| Username |
Post |
| ashu |
Posted
on 01-Apr-03 04:44 AM
What follows is taken from the April edition of New Business Age Magazine.
Mr. Rana was the guest at the fourth Entrepreneurs' Forum in Kathmandu.
Mr. Rana talked widely about doing business in Nepal. In the audience were about 60 young Nepalis (in their late 20s and early 30s) most of whom are already running their own businesses in Nepal.
Also, thanks to the efforts of Ms. Raksha Pandey's Vista Entertainment Pvt. Company, an audiovisual CD of Mr. Rana's presentation has also been made, and this CD can be, for a fee, shared with other interested folks.
Enjoy the article.
oohi
ashu
ktm,nepal
**********
Soaltees Experience in Entrepreneurship
by Prabhakar SJB Rana
While the entrepreneur invests his money, it is basically the managers who should run the enterprise. But this is exactly what the businesses in our country are missing, and this is exactly why businesses here do not grow. Of course, our culture has been for family businesses and there is nothing fundamentally wrong with that. Some of the largest businesses in the world are family businesses. But the family must train its successors to do the business.
Your family members must not be barred from taking the management positions but at the same time you must not forget that you have to choose the best management personnel that can be available. Such personnel can be from within or outside the family.
The family-management concept of business will automatically die down as the business grows larger. Nobody can manage the business only with his own family-members when the business grows beyond a certain level. He then will need more management skills. So, more young managers will be needed. Therefore, ultimately the professional managers have to take over the business at a certain stage.
Look at the Ford company. It was a family-held company for long. But Henry Ford IV ultimately had to realize that as the company his great grand-father had established had grown too large and the shareholders had spread worldwide, he could not continue to manage the company single handedly. Therefore, slowly he had to give up the control in the company. But from then onwards Ford company began to do very well again.
Similarly, take the Birla family of India. Aditya Birla, who was the youngest of the family, inherited what his elders did not want to take. But he outpaced his uncles and elder brothers within five years.
So, I think if your family member is qualified, he or she should not be barred from taking over the management positions in your business.
To carry the Birla family story further, when Aditya Birla died at a quite young age, his son Kumar Mangalam had not even completed his MBA. So everyone predicted the imminent collapse of Aditya Birlas business. But we can see that now, after six years of his fathers demise, Kumar Mangalam has tripled the business empire that his father left behind.
How? One reason is of course that the entrepreneurship of the Birlas is in him. But if you look at his organization, you will also notice that he has chosen such managers who are among the best in the world. And they are all under 45 years in age.
If we turn to our setting, we can see that in our culture the older generation does not want to give up. That is a totally wrong attitude. As we all know, the market situations and the systems of doing business keep on changing very frequently. Undoubtedly, the younger generation is in a better position to understand and to cope with the new systems.
When some of my friends, who are much younger than me, complain that the last three years have been very terrible for business, I ask: Then how come the six multinationals have been growing at a compounded rate of 30 percent per annum?
I think the answer lies in the fact that the managements in these companies are able to understand the changed situation better and adopt the system to the situation so changed, and are taking advantage of the inability of the competitors to do the same. For the old manager, any change in the system is an attack on his domain. But an young man or women is always ready for the change. Entrepreneurship requires such readiness to adapt to the change.
Shifting entrepreneurship to next generation is however a difficult process. There is always a fear whether the transfer will really be successful. But if you corporatize your business, then the process becomes smooth. Perhaps it would be even better if the younger generation becomes demanding of more responsibilities and authorities.
Corporatization is good because a corporate body never sits satisfied whereas an individual will be satisfied after some level of achievement.
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| ashu |
Posted
on 01-Apr-03 04:46 AM
Business Selection
Nepal is best suited for service industry, not for manufacturing, because we are located between large manufacturing-industry-based economies. We cannot compete with either of them in manufacturing. But we Nepalis are, by nature, very good at service industry. It will take very long time for us just to learn the manufacturing know-how. Soaltee Group has therefore focused on tourism which is a service industry.
The next opportunity for Nepal is in hydropower and then in high value agriculture. But our countrys entrepreneurship has not been able to utilize the comparative advantage in these fields.
