large gold wealth. INTERNATIONAL CHARITIES AND NON-GOVERNMENTAL ORGANIZATIONS In addition, there is a large community of INGOs active in Mongolia. Entrepreneurship, income generation projects, new business development, and rural or ger district business linkages have proven popular projects among the INGOs. Mercy Corps, Global Communities, the Asia Foundation and UNICEF stand out as examples of organizations employing best practices in that sector. Mercy Corps cultivated a unique relationship as a founding member of Xac Bank and has built a strong reputation for supporting rural businesses through the Mongolia office. They are currently in the process of launching new projects including a hub and spoke model of rural business centers. The idea of this project is to improve processing, consistency, and marketing of rurally produced products and agricultural raw materials to increase the exportability of products such as leather, dairy, meat, etc. 10 “Fairmined is an assurance label that certifies gold from empowered responsible artisanal and small-scale mining organizations” – For more information: http://www.fairmined.org/what-is-fairmined/ 11 Gold that is processed through a certified mercury-free cycle.
  27. 27. 27 In the countryside, many Mongolians still practice the traditional nomadic herding lifestyle. Each season families pack up their gers and move the flock to greener pastures. Livestock is central to the Mongolian way of life, immortalized by the five snouts: Horses, Cows, Goats, Sheep and Camels. The Mongolian diet consists of meat and dairy. Dairy is eaten primarily in four forms: milk, milk soup, fermented alcoholic milk (Arik), or dried milk curds (Arol). Despite the dependence on milk, much still goes to waste in the countryside during the high yield summer months. Meanwhile, supermarkets and milk companies import their raw dairy from Russia as local producers fail to meet consistent quality and sanitary standards. Due to weak rural market linkages, domestic dairy even fails to compete on price. Faced with this market mismatch, dairy would seem an untapped business opportunity. The challenge, however, lies in scope. Increasing rural market participation means working with small nomadic units. Living off the grid, gers are rarely situated with convenient road access, and mostly depend on small solar panels for electricity, if they have any. Small-batch raw dairy isn’t cost effective. Given these circumstances, what are viable products to promote rural income generation? In 1994, the Dutch Development Agency commissioned a project to teach cheesemaking to herders. Beyond income generation, the project aspired to promote conservation of grasslands for the endangered Przewalski horse by providing an alternative to herding. Confronted with slim demand and substantial market barriers, most of these cheesemakers went out of business. One did not. Over two decades, this cheesemaker developed a unique Mongolian Gouda. His business provided enough for him until a financial hiccup left him desperate for a new investor: enter the Mongolian Artisan Cheesemaker Union (MACU). Recognizing the individual nature of nomads, MACU allows each cheesemaker to maintain financial independence while pursuing their own craft cheese. MACU supports them with consulting, training, branding, and a unified front to champion the Mongolian cheese market. Each cheesemaker specializes in making their high quality cheese which are delivered to Ulaanbaatar for ageing, storing, and packaging under the MACU brand. MACU offers distinctive cheeses such as pepper pecorino, yak milk cheddar, Bactrian Camel cheese, as well as classics such as brie, camembert and gruyere. By having each cheesemaker focus on their distinct variety, it diffuses competition and allows space for cooperation as MACU strives to build the overarching brand. A single reliable brand with such varied small- batch cheeses, MACU positioned itself to cater to high scale events and for venues such as the international luxury hotel Shangri-La: contracts small scale herders would be hard-pressed to secure on their own. A businessman, not a cheesemaker, is behind the formation of MACU. This year he will complete construction on a model cheese factory he hopes will provide an example of how to work up to code. Looking forward, he sees opportunities for Mongolian cheese in the export market if it can meet phytosanitary requirements and establish a legal precedent. If they can hit those benchmarks, MACU looks to scale rapidly. Having tested their decentralized Mongolia-specific model with 7 cheesemakers across the country, MACU hopes to ramp training and to bring on 100 more cheesemakers in rural areas by the end of 2017. CASE STUDY 5: Picking Up Where Aid Left Off
