Protecting Tradition and Revitalizing a National Brand

Gobi Corporation, Mongolia

Light, soft, and warm, cashmere (extremely fine goat hair) is one of the most expensive and luxurious textiles in the world. In the international cashmere industry, Mongolia may not be the most well-known to end consumers. However, at an average fineness of only 14.5 microns (one-millionth of a meter; a fineness of up to 19 microns qualifies as cashmere), the country offers some of the world’s finest available cashmere.

Mongolia is also the world’s second largest cashmere producer, accounting for approximately 25%, with the rest coming predominantly (around 70%) from the People’s Republic of China (China), and smaller amounts from other countries such as the Islamic Republic of Afghanistan, the Islamic Republic of Iran, the Republic of India (India), and the Islamic Republic of Pakistan (Pakistan).

Out of all of these cashmere wool producing countries, the industry is perhaps most vital to the economy of Mongolia, where cashmere wool is the third largest export and over one-third of the country’s population depend on income from cashmere for their survival. However, around half of all of cashmere wool produced in Mongolia is illegally smuggled out of the country, resulting in a loss of jobs and tens of millions of United States dollars (US$) in potential revenue. With the privatization of much of the Mongolian economy in the 1990s, the country’s cashmere wool industry has sought to combat this loss through implementing certification marks and creating a strong brand image for Mongolian cashmere wool.

The country’s largest cashmere wool specialty company, Gobi Corporation (Gobi), has taken positive and successful steps to revitalize the industry and protect traditional cashmere goat herders while introducing modern production resources and innovative clothing designs. Formed in 1981, Gobi was originally a state-run enterprise that was partially privatized in 1999 and completely privatized in 2007 through a joint venture (JV) between a Mongolian company and two Japanese companies. Gobi is one of the largest specialty cashmere companies in the world, and offers customers some of the finest available cashmere from traditional nomadic herders in Mongolia.

Goods with specific geographical origin

Cashmere wool is originally named after an old spelling of the Kashmir region in India, where the fiber was first used centuries ago. After goats were imported to the plains and grasslands of Mongolia, nomadic herders soon found that their geographical location resulted in some of the world’s highest quality cashmere wool. Encompassing a vast swath of land in the northern region of China and Mongolia, surviving the harsh and extreme climate of the Gobi Desert is no small feat. Surrounding the cold, dry desert is the Eastern Gobi Desert Steppe, which is a broad ecotone (a transitional area between two ecosystems) that extends from Inner Mongolia in China north to the vast grasslands and plains of southern Mongolia, with an average elevation of 1,800 meters above sea level. It is here that many of Mongolia’s nomadic herders have lived and tended to their livestock for centuries.

It is also here that perhaps the world’s most famous varieties of goats – cashmere – live. Cashmere goats are not a specific breed, but include any goats that have a unique, silky, soft inner coat that is six times finer than human hair, and which helps the goats survive the harsh, windy, and extreme climate of the region. Indeed, the region has a dearth of available water and experiences extreme wind and rapid changes in temperature. Without this harsh and dry – but unspoiled and unique – climate, goats would not develop their fine inner coat, which lies under the outer, coarser coat that repels the weather. Strong, light, and soft, this durable fiber provides excellent insulation without being bulky, and has been used to make fine clothes for generations.

Traditional knowledge

With over 40% of Mongolia’s population engaged in nomadic herding for subsistence, the traditional knowledge Mongolian nomadic cashmere herders possess is vital to their livelihood and that of the country’s economy. Passed down from generation to generation, this knowledge encompasses intimate awareness of the local climate and environment, goat herding practices, and cashmere extraction techniques. Herders know that the best cashmere comes from harsh seasonal environmental conditions. If it is too warm, the herd will not produce fine cashmere. If it is too cold, the herd’s survival is put at risk. Moreover, it must be windy, because this contributes further to goats producing a harsh, coarse layer of hair above the soft and fine cashmere layer. Thus nomadic cashmere herders must know the exact areas that have the right environmental conditions for their goats to produce fine Mongolian cashmere.

Ensuring their herds live in the right climate is not enough, however, because a traditional nomadic herder’s cashmere goats must have access to year-round forage. This has proved to be difficult at times, as the cashmere boom of the late 1990s and early 2000s saw an increase in desertification in traditional herding regions due to a dramatic rise in the Mongolian cashmere goat population. Because of the high demand for Mongolian cashmere and the liberalization of the country’s economy, nomadic herders drastically increased their breeding efforts. While the goat population leveled off to a more environmentally sustainable level by 2012, traditional nomadic herders must possess the knowledge of areas that are suitable for foraging, and know exactly where and when to move their herd to the next location.

