A Pestle Analysis of Mining Industry

1. Executive summary

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This report has analysed the investment setting of mining industry in Mongolia. The PESTLE analysis is taken into account first as a primary narration of the situation, and then the evaluations primarily based on this PESTLE analysis are given to show the quality of the Mongolian funding environment. From the former analysis it can be seen that the general investment atmosphere is sweet for the Chinese company. And contemplating the particularity of the native investment environment, it is higher that the Chinese mining company forms a joint venture firm with the native authorities.

And within the preliminary stage of the company’s operation, a strategy with excessive FSA and low CSA are beneficial so as to construct the model consciousness and to be localised. Furthermore, the future environment and the potential risks are thought of to have the ability to overcome and approved. Therefore, it’s a good determination that to increase the mining business in Mongolia.

2. Introduction

With the development of the worldwide economies, the present demands for the power sources are becoming more and more tough to meet.

It can be seen in the world that the conflicts of sources have concerned increasingly more international locations in current years. The Mongolia, however, possesses a rich quantity of undeveloped mineral resources, which attracted a lot buyers, particularly countries like the U.S and China, who are intending to get benefits from the co-operations on resources mining trade.

Therefore, an evaluation based on the connection between Mongolia and China is important to the Chinese corporations which are planning to broaden their companies in Mongolia.

This report goes to do a PESTLE evaluation based mostly on the literature evaluate of the earlier introduction reviews of Mongolia. Then additional discussions in regards to the future entry options and dangers will be briefly thought-about to current the recommendations and strategic options about the investment in Mongolia.

3. PESTLE Analysis

Mongolia used to been identified for its herding and agriculture export merchandise. Since 1980’s, over eighty mineral reserves have been confirmed and that made the minerals and ore concentrates turn out to be one of many major export merchandise. However, due to Mongolia’s remote geographical position and the less-development of the transport methods, great amount of the assets usually are not being exploited but. (SKhouri, 2008). It could be seen that there’s giant potential profitability of the Mongolian mining industry.

3.1 Political

* Mongolia was a half of Qing dynasty before the early 20th century, being considered as an essential military space between Bolshevik Russia and Qing dynasty. And then with the help of Bolshevik Russia, the Outer Mongolia has separated from a province of Qing dynasty and turn out to be a Soviet system modelled nation. Before the collapse of the U.S.S.R., Mongolia has no vital popular unrest in the course of the one-party communist system period. And with the reformation of the state system, which is changing from communist rule to the parliamentary system with a multi-parties’ congress, Mongolia has reverted to the stabilisation of its political environment.( U.S. Department of State Background Note of Mongolia, 2007)

* Since the Outer Mongolia was separated from China in 1946 and became an unbiased nation, its domestic political surroundings is fixed until the disintegration of the U.S.S.R. happened in early Nineties (Mongolia, 2010). Because of the disappearance of the Soviet assistance, Mongolia has felt into a really deep recession, which resulting in the reformation on state system (U.S. Department of State Background Note of Mongolia, 2007). Then with the stabilisation of the political setting, Mongolian government introduced the free-market economics and broad privatization of the previously centrally decided economy, which result in a steady financial growth return within the first decade of twenty first century (U.S. Department of State Background Note of Mongolia, 2007).

* In mid-2006, the Mongolian Parliament has handed a profile about taxes on the windfall earnings of copper and gold. Meanwhile, major amendments to the minerals law which legalised the actions that government can take an fairness share in main new mines (U.S. Department of State Background Note of Mongolia, 2007). And the influences of these laws usually are not displaying up presently (U.S. Department of State Background Note of Mongolia, 2007).

* However, as compared of the middle-east international locations, there is no information base which reveals that Mongolia is affected by any terrorism.

4.2 Economic
* The economic sample of Mongolia is blended economies. With the influence of the U.S.S.R, Mongolia has been via a period of state-run financial system; and with the collapse of the U.S.S.R and the next deep recession, Mongolia has embraced the free-market style economics and enlarged the privatisation of the previous economy (U.S. Department of State Background Note of Mongolia, 2007).

