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Helping construct Mongolia's great infrastructural journey

Interview - March 13, 2014
While Mongolia is a huge country in terms of territory, its population is sparsely distributed. To help the nation develop, the government has prioritized the construction of better infrastructure, particularly housing and roads. Having seen a huge opportunity for business in this area, Mr. Amgalan Baljinnyam set up his company JKC LLC ten years ago. He talks to United World about his, and Mongolia’s great infrastructural journey
Mongolia opened to international trade in 1990 and even though it is located between two giants, Russia and China, it is not easy to transport commodities because of the lack of adequate infrastructure. How can the road sector contribute to the development of the country?

One of the main and first core ideas is to have a good political relationship with these two countries. The second important thing is to have a good relationship with the companies of these two neighboring countries. And once we have a good relationship with these companies, we have to have good logistics and connection in terms of roads, air and any other form of transportation.

For the economy to prosper we need relations with these two neighbors and logistics and transportation are the core. JKC was established in order to meet this demand.
How did the idea come to you to set up the company?

Mongolia is a huge country and the population is quite scattered. One of the policies of the government should be connecting its population with electricity and roads to provide them with a stable environment to grow as a country. Ten years ago I established the company to construct roads because I saw that there was an opportunity of business. 
At the very same time I also started a second line of business, which is construction development. As you know, Mongolia has a nomadic culture. And we are just in the transition between nomadic into urban and this process started just 100 years ago. So there are lots of opportunities. When people get wealthy they want to buy good houses and cars.

These are the main needs. In my opinion, we need lots of buildings and roads, which is why I entered into this market and started this company. 
The company has also a third line of business: we are trying to do commerce, but we did not yet reach a good level. I have been in America and I have an idea of how America conducts trade, which is something that I like. But here in Mongolia, everyone has a right to trade and commerce, which is very liberal and unorganized. We have to improve in this regard. 
What would you consider to have been the major achievement of the company so far?

When we started the company, we didn’t start locally. We were quite ambitious and we thought about exploiting our neighbors’ countries markets and considering the opportunity to build apartments in Russia. At that moment, the company hadn’t built any construction even in Mongolia. I started talking to my friends and partners in Russia and eventually we actually built the first Mongolian developed construction district in Russia.

The project in Ulan-Ude actually didn’t reach 10 million dollars as originally planned but it reached 3 million dollar investment which is still a very satisfying result. 
Is that the only time that the company operated overseas?

No. In 2004 and 2005, we established a company in Almaty city, Kazakhstan. We called the new company JKC Kazakhstan. We conducted research on building residential complexes in Kazakhstan as in 2004, the sector was booming in that country.

We started researches in Ulan-Ude and Kazakhstan simultaneously but at some point we had to realize that our company was a new company and it was too much handling both projects. So we decided to take a step down on our ambitions and concentrated on Ulan-Ude as going there was easier. In order to go to Kazakhstan, we had to go through Moscow and China. We completed the project in two and half years.

We had a really good location and received support from the city council.
What about your operation here in Mongolia?  

We have been conducting researches on building construction here in Mongolia, but young companies usually have financial problems.

The construction project is quite good but it needs financing. We conduct small projects annually and we usually cooperate with Komatsu and Isuzu. Here in Mongolia the esthetic is not always prioritized. When you walk in the street, even in really good locations, you can see some buildings with good designs and others where the construction is poorly done. I believe this is quite a loss. I don’t focus on profitability. I rather prefer to build something that looks good.

Therefore we decided to cooperate with foreign architecture companies. For example we cooperated with an Italian architecture company called Finenco which established here a subsidiary called Finenco-Mongolia. The CEO has the same age as me. Some time ago I was introduced to him and we started working together. 
I have an architectural background. I studied in Moscow for five years between 1983 and 1988. I worked as a designer for 5 years in Ulaanbaatar.

That sums up to 10 years spent in the design field. On one side of this brain, the design always exists. Based on this background, I started the company with Italian partner. 
This relationship with the Italian company is having positive collateral effects. We hired the best students of the Technological University of Mongolia and sent them to Italy and Shanghai to improve their skills. Now all the students are working for the big groups here. We recruited 10 newly graduated students and had them work with Italian companies. Using the Italian company, we were involved with a number of major projects that are extremely good in design. 

We know that you also worked with a Chinese company through a Joint Venture set up to build the the road between Ulaanbaatar and Mandal-Gobi. Have you ever worked with American companies?

