Just as Mongolia is one of the world’s largest producers of cashmere, Ulaanbaatar, with its showrooms piled high with cardigans, dresses, scarves, hats and pashminas, can claim to be the fibre’s fashion capital.
The quality of Mongolian cashmere is excellent, and its price very competitive compared to other producer countries. Mongolia may be far away from the luxury fabric’s main consumers, wealthy Westerners, but the world’s fashion industry is increasingly interested. And Mongolian cashmere garment producers are trying to seize the moment.
“Cashmere is probably my favourite Mongolian business success story,” said Olivier Descamps, the EBRD Managing Director for Turkey, Eastern Europe, Caucasus and Central Asia. “We were one of the first international lenders to get involved in the industry. The EBRD saw its potential right away, after the beginning of our operations in the country in 2006.
The EBRD’s investments into the Mongolian
cashmere industry were made possible thanks
to the support from the multi-donor ETC Fund
and the Mongolia Cooperation Fund, to which
Japan, Taipei China, Netherlands and
Luxembourg had contributed funds.
“Apart from mineral resources, cashmere is Mongolia’s only other significant export. What they needed was to raise the quality of their product. And we thought of several ways to help.”
Mongolia produces about a fifth of the global supply of raw cashmere. At about US$ 45 per kilo of raw material, it is a reliable source of income for nomadic herders, bolstering traditional lifestyles threatened by rapid urbanisation. In fact, the ratio of goats to people in the country has quadrupled since the fall of communism and now stands at around six to one.
But because goats, unlike cattle, can graze a pasture to death, there is a clear limit to the sustainable production of raw cashmere.
So the industry started to look for ways to add value by increasing the quality of manufactured garments. For that, factories needed to buy better equipment and improve skills, in particular in the design and finishing of clothes.
The EBRD has been an important player in advising the local industry. Aza Ulziitogtokh, a principal banker in the Bank’s manufacturing and services team, said: “We reckoned that after the financial crisis, global players in luxury products would be looking to outsource even more of their garment manufacture to emerging markets.
“Mongolia has one of the best-quality cashmere fibres and a significant potential to develop brand differentiation from China. We decided to try helping our clients, Ezio Foradori and Gobi, to increase the value on their exported cashmere products”.
Japan also provided substantial technical
assistance outside the funds. Gobi received
around €200,000 of donor funding, mostly
from Japan.
Set up in 1981 and privatised in 2007, Gobi is fully vertically integrated, purchasing raw materials from farmers, cleaning wool, spinning yarn, weaving fabric and then making garments, both knitted and tailored. Today, it produces as many as half a million pieces of knitwear each year.
In the past, the company made most of its garments to order for foreign clients. But the new management decided to add value by increasing production of higher-quality clothes made to their own design.
The EBRD financed the purchase of Italian equipment, and through its Small Business Support team, the Bank brought in international experts to advise the company on how to improve their quality control.
Gobi also started collaborating with an Italian designer, Saverio Palatella, and began moving away from dated 1970s patterns. While not sold under its own brand in Liberty or Bloomingdale’s, Gobi cashmere is increasingly popular worldwide, especially in Russia, and can even be found in a small shop in Washington, DC.
But rising domestic sales are the greatest source of pride for Gobi’s CEO Baatarsaikhan Tsagaach. The increase has been driven partly by foreigners working in the mining sector, and partly by the purchasing power of the growing Mongolian middle class.
“Mongolians have global tastes now and our domestic customers have grown to expect the best, so we are going for more fashionable designs and cooperating with designers like Saverio Palatella not only for export but also for our domestic sales,” he said. Thanks to these improvements, Gobi’s sales doubled between 2007 and 2012.
Some companies have built their business strategy purely around export. At the smaller end of the industry is another client of the EBRD, a local garment manufacturer with an Italian name – Ezio Foradori – which shows the direction of the company’s thinking.
The company makes knitted menswear for Dunhill. Recently, Max Mara paid an introductory visit to the manufacturer. Apart from showing in one store in Ulaanbaatar, most of Ezio Foradori’s output goes abroad.
Cashmere begins life as the downy winter undercoat of a goat. One animal, shedding its winter coat from March to June, produces about 150 grams of fleece. While Mongolian cashmere fibres are one to two microns thicker than the finest varieties from China’s Inner Mongolia, they are also about 10 to 15 per cent longer as a result of the harsher winters.
This is why China – a global leader in the supply of cashmere – imports Mongolian raw cashmere which it then mixes with its own, shorter-fibred variety, to improve strength.
Herders and cooperatives sell raw cashmere to factories like Gobi where it is graded, washed, de-haired and processed to produce beautiful white or grey clouds of fluff, lighter than a feather and luxurious to the touch.
As for every agricultural commodity, quality dictates price and depends on seasonal conditions. In response to increased interest from abroad, Mongolia is establishing an internationally-recognised certification for cashmere.
The ETC Fund financed a technical due diligence
which included assessing the company’s business
strategy and proposed capital expenditure plan. Ezio
Foradori benefited from donor funds provided by the
ETC Fund and by the Mongolia Cooperation Fund.
Of course, not all Mongolian factories work with international houses. Not all herders comb baby goat cashmere for luxury brands, and as yet few companies can afford to hire Italian designers. But times are changing. In addition to the Saverio Palatella range, Gobi has launched a separate collection of organic cashmere clothing.
“My parents always dressed me in Mongolian cashmere as a kid,” said EBRD analyst Enerel Tumendemberel, a stylish woman in her 20s. “I’ve had Gobi clothes all my life. Now that I work for the EBRD, I am very proud that we can help the factory move towards higher quality.
“Mongolian cashmere needs more international recognition, so it would be great if more foreign fashion houses discovered it, but I also hope more Mongolians can afford to wear it every day.”