* The World Country Profiles confirmed that traditionally, Mongolian financial development sample is majored in the herding and agriculture primary products exported to the neighbour international locations. But in latest times, with the invention of the assorted minerals existence and the mining industry’s rise, the secondary industry especially the mining trade has become one of the engines for economic progress. In addition, because of the remoteness and unpolluted pure beauty, the tourism and service industry has turn into another reason of the economic growth growth (U.S. Department of State Background Note of Mongolia, 2007).

* In 2006, the Mongolian Parliament handed the company income tax legislation, aiming at chopping the tax burden and encouraging the growth of financial system (U.S. Department of State Background Note of Mongolia, 2007). The collection of activities which can be a profit for the overseas firm to hitch the mining industry and have a corporation with the native government.

4.3 Social

* The data base of Central Intelligence Agency indicates that the labour drive of Mongolia is 1.068 million in 2008; the occupation of the secondary business sector is only 5% of total. Furthermore, the data base in 2009 additionally reveals that the median age of the entire inhabitants of Mongolia is 25.3 years, during which male are 24.9 years, while the unemployment price in 2008 is 2.8% (CIA, 2010). It could be concluded that the main labour drive for the mining business are plenteous, setting up a mining company in Mongolia may help the local government solve the unemployment problem.

* By the top of 2004, the inhabitants below poverty line in Mongolia is 36.1% (CIA, 2010). Large inhabitants are relying the traditional agriculture and herding industry and can’t help the family. And due to the affect of the communist belief, Mongolian people’s social values are relatively easy, and will have huge thoughts and large motives to earn extra money and built their residence, their attitude towards working have to be optimistic.

* However, there may be a discrimination trends among the many Mongolian individuals in the direction of Chinese businessmen, even though the central government has a relatively good relationship with China. That may be concluded as a historic purpose. And because of the native Chinese’s manner are not acceptable by the Mongolian people and have a foul affect among the local customized. (The sturdy anti-China temper of Mongolia, 2009)

4.four Technological

* There is few literature assets about the technical terms in Mongolia can be discovered, but the only factor that may be sure is that Mongolian authorities spend about 5% of GDP on its schooling expenditures and the school life expectancy is thirteen years on common, in accordance with the database of the World Factbook (CIA, 2010). four.5 Legal

* There are established legal guidelines of Mongolia on Legal Status of overseas Citizens, which was enacted in December 1993, and the newest amendments have been executed in December 2000, aiming to guard the rights of the international citizens (Lynch & Mahoney, n.d.).

* The Company Law of Mongolia is enacted in August 1999, setting up the fundamental ideas from the company’s foundation to operation and plenty of other elements in Mongolia (Lynch & Mahoney, n.d.).

4.6 Ecological

* Recent years, with the economic growths elevated, Mongolia’s setting has been deteriorating. It is alleged that “burning of soppy coal by particular person house or ‘ger’ owners, energy crops, and factories in Ulaanbaatar has resulted in severely polluted air; and likewise deforestation, overgrazed pastures, and efforts to extend grain and hay production by plowing up extra virgin land have increased soil erosion from wind and rain” (U.S. Department of State Background Note of Mongolia, 2007).

* Furthermore, there is a heat debate in home Mongolia that concerned the non-transparency within the authorisation progress from the local authorities to the international mining corporations, which mainly belongs to China, Japan and other neighbour countries. It is taken into account that the present dramatic and relatively unregulated growth in mining sector for minerals (gold, coal, and so forth.) might convey hidden troubles in future (U.S. Department of State Background Note of Mongolia, 2007). 4. Analysis of the longer term environment

From the previous PESTLE evaluation, it may be seen that the entire economic surroundings of Mongolia is not be properly developed yet. There are large potential of the economic growth in Mongolia, and the profitability of the mining business are large. The local government need a media to transform its economic progress pattern from the sample of major trade as main to the sample of secondary trade as main as tertiary-industry, and to develop itself to go to the world as well.

Therefore, a overseas funding from the neighbour nation is firmly welcomed by the federal government, so as to profit the both countries’ interests. In addition, the cross-border commerce contracts between China and Mongolia is the cornerstone of the two countries’ relationship and provides the safety of the trade (U.S. Department of State Background Note of Mongolia, 2007). Hence the lengthy run official investment atmosphere between Mongolia and China are going to be steady and attractive. And with the awake of the Chinese people’s method facet, the non-governmental relationship between Chinese and Mongolian will be a lot closer, which would make the environment extra good than ever.