I mentioned three things before: road construction, building and commerce. We actually opened a company in Denver (Colorado) privately. The American JKC company is just a one-person company. This company got the license to sell Mongolian vodka Chinggis.

The problem is that selling vodka in the USA requires lots of cash. For example, the vodka Finland is supported by the Finnish government. In Mongolia, the Government doesn’t support the vodka export and the company itself doesn’t have the financing. Nowadays the Grand Khan vodka is being sold in the U.S. but the only customers are Mongolians or Americans who lived in Mongolia.
We know you have nearly 100 employees including engineers. What is the policy of the company in this matter?

MrThe main principle of the company is that everyone works together, engineers and mechanics, should share their time and skills. Our employees know that it is not just about salary: when they work, they work for themselves and for their personal satisfaction. Everyone at the company understands this principle.
The company was established 10 years ago. Since that time, you have participated to some important projects and built prestigious buildings, collaborating with international partners. What differentiates JKC LLC from other companies?

When you are running your business, it is boring to copy or duplicate someone else’s work. In western countries, engineers come up with great designs and solutions. So instead of copying each other locally, we establish business relationships with them and bring new solutions to Mongolia, because in Mongolia, everything is quite new.

And when you have high skills and you work following international standards you are not stuck to your local market. You can even develop a road in Russia, Kuwait, South Africa or Myanmar. This is what interests me.
You said before that Mongolian companies lack financing. How is, in your opinion, the Government handling this situation? And how do you think foreign investments can help in Mongolia?

I will take the example from the road sector. I will give my own opinion on how the investment from the government can influence the sector.

The government has a limited budget and only a small portion is spent on road construction. But the demand is huge. So instead of spending this small proportion, we should attract foreign investments and build large scale projects. Mongolia has a small population, building big roads and later getting an economical profit from the road is quite minimal. So the government has to invest bigger financial resources in this sector. I think that we should take the cash from the mining sector’s revenue. This strategy is adopted in several countries. The country has lots of planned income from mining.

The Government should use this future income and invest it to improve local infrastructures in order to satisfy the demand of today. There are the two different methods: borrow from the future or grow little by little. It is a matter of how much the country can afford to borrow. The government has reached its level and in the future, we can trade the commodities. There are lots of plans and studies for growth but at the moment all these have been stopped, as the government lacks the financing.
Since the government is slowly progressing on the financing, it might be better to try to find the capitals through business-to-business partnerships.

When it comes to investing, foreign companies ask for a big entity that guarantees for their risk. We, JKC, can’t make a guarantee on big projects and the government is also short on guaranteeing. For foreign investors, there is the concern of when they will get paid. Because it is unclear when the investor will get paid back, the government can be the back support. The government exports coal to China and when the payment is done, the investor gets paid. 
The current environment is preferable. Compared to previous years, the Government is giving low interest rate loans. So it seems that the sector will have big growth.

The road sector is closely related to the government, its policies and its decisions. We are in a development sector. What we seek from the government is stability. As you know, the government policies fluctuate and directly influence private companies. But people who are involved in construction, development and buildings are very optimistic. I’m also very optimistic. Italians influenced me.
What is the kind of construction you would like to build to give your contribute to Mongolia’s development?
As long as people are doing something, there will always be a profit, and profit can be money or fame or genuine personal satisfaction. I don’t really concentrate and seek monetary profit. The whole idea is actually to develop and build something. I want to say “I built this”. 
The current situation in Mongolia is that, people have become so materialistic, focusing on who owns what, who is living in which apartment and which car he’s driving. When I went to Russia to study 18 years ago, I was told by my father: “When you meet somebody you will be judged by what you wear. But when you go away, you will be judged by your knowledge”. In the US and Europe, they passed the stage of being extremely materialistic. Now it is not just in Mongolia, it is in Asia. 
I realized this when I visited a company which has existed for 100 years and only produces classical furniture. When we conducted research of the market, only 30% of what is sold in the European market is classical. That furniture company also established its branch in Asia and 70% of the future being sold is classical, and only 30% is modern. When you get into an office of 1800s - 1990s, all the furniture would be classical, so wealthy Asian people think luxury is classical furniture.

Classical furniture limits a person’s thoughts, whereas, modern furniture frees your mind. 
What message would you like to deliver to our readers? 

Because Mongolia is a developing country, we have to look at Western societies. We can see what our future can be and learn from western societies trying not to make their mistakes.

On the other hand, when people from developed countries come to Mongolia, they can easily see everything that can be done here. They can see what Mongolia doesn’t have. They can see the opportunities and take advantage of it. And anything you do will be successful.