Closing the Yield Gaps for Mongolian Small Businesses: Part I
By Paul Sullivan,
Georgetown
The yield gaps for small businesses in Mongolia are the differences between how well they are doing now and what they could potentially do. There is a lot in the way of smaller businesses’ development and prosperity in Mongolia, even though they are as a whole, one of the most important sectors of the Mongolian economy as I mentioned last week.
In Mongolian micro enterprises are defined as those with less than 19 employees. Small to medium sized companies are defined as any that have less than 199 employees and more than 19 employees. Small businesses are defined as anything over 19, but less than 49 employees.
In many countries these definitions are quite different, and the small to medium sized companies can go from one employee to 250 employees, but Mongolians have the right to define things as they wish. It is their country. However, I must admit that this makes comparing Mongolian smaller companies to smaller companies in other countries difficult.
Micro to medium sized businesses are 98 percent of businesses in Mongolia. About 75 percent of that 98 percent are micro-businesses. Over 20 percent of all exports of Mongolia are from these smaller business and the most important ones turn out to be the micro-businesses, which export an astonishing 12-15 percent of exports. In many countries, as they grow and develop, one of the fastest growing suppliers to the national and international markets are the smaller businesses. Maybe over 40 percent of all sales in Mongolia come from these smaller companies.
Some sources state that micro to medium sized businesses contribute about 25 percent of the GDP of Mongolia, and that micro enterprises might produce as much as 10 percent of the GDP. Still others report that SMEs could produce about 60-70 percent of the GDP of Mongolia. My sense is that the reality is somewhere in between those numbers, but likely closer to the higher numbers given the importance of SMEs in many developing countries similar to Mongolia. 40-50 percent is likely a better estimate.
Many sources state that micro to medium sized businesses account for over 50 percent of the employees in Mongolia. There are tens of thousands of these small businesses. The most recent data I could find has 70,000-72,000 of them. Some sources report small numbers, but my intuition is that the larger numbers are most likely to be more valid. Most SMEs are in Ulaanbaatar and other towns and cities, but they can also be found in rural areas.
Over 60 percent of these smaller companies employ less than 19 Mongolians. Over 30 percent hire from 19 to 49 employees. The rest of the smaller companies, have more than 49, but less than 199, Mongolians working for them. So that is a lot of very small companies even within the group of smaller companies that is 99.8 percent of all companies.
Compared to many other countries, like Germany, Turkey, the US, and even some developing countries, the small to medium-sized companies are much smaller in Mongolia. However, this could change rather rapidly. Also, given the nature of smaller businesses in Mongolia, it could be that there is a lot more going on than has been described by the outsider sources that are most available.
These smaller companies are involved in machine shops, repair shops, wood processing, hide and cashmere processing, livestock, herding, glass making, retail shops, tourism, restaurants, and small grocery stores. They are also small trucking and transport companies, sometimes only one or two people, and they might even be brothers or cousins, who drive goods to and from export zones. They bring cargo across the vastness of Mongolia. They also can be simply driving people to their jobs or to go shopping. Micro to medium sized businesses are also involved with professional services like doctors, dentists, lawyers, accountants and the like. They are also subcontractors to many of the larger businesses in mining, manufacturing, trade and more.
Small businesses are all over Mongolia and they are a big part of what helps Mongolians pay the bills, keep food on the table, and stay warm during the colder months like now.
The way smaller businesses are neither “bad” nor “good.” This is the way it is at Mongolia’s level of business development. The “bad” thing would be if Mongolia does not help these businesses grow and prosper given how important they are for the employment of Mongolians and the growth of the Mongolian economy.
This is where the yield gap comes in. Normally this view of the yield gas is used in agriculture. When farmers are not producing up to their potential yield, the difference between what they are producing and what they could produce is the yield gap. There are many reasons for yield gaps in farming, but I will focus on the yield gap in micro to medium sized enterprises in Mongolia.
One of the biggest problems these smaller companies in Mongolia face is financing. It is very hard, especially for the micro enterprises to get credit to expand their businesses or to carry them through the production to trade cycles.
Looking at the World Bank’s Doing Business in Mongolia report from 2014, we can see issues that are faced by all companies in Mongolia. However, given that 98 percent of all companies are micro to medium sized companies, we can make a small leap to say that these issues apply to them, but likely with more difficulties for them given their often lack of political and economic clout. The really big companies in Mongolia have the political and economic clout even if the smaller companies are a very large part of the Mongolian economy.
According to the World Bank, the overall business environment in Mongolia is better than in China or Russia. That should make Mongolians happy. However, Mongolia has a long way to go to reach where it could be.
The most difficult parts of the business environment in Mongolia seem to be in dealing with construction permits, trading across borders, getting electricity, resolving insolvency, paying taxes, dealing with regulations, registering property, and enforcing contracts.
Next week I will start to get into these many issues and see what Mongolia can do about them, and what Mongolia has already done and is planning to do about them. I will also begin to talk about how different the business environment may be for these smaller companies compared to some of the giants that are working in the country.
One clear conclusion can be made now, and I will develop the argument in later articles: if the yield gap is shortened for micro to medium sized businesses in Mongolia, all Mongolians will be able to win from this.
