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“There should be protection for foreign investors”
ReinhartVan Rooy, a Dutch national who is the Founder and CEO of K33 group of companies worldwide, describes himself as a typical entrepreneur and inventor with extensive experience of creating companies in many countries, dealing with people, finance, legal affairs, technology and different cultures the world over. He set up a couple of his companies in Nepal some seven years ago but lost them all last year due to some bizarre circumstances. However, he is not perturbed, and recently set up a new company here in Kathmandu-Hairgoods Unlimited (P) Ltd. He shares his experience in Nepal and explains why he still finds Nepal attractive. Excerpts from an interview.
What is your general opinion about Nepal?
Exciting, colourful, beautiful nature, ideal for tourists who would like to experience more than just sunny beaches. It is ideal for adventurous people and also very educational and interesting. But from the business point of view, it is almost disastrous as one may come across extremely corrupt, greedy, triple faced, myopic, slow, inexperienced and uneducated people. For a commercial business entrepreneur, Nepal is definitely not the place to be in for other than cheap and stable labour.
That is too harsh a comment about the Nepali people known for their hospitable nature.
Anyway one's first impression is that Nepalis are friendly and forthcoming but like in most Middle Eastern countries, the people in Nepal are double-faced. When they are alone they are very polite, shy and humble but when they are in a group, the behaviour very quickly turns aggressive. Furthermore, through the years I have come to know that Nepalis are quite naïve. But unfortunately most of them are quite greedy and they lack normal business sense and etiquette. Of course there are exceptions.
How do you compare Nepalis with the people of other countries?
Nepalis take more family responsibilities. Of course, it is difficult to give an opinion within the private atmosphere. Business-wise, most people work a lot and work hard. Their work is, however, slow compared to people in Indonesia, China and Korea. Other than that, the caste system is still prevalent here and that jeopardises business.
For example, when you place somebody in higher management positions like that of a Director or a General Manager, they use that position to work less, read newspapers, arrive late and leave early. It is completely opposite to the practice in the USA and Europe. I would say, the behaviour of the people employed in business organisations is similar to most of the politicians here, which is harming business substantially. The good thing for foreign investors like me is that salaries in general will continue to stay low as business will never flourish with this kind of behaviour. Seven years ago it ranged between USD 40 to USD 110 for different skill levels. It is still the same. The difficulty is in getting things done and developing the business.
What is your opinion about Nepali businesses?
Most businesses in Nepal try for government subsidy. The employees in turn try all kinds of subsidies from the employer. Such "greediness" is hampering Nepal's business. Furthermore, when unsuccessful in their work, people start pointing fingers at others instead of taking up the responsibility and trying to be creative.
You alleged that most Nepalis are corrupt and this is a very serious allegation. Can you provide any example from your experience to prove it?
There are too many instances, I don't even know from where to start. I will give a simple example: upon reaching the airport immigration, there is a fee to be paid, I think it is 40 or 60 dollars, which is already unusual. I remember standing in one such line to pay that fee. I selected one particular line on purpose by looking at the immigration officer who was wearing a gold watch and attending that particular counter. When it was my turn I knowingly gave him a 100 dollar bill though I could have given him the right amount. He took the money and asked me to go to the next line. When I asked him for my change, he said: "No, You first go to the next line." I went to the next line and got my visa stamped but I could not get my change back. So I went to the earlier guy and asked for my change. First he refused to do so and asked me to go away. When I insisted, he told me that he had already paid it to me. Then I told him very loudly: "If you do not give me my change back I'll immediately go to your supervisor. I'm the wrong person to do this to." Then he reluctantly gave me back my change. As you know, one person is standing in line for a visa every one or two minutes and many of them pay with large bills and do not get back their change. Can you guess how much money he makes every day? Later I was told that one has to pay large amounts of money to get a posting at the airport. That is the impression one gets within five minutes of entering the airport after disembarking from the plane. By the way, the airport is better organised now.
You have to be careful about not being triple-charged by taxis after you come out of the airport. Most people come here on holiday and do not want to be bothered. So they control their anger but this gives an opportunity for people to charge more.
Allow me to give you one more example. As a part of my social responsibility, I started a programme to send seven people from my earlier companies to Europe for a three month training on reception management, book keeping, administration, style designing etc. Special living accommodation was provided to them. The average budget per Nepali per month was around USD 1,500. Apart from the normal factory salary, they were provided allowances and extras. Even after all that, a few of them started planning a break-in to steal cash. Others tried to escape to Germany and Belgium. We found out about that in time, caught them, and sent them back and finally we cancelled the programme altogether. We learnt our lesson. I was too naïve to think that when you do something good to the people they will also be good to you.
