“We're exploring the hotel business as well”

Last May, Harsh Madhav Dar took over as the Managing Director of Surya Nepal (P) Limited. Talking to Nubiz, he hints at new changes in the company after it recently announced the plan to expand the manufacturing capacity of its garment business. Excerpts:

How has your experience of working in Nepal been?

It has been "overall positive" though in some sense it has also been a "mixed bag". On the one hand, there is a tremendous potential for growth in Nepal particularly in the tourism and manufacturing sectors, which would lead to new employment generation not just in large enterprises, but also in small and medium ancillary businesses. Consumer product manufacturers like us can grow through import substitution, but more importantly from exports, particularly to the Indian market. However, there are some unfavourable conditions particularly in terms of import costs (e.g. on packaging material like paper board, paper, films, foil and others) and an inflexible and militant labour environment, which threaten to stifle these opportunities. There are also certain tariff barriers in accessing the Indian market, like countervailing duties and additional Customs duties on garments exports to India, which we hope will be done away with soon due to efforts by the Commerce and Industry Chambers and the Government of Nepal.

Which troublesome policies do you think can be easily removed by the government on the basis of your experience in India and elsewhere?

Amongst the policy bottlenecks that exist, some of which can be easily removed, are:

l Contract manufacturing: In India, contract manufacturing is allowed and is possible by agreement between two parties. Statutory permissions and approvals are not required. Companies can register trademarks and market their products under such trademark ownership by entering into contract manufacturing agreements with manufacturers.

Currently in Nepal, permissions and approvals are required which lead to delays and bottlenecks in the process and discourage international brand owning companies from entering Nepal by forming partnerships with local manufacturers.

This is particularly relevant for those products or items where there is an unutilised capacity in manufacturing, and which require fresh investments in market development activities like distribution, advertising and promotions.

The government has announced some changes recently and we hope that this will help in improving the situation.

• Contract Labour: Rules under Labour Act should allow to engage contract labour and these rules should be flexible for both employer and employees. In India , contract labour is permissible and there is a specific Act to govern and protect interests of such contract labourers.

• Since there is no facility to engage contract labourers, businesses are forced to engage permanent staff in non-core jobs too and thereby the cost of production increases and businesses become uncompetitive. Further, in industries like garments where export orders are cyclical, fluctuating and highly uncertain, having a permanent work force will lead to unsustainability of the business in the long run.

• Export Incentives: Incentives like making the export income tax-free, subsidy on export income, giving export processing zone status to the production facilities that produce for exports, thereby providing them benefits such as concessional electricity etc. are not available in Nepal. Whereas exporters in countries like Bangladesh and others, particularly in the BIMSTEC region, can avail of such incentives and facilities. This makes Nepali exports inherently uncompetitive.

As the recent developments indicate, Surya Nepal is further expanding its readymade garments business. How about the other sectors?

Presently, we are focussing on consolidating our position in the garment business both in the export market as well as in the domestic market. The domestic market at present is dominated by cheap Chinese products which are mostly smuggled into Nepal . However, we are also exploring the possibility of entering other sectors particularly those in which our parent company ITC Limited is operating and where Surya Nepal 's competence can add value. We will continue to look at the potential in other sectors but our entry will be based on a conducive environment.

SNPL was also negotiating to acquire some hotels. What is going on about this?

Nepal has a huge natural competitive advantage for tourism, which given the right environment and management, has the potential not only to increase the per capita income but to create thousands of new jobs. We are therefore keen to look at possible opportunities in this sector including acquiring a hotel. However, we have not yet come across a right investment opportunity.

In cigarettes, SNPL does not seem to be expanding further. Is it in line with the policy of the principals BAT and ITC?

This is untrue, we are looking at increasing our share of the tobacco market from competition both from the cigarette segment as well as from the much larger chewing tobacco (surti, khaini and gutka) and bidi segments of the market.

We have recently launched a regular sized variant of our Shikhar brand and a filter version of our Bijuli brand in pursuit of the above objectives.

Also in terms of marketing activities, SNPL does not seem to be as aggressive in cigarettes these days as compared to previous years. Is it because the market has matured and SNPL has already secured a major market share?

It is not our principle to grow the size of the tobacco market but to get an increasing share within it. Surya Nepal has only a 30 per cent share of the total tobacco market but our share of the cigarette segment is 65 per cent as cigarettes constitute only a 45 per cent of the total tobacco market whilst chewing tobacco and bidi constitute 55 per cent. As regards to the cigarette marketing activities, we have also successfully launched and established Surya Classic--Nepal's most premium cigarette recently.

Coming back to the garment business, we have come to know that this business is not making profits as yet. Is it because it is still in its infancy or because the company's entry into this business was a bit premature?

We entered the garment business four years ago and we are proud to have established a world class manufacturing facility producing some of the highest quality products in the region. I am happy to state that the quality of our products has attracted the attention of Indian consumers and buyers and the "Made in Nepal" label has benefited in the process. I am also happy to state that this business has contributed substantially to generating new employment opportunities, especially for women, in Biratnagar.

As we continue to make fresh investments in the garment business, it is not yet profitable, but we hope to achieve a profitable position soon.

What is going on with SNPL's e-Chautari plan?

I am not aware of any e-Chautari plan finalised -- it was one of the possible concepts under review. We are, however, working very closely with tobacco farmers in Bara, Parsa, Rautahat, Sarlahi and Dhanusha to provide knowledge, expertise and support, thereby enhancing their earning potential. We are also looking at expanding this tobacco knowledge and expertise to other areas of Nepal , particularly in the Terai as the agro-climatic conditions there are best suited to this crop.

Are you considering to enter the retail sector by leveraging on the experience of ITC in this field in India ?

I guess you are referring to the "Choupal Sagars" and "Choupal Fresh" formats of retailing.

We do not have any plans to enter this area, which ITC Limited has entered. As I have earlier said, our focus will be to consolidate and grow our share in the garments business as well as to consolidate our position in the tobacco business.

Surya Nepal had last year launched four logos related to social development initiatives. What is the progress on these?

Surya Nepal has focused its social development initiatives under four areas: Surya Nepal Suswasthya for community health initiatives, Surya Nepal Asha for community development and empowerment, Surya Nepal Prakriti for environment preservation initiatives and Surya Nepal Khelparyatan for promotion of sports and tourism.

Apart from various initiatives undertaken in the past, I am happy to share two new recent initiatives that help strengthen our efforts in this area in a strategic way.

We are setting up our own unit for manufacturing readymade garments, primarily for export, in Biratnagar. This unit will provide fresh employment opportunities particularly for women. Thus, it will support our endeavour under Surya Nepal Asha by creating opportunities for women empowerment.

We have also tied up with the Cricket Association of Nepal to promote cricket by sponsoring the national cricket league. This is under Surya Nepal Khelparyatan to promote and nurture young Nepali talent in the area of sports.

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