Short URL: http://ubpost.mongolnews.mn/?p=7591
Georgetown
The yield gaps for small businesses in Mongolia are the differences between how well they are doing now and what they could potentially do. There is a lot in the way of smaller businesses’ development and prosperity in Mongolia, even though they are as a whole, one of the most important sectors of the Mongolian economy as I mentioned last week.
In Mongolian micro enterprises are defined as those with less than 19 employees. Small to medium sized companies are defined as any that have less than 199 employees and more than 19 employees. Small businesses are defined as anything over 19, but less than 49 employees.
In many countries these definitions are quite different, and the small to medium sized companies can go from one employee to 250 employees, but Mongolians have the right to define things as they wish. It is their country. However, I must admit that this makes comparing Mongolian smaller companies to smaller companies in other countries difficult.
Micro to medium sized businesses are 98 percent of businesses in Mongolia. About 75 percent of that 98 percent are micro-businesses. Over 20 percent of all exports of Mongolia are from these smaller business and the most important ones turn out to be the micro-businesses, which export an astonishing 12-15 percent of exports. In many countries, as they grow and develop, one of the fastest growing suppliers to the national and international markets are the smaller businesses. Maybe over 40 percent of all sales in Mongolia come from these smaller companies.
Some sources state that micro to medium sized businesses contribute about 25 percent of the GDP of Mongolia, and that micro enterprises might produce as much as 10 percent of the GDP. Still others report that SMEs could produce about 60-70 percent of the GDP of Mongolia. My sense is that the reality is somewhere in between those numbers, but likely closer to the higher numbers given the importance of SMEs in many developing countries similar to Mongolia. 40-50 percent is likely a better estimate.
Many sources state that micro to medium sized businesses account for over 50 percent of the employees in Mongolia. There are tens of thousands of these small businesses. The most recent data I could find has 70,000-72,000 of them. Some sources report small numbers, but my intuition is that the larger numbers are most likely to be more valid. Most SMEs are in Ulaanbaatar and other towns and cities, but they can also be found in rural areas.
Over 60 percent of these smaller companies employ less than 19 Mongolians. Over 30 percent hire from 19 to 49 employees. The rest of the smaller companies, have more than 49, but less than 199, Mongolians working for them. So that is a lot of very small companies even within the group of smaller companies that is 99.8 percent of all companies.
Compared to many other countries, like Germany, Turkey, the US, and even some developing countries, the small to medium-sized companies are much smaller in Mongolia. However, this could change rather rapidly. Also, given the nature of smaller businesses in Mongolia, it could be that there is a lot more going on than has been described by the outsider sources that are most available.
These smaller companies are involved in machine shops, repair shops, wood processing, hide and cashmere processing, livestock, herding, glass making, retail shops, tourism, restaurants, and small grocery stores. They are also small trucking and transport companies, sometimes only one or two people, and they might even be brothers or cousins, who drive goods to and from export zones. They bring cargo across the vastness of Mongolia. They also can be simply driving people to their jobs or to go shopping. Micro to medium sized businesses are also involved with professional services like doctors, dentists, lawyers, accountants and the like. They are also subcontractors to many of the larger businesses in mining, manufacturing, trade and more.
Small businesses are all over Mongolia and they are a big part of what helps Mongolians pay the bills, keep food on the table, and stay warm during the colder months like now.
The way smaller businesses are neither “bad” nor “good.” This is the way it is at Mongolia’s level of business development. The “bad” thing would be if Mongolia does not help these businesses grow and prosper given how important they are for the employment of Mongolians and the growth of the Mongolian economy.
This is where the yield gap comes in. Normally this view of the yield gas is used in agriculture. When farmers are not producing up to their potential yield, the difference between what they are producing and what they could produce is the yield gap. There are many reasons for yield gaps in farming, but I will focus on the yield gap in micro to medium sized enterprises in Mongolia.
One of the biggest problems these smaller companies in Mongolia face is financing. It is very hard, especially for the micro enterprises to get credit to expand their businesses or to carry them through the production to trade cycles.
Looking at the World Bank’s Doing Business in Mongolia report from 2014, we can see issues that are faced by all companies in Mongolia. However, given that 98 percent of all companies are micro to medium sized companies, we can make a small leap to say that these issues apply to them, but likely with more difficulties for them given their often lack of political and economic clout. The really big companies in Mongolia have the political and economic clout even if the smaller companies are a very large part of the Mongolian economy.
According to the World Bank, the overall business environment in Mongolia is better than in China or Russia. That should make Mongolians happy. However, Mongolia has a long way to go to reach where it could be.
The most difficult parts of the business environment in Mongolia seem to be in dealing with construction permits, trading across borders, getting electricity, resolving insolvency, paying taxes, dealing with regulations, registering property, and enforcing contracts.
Next week I will start to get into these many issues and see what Mongolia can do about them, and what Mongolia has already done and is planning to do about them. I will also begin to talk about how different the business environment may be for these smaller companies compared to some of the giants that are working in the country.
One clear conclusion can be made now, and I will develop the argument in later articles: if the yield gap is shortened for micro to medium sized businesses in Mongolia, all Mongolians will be able to win from this.
Short URL: http://ubpost.mongolnews.mn/?p=7591
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