Friday, June 25, 2010

Outcomes and Value Chain Mapping

UB Post

June 25, 2010

In all industrial sectors, especially in all segments of mining ventures, there is value chain. Value chain is chain of activities from the very beginning of project research, to exploration, enrichment, and final production, that gives final product some value. In Mongolia, added-value chain would be more appropriate notion as it is wrongly referred as cost of value. Mongolia has only one specific industry that goes through all activities of value chain. This is cashmere industry.

In the value chain, the more getting close to delivery of products to the end customer, the more competitiveness it creates sometimes global in extent by creating future demand for the customers.
For instance, “Chanel”, “Burberry”, or “Zegna” brand name of cashmere products are sold US$500 while Mongolia’s and Chinese cashmere shirts, made of cashmere taken from exactly same goats, sold at US$100 because of quality and design.

Those top brands are well located themselves on the map of value chain analysis. It is vitally important where to be located, identify target product, and where to move forward on the map of value chain.It is worse than to shoot on the foot if large sum of investment is made and no good competitive product is made. In the end of the 1980s, North Korea produced a vehicle same as Mercedes Benz. Uncomfortable and poor design someone may think like a vehicle of wartime, such a waste of money and time. Aggressive thinking that one can do whatever goes into mind proves unsystematic knowledge or communist way of doing. By public funding, by emotional state, and with no research and experimentation, it turns waste of time, waste of investment, and waste of labor. On behalf of State, such unproductive use of public funding in such a society, no one is taken into accountability for this. Same situation persists in Mongolia. Let’s take an analysis of value chain in mining sector of Mongolia.

In copper industry, Mongolia has been producing enriched copper of 25 percent for the last thirty years. But our copper goes to pure copper producer where it is processed and added as much value and has been transferred to next activity of value chain. In a decade, we would be positioned in this stage of value chain, and may produce pure copper for the global market. In a following decade or twenty years, we would jump to next stage.

The question is to make good prediction in terms of time to where we move forward in the value chain. Because in every activity of the value chain, there is world-class competitors that offer low cost, high productiveness, and as much value added products. We need to have high competitiveness and need to compete with those. But now we talk to move into value chain of metallurgical industry. The Government aims to build a heavy metallurgical complex in Sainshand. Brilliant idea and nice thoughts.

But in terms of time, what outcome can we expect. Where would be positioned and in how long term? We need to make precise planning for every segments of mining value chain. Otherwise, what would happen if great amount of minerals are extracted after many years of debates, and such huge amount of investment is made into a project to make final product, but no one could buy it because of some reason. The reason involves so many things such as quality of the product, cost of transportation of products to end users as well as economic and political risks.

For a landlocked country, can it be competitive enough against those products made in two neighboring countries, through the territory of which we are planning to make transit transportation.
It would be a better plan if we concentrate more on processing, and enrichment of variety of minerals in the first stage of global mining value chain, and produce highly competitive value added products and spend revenues generated from these activities into more highly competitive different sectors. We have vast amount territory and small population, education sector we can improve it a lot to the world-class level that attracts foreigners to study in Mongolia and graduates can work in every corner of the world. 

Swiss-model banking and financial hub for the region is another opportunity we can strive or next generation Singapore we can build up that attracts foreign tourists with eco foods, good management natural resources. Main basis for our nation’s sovereignty is definitely a neutral policy between two giant neighbors. It is time that we need to predict more precisely from where to where we should move forward in the value chain.

Translated by Ch.Sumiyabazar


  1. This comment has been removed by the author.

  2. We all agree that we need to concentrate more on processing, and enrichment of variety of minerals. So question is not about what we need to do, it's about how we need to do?
    I believe that our neighbors have such good policy that how to hold our industry in lower level. It’s about interest where they want to create value adding process and how to hold raw material in lower price. (Because our land is equal with 14% of all China land, it's easy to imagine how it is serious for our neighbors)

    So principally we need choice of healthy market. Today, if we do contract with third neighbor they hire our neighbors to work on it. And some people argue that why we need third person to share our cake, if operates our neighbor on it. But if we have choice our material price will increase or at least our opportunities will expend many ways. But if we work only with our neighbor, we will become more dependent, which means low price.

    The promising thing is many foreign companies suffer operating in our neighbors. They interest is independence, so if we choose companies in from the third neighbor with operates in China some part, they have very good interests to work in our country and supply to our neighbor in last level of the chain.

    Now we have Mongolia -> China -> China -> … -> China -> China -> World in end user level. So that means whole middle chain is controlled with our neighbor. So we can see how strong is our neighbor. And if we continue in this way => China gets lower cost => which means competitiveness and end players get more dependent => China become more stronger => Mongolia become more dependent =>.... so on.

    And it’s impossible to jump in middle level between two Chinese companies because of that Chinese guanxi(network) thing. And only way is from back to forward. If we can build affordable transportation condition (lead time), it will influence more than tax reduction or whatever. It happens only when we have to be closer (two week -> three days) with this booming market.

    And it's not about only Mongolia, so end players need to invest to beginning of the chain to balance world economy which is good for all. I really want to see that many factories will be settled in Mongolia.