Once a goat has survived the harsh Mongolian winter and is ready for cashmere extraction, a skilled herder is required to complete the process. During the winter, cashmere goats grow two layers of hair: a rough, coarse layer on the outside to protect from wind, and a second soft, fine, warm layer underneath. It is this second layer that has become known as cashmere. Herders must carefully hand comb the cashmere out of the goat, ensuring that the finest fibers – mostly found around the nape of the neck – are safely harvested. Once finished, the fibers are hand sorted to remove any long or coarse hairs. The remaining fibers are then carefully washed to remove any dirt or other foreign material, and the finished cashmere is ready to be sold to a producer such as Gobi for knitting or weaving into cashmere products. The entire process requires great skill and patience, and it may take up to three days for all of the cashmere fibers to be extracted from a single goat. This traditional way of harvesting cashmere ensures that it is finer and softer than mechanical cashmere harvesting, which uses machines to quickly clip the fibers, resulting in thicker, coarser cashmere. Because the combination of the environment, climate, and traditional knowledge of nomadic Mongolian cashmere herders yields some of the finest cashmere in the world, Gobi ensures that it only sources raw materials from such herders, and this also contributes to the protection of their trade and traditional way of life.

Partnerships and research and development

Up until the late 1970s, the full potential of Mongolian cashmere went untapped, and the country was not a major player in the worldwide industry. Realizing the potential cashmere holds as a luxury item and desiring to stimulate the economy and create more jobs, the government of Mongolia decided to start a cashmere factory to commercialize Mongolian cashmere. In 1977, the government of Japan provided the government of Mongolia with official development aid via technical assistance in the construction of Gobi’s first cashmere factory. This partnership brought in Japanese research and development (R&D), technology, modern equipment, and new management practices, all of which were a first for Mongolia at the time. To ensure that this new technology and practices could be used effectively and the factory would be a success, many Gobi employees were sent to Japan for training. By 1981 the new 10-hectare Gobi factory was up and running and the company was officially open for business. Gobi’s high quality cashmere products, sourced from traditional Mongolian herders, were soon available domestically and abroad, notably in Eastern European countries. The establishment and early success of Gobi brought many firsts for Mongolia: it was the first major Mongolian brand; it was the first time average Mongolian citizens had easy access to cashmere products; and it was the first time a Mongolian company had a significant presence in Europe.

With these firsts came another: the solid development of Mongolia’s cashmere industry, which had previously only been limited to small-scale production on a local level. Since the company’s early years, Gobi has been primarily export-based. The Mongolian government soon realized the high value of cashmere, and Gobi began to heavily produce arguably the best and most valuable cashmere products in the world. With the help of Japanese partners, the company quickly grew into one of the five largest cashmere producers in the world. When the Mongolian economy entered into a phase of transition in the early 1990s, the prospects for Mongolia’s oldest and perhaps most prestigious cashmere brand brightened even further. As demand for quality cashmere increased, cashmere production became one of the main sources of income for rural nomadic Mongolian herders, their families, and their communities.

In line with liberalization policies, in 1993 the Mongolian government decided to partially privatize Gobi, and put 25% of the company for sale to private investors on the Mongolian Stock Exchange. Seeking to secure more outside investment and solve the problems that Gobi faced in the 1990s (such as increased competition from abroad and desertification), in 2003 the government of Mongolia approved the privatization of its remaining 75% interest in the company, and a formal auction took place in 2007. The complete privatization of Gobi formally took place when the Mongolian government accepted the winning bid from a JV between a consortium of two Japanese companies, Toshisuke Investment Bank and HS Securities (which own 40% of Gobi), and one of Mongolia’s largest groups, Tavan Bogd Group (which owns 35% of Gobi), for US$13.85 million. The auction was a resounding success and brought in US$1.5 million more than the Mongolian government expected.

One of the most important effects of the complete privatization of Gobi was that the company would benefit from an influx of new R&D to upgrade its facilities and processing methods. A key goal for the JV consortium was upgrading the technology of Gobi’s factory, which the Mongolian government particularly welcomed. Indeed, for many years the company was relying on older, less efficient technology. Shortly after Gobi’s new Mongolian-Japanese majority owners took over in 2007, they implemented a five-year plan to significantly upgrade the company’s factory with modern, high-tech technology. This included installing fully automated knitting machines, new cleaning and shrinking equipment, and a new spinning machine developed by well-known Italian manufacturer Officine Guadino. Other upgrades include new fiber sorting, de-hairing, dyeing, mixing, and soft-sewing equipment. In addition, the factory was modernized further by improving its ventilation and plumbing equipment. Investing over US$12 million over five years, the project was completed in 2012 and has turned the company’s factory into a state-of-the-art operation that has increased production capacity and efficiency.