  28. 28. 28 I. SECTORS OF SOCIAL ENTREPRENEURSHIP There is currently no established network or community in Mongolia for encouraging, growing, or financing social enterprises. The majority of respondents were unfamiliar with the idea of social entrepreneurship, but many expressed interest for its implications in Mongolia. Some entrepreneurs and program managers organically identified their project’s aims and motivations with the major principles of the social entrepreneurship movement without even realizing they were speaking to a larger movement. Without the larger community, however, there is currently no particular advantage to identifying as a social enterprise rather than a purely commercial one. Despite this, some businesses are beginning to address certain gaps in the social sector. Overall, the four major market failures garnering the attention of businesses were: 1) Ger District Income Generation and Service Provision: newly arrived rural-to-urban migrants often relocate to areas along the fringes of Ulaanbaatar known as the “ger districts” where they can set up their ger. Growing spontaneously without the benefit of urban planning, these districts lack basic urban services such as public transportation, roads, street lamps, or health facilities. Designed for nomads, gers are not efficient for such close living: they lack sanitation and running water. Traditionally, gers are heated by stoves fueled with dung, but in this new urban environment, households quickly become dependent on coal, rubber, and trash. Opportunities may exist to leverage this new relatively dense population to provide much needed employment and services. 2) Rural Service Provision: the most vulnerable sub-sections of the Mongolian population are rural families living in isolation from service provision. While the nomadic lifestyle is a celebrated piece of Mongolian heritage, environmental degradation of the steppe, due to climate change and overgrazing, is making flocks, and thereby families, more vulnerable to the increasingly severe winters brought on by climate change, known as dzuds. Winters so bitterly cold that they kill the livestock, leave families destitute and without the resources to survive the winter. Though Mongolia maintains a tradition of high literacy and school attendance even in these rural areas, there are few economic opportunities outside urban centers. Establishing rural linkages to promote sustainable growth, is becoming an important growth issue. 3) Environmental Intervention: although the Mongolian steppe was celebrated for remaining environmentally pristine, mining is introducing significant new toxic pollutants. In addition, Ulaanbaatar is considered to be one of the most polluted cities in the world for its poor air, water and soil quality. Social entrepreneurs are beginning to innovate on more efficient heating, pollution monitoring, and other green technologies. 4) Services for Single Parents: The divorce rate is climbing quickly in Mongolia. In addition, there are persistent social struggles with domestic violence and alcoholism. These factors combined with higher female tertiary graduation rates increasingly cast women in both the roles of primary caregiver and breadwinner. Groups are beginning to respond by offering targeted services for single and working mothers. FINDINGS
  29. 29. 29 II. OBSTACLES TO SOCIAL ENTREPRENEURSHIP While areas for promising interventions exist, there are also barriers to the growth of the sector. As discussed above, the Mongolian marketplace presents some unique challenges in that it is unique, relatively small, and new to free-market capitalism. These characteristics may potentially complicate the growth of social entrepreneurship in the four following ways: 1) Free Market Competitiveness: the entrepreneurial and free-market business ecosystems are still developing. As a result, many business owners demonstrated limited levels of comfort with business plans, financial projections, and regular reporting. This view was collaborated by financial institutions regularly reviewing funding proposals. 2) Perceived Profitability: the economy is characterized by high levels of volatility. To combat this volatility, many business owners and entrepreneurs are hesitant to engage in a single slow growth project. Businesses prioritizing social or environmental outcomes are often still perceived as doing so at the expense of financial profits. 3) Government Involvement: perhaps a holdover from their socialist legacy, many businesses still seek to partner with the government, particularly those businesses with social or environmental goals. Government connections, critical for certain types of funding and export support, can quickly become detrimental given a change of party. 