Gobi: Textiles

THE COMPANY: Established in 1981 with Japanese economic and technical assistance to process natural goat and camel hair, Gobi produces cashmere and camel wool products from these fibres. It has since developed into one of the five largest cashmere producers in the world, and has around 1000 employees. Gobi was partially privatised in 1993, when 26.5% of its equity was floated on the Mongolian Stock Exchange. In July 2007 the remaining stakes were sold for $13.85m to a Japanese consortium, Toshisoke Investment Bank and HS Security. Gobi has exported its products to around 200 companies in 40 countries. The products are sold at retailers and boutiques in 20 major cities across the world, such as New York, Tokyo, London, Paris, Berlin, Hamburg, Milan, Brussels, Prague, Moscow and Seoul. Gobi also exports semi-processed goat hair fibre to English, Italian, Japanese and American textiles producers, which then produce finished goods. Gobi sells its finished products through nine outlets and five vendor companies in the domestic market, and 24 outlets and 140 vendor companies in the international market. Historically, Gobi exported 80% of its products, of which 60% went to European countries through vendor companies. However, in 2011, 57% of its sales were in the domestic markets, as local demand grew and revenues from exports were lower than expected due to an abrupt climb in raw material prices. In 2009/10 unusually low temperatures transformed the winter into a natural disaster, killing millions of animals. This pushed goat fibre prices up by more than 80% between 2009 and 2010, and by over 30% between 2010 and 2011. According to management estimates, since privatisation Gobi’s domestic market share of finished products grew by 5-10% per year and reached 55-60% in 2010. Sales revenue was MNT28.9bn ($20.2m) in 2010, and MNT35.4bn ($24.8m) in 2011. As of the first half of 2012 revenue was MNT12.6bn ($8.8m), which was slightly more than the MNT11.7bn ($8.2m) for the same period of the previous year. The cost of goods sold increased by 167% between 2010 and 2011, due to the rising price of cashmere. The company had net profits of MNT3.6bn ($2.5m) in 2010, MNT1.7bn ($1.2m) in 2011 and MNT1.2bn ($840,000) during the first half of 2012.

Gobi had approximately MNT70.2bn ($49.1m) in assets as of the first half of 2012, significantly more than the MNT52.3bn ($36.6m) it had at the end of 2011. This growth was driven by an increase in fixed assets, as part of technological improvement investments. The company has traditionally financed its operations through debt financing from the government on a yearly basis. The company borrows in the spring to purchase the seasonally produced raw animal fibres, and pays the debt in the autumn as the new products are sold.

DEVELOPMENT STRATEGY: Aside from increasing its market share, Gobi has invested heavily to build up a luxury brand by improving its quality and design.

In April 2009 the company signed a three-year strategic partnership agreement with Italy’s consultant firm Valdani Vicari & Associates regarding product development. As a result of these efforts, the quality and design of Gobi products have improved markedly. From 2011 the company hired Italian designer Saverio Palatella to create a new high-end collection for the Gobi brand. Gobi also purchased state-of-the-art machines to produce and knit with thin-gauge cashmere threads to create thinner garments more suited to the warmer climates in Europe and other countries that Gobi exports to.

Over the last six years Gobi has invested close to MNT15bn ($10.5m) in buying 260 pieces of manufacturing equipment from Germany, Japan, Italy and France. The management believes the bulk of the capital investment is complete for its quality and design improvement goals. The next step is to build its brand recognition globally through marketing strategies.