Beyond bringing Gobi’s factory up to date, the new technology allows the company to create new product types that will add more value and achieve higher export and revenues. Since around 80% of the company’s revenue comes from exports, most of which is raw cashmere without any value added in Mongolia, Gobi turned to developing products that can meet the changing demands of international markets. For example, Gobi also produces half-finished knit products (which are made of a mix of cashmere and wool) and processed cashmere fiber, which are of lower quality and therefore fetch lower prices. With the new technology installed in the company’s factory, it can produce finished products that are extremely thin, light, and of high quality. Such products are more suited to markets in warmer climates, and with increased revenue from these new products, Gobi can decrease its production of lower quality products that bring in less revenue.

Branding

With a modernized factory, new management techniques, and investment from abroad, Gobi continued to prosper when it was completely privatized in 2007. However, the company faced significant historical problems that an upgraded factory and new products alone could not solve. When the cashmere industry in Mongolia took off in the 1990s, it quickly became one of the country’s top exports. Traditional nomadic herders soon found themselves with a lot of demand, not only within Mongolia, but also from abroad. Even though Gobi purchased a large amount of raw cashmere from herders, the demand was so great that a “black market” arose in the cashmere industry. The vast wilderness of the Mongolian border meant that cashmere smuggling became commonplace, and by the mid 1990s such illegal activity represented between 20 and 50 % of all Mongolian cashmere exports. Moreover, much of the smuggled cashmere would be mixed with other types of wool yet continue to be labeled as pure Mongolian cashmere. This brought rise to a dramatic increase in world supply of cashmere products, yet left less raw cashmere available for Mongolian processors, and risked the high quality reputation Mongolian cashmere held.

Another change that brought difficulties for Gobi and the Mongolian cashmere industry was the sudden introduction of a market economy. Before market liberalization, the nomadic herders that supplied cashmere to Gobi were state employees, with guaranteed pensions and fixed quotas as to the number of animals they could herd. When the economy opened up, many of these herders privatized, thus losing their pensions and experiencing a loss in income. Facing poverty, unemployment, and desperate to feed their families and communities, many herders crossbred their cashmere goats with coarser-haired animals to increase their supply. As a result, from 1990 to 1999 the number of goats in Mongolian nomadic herds doubled from six to eleven million, thus also increasing the supply of cashmere. However, the cashmere produced was of lower quality due to the crossbreeding. These mixed cashmere fibers were not as fine or warm as pure cashmere, and the degradation in quality led to an unfortunate degradation in the reputation of Mongolian cashmere.

The combination of smuggling, mixing, and crossbreeding, led to a swell in the supply of Mongolian cashmere – both pure and mixed – by the late 1990s and early 2000s. However, due to economic instability in some of Gobi’s major international markets, demand for the luxury item decreased and the company’s stability was put at risk. Furthermore, because the increase in domestic supply made Mongolian cashmere command a lower premium, producers such as Gobi became more vulnerable to competition from abroad. With the government of Mongolia’s objectives to develop the cashmere industry so it would make a significant and lasting contribution to economic growth and poverty alleviation, the final approval to completely privatize Gobi in 2003 came at a fortuitous time. Until privatization was complete in 2007, the Mongolian cashmere industry proved resilient and started to recover, however this was mostly due to a decline in the price of cashmere that resulted in an increase in raw, unprocessed cashmere exports. When the privatization of Gobi was complete, the new owners were keen to add more value to the company’s products in Mongolia, and create a new brand image synonymous with luxury and based on one of the country’s oldest corporate names.

A key strategy for the JV was a detailed plan to revitalize the Gobi brand while emphasizing the pride it has in being produced in Mongolia. The company’s management has gone about achieving this in a number of ways. First, in 2008 Gobi launched its Factory Store (also known as an outlet store) next to its complex in Ulaanbaatar, the capital city. The store, designed by well-known Japanese architect Keiichiro Sako, emphasizes the luxurious attributes of Gobi products and gives customers an opportunity to see and feel for themselves some of the finest Mongolian cashmere in the world. With a floor space of 1,150 square meters, the store is a modern facility elegantly showcasing Gobi’s products that has enhanced the company’s image and appeal.