4) Market Size: The relatively small population combined with the high level of geographic population dispersion limits the size a business can achieve. Globally, many social enterprises use high volume sales to offset small margins in order to offer affordable goods or services. This is not a viable approach in Mongolia. Scaling a business beyond Mongolian borders is particularly difficult given the linguistic and cultural dissimilarity of neighboring countries. This problem, however, can be overcome by businesses willing to integrate internationally oriented models and operate to international standards. Additionally, several respondents cited lack of teamwork capacity and heightened suspicion as barriers to collaboration in business. Some connected this to the nomadic culture of fiercely independent living, others to the culture of trade secrets and takeovers of the post-transition market. Many organizations, however, are working to change this through an emphasis on shared physical spaces for collaboration, a prioritization of developing a consulting and mentoring community, and vigorous efforts to promote networking. III. PARALLEL ENTREPRENEURSHIP In the American model of entrepreneurship, it is common to think of the deep-dive single business approach where entrepreneurs pour themselves fully into starting and growing their business. An entrepreneur who goes through the cycle of starting, growing, and getting acquired a number of times becomes a serial entrepreneur. In Mongolia however, there are parallel entrepreneurs. These are entrepreneurs starting multiple businesses at the same time across sectors. Instead of starting one business, they may be starting several, switching between fields to hedge their bets in case one goes under; building an empire right from the start. In speaking to entrepreneurs it was not uncommon to discover they were starting two business and an NGO while also holding down a full- time job. When asked, many cited nomadic survival instincts as a driver for parallel ventures.
  30. 30. 30 There are opportunities to support this emerging class of socially engaged entrepreneurs and business minded organizers. As discussed in the section on entrepreneurs, many Mongolians already identify strongly with the values of social entrepreneurship, what is lacking is connection to preferential financing and specialized networks to help these entrepreneurs maximize their social impact. Below is a snapshot of the social enterprise growth cycle with existing support structures on the left and opportunities to the right with a star. The interview data, SE landscapes in other countries, and investor strengths informed these recommendations. There are countless possible interventions to promote growth, below are four illustrative examples: 1. Strengthen Entrepreneurial Education by improving the quality of education in hard business skills and by promoting Social Entrepreneurship through traditional education. a. The Massachusetts Institute of Technology committed to 3 years of innovative entrepreneurial skills education through an agreement with the Mongolian Ministry of Education. Already their team has begun offering app development training and working with both educators and policymakers. 2. As a relatively stable and sophisticated Central Asian hub, as well as a neutral English speaking center point between Russia and China, Mongolia has potential for a for-profit regional Social Enterprise incubator. Potential partners would have to bring substantial IMPLICATIONS
  31. 31. 31 technical expertise and be willing to relocate in country at least short-term. Additionally, given the underlying resistance to deep collaboration and skepticism of peers’ intentions, any incubator model will need to integrate a cultural comfort component as well. 3. As accelerators thrive off their network of mentors and financiers, Mongolia may not have the talent yet to host one, but interested partners could work on outreach, awareness, and inspiration by advertising their accelerators through outlets such as Unread.today or working with their fellows to expand sponsored programs and initiatives to Mongolia. One example of such a success is the expansion into Mongolia of Source International, a hybrid NGO whose founder is a Fellow with both Ashoka and Unreasonable. 4. Schulze Global works closely with each of its investment companies to ensure solid business protocols and growth plans, however there is room beneath their fund for investors willing to accept more risk with smaller initial investment sizes requiring more coaching.
