OBG talks to Norolkhoojav Battulga, Executive Director, ITZ one

Interview: Norolkhoojav Battulga

What challenges could local IT companies face with the arrival of more foreign players in Mongolia?

NOROLKHOOJAV BATTULGA: Before talking about foreign involvement, we have to talk about the size of the local market. Currently, the Mongolian market does not have room for a large-scale expansion of foreign IT companies. At this point, big foreign players open a representative office and appoint maybe one person in charge of operations in Mongolia. Foreign companies lean instead towards establishing strategic partnerships with local companies to reach end users. This model is preferable for local companies too, as it enables the transfer of knowledge and best practices to the local industry. The challenge for such partnerships is meeting international standards for quality of service and products. There is room for big foreign IT firms to come to Mongolia and collaborate with local ones, and we will see more of them establish operations here in the coming years. This is something local companies would welcome. Companies such as Oracle, Microsoft and SAP will continue to use local companies to distribute and sell their products and services to end users.

How much potential is there to develop Mongolia into a regional data centre for companies?

BATTULGA: The industry is shifting towards software development, business automation and expansion of data capacity and management. Sales of data servers and storage in industries like banking have increased by 200% in the last two years. In general, the use of data by enterprises and government is growing, and the demand is getting more sophisticated with concepts like disaster recovery tools and cloud computing. We are also seeing an increase in the development of Mongolian content for smartphones and tablets. As a result, many companies have started expanding into data storage and will continue to do so. Mongolia has key advantages that suit it to play an important role as a regional data centre. We are between Europe and Asia and have good fibre-optic cables linking the two regions, with the necessary infrastructure already in place. Space is not an issue, the risk of natural disasters is very low, and cooling systems are given to us by nature itself. Mongolian IT firms should think hard about opportunities to enter this field. We as an industry need to develop the right strategy to make Mongolia an important data centre in the region.

Which financing options are best suited for local companies wishing to boost their operations?

BATTULGA: Financing has traditionally come in large part through partnerships with foreign companies. This will continue in the near future, but to finance more operations and expand, our IT industry will need more options. To this end, the Information Technology, Post and Telecommunications Authority (ITPTA) recently signed a memorandum of understanding with local banks and financial institutions that allows intangible assets such as software patents to be used as loan guarantees. Soft loans will be provided at 7% annual interest for 10 years – better conditions than are currently available. This is something new for our industry and a good step by the ITPTA to promote the expansion of local IT companies and foster growth.

What opportunities for growth lie in expanding broadband to rural areas?

BATTULGA: The government’s role in the expansion of broadband connectivity to rural areas will be crucial, as they will take over the ownership of the entire fibre-optic network nationwide. They are planning to deploy dense wavelength division multiplexing (DWDM) – a technology used to increase bandwidth over existing fibre networks – throughout the country and reaching every corner of Mongolia. Under this setup, companies will lease the use of the network from the government, which means that growth opportunities in rural areas will depend heavily on the implementation of the DWDM project. Once launched in mid-2014, opportunities for growth will be far above what they are today.