Small Japanese firms find big business opportunities in Mongolia

By KEN MIYAZAKI/ Staff Writer



SHISUI, Chiba Prefecture--Sake brewer Iinuma Honke Corp. is daring to try to change the drinking habits in the vodka-loving nation of Mongolia, pitching its mainstay Kinoene brand, which boasts a fragrant, dry flavor.
It's a taste they hope catches on in Mongolia, where sake, which has a lower alcohol content, is gaining converts amid a growing health awareness in the country, particularly among upwardly mobile people.
"A business opportunity lies precisely where major companies never go and sell their products," said Kiichiro Iinuma, the 62-year-old president of the brewery in this town located not far from Narita Airport, which started exports to a Japanese restaurant in a high-end hotel in Ulan Bator in May.
Iinuma Honke is just one of a number of small and midsize Japanese companies that are expanding operations into Mongolia, where economic growth has turned nomads into urban dwellers and has spawned business opportunities in the food and housing sectors.
Those ventures are hoping to get the jump on Russia and China, which have strong ties to Mongolia, and make a name for themselves in the Central Asian nation, which has gained an impressive reputation in Japan as a major supplier of talented sumo wrestlers.
Traditional Mongolian fare centers on meat, but more Mongolians have taken to eating vegetables as well amid a growing health consciousness. With a climate too chilly for farming, the country has relied on China for vegetables, but imports from China are not exempt from concerns about food safety, such as the use of agrochemicals.
That's where Mirai Inc., a venture capital company based in Tokyo's Chiyoda Ward, fits right in. Mirai manufactures and sells "plant factory" equipment for growing vegetables indoors under artificial light.
The company clinched contracts to sell two 500-square-meter plant factories to a restaurant chain in Mongolia last spring. It was the first overseas export for Mirai, which has only about 30 regular employees. It has also received inquiries from firms in China and Russia.
"We hope to sign contracts with them by the end of the year," said Shigeharu Shimamura, the 42-year-old Mirai president.
Mongolia is enjoying strong economic growth on the back of mining resource exports. Nearly half of the country's population is clustered in or around Ulan Bator, the nation's capital.
International Monetary Fund statistics show its real gross domestic product growth rate earneed the world's top place in 2011, and was the third highest in 2012. Another strong growth rate of 11 percent is expected for this year.
Perhaps the best-known Mongolian form of housing is the yurt, a collapsible tent used by nomads. But economic development is turning nomads into permanent urban dwellers.
One estimate says 60 percent of the Ulan Bator residents previously lived in yurts. Construction of apartment buildings is thriving on the back of government incentives.
Takagumi, a construction firm in Asahikawa, Hokkaido, drew on its familiarity with cold winters to expand into Mongolia to sell housing that is adapted to chilly terrains.
"Asahikawa and its surroundings have a market of only up to 500,000 people," said Kikuo Taka, the 50-year-old Takagumi president. "The Mongolian market is bigger and is therefore attractive."
The company is hoping to tie up with a Mongolian construction firm to win more orders.
Other Japanese businesses setting up shop in Mongolia include a conveyor-belt sushi restaurant, a Japanese-style pub and a ramen noodle shop, but large Japanese companies are underrepresented. They are, in fact, less interested in the Central Asian country.
"China is our top priority," an official of a major distributor said.
"There are many other countries to venture into," said an official with a major food maker.
Kenji Shimizu, deputy head of the China and North Asia Division in the Japan External Trade Organization, said big businesses lack enthusiasm for a good reason.
"Mongolia has a small population, only as big as mid-size cities in Japan," Shimizu said.
But the factor discouraging major companies from active engagement with Mongolia is precisely a compelling reason for engagement by small and midsize enterprises. Mongolia's market size is just perfect for them, and the fact that the market is centered around Ulan Bator enables efficient operations.
Kenji Kurahara, a vice president of Global Development & Management Consultants Inc., echoed that optimism.
"The Mongolians like Japan because of the sumo connection," said Kurahara, who is well-versed in Mongolian affairs. "Human resources can easily be found there, because many young Mongolians like the idea of working for a Japanese company. That's a business opportunity for small and midsize Japanese enterprises with technological excellence."
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