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When advice is worth more than money: the Mongolian experience |
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When a Mongolian government official introduced entrepreneur Erdenecimeg Bat-Ochir to the EBRD’s TurnAroundManagement (TAM) programme, he asked Ms Bat-Ochir for a kickback. “He asked for a percentage of the loan he assumed my company, Hungun Beton, was seeking from the EBRD,” the businesswoman remembers. “Little did he know that the TAM programme isn’t about getting money; it’s about getting advice.” Company by company, TAM is helping firms such as Ms Bat-Ochir’s to re-orient the Mongolian economy toward the free market. The programme started operations in Mongolia in 2001 with funds provided by the EBRD’s donor-backed Mongolia Cooperation Fund. Mongolia’s shift out of communism and toward the free market has been fast, painful and imperfect, particularly for private businesses. Companies lurch from one day to the next struggling to survive, tinkering at the edges of their former state-owned operations rather than radically re-thinking them so that they could truly prosper. Enter the TAM programme, which marries foreign experts with local companies to help the latter to operate more effectively. Ms Bat-Ochir herself was a bit surprised to learn that instead of finance, all TAM would give to her company was advice to improve the quality of Hungun Beton concrete blocks and to develop a marketing plan. All the same, she took the offer of TAM assistance, believing that “if I couldn’t receive the finance my company was so much in need of, I would go for advice that would reduce costs”. Old factory is back to work In 1995, Ms Bat-Ochir and several other investors bought Hungun Beton, a 40-year-old factory, from the state. They also inherited the factory’s debt to its raw material suppliers. The factory had been out of production for about six years when Ms Bat-Ochir, who had just a few shares in the company, gathered 35 of its former workers and started production. “Our production volume was 3,000 cubic meters of concrete blocks in 1995 and our profit was just $80. Workers were paid a mere $20 per month. But at the time there were no other local suppliers of concrete blocks and we were committed to making Hungun Beton productive again,” explains Ms Bat-Ochir. From 1995 to 2001, Hungun Beton strived to produce blocks, to pay back a loan to a local bank and pay huge electricity bills along with salaries and taxes. “Any profit went towards buying more shares in the company,” explains Ms Bat-Ochir. “Company management, product quality and marketing were the last things on our minds.” They were soon to become key issues, however: by 2001, 20 new competitors had started making concrete blocks to meet demand in Mongolia’s booming construction industry. To help Hungun Beton, TAM brought in a concrete technology engineer and a marketing adviser both from Belgium. “We choose experts from our database of 3,100 senior industrial advisers and specialists from a wide array of industries. Each adviser has at least 15 years of experience as the CEO of a company in a market economy,” explains Charlotte Salford, the Director of EBRD’s TurnAroundManagement and Business Advisory Services programmes. One problem Hungun Beton faced was that its concrete blocks were too heavy. “When we purchased our limestone mine, we ended up with a heavy lime as that was the cheapest option but not the best quality. TAM convinced us that it was essential to use a lighter lime for better bricks,” says Ms Bat-Ochir. Selling concrete blocks “In terms of marketing, the TAM adviser washed our brains completely,” says Ms Bat-Ochir. “Marketing, as we had applied it, was just about advising builders to use our product.” The TAM marketing adviser suggested they direct their advertising to architects as well. “It is the architects who design buildings and decide what materials are to be used. Why had I never thought of that?” asks a smiling Erdenecimeg. “Today Hungun Beton leaflets are distributed at every architectural trade fair.” What about becoming client-friendly? One of the advisers convinced Ms Bat-Ochir to help her customers by delivering blocks to them, rather than expecting clients to do their own pick-up. High-pressure steam is essential in producing concrete blocks; unstable power supply spoils the product. Quality has improved since Hungun Beton followed TAM’s advice and started buying electricity directly from the power company rather than via the government. The firm’s energy costs are higher but power cuts are no longer a problem and block quality is maintained. Ms Bat-Ochir now owns 98.5 per cent of the shares in Hungun Beton whose production has risen from 3,000 cubic metres in 1995 to 26,000 in 2005; it aims for 40,000 cubic metres in 2006. Annual profit has increased to $200,000 and salaries have increased more than tenfold. Expanding the factory, improving technology and employing more staff are Ms Bat-Ochir’s goals. Hungun Beton is not the only company to have benefited from TAM advice. In Mongolia TAM has carried out 24 restructuring projects with €2.3 million in donor funding. These enterprises generate a total turnover of over €200 million and employ nearly 7,600 people.
By Marjola Xhunga, an EBRD communications adviser
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