Second, Gobi has intensified its effort to make higher quality products that can command a higher premium, thus intensifying the company’s image as a luxury brand and lessening its reliance on the sale of raw or semi-processed cashmere. Third, the company has developed new product types that target a younger and higher-income demographic, and its products are also made with specific markets and climates in mind. For example, Gobi products sold to Mongolian consumers might be too thick for warmer climates in some European or Asian markets. Although as of 2012 approximately 45% of Gobi’s sales come from Mongolia, the company has diversified its product range in order to increase its exports (for example, by introducing outdoor-oriented products). Fourth, in order to enhance its luxury brand image and develop newer, more fashionable products, in 2011 Gobi collaborated with Italian designer Saverio Palatella, famous for his knitwear designs, to create a new line of designs exclusively for the Gobi brand. This new collection coincided with the company’s 30th anniversary and includes items designed by Palatella that combine the feel of the blue sky, nature’s beauty, and the strength of the wind infused with modern design techniques.

Through the aforementioned measures, Gobi successfully built on its heritage and name to create a new brand identity for itself. Mongolian cashmere has traditionally enjoyed a competitive edge in international markets since it holds a positive image as a product with a long traditional heritage from a vast, pastoral, and unspoiled land. By drawing on this already established image and continuing to improve quality, reinvent and innovate its product designs, and increasing its marketing efforts at home and abroad (through exporting partners and subsidiaries), Gobi has developed into the fifth largest cashmere company in the world and one of the most well-known Mongolian brands.

Certification marks

With the Mongolian cashmere industry recovering and demand for pure cashmere increasing, the protection of the definition of pure Mongolian cashmere became essential. In order to ensure that customers are aware of what they are purchasing, in 2002, and with the assistance of the United States Agency for International Development, Gobi worked with three other Mongolian cashmere companies (Goyo, Altai Cashmere, and Mongol Nekhmel) to establish the Mongolian Fiber Mark Society (the Society). A non-profit organization (NPO), the Society is dedicated to developing the Mongolian cashmere industry’s competitiveness, promoting Mongolian cashmere in international markets, and implementing associated marketing activities.

One way in which the Society works to achieve this goal is by protecting the reputation of Mongolian cashmere through the creation of two certification marks: Pure Mongolian Cashmere and Made With Mongolian Cashmere (at least 50% Mongolian cashmere). With these certification marks, companies such as Gobi can capitalize on the Mongolian cashmere industry’s competitive advantage by increasing exports, earning more, improving production methods, and providing valuable collective marketing platforms. Indeed, many of the aforementioned branding strategies that Gobi has implemented have been in line with the Society’s goals.

Adding value and protecting its member’s products is the main focus of the certification marks, and the NPO has done this through implementing a set of ethical, environmental, and quality standards. The Society has developed three categories in which these standards fall, the first of which is the requirement for the cashmere to originate from Mongolia. This is determined by the geographic location of cashmere production; if it was produced completely in Mongolia, the cashmere is eligible for the Pure Mongolian Cashmere certification mark. If it was produced in Mongolia but with a mix of Mongolian and foreign cashmere, or was partly processed in Mongolia and then finished in another country, it is eligible for the Made With Mongolian Cashmere certification mark. In order to ensure the origin of the cashmere, the Society works with producers to carry out inspections, which includes ensuring there is a detailed paper trail documenting the delivery, receipt, import, and/or export of the concerned cashmere.

The second standard requirement is quality, and the two marks differ in their definitions of quality. To qualify for the Pure Mongolian Cashmere certification mark, the product must meet the following conditions: (1) contain no more than trace levels (less than 1%) of non-cashmere fibers; (2) have an average diameter of no more than 17 microns for knitwear and no more than 17.5 microns for woven articles; and (3) contain no more than 0.5% coarse hair content for knitwear and no more than 1% for woven. To qualify for the Made With Mongolian Cashmere certification mark, the product must meet the following conditions: (1) contain no less than 50% Mongolian cashmere; (2) and must include accurate labeling of other fiber blend components. Samples of the product must be provided to the Society so tests at an independent laboratory can be carried out to verify the content of the products. Finally, to qualify for either certification mark the product must have been produced in an ethical and environmentally friendly manner.

Beyond the certification marks, the Society works with its members to export and introduce their certified Mongolian cashmere products to markets primarily in North America, Western Europe, and Asia. Moreover, the NPO facilitates linking buyers in these markets with the Society’s members, promoting the most appropriate factory that will meet buyers’ needs. These services are provided to buyers free of charge, however the Society’s members pay a fee in order to ensure that it can continue its daily functions and overall mission to promote Mongolian cashmere to international markets. Furthermore, the Society sponsors various training programs on brand management to maximize the exposure and success of the certification marks.