The Royal Nepalese Consul General in Lhasa was telling me recently that China was ready to give Nepal the contract for supply of rice to entire Tibet Autonomous Region. But there were two conditions that the Chinese had put down: First, they said, make sure that the merchandise is exactly according to the sample. It may be recalled that similar rice business was lost by Nepal a few years ago as the merchandise differed significantly from the sample.
Second condition they put, according the consul, was that there must be a guarantee of timely delivery. Obviously and logically, if you are given the monopoly, you must provide such guarantee. And the consul was complaining that he talked about it with all the agencies concerned in Nepal, both private sector and the government, but nobody showed any seriousness about the business offered.
During the last two years we were complaining that because of the extra production in India, our farmers could not get the remunerative price for paddy. I see very clearly that if there was a real entrepreneurial support in Nepal, whether in the government or in the private sector, we would have started selling all our rice to Tibet (for a fairly good price as they have no rice production), and buy rice for us from India (at very good price as there is plenty of it).
The Chinese were also ready to give us similar business about green vegetables. For them it was costly to supply green vegetables to Tibet. So it was again going to be an almost monopoly business for us. The Chinese talked to lot of us Nepali businessmen but nobody bothered about it. Four years ago I went to Tibet and I saw that they were producing vegetables themselves in a big scale. Now the situation is such that some vegetables come from Tibet to Nepal.
I get a bit annoyed when I go on hearing Nepal being compared with a yam sandwiched between two boulders. The yam seems to be pretty tough. We have survived so long. Perhaps the new technology has made the yam self-surviving.
My point is, why dont we look at the advantage of the proximity to the market of two billion plus people on either side of us? The spending power of these two billion people is rising at a very high speed. We say we have problems in tourism and we go to USA and Europe trying to market our country. Naturally we come back disappointed. The problem of the Europeans or Americans not coming is not exclusive to Nepal.
The tourists from these regions prefer to stay closer to home because of the security concerns. Our problem has been compounded by our own internal reasons. Our planning in tourism has always been wrong, we always had more supply of tourism facilities (i.e. hotels) than the demand for these facilities. That has had a negative chain-effect, also at the macro level. To keep the establishment running you begin to cut down the price. That leads to cutting down the quality and you will start getting cheaper segment of the market. Then the next round is continued, and the industry will eventually die.
What do the other countries do? India too faced problems, as Nepali did, from the downturn in international tourism. But big countries like India can promote domestic tourism as a stop-gap measure. And that is exactly what India did. Same is the case with USA.
The number of Americans going outside has declined, but the internal tourism in USA has increased. In Europe they are now visiting short distances i.e. the European tourists are visiting other European countries. Unfortunately we do not have large domestic market. However, we have to mop up as much domestic market as possible. Beginning some five years ago, the upper middle class of Nepal had started going out for weekend. I think the occupancy of Pokhara hotels and jungle lodges at the weekends must have been 30% Nepalis. That has, off course, declined now because of the economic problem of the country. But we do not have much choice.
So, when the new tourism minister asked me for my suggestion as to what he should do, I said, With whatever little resources we have, we must concentrate on promotion in India and China.
Either in domestic or international tourism, the largest component of the cost is the airfare. So closer the market the better.
Market Selection
Business selection has therefore another aspect as well, and that is of market selection. To see how, let us take the example of garment industry in Nepal. It is in a big problem now. Why? Because, first of all, it was a wrong market selection. You must not depend on only one market. That is suicidal. Now Nepal is going to USA and asking for some privileges which may or may not be available. Though the same privileges are available in Europe, we are not utilizing it. I think it is sheer laziness, not entrepreneurship.
Then there is a very large market for garments in India. Surya Tobacco has tried to tap this market by diversifying into garments from tobacco. This is made easy by the partnership with ITC Ltd. of India which is already in garments business with its Wills brand. They started five years ago with three stores one each in Delhi, Mumbai and Kolkata.