5. Entry mode options

* WFOE—to turn into an entirely foreign-owned enterprise

One of the entry mode options is to become a WFOE, in Mongolia which is not that doable. Because of the native government has established some policies that require sharing an fairness stake in major new mines (U.S. Department of State Background Note of Mongolia, 2007). Otherwise, the WFOE could meet lot of troubles in its common productions from both the native government or the work force because of the tradition limitations. Google in China is a good example that reveals the completely different culture could make a great amount of loss. Therefore, this entry mode choice just isn’t beneficial.

* Mongolian-China Joint venture enterprise

This is considered one of strategies to attract the overseas investment in China, and many of the foreign corporations choose this entry mode to get the benefit from the native government. In comparability, that is the better means for Chinese companies discover a cooperation relationship with Mongolia than do the WFOEs. Thus, from the way in which that native authorities present the licences and hardware amenities, and Chinese corporations provide the technical help and operations, each nation sides can obtain the biggest pursuits. Furthermore, that kind of joint venture can remedy the local unemployment problems and may deliver the sources to China. Hence this kind of enterprise is strongly recommended.

6. Potential risks

However, the potential dangers nonetheless exist. Because of the worldwide shortage of vitality resources, there are a lot of strong rivals waiting for taking share of this revenue. And because of the historic causes, Mongolia has to judge the cooperation with China rigorously, considering the unpleasant historical past of cooperation. The potential dangers could affect the future operation of the Chinese mining business and all the aspects of the hidden risks ought to be reconsidered seriously.

7. Recommendations and strategic option

7.1 Strategic options

According to Dr. A.M.Rugman (2009)’s FSA-CSA matrix, there are four strategic options that the corporate can choose, both low FSA and CSA; excessive FSA with low CSA; low FSA with excessive CSA; both excessive FSA and CSA (A.M.Rugman, p.g.51, 2009). Regarding the characteristics of the Chinese mining firm, two strategic choices are beneficial, that are high FSA with low CSA, and each high FSA and CSA. By possessing a excessive FSA, the company has its personal proprietary expertise that can set up a leading competitive advantage which is difficult to exceed.

Moreover, it might be better that the corporate possess the high CSA, which might take advantage of the natural assets and the labour forces, contributed to a stabilization of the corporate in native setting, and thus being useful to the localisation of the corporate. Hence the each high FSA and CSA strategy are highly recommended. However, on the first stage of the company’s operation, it is tough to determine such strongly competitive advantages, therefore a excessive FSA with Low CSA strategy are recommended as nicely within the preliminary interval.

8.7 Recommendations

From the previous evaluation, it could be seen that a aggressive benefits of Mongolian mining business are not established yet; there is strong potential profitability of doing the mining business. With the eager of being open to the world and develop the domestic financial, the Mongolian government are firmly welcomed the foreign investments and it’s a good alternative for mining companies to increase their world business. Thus despite the mining business in Mongolia is excessive recommended.

8. Conclusion

In conclusion, this report has analysed the investment surroundings of mining trade in Mongolia. The PESTLE evaluation is taken into account first as a fundamental narration of the scenario, after which the evaluations primarily based on this PESTLE analysis are given to show the quality of the Mongolian investment environment. From the former analysis it can be seen that the general investment environment is good for the Chinese firm.

And considering the particularity of the native investment environment, it’s better that the Chinese mining company types a three method partnership firm with the native government. And in the initial stage of the company’s operation, a method with high FSA and low CSA are beneficial to have the ability to build the brand awareness and to be localised. Furthermore, the long run surroundings and the potential risks are thought of to have the ability to overcome and accredited. Therefore, it’s a good choice that to expand the mining enterprise in Mongolia.

9. Bibliography

* 1. Skhouri 2008, Mongolian Mining Industry, International Business Wiki, accessed 04 April 2010, <>

* 2. Wikipedia 2010, Mongolia, The United States, accessed 05 April 2010,

* three. U.S. Department of State Background Note 2007, Mongolia, The United States, accessed 08 April 2010,

* four. CIA 2010, East & Southeast Asia: Mongolia, accessed 08 April 2010, < >

* 5. The Strong anti-China Mood 2009, Blog, accessed 08 April 2010, < >

* 6. Lynch & Mahoney, n.d., Mongolia Laws and Commentaries

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