Korean businesses establish a foothold

ULAANBAATAR, Mongolia - Although the city’s atmosphere seems old-fashioned and foreign, it isn’t difficult to pick up a Korean scent on the streets of the Mongolian capital.

Hyundai, Kia and Daewoo vehicles move through the streets, and advertising boards for of LG Electronics and Korean Air Lines are seen near central Sukhbaatar Square. There are several Korean restaurants to choose from and even a Seoul Street.

Since Korea and Mongolia established official diplomatic relations in 1990, the relationship between the two countries has been getting stronger. According to data from the Ministry of Foreign Affairs, more than 44,000 Koreans visited Mongolia last year, and about 3,000 reside in the nation known for Genghis Khan.

Mongolia is one of the world’s fastest growing markets. In 2011, its gross domestic product (GDP) surged a record 17.3 percent because of exploitation of its vast mineral resources, according to data from the World Bank.

Although growth slowed a bit last year after the government imposed strict measures to expand its oversight of the economy, the World Bank still estimates that Mongolia’s GDP is expected to grow at a double-digit rate for the next five years. In the first half of this year, economic expansion in Mongolia was 11.3 percent, according to data from the National Statistics Office of Mongolia.

“Of course there are difficulties, but Mongolia is one of the promising places for Korean companies to do business as the country is growing,” said Park Ho-sun, chairman of the Korean Chamber of Commerce and Industry in Mongolia.

According to Export-Import Bank of Korea, Korean investment in Mongolia was $55.26 million, an astonishing increase from $240,000 in 1994. The value of trade between the two countries was $487 million in 2012, which made Korea the fifth-largest trading partner of Mongolia, according to data from the Ministry of Foreign Affairs.

Some major companies already have been paving the way. KT, Korea’s leading telecommunication company, bought 40 percent of shares of Mongolia Telecom in 1995 and won a contract in 2007 to set up the government’s Integrated Data Center.

Hanjin Group has also maintained a close relationship with Mongolia through its affiliate Korean Air Lines by donating an aircraft and offering cabin-crew and airline operations training. KAL is currently the only local airline flying to Mongolia, and it signed a code share agreement in 2010 with MIAT Mongolian Airlines.

Samsung Construction & Trading has recently expanded its presence by winning construction orders thanks to the Mongolian government’s initiative to increase spending on infrastructure. The company, which previously focused on mineral trading in Mongolia, won a $483 million railroad contract in May.

With an increase of companies doing business in Mongolia, the Korea Trade-Investment Promotion Agency (Kotra) last month opened a branch in Ulaanbaatar to assist local SMEs.

Kotra also signed a memorandum of understanding with the Korea Institute of Science and Technology, the Mongolian Academy of Sciences, and the Institute of Chemistry and Chemical Technology on agribusiness cooperation.

However, experts caution that entering Mongolia isn’t easy and there is no guarantee of success. According to a recent survey by the Korea Institute for International Economic Policy of 59 Korean companies in Mongolia, more than half of them said the complex government administration system was the biggest challenge to starting a business in the country, followed by the language barrier.

Meanwhile, a lack of infrastructure and logistical difficulties in supplying parts and materials were cited as the two biggest problems when conducting business, according to the survey.

BY JOO KYUNG-DON [kjoo@joongang.co.kr]