Let me give you one more extreme example. One day, the Tax Department came to all my companies in Kathmandu during which they cleaned out the book keeping. Of course I immediately appointed lawyers and some type of settlement was made very quickly. The interesting thing was that K33 Hairhotel (P) Ltd. (my local retail store then which was not even active for two years) got fined USD 15,000. Legally, that was not possible and I thought the amount was ridiculous. But as I'm abroad most of the time, I prefer a quick settlement and analyse it later so as to take steps to prevent repetition. I requested my lawyer to pay this amount in three equal installments. When I was in Europe, my lawyer sent me a message informing me that the tax authorities were not willing to accept that and that if I didn't pay up immediately the entire sum would be doubled. In reply, I instructed the lawyer to tell the authorities that if they continued to behave in that way I would directly write a letter to the King apprising him of the situation. Then they immediately agreed to my proposal of installments. And out of the amount, USD 6,000 was "under the table" money. Later I also found out that part of the 9,000 dollars made as official payment, was not recorded at all.
How about the goods clearance from the airport?
Yes, in the beginning we used to clear the imports ourselves. Though we used to follow the rules of invoicing, pre-payment etc., they always found one excuse or another to consider the shipment illegal and the only way to clear the consignment was to pay substantial amounts "under the table." The officer would not take the money directly: you had to go out, give it to a strange person, then go inside and get the goods automatically cleared. Even today, from time to time, we have to pay "under the table" money to clear shipments. It seems that they get more frustrated when everything is done by the rules. Of course, many countries are corrupt but it is not hampering their business as much as it is in Nepal. So, the corruption here is counter-productive. Knowing that almost everybody has to deal with this type of corruption, I decided to go with the flow, but it is still frustrating.
How is your new factory doing?
Surprisingly well, though we have not completed the set-up yet. Still all the departments are performing well; the atmosphere is very good; the finished quality of the product is satisfactory, and the management is good and stable. And I'm going to start my new project, which requires more labour. Good for me, good for Nepal. But if a union develops, then I will have to pull out of Nepal as Nepali unions are extremely unproductive because they are led by uneducated people.
At the moment there are other companies using the name K33. How is that possible?
The old companies located at Koteshwor and elsewhere were stolen by a certain Kiran Shrestha from me including the inventory that belonged to the factory and to the clients in Europe. I totally lost these factories.
How was that possible?
When I started in Nepal, I was given the impression that it was difficult as a foreigner to start my own company. I unfortunately trusted a person named Jyoti Sharma whom I hired as the Director in the three companies I had at that time. For years, it went on very smoothly and without problems. The mistake I made was that I trusted this man and his wife, Sarala Sharma. These two and Shrestha stole my factory.
How? And how much was the loss you incurred?
The loss at this moment is USD 650,000. About a half of it was cash stolen by the Sharma couple, to the extent of between USD 3,000 to 5,000 per month. I found that out when I was investigating the accounts, which I do once a year. When I talked about that with other people the frauds came to know it through the listening device they had clandestinely installed in my office. Immediately they went and cleaned three bank accounts, including USD 35,000 of the employees' savings. On top of this was the complete loss of the factory, worth about USD 400,000. So, 2004 was a very expensive year for me.
Didn't you get a single penny back?
At one point of time I was able to force Sarala Sharma to come to the same police station where I was arrested on the charge of kidnapping her husband who had in fact fled to India. One week later with the help of the policemen, she signed an agreement that she would pay me USD 25,000 (savings of the employees) but she did not pay a dime.
What did you do then?
