Monday, May 5, 2014

Aimag clusters

It is not going to be enough to evaluate the development of our aimags just by looking at the number of strong wrestlers, fast racehorses, senior government officials, and celebrity artists they have produced. We need to focus more on what value those aimags are creating besides the extraction of mineral resources, their own expenditures, and what competitive advantages they have gained over others.

The wealth of a country is not necessarily dependent on its comparative advantages such as natural resources, access to the sea, and cheap labor. However, livelihood and quality of life are dependent on what the nation is creating at what cost.

Therefore, productivity is a basic measurement of development. It will be more precise to measure the development of a nation and its local provinces by evaluating the total value they create using the inputs of labor, material, and financial resources.

WHAT IMPROVES PRODUCTIVITY?

Levels of development are often defined by the competitiveness of businesses and companies. Every business acquires its competitive advantage by comparing itself with the best of the world and finding room for improvement. However, there needs to be fierce competition between domestic businesses and companies before a few of them become capable of entering the international market. Due to the fierceness of market competition, varying capability of suppliers, and high demand from domestic clients, companies are required to improve their competitiveness, thus, strongly establish their position in the market while producing huge profits.

In order to create a competitive advantage, companies face the need to perfect the quality of their goods and services, renew the process of creating valuebles, and bring about innovation. An advantage can also be acquired through redesigning products, introducing new marketing ideas, and providing training aimed at improving the efficiency of employees.

By the 1960s, Japan started working to make products developed by others more compact and user-friendly. As a result, they brought about a big change in the production of home appliances, not only inside the nation but throughout the world. They contributed greatly to increasing the total production and export of televisions, radios, air conditioners, and heaters.

Innovation today requires a particular skill to receive and process information. New initiatives can be triggered by many factors such as the introduction of a new company into the market, emergence of an unconventional leader, and a decision by a company to enter a different industry. In other words, innovation is the result of extraordinary efforts. New ideas are developed when there are tough situations and immediate threats to a business.

Fair competition between companies in a given industry boosts productivity.

CONDITIONS FOR IMPROVING PRODUCTIVITY

In order to sustain its growth, a company needs to not only acquire competitiveness but also maintain it.

Korean companies first took over Japan in the television industry and later introduced a change in the role of televisions. They were the first country to offer a service that allowed viewers to watch TV programs at a convenient time, use wireless connections to browse personal media files, and apply computer functions to televisions. Also, the Korean-driven competition between mobile phone manufacturers has given consumers an opportunity to choose from a larger pool of products.

Harvard professors concluded that a company’s location is essential to acquiring competitiveness. The word “business cluster” is translated as “khongortsog” in Mongolian. Kh.Gombojav came up with the translation of this term in 1951, along with its definition, which reads, “a geographical concentration of interconnected industries, diversified suppliers, logistics companies, industrial associations, and universities in a particular field.”

We need to talk about the existing possibility to establish a business cluster in each aimag in Mongolia. If we pursue a policy to support the emergence of many companies in the most appropriate, culturally adequate industry of a given aimag and increase their competition in the market, the productivity of those companies will increase significantly.

Companies compete with each other to obtain the most advanced technology and the most skilled workforce to produce the best products and services. Market competitors become stronger if they operate in the same town or personally know each other. Three of the best motorcycle manufacturers in Japan reside in Hamamatsu, while more than 100 decorative tile producers are concentrated in the town of Sassuolo in Italy.

Similarly, there are about 300 crop producers in Selenge aimag. This concentration is helping them improve their productivity every year. Darkhan-Uul aimag has the potential to become a cluster for the leather goods and construction material industries. Market competitors that reside and operate in the same area demand fair competition from each other.

ROLE OF GOVERNMENT

It is time for our government to conduct a policy aimed at developing industrial clusters in aimags and supporting their products in acquiring international competitiveness by encouraging market competition at the aimag level.

The government should also provide support in improving the quality of primary and secondary education, building basic infrastructure, and connecting businesses to research and development. One of the primary roles of the government is to set standards and requirements regarding health, safety, and environment, and ensure that companies are compliant with the rules. Sweden sets particularly high standards in the living environment of city dwellers and influenced Atlas Copco, a Swedish industrial company, to invent silent compressors that were later introduced to many of the largest cities in the world.

When the government sets prices and controls the exchange rates, it produces negative impacts on market competition and productivity in the long term. If a regulation from the government fails to achieve its purpose, its forced implementation costs a lot because it affects many business relations. The government should be setting standards instead of issuing business permits and not allow a monopoly to be established in any given
industry.

If the government gets involved in the business sector, businesses get addicted to the “drugs” dealt by the government such as soft loans, procurement offers, and means of protection provided by the government. The only areas the government should involve itself in are entering the international market, preparing a skilled workforce, and building basic infrastructure such as roads, electric power, and water distribution.
The wealth of a nation is created by its companies and businesses, the productivity of which determines the nation’s level of development. The main factor that enhances productivity is not the government, but free competition. If many companies are concentrated in one location, market competition becomes fiercer. Each of our aimags needs to establish an industrial cluster that is built on their advantages.

Translated by B.AMAR

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