Trademarks and domain names

With the development of a new brand image for Gobi and the creation of certification marks, using the intellectual property (IP) system to protect these assets is vital to Gobi, the Society, and the entire Mongolian cashmere industry. As Mongolian cashmere started to gain in popularity throughout the world in the 1980s, Gobi realized the importance of protecting its name early on. In 1988 it filed for trademark protection for the Gobi name and its logo through the Madrid System for the International Registration of Marks, which is managed by the World Intellectual Property Organization (WIPO). This international registration was designated to many countries, such as the Italian Republic in 1988, the United States of America (USA) and the United Kingdom of Great Britain and Northern Ireland in 2009, and Japan in 2010.

Protection of the Society’s certification marks is also very important, and the organization quickly registered trademarks for the two marks in its largest markets. The Pure Mongolian Cashmere and Made With Mongolian Cashmere marks were registered with the Office for Harmonization of the Internal Market, the trademarks and design registration office of the European Union (EU), in June 2005 and November 2004, respectively. In addition, the Society has registered the Pure Mongolian Cashmere and Made With Mongolian Cashmere marks in the Commonwealth of Australia through IP Australia.

Maintaining a presence on the Internet has also been a vital strategy for Gobi, as through its stylish and interactive Website it can reach out to customers in Mongolia and throughout the world. To that end, the company owns a domain name, gobi.mn, through which users can see the company’s new collections, browse current products, find information about where Gobi products can be purchased, and learn about the company’s history, design and production methods. Furthermore, the company owns another domain name, gobi-cashmere.com, which has similar information but targets international customers.

Commercialization

In business for over 30 years, Gobi has survived dramatic changes in Mongolia and continues to be the leading domestic company that commercializes cashmere. Gobi prides itself on working closely with herders by supporting their traditional nomadic culture and lifestyle. The company believes that this is the only way to ensure a sustainable supply of high quality Mongolian cashmere. Moreover, by relying on these herders Gobi is providing much needed jobs, income, and potential for growth among the herders and their communities.

Once Gobi has purchased the cashmere from the herders, it is brought to the company’s factory in Ulaanbaatar, where it is processed into high quality finished products with modern, high-tech equipment and techniques. Moreover, the company was the first in Mongolia to achieve ISO 9001:2000 standardization from the International Organization for Standardization (ISO), an international standard-setting body, for implementing high quality management systems.

From its factory in Ulaanbaatar, Gobi process over 1,200 tons of raw cashmere (and camel wool) annually, resulting in over 500,000 pieces of knitwear, 250,000 length-wise meters of woven fabrics, and 25,000 pieces of bespoke tailored garments. Considering that one goat only produces approximately 200 – 380 grams of cashmere per year, the massive amount of raw materials that Gobi is able to source speaks well of its supply chain and relationship with traditional nomadic herders. The company also supplies one-fifth of the entire cashmere output of Mongolia, and is the largest cashmere brand in the country, holding approximately 60% of the domestic market share. Furthermore, Gobi’s Factory Store, adjacent to its factory, is the largest cashmere store in Mongolia. From the company’s base in Ulaanbaatar, it exports its products to over 30 countries in four continents, including Canada, the EU, the Republic of Korea, Japan, the Russian Federation, and the USA.

Business results

Gobi has relied on its strong brand and relationship with traditional nomadic herders to weather many dramatic changes through its thirty-year history and become the world’s fifth largest cashmere producer and the largest in Mongolia. Since the Mongolian-Japanese JV took majority control of the company, it has seen its sales continually rise. For example, in 2008 the company had sales of approximately US$15 million, but thanks to new equipment, branding strategies, and certification marks, sales rose to nearly US$27 million in 2011. Although the cost of raw cashmere materials and fuel increased in the late 2000s and early 2010s, the company has maintained a positive cash flow and increased its dividends per share by nearly eight times during the three-year period from the beginning of 2009 to the end of 2011. With major technical upgrades and new branding strategies completed in 2011, in 2012 the company enjoyed a rise in sales and net profit, and continues to be one of Mongolia’s most well-known brands.

Made in Mongolia

With nearly half of Mongolia’s three million people directly dependent on herding and the textile industry, cashmere is a vital export for the continued economic development of the country. Facing stiff competition from abroad, unfair competition from home, and rising costs for raw materials, the Mongolian cashmere industry has been able to make a strong comeback, with Gobi leading the way. Maintaining the important link between protecting traditional knowledge, implementing modern technology, and utilizing a strong IP portfolio of trademarks and certification marks, the company is poised to continue its success. This not only benefits Gobi as a company, but also benefits the traditional nomadic herders, their communities, and the Mongolian economy. One customer at a time, Gobi and its partners are redefining what it means to be “Made in Mongolia,” and are wrapping the world in the softness and warmth of Mongolian cashmere.