Introduction
Mongolia is one of the least understood countries in Asia from a European perspective. It is often perceived simply as a sparsely populated state situated between China and Russia, with an economy heavily dependent on mining. This simplified view, however, conceals a far more complex reality.
Mongolia has been a democratic state since the early 1990s and has managed to preserve its sovereignty between two major powers under exceptionally challenging circumstances. Although its democratic institutions are relatively young, the country has a clear development trajectory and a long-term strategic outlook.
This historical and geopolitical position strongly shapes Mongolia’s approach to external actors. Foreign companies and partners are primarily assessed through institutional and political preconditions, rather than purely through market potential.
Geopolitical Position and the “Third Neighbor” Policy
Mongolia’s foreign policy is built around the so-called “third neighbor” principle. Since its geographical position between China and Russia cannot be changed, Mongolia seeks to balance its strategic position by building relations with external partners beyond its immediate neighbors. These include the European Union, the United States, Japan, and South Korea.
Mongolia’s geographic position between Russia and China explains the central importance of its “third neighbour” policy.
In practice, Mongolia has deliberately pursued a multi-directional foreign policy to preserve strategic autonomy in an environment shaped by great-power competition. The third neighbor policy is not directed against Mongolia’s neighbors, but rather serves as a mechanism to strengthen national agency and strategic room for maneuver. Within this framework, cooperation with European countries and actors carries political and symbolic significance that extends beyond purely economic benefits.
Why Mongolia Is Cautious Toward Large Foreign Corporations?
Mongolia’s cautious attitude toward large foreign companies is largely rooted in past experiences within the mining sector. This stance has been reinforced in recent years by a wide-ranging corruption investigation related to the Oyu Tolgoi mining project, particularly focusing on procurement chains and subcontracting structures.
The case has highlighted concerns among Mongolian authorities regarding how large-scale projects can generate power structures that extend beyond commercial activity into political and institutional domains.
For many Mongolians, large multinational corporations represent a risk that external actors may begin to influence local decision-making according to their own strategic interests. Company size and ownership are often interpreted as part of a broader geopolitical context rather than as purely business-related matters.
SMEs and Mid-Sized European Actors in Mongolia’s Development Model
Small and medium-sized enterprises, as well as mid-sized European actors, are generally viewed as more acceptable partners in Mongolia. They are less likely to be perceived as a threat to national decision-making or as instruments of geopolitical influence.
Mongolia’s development model is characterized by gradual, step-by-step progress. Development rarely takes the form of comprehensive, turnkey projects; instead, it focuses on improving individual systems, infrastructure components, or administrative processes.
In this environment, flexibility, long-term commitment, and the ability to adapt to local conditions are critical. These characteristics often align well with the operating models of European SMEs and specialized expert organizations.
Vision 2050 and Development Priorities
Mongolia’s Vision 2050 program outlines the country’s long-term development strategy. The objective is to transition from a resource-dependent economy toward a more diversified and knowledge-based society.
Key priorities include institutional strengthening, green development, and improvements in quality of life. The program emphasizes renewable energy, urban development, building energy efficiency, environmental protection, and the gradual digitalization of public administration.
Development is pursued in a controlled and incremental manner rather than through rapid structural transformations. This approach is reflected in the types of projects Mongolia considers realistic and desirable.
Urban Development and the Challenge of Ger Areas
The rapid and partially uncontrolled growth of Mongolia’s capital, Ulaanbaatar, has created significant structural challenges. The city has been unable to provide sufficient formal housing solutions for new residents, leading many people to construct their own dwellings.
Large areas on the outskirts of the city consist of so-called ger districts, where residents live in traditional housing without centralized heating, sewage systems, or comprehensive basic infrastructure. These areas have emerged primarily due to rural-to-urban migration and have not kept pace with planned urban development.This situation has had long-term impacts on both living conditions and the environment.
Ulaanbaatar’s ger districts and the city’s geographic location are key factors behind its severe air quality problems.
Ger districts are a major contributor to Ulaanbaatar’s severe air pollution, particularly during winter months. Heating typically relies on coal or wood, and combined with the city’s geographical location, pollutants tend to become trapped over the urban area.
The development of ger districts does not involve rapid demolition or radical redevelopment. Instead, the focus is on gradual improvement through better heating solutions, increased energy efficiency, zoning measures, and basic infrastructure upgrades. This incremental approach aligns well with Mongolia’s broader development philosophy, where foreign expertise supports local decision-making rather than replacing it.
Agriculture and Structural Transition
Mongolia’s traditional economy has long been based on pastoralism and grazing. Climate change, however, has significantly degraded pasturelands, forcing more people to seek alternative livelihoods. This has increased interest in agriculture and the structural development of primary production. Transitioning from grazing to agriculture requires capital, expertise, and technology.
Traditional pastoralism remains an important livelihood in Mongolia, but climate change has significantly affected its viability.
European expertise could play a role here, particularly in sustainable farming methods, cold-climate solutions, and improving production efficiency. This is not about exporting a European agricultural model as such, but about supporting production structures during a period of transition.
Cultural Dimensions and National Identity
Mongolians are culturally proud, and historical symbols continue to shape how external actors are perceived. Genghis Khan is not merely a historical figure, but a central element of national identity and narratives of independence.
Overconfidence or approaches that resemble market domination can easily trigger resistance. Trust is built slowly and is based on respect, understanding of the local context, and the ability to operate within existing structures. This is particularly relevant for European actors, who are often expected to demonstrate sensitivity to institutional continuity and local decision-making processes.
Mongolia at Glance:
Particularly suitable for:
- long-term, institutional cooperation
- projects where foreign expertise complements local structures
- mid-sized European companies and SMEs willing to act as partners rather than market challengers
- energy, infrastructure, urban development, and public-sector digitalization
Less suitable for:
- companies seeking rapid growth
- consumer-driven market entry
- actors looking for experimental pilot platforms or quick trials
Key precondition:
Trust is built slowly. Success requires the ability to operate within existing institutional frameworks without visible attempts to dominate markets or decision-making.
About the Author
Kasperi Anttila is an expert specializing in cooperation between Europe and Asia. He has lived and worked extensively in Asia and serves as an Asia expert at Kabei Ltd. His work focuses on Asia through institutional, cultural, and market-structure perspectives, with particular attention to European operating contexts.