First I went to their house, trying to get the money back, but I was thrown out. Next day they came to the company and asked employees to throw me out of the factory. To my surprise, more that 200 people tried to lynch me. I had to run for my life and hid in the Soaltee Crowne Plaza. From there I hired an intermediary (which is the right thing to do in that type of situation) to negotiate between those two criminals and me. They were willing to return the company shares to a person appointed by me if I paid them a sum of USD 40,000 in addition to forgetting the stolen money. Under a condition that they would not enter the factory any more and influence employees, an agreement was signed and I paid the amount. I returned to the factory three days later and they came back again and wanted another 40,000 dollars. After that I hired 25 guards to keep the employees in order and keep the Sharma family out. Slowly I restored peace in the factory compound and things got back to normal. My mistake was that I did not transfer the company shares to my name in time. On top of that, contrary to my instruction, it was hidden from me that most of the factory workers were family or friends of these people, which made it easy for them to turn them against me. I might also have spoiled the Sharma couple too much as "giving makes people greedy." Sharma’s salary was 1,250 dollars per month. On top of that I had given an interest-free loan of 10,000 dollars, free tickets to Holland, car, presents, mobile telephones, and holidays. The funny thing is that before I gave Jyoti Sharma the opportunity to work for me, he was earning less than 150 dollars working nine hours a day. Money makes people crazy. His wife was so greedy that when she would help me check out of the hotel, she always brought a plastic bag with her which she filled with all the remains of the mini bar. I was ashamed to tell her that this would show on my bill. It is she who cleared the bank accounts including the savings of the employees, which has not been returned as yet.
Why not?
I was planning to go to the police but before I could do that an armed police guard entered the factory and, at rifle point, I was thrown into a car, beaten and, at the police station, accused of kidnapping her husband. Of course it was a complete set-up as her husband had gone to India. Their main goal was to throw me out of Kathmandu. Something like this is possible only in a country, which is corrupt from top to bottom. They have good relations within the police force, so it was no problem for them to get me arrested. At a later stage, I forced her to sign, in the same police station with four witnesses, an agreement that she will pay back 25,000 dollars of the employees' saving. But instead of paying up, she sent me a letter stating that she would never pay and fled to India. Anyway, with her statement in my hands, I started a civil court case.
Was this court case successful?
A few months ago, the lawyer informed me that the judges want 1,500 dollars as a bribe, otherwise they would not handle the case. This type of corruption is really frustrating. I consulted with my intermediary and another lawyer and I think that they did their work well. Recently a notice has been published in the newspaper from the court giving the other party (the Sharmas) 60 days to start a defence. So far, as I am informed, they have not turned up.
Why did you not go to the higher level of the police force?
Well, knowing that this couple had relations at a certain level of the police force, I went to a higher level but unfortunately, I was informed that the higher level was willing to help me if I paid them 50,000 dollars. At that moment, I decided to forget my loss and quickly re-start a new factory.
Can you provide us with some names?
I prefer not to do that as I have been already arrested violently two times and I am really not looking forward to the rifle on my neck for a third time. On that count you can consider Nepal as a thoroughly rotten country. Now, as much as possible I keep away from lawyers, authorities, police, and the government.
Why did you start a new factory as you said that everything was under control at a certain moment in the old factory and you also had the company shares back?
After I learned my lesson, I thought the best thing was to immediately start a company with myself as the foreign investor and the shares on my name. Till that was done, it was not possible for me to get the shares of the old companies in my name. So I had to "park" them on somebody I thought was trustworthy. I chose one of my employees, Kiran Shrestha. He promised to temporarily hold the shares and transfer them over to my name later. Furthermore I gave him the position of a Manager and tripled his salary. But when the new company with me as the shareholder was ready four months later, he ganged up with the Sharma couple and refused to give me back the shares and became the owner of the company.
What did you do then?
I found this out when I was travelling in Europe and decided to return to Nepal immediately. When I arrived, I had a meeting with my intermediary, my lawyer and some loyal people. During that meeting I got information that the Sharmas and Shrestha were moving the merchandise out of the factory. It was a serious matter as the whole K33 Group depends on the manufacturing of the Nepali factory. I went to the factory with three bodyguards and the lawyer. But one of my bodyguards, who came from a well-known security company in Nepal, was a spy planted by the Sharmas and Shrestha and he had informed them that I was going to the factory. Within five minutes of my reaching the factory, two police cars came with six to 10 people. They pushed us forcibly into the police cars and took us to the police station. At that moment I realised that I could not do anything. Fortunately, I was released due to the intervention of some considerate senior government official and I had to bail out some of my friends. After that I again went to the police trying to get back our stocks and merchandise which belonged to the Head Office in Cyprus.
Were you successful to get it?
No. The story was very clear and every logical thinking person should have been on my side. But the Sharma couple and Shrestha have a very good influence in the police station. So I could not get any help from there. The next day, I went to the Embassies of Cyprus and the Netherlands to get papers that would help me get the merchandise back. Those merchandise belonged to the citizens of the Netherlands and Cyprus and they were here for regular maintenance and had to be returned to the clients. Those goods were hijacked by Kiran Shrestha and the Sharmas and they used these goods to blackmail me as they knew the importance of these merchandise. They asked for thousands of dollars to release those goods. While I was at the Dutch Embassy collecting the papers, a police officer called me, threatening me that if I did not go directly to the police station, my associate would be arrested. It was clear on whose side the police officer was. When I reached the police station, they more or less forced me to pay 40,000 dollars to Kiran Shrestha. I had no alternate other than paying up because the damage that would be caused in case I did not get back those merchandise would be far more than that.
