How the New-York based American Entrepreneur survived the cut-throat world of Mongolian cashmere: In his own words

Fortune magazine published story about Matthew Scanlan, CEO of Naadam Cashmere, a company specialized in procuring and producing cashmere products in Mongolia.

Today's cashmere sector of Mongolia is very competitive sector dominated by Chinese buyers and processors in fierce competition with Mongolia, Italian processors and producers.

Matthew's outlook to the value creation and eliminating "middle man" or the changers is very interesting. Enjoy the article.

Matthew Scanlan, CEO and co-founder of Naadam Cashmere, travels to Mongolia to work with nomadic Mongolian herders.Photo: Taylor Weidman

How I Used 'Millennialist Capitalism' to Help My Employees


My employees are nomadic herders in Mongolia.

When we think of “rigging the system,” we connote something deleterious – and rightfully so. My goal has been to change that perspective. I wanted to rig the system in the favor of the people I worked with as well as the people who worked for me.
My business partner Diederik Rijsemus and I are the founders of Naadam Cashmere, a socially-conscious brand that sources cashmere from local herders in Mongolia. When we started the company, we were confronted with a wave of inconsistencies that permeated from the bottom to the top of the supply chain. Frankly, it was BS.
At the bottom of our supply chain are the people who herd goats and sell cashmere. They are the best in the world at what they do, and the trade has been passed down for centuries. These herders know the land and the practices better than anyone else, yet they are often taken advantage of. These are the most remarkable people on Earth – most of the women are stronger and tougher than NFL players. However, the system doesn’t work in their favor.
Here’s how it works: outside traders come in to the market and force prices down. They buy as cheap as possible and sell up to make a margin. The average margin determines the global commodity cost average. The herder never realizes the value of his organic, hard-earned materials.
We realized that if we went directly to the source, we could remove the middleman. This allowed us to outbid the other traders and provide fair value for the cashmere we were purchasing, while still pricing ourselves lower then the competition. In order to achieve this, we held auctions where we worked with local government officials to pre-set prices about the average cost. We set the price high because we don’t need the margin. We then got our pick at the whole lot, while also positively impacting the communities and the livelihood of the herders. The ultimate goal was to rig this decades-old trading system to favor the base of the supply chain, while also making a profit. It is not Marxism – I call it “millennialist capitalism.”
We believe supporting the community can actually be good for our bottom line. Our supply chain uses social impact investing as a tool to positively impact the lives of the people we work with directly and indirectly. I use a simple principle that Fortune 500 companies have known for years – if you invest in your employees, profitability increases. For instance, Google  GOOGL 0.72%  is known for its lucrative compensation packages as well as the opportunity to grow within the company. In other words, Google invests company profits directly back into the supply chain. Google’s supply chain may look different than mine, but the concept is the same. The difference is that my employees happen to be nomadic Mongolian herders. Their names are not Brad, Steve or Melissa, and they don’t sit three desks down from me. But I also have to take the time to fully understand what truly incentivizes them. Diederik and I travel to Mongolia, drive 20 hours through mountain roads to get to them, but the conversation is similar. We ask them about the resources they need, how we can address their pain points and how we can help them achieve their goals. We then determine the best way to incentivize them and invest our profits into the things that affect them most. For instance, the health of their animals is very important, so we invest in veterinary programs for every herder that we buy from. Healthy animals create stronger, healthier fibers that are more valuable. We then buy them at an increased value. The happiness and health of our herders and their livestock have a direct impact on the value of our materials.
The fashion industry has never really operated like this – it has primarily existed to increase profit margins by marginalizing communities and people at the bottom of the supply chain. We found a way of increasing profit margin without hurting people, and we are transparent about the entire process. This year, we bought 40 tons of cashmere and gave $150,000 back to The Gobi Revival Fund NGO, which inoculated 250,000 goats for 1,000 families providing 100% coverage to an entire region.
This is social-impact investing in supply chain economics. It feels like the right way to do business.

Source:Fortune.com
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