Now they have 56 stores. In the coming three years, they plan to have 1500 stores. This was the opportunity. The market was secure. The brand was already there. And most of garment factories in Nepal were operating at a half or a quarter of their capacity. Therefore, there was no need for Surya Tobacco (now Surya Nepal) to spend money to create its own garment factory. It has been three months now for the garment business of the company and I believe that it is now selling about 3500 pieces of garment a day. It started with two factories. Now there are seven factories. The company hopes to have 26 factories within a year.
What lies at the bottom of this success? It is obviously the ability of the entrepreneurs and the management to see the opportunity present in other fields of business, the ability to change and the system set up to take benefit from that opportunity. This I think is how the multinationals function. They take advantage out of the amateurs who, for example, create the production capacity but can not use it.
Employee Turnover
When people see greener pastures they will leave. In these days nobody will like to remain your slave. But you need not worry. You will have a new, perhaps more competent and much younger person to replace the one who leaves. If your basic focus is on continuously training the human resource. That way you benefit even when some of your people leave you. In fact both of you the employer as well as the employee who leaves are happy.
More importantly, I think that an organization should be rather considered dead when it is not getting new people or its people are not getting jobs elsewhere. Sometimes it also happens that your person leaves you, joint a new company, works there for some time, gathers new experience and comes back to you better experienced.
This has happened in Soaltee Group in a number of cases and the Group has benefited very much as such people come more experienced and with wider exposure. However, if you want to retain people, because you have already made so much investment in them and your losing that investment is bad, you should create new slots for those people so that they see sufficient motivation in staying.
Choosing Partner
In choosing partner, you have to be careful. Enter into only long-term partnership. Secondly, go for a partnership with such a party which has the same philosophy as that of yours. Otherwise the partnership will collapse very soon.
Changing from Oberoi to Holiday Inn as its partner, Soaltee Hotel provides a good example about it, I think.
Though Soaltee had 25 years of successful partnership with Oberoi group, we decided not to continue that partnership and brought in Holiday Inn because of three reasons: first, Oberoi was only a deluxe category brand then and we thought such hotels at that time were possible only in Kathmandu, not outside it. And we were planning to go outside Kathmandu. Second was a personal reason. Biki Oberoi was not in a good health.
Though a very much successful business, Oberoi was not a well-corporatized organization till then. BK Oberoi had one son and one nephew and I was frequently hearing in New Delhi that the young boys were not interested in hanging around India. That frightened me. The third reason was that I did not see Oberois commitment to Nepal. They had invested only what was received by them as the fee. I did not see them planning anything for Nepal. They never thought to put up another hotel somewhere else in Nepal. We finally separated strictly in accordance with the agreement. It was a friendly separation. I and BK are still good friends.
If you look at Soaltee Group, we have partnership (except in trading) with internationally renowned groups. In the beginning my fellow-shareholders would question the logic of having bigger partners. They were afraid that we would be bullied by bigger partners. But I said, We can learn more if we have bigger partners and well also be safe as we can rely on the back of the bigger partner.
Some people like to have partnership with the government for the protection that such partnership provides. But in todays world you cannot depend on protection. If you argue in favour of protection, then you better become a professor in a university, but not an entrepreneur. It is not government protection but combination of system, market and HRD that make an entrepreneur successful. Government is the worst partner for a business.
With all the noise going on now-a-days about economic diplomacy, let me note here that it is in fact the entrepreneur who has to take the initiative, the government and its diplomatic missions abroad can best be the facilitators only. They will be able to do no more than facilitate what the entrepreneur wants. It is not that the Embassy should work as your companys marketing office. If it arranges to introduce you to a potential partner in that country, it is enough. I think you should be ashamed if you hope that the First or Second Secretary in the Embassy will work as your guide. You should guide yourself.
Arrogance leads to failure
Soaltee also provides a case example to show that in business you must not be arrogant. At Soaltee we had once become so arrogant that we had started feeling that whatever we would touch would turn to gold. So we decided to have a shoe factory. GP Koirala was the Prime Minister then and he had asked me to do two things: One, to bring investment in hydropower and two, to do something to increase exports. Hence I thought a shoe factory would be a good idea to produce exportable product.