How can this Kiran Shrestha still use the name K33?
Legally, he cannot. But we are in Nepal and I don't think there is any use in trying to stop him. K33 Hairhotel had a franchise from the K33 group of companies and as long the franchise contract was valid, they could use the name K33 and the technology. Now, of course, the Head Office in Cyprus and Kiran Shrestha himself have dissolved the franchise contract. A new franchise agreement for Nepal has been signed now between the Head Office in Cyprus and the new company Hairgoods Unlimited (P) Ltd., Sinamangal.
But why are there similar types of advertisements being published from Hairhotel of Koteshwore and Hairmotel of Sinamangal?
This is all of course illegal in Europe and America. All models of the product and contracts are with the Head Office. All photos are coming in from RCR Advertisement (P) Ltd. of Cyprus. Hairhotel continues to use those pictures, which they are not allowed to with franchise contract already dissolved. When I go to the court with this complaint, I will have to spend lots of time and money. In addition to this I receive threats on my life every now and then. I would rather spend my energy, money and time in establishing and promoting a healthy business than fight Nepali criminals who are very difficult to touch due to the Nepali system of relations, friends, family and favouritism.
How much do you trust your current employees?
Yes I do trust them but I'll never trust them blindly. However, they seem to be quite loyal. When people are loyal to the company and me I will be loyal to them. People who work for me are in a better position than those working for other companies.
What are the old clients of K33 Hairhotel doing? Are they coming to K33 Hairmotel in Sinamangal?
Not all of them but we are working on it. Of course the clients do not know what is going behind the screen. But through the media we will try to let them understand it. Still, we are getting two to four of such clients visiting us daily, thanks to my Hairmotel Manager, Singh Sundar.
Are the people who stole your old factory in Koteshwor doing the same jobs as you do in your new factory in Sinamangal?
No, of course not. Within our group, we have the Central Warehouse Ltd. in Europe, which supplies to all our companies. They immediately cut linkages with Koteshwor. So the old factory is using the remaining stocks and trying to find alternatives for sourcing the goods. There is no way they can benefit from our research and developments. So, I am sure, their quality will gradually deteriorate and also the liquidity. For that matter, they are not really in competition with me; they are just a pain in my neck for the time being.
How did you find the Nepali lawyers?
They seem to have a lack of power and education and they worked for me in an unusual way. When I visited the police chiefs a few times, my chosen specialised lawyer was not present. I could not even reach him by phone. He was just in the background using his relations unsuccessfully. My intermediary did not defend me strongly even after knowing the situation. He was reluctant to speak out. On top of that, my corporate lawyer also played a humble bowing role in front of the S.P. So, in general you could say that the Nepali lawyers are of absolutely no use when you desperately need their help. They are unprofessional and timid. I think that there are some good lawyers but they are too busy. When you need them, you cannot get them. On top of that my incompetent lawyers were able to charge me more per hour than they do in Germany and Switzerland.
It is surprising that you are still in Nepal?
The good Nepali people, who are still around, keep me going. There is always some hope and I am a positive thinker.
What changes have you made now in your style of operating from Nepal after going through all these experiences?
The important change is that the new company is properly registered with me as the foreign investor. Secondly, I have more control. I don't let the management people of my company hire only their relatives, family members and close friends as employees of the company. I have also imported a lie detector which is not yet available in Nepal, from the United States. So when I am suspicious of someone, I put them on the lie detector and from there I draw my conclusion.
You were also trying to find ways to further reduce the price of K33 hair units for the local market. What has been the progress so far?
Of course, you try to produce at as much lower costs as possible. On the other hand, we are trying to sell the best quality product. So, there is certain level below which you cannot go. Of course, labour in Nepal is very cheap and the overheads are also lower. But the product is for the European market. If you produce to sell at friendly prices here, it will affect the price charged by the retail stores in Europe. But we do have a certain percentage of products for which we charge minimum prices. We sell here in Nepal at the absolute minimum. It is not necessary to make a lot of profit from our sales in Nepal. We started a retail store here with a plan to go out to the Indian market. We can extend our market in India as Indians now can be trained in the Hairmotel in Kathmandu. That was the idea behind starting a retail store also in Nepal, otherwise we would never have started here.
