"...the the main source of investment in agriculture, agro-processing and construction is by the leaping in of multi-sectoral companies – the most prominent being the placer gold mining ventures..." | ABSTRACT Most business scholars have tended to assume that multisectoralism is an inferior business strategy as a virtual last resort “when an industry consolidates and becomes mature” and a western company may then attempt ‘concentric (related) diversification’ or attempt ‘conglomerate (unrelated) diversification’.
In contrast, Mongolian entrepreneurs seek multisectoralism from the outset. Mongolian multisectoral companies constitute a ‘local species’ of business rarely seen in large mature consumer-driven market economies. The study demonstrates Mongolian multisectoral companies are driven by individuals who satisfy the profile of successful entrepreneurs and displays all, or nearly all, of the 9 competencies characteristic of successful entrepreneurs as proposed by McBer & Co. (1996). Yet many of the unisectoral top companies are also driven by entrepreneurs, suggesting there may be 2 distinct types of entrepreneur in Mongolia - ‘leapers’ and ‘nichers’. A nicher’s mission is to be the ‘best’ in size, quality, efficiency, reputation and profitability in a narrow sector. A leaper’s mission is to succeed in a wide portfolio across several sectors with little synergy, and to seek growth as rapidly and ruthlessly as possible by seizing the ‘best’ opportunities regardless of sector.
Analysis of 135 placer gold mining companies shows that between them they have at least 500 daughter companies scattered across all sectors from tourism to sausage production, and the households of the employees of these 135 companies typically have 1 to 3 microenterprises in non-mining sectors. The long duration of the harsh Mongolian winter forces nearly all of the 135 companies to confine their mining days to when water (not ice) is available, typically 155 days a year. Yet the cash flow is strong and by the end of the season they have paid off bank loans (at 4% per month interest) and amassed a cash-mountain. Putting the cash in the bank is pointless as it attracts only token interest, and a cash-hoard would attract substantial; profit tax. The vast majority of the 135 companies spend the cash hoard to create 100% owned start-up daughter companies in other sectors and/or to buy controlling blocks of shares in Public Companies either via the Stock Exchange or in privatisation. The next spring, the mining company gathers cash from its daughter companies to regain liquidity to pay for fuel, re-equipping and labour ready for mining. Shortfalls are solved by using the fixed assets of the daughter companies as collateral. A placer gold mining company must be entrepreneurial and diversify to avoid being crippled by end-of-season tax and to amass enough collateral to raise finance to go mining again next season. More than 50 instances exist of placer mining companies forced to suspend production indefinitely and compelled to sell their gold mines.
The study indicates that not only is the mining sector the dominant sector in Mongolian economy but also that the main source of current investment in agriculture, agro-processing and construction is by the leaping in of multisectoral companies – the most prominent being the placer gold mining ventures. In the absence of a viable Stock Exchange, and in the absence of pension funds, insurance funds, unit trusts, venture capital or affordable bank finance or leasing, the multisectoral companies serve as surrogate venture capitalists, albeit preferring to create their own multisectoral portfolio rather than investing in other ventures. DOWNLOAD ARTICLE
GO TO NEXT VOLUME
|