  32. 32. 32 As a new arrival to Ulaanbaatar, I was firmly told that there was no social entrepreneurship in Mongolia, it was hard enough to just make money as a business in the recession. Through three months of research and relentless networking, I discovered quite the contrary. There is a vibrant, predominately but not entirely, young movement of entrepreneurs pursuing social targets. The Mongolian economy demonstrates a halting mix of free market, transitional, and socialist characteristics. The mining boom brought in unprecedented wealth to fuel a heavily urbanized and metropolitan capital hungry for an increasingly lavish lifestyle: black Toyota Land Cruisers and designer brands are now coveted signs of urban status. As the country evolves, new types of social and environmental challenges emerge. Though small and largely without support, a new generation of entrepreneurs is setting their sights on tackling those issues through market-based innovation. Awareness of the benefits of joining the social entrepreneurship movement would be well received and potentially highly impactful as the country pursues diversification. To continue to promote this nascent cohort of social entrepreneurs there are opportunities for technical assistance, mentoring, networking, and small scale investment through incubators or private debt and equity investments. The entrepreneurs I encountered proved to be among the most adaptable and open minded individuals I have had the pleasure to work with. The Mongolian ecosystem benefits from deep wells of ideas and creativity. Finance is available, but not structured to adequately meet the demands of the current ecosystem. In order to foster a more enabling environment, both Mongolian and International partners will need to compromise in order to maximize future returns: social, environmental, and financial. For their part, International investors and partners should be prepared to offer technical assistance to increase business acumen over a longer term. Models such as the World Bank’s involvement with Startup Mongolia could be replicated with more experienced regional incubators and consultants to create bridges to international markets and promote business concepts capable of growing beyond Mongolian borders. On the Mongolian side, in addition to stabilizing the macroeconomic forecast, policy measures must be put in place to protect international investors with increased consistency. Since the recession, Mongolia is a country competing for investment, not competed over by investors. As a researcher and young professional, this report was a time of immense growth both personally and professionally. I was fortunate to encounter mentors and peers who challenged me to push my work to the next level. As my first effort at putting together such a report, I openly acknowledge persistent gaps. For instance, the scope of my research was far too general: each section of this ecosystem report could be an area of further research. In particular, I would encourage future researchers to explore how education impacts entrepreneurship In conclusion, when it comes to social entrepreneurship, Mongolia is ripe for engagement. Enthusiasm for socially and environmentally driven business is high, but may wane without further support in terms of capacity and capital. CONCLUSION
  33. 33. 33 ANNEX 1 : Programs CASE STUDIES 1. New Media Group: http://thenewmediagroup.co/ 2. GerHub: http://gerhub.org/ 3. Lhamour: https://lhamour.mn/ 4. Nomad Finance: https://www.facebook.com/LendMN/ 5. MACU: https://mongoliancheesemakers.com/ OTHER PROGRAMS (Listed by Order of Mention)  Business Council of Mongolia: https://bcmongolia.org/  Startup Mongolia: https://startupmongolia.com/  Women Entrepreneurs of Mongolia: https://www.facebook.com/womenmongolia/  Techstars: http://www.techstars.com/  Development Solutions: http://www.dsmongolia.org  IT Park: http://itpark.mn/eng/  Women’s Business Center: http://asiafoundation.org/video/mongolia-womens-business- center/  Golumt Bank: https://en.golomtbank.com/  Mongolian Chamber of Commerce: http://www.mongolchamber.mn/  Executive Excellence International Business Center: https://www.facebook.com/EEIBC/  CLUB Co-Working: http://www.theclub.mn/  Mongol Makers: https://www.facebook.com/mongolmakers/  Tomujin Academy: http://www.tomujin.org/  Tom INC: No current Website  Nomadic School of Business: https://www.nomadicschoolofbusiness.com/  Schulze Global Investments: http://schulzeglobal.com/  Mongol Opportunities Fund: http://www.mongolfund.com/  MongolJin: http://mongoljin.com/frontierprivateequity.html  MCE Social Capital: http://www.mcesocap.org/  Microvest: http://microvestfund.com/  Blue Orchard: http://www.blueorchard.com  Symbiotics: https://symbioticsgroup.com/asset-management/  Transcapital: http://www.transcapital.mn/en/  BID: http://www.bid-finance.mn/eng/  Xac Bank: https://www.xacbank.mn/  Khan Bank: https://www.khanbank.com/  Arig Bank: https://www.arigbank.mn/Home/mn  Unread.today: http://www.unread.today/ (Mongolian Language Only)  Source International: http://www.source-international.org/  School for International Training (SIT) Study Abroad Mongolia: http://studyabroad.sit.edu/programs/semester/fall-2017/mfr/  Independent Research Institute of Mongolia (IRIM): http://www.irim.mn/

×