We sometimes do look at clients who have hair loss problems and we know they have hardly any money to pay. We provide a discount to some. We feel very sorry when a child from a poor family comes to us. We have another solution: we ask them to model for us and in that way they get a free unit.
Though K33 earns some revenue also from local sales, its main business is from exports. Would you mind explaining how it made sense to set up your export-oriented unit in Nepal as it is more expensive to export the goods from here than from other locations in this region?
It's not expensive to export things from here. There is an agreement that all goods that are assembled or made in Nepal can be imported into EU countries without sales tax and import duty. But as the duties and tax are minor compared to the cost of our goods, they do not play a big role. So there is one more important reason. Before coming to Nepal, I had my production in China, and before that in South Korea. In China the salary is around five times higher than the salary 20 years ago. I investigated in Indonesia, India, South Vietnam and Nepal. As I need only labour, my choice was Nepal. At that time, the situation was quiet and peaceful. So, you can say I had a good start. I asked somebody to read all the books on Nepal and highlight what is important for me. When I got the report, I saw that Nepal was better. Salary level was low also in South Vietnam but it was rapidly increasing. Moreover, Nepalis are not aggressively business minded. Of course, there are some frauds here, but that is not business-mindedness. So, when I look back at the last seven years, I think I have made the right choice, despite all the trouble.
What is the effect on your business from the traditional and modern therapies now steadily becoming popular as the means to grow new hair naturally?
At the moment, we are active in the business of hair replacement, not in a medical way but in a cosmetic way. You have the cosmetic hair replacement industry; you have surgical methods and you have hair growth sprays, massage etc. We do not work in those fields. I used to own a medical hair replacement company but the results were not satisfactory for me. I felt that I was not being honest with the clients. So, I closed that unit. Most markets that were already there since 60s, went down rapidly in the last four or five years, because baldness is gradually being accepted as a normal thing. So, the market for this type of hair replacement in Holland, Sweden, Switzerland, Germany, Belgium may now be around ten percent of what it used to be about ten years ago. So, we had to search for new markets. We found out that internationally about 90% of the artificial hair produced for people is for female hair extension. Only 10% is for male. Markets are changing rapidly. We have to adapt to the changing situation. So, the group decided (over the last three years) to invest heavily in product design and quality improvement in hair extensions so as to remain competitive in the market. For this purpose, I am working with big companies in Japan, Belgium, and Germany. I am flying in and out of these countries to finalise this project. At the same time, the marketing department of the group is preparing for marketing it worldwide. So, we think that we can start that in the year 2006. Within a few years after that, our main income will be from the marketing of these hair extensions. We will not open retail stores. We will just produce and sell to big wholesalers throughout the world.
Some companies in Germany and Italy are developing new machines for our new project. It's going to be huge investment. Like The hair coating machine alone costs 80,000 Euro (USD 110,000). At this moment I am reluctant in bringing those machines to Nepal. When the situation here improves, I might take the risk of bringing those big investments to Nepal, which of course will be a good step for Nepal. I am reluctant now because if I lose those machines it will jeopardise the company. So, I would like to see how the situation fares. At the end of this year I will go to Latvia, one of the new east European countries that recently entered the European Union. I probably will place those machines there first and start the production and later when we gain more markets, I might do part of the production in Nepal given the situation here improves.
In this current situation, what are your targets for your business?
In this situation, business is stable. It is not growing. We have no intention to grow with hair replacement. We are mainly focused on the preparation of our new markets in hair extensions, which is a fashion product.
So, despite having undergone this experience, you will still keep investing in Nepal?
Yes of course. Every investment is a calculated risk. As long as people are able to come to work, there are no strikes by the union, the airport stays open, and the companies not harmed with more under-the-table money than now, I can continue to work here with decent and sincere people in the management.
Anything else you would want to say?
As this country at the moment is rotten from the inside out, I urge all the good people to stick together and do something. I have been convinced that the King will slowly get the rotten eggs out and establish a judicious and fair system, which automatically will be beneficial for investors, whether foreign or domestic. Recently I heard that some type of off-shore company law will be implemented in certain places in Nepal. I think this is a good idea, but of course the environment of doing business should be drastically changed and especially there should be protection for foreign investors like me from local frauds and corrupted officials. Healthy business is not based on a short-term outlook but on a long-term outlook, and for long-term outlook there needs to be stability and justice.
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