We had done a lot of homework before starting the shoe factory, still we failed. In this business we were first encouraged by International Finance Corporation (IFC). They encouraged us to look at three businesses: hydropower, leather and silk. But when we completed the project report, IFC walked out.
They were not finding satisfactory answers to two questions: First, everyone will be ready to sell the machines to the shoe factory, but will they put in the equity? Second, Why had Soaltee selected Thapar Group of India as the partners in the factory while it knew very well that the Thapars too were quite new in this business? We did not listen to IFC and we sent the project report to a first class bank, which rejected the project very quickly. That should have been sufficient for us to decide not to go into that business. But our arrogance prevailed and we pushed it with some local banks and ultimately we made them finance the project. But we failed in the business and learnt a valuable lesson.
In hindsight, I see that it was not the right time to go into that business. Moreover, it was a highly competitive market. And most importantly, the partners (Thapars) also failed in their own country in shoe business.
(Rana is Chairman Emeritus of Soaltee Group. This article is based on the presentation he made in the February edition of Entrepreneurs' Forum organized by Business Service Aadhar.)
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| baljoshi |
Posted
on 01-Apr-03 11:01 AM
one of the best articles I have read. Thx Ashu
bal
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| Kumar Prasad Upadhyay |
Posted
on 01-Apr-03 11:37 AM
Ashu ji:
Thank you for posting Prabhakar Rana's presentation. This man has a lot of insight and understanding of the business environment in Nepal and abroad, and is fascinating to listen to. Clearly, understanding and insight acquired over decades of experience and exposure carry a different weight that young minds generally can't match.
I was a bit surprised to read one assertion he makes about Kumar Mangalam Birla's academic qualifications, which I trust is wrong although I can not be 100% sure.
Rana says the younger Birla had not completed his MBA when Aditya Birla died. I doubt if that was the case. I am willing to stand corrected, but I remember reading a good number of profiles of the Birlas (both Aditya and Kumar Mangalam) in a number of Indian business magazines and newspapers in the mid-1990's which mentioned KM as a chartered accountant and a graduate of London Business School.
In fact, Aditya Birla is on record saying that an accounting qualification (which is very details oriented) coupled with an MBA from a big business school like the LBS was an ideal academic/professional training he could think of for his son. Aditya Birla himself was a Ph.D in chemical engineering from MIT, and I think he believed that he would have been better off if he had insted had a combination of qualifications in engineering and business administration.
KPU
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| Brook |
Posted
on 01-Apr-03 04:30 PM
This is clearly a clarion call from somehow who's been around for a while and I find his commentary extremely insightful.
Particularly amusing was his line:
"If you argue in favour of protection, then you better become a professor in a university, but not an entrepreneur."
These words of conviction from a drill-seargant must have definitely pumped much adrenalin in the bellies of young, aspiring entrepreneurs in the audience.
Focussing on marketing tourism (and other service sector exports) to our neighboring countries before heading straight for the dollar-land will not just be prudent in terms of lower transportation cost for potential travellers, and a hedge against dampened spirit for adventure in the West but if done properly, in the longer run provide a more STABLE
inflow of revenue. Personally,as far as tourism is concerned, like Michael Thompson, (in his chit-chat with K.M Dixit featured in NepTimes) I fear that we might have concentrated too much resources on too little -- Pokhara, Namchhe, Ghandruk, Chitwan etc, locationwise -- and --Everest expeditions, Trishuli-Marshyangdi white water rafting, a number of trekking packages etc eventwise. This overinvestment and the resulting overcapacity would, perhaps, have been okay and manageable without the political gaijatra in Nepal and well, all over the world. But on second thoughts, is there anyway Phulbari resorts will be able to credibly incriminate the security situation in the country and the world in general for it's sorry show? I don't think so. Phulbari is way too posh for majority foreigners who go to Pokhara and those who come to Nepal for that matter.
To make a long story short, the exoticism of the shangri-la has been oversold, innocence of it's inhabitants violated and the Himalayan calling has been recklessly commercialized. It's time for the Nepali Tourism Industry to begin thinking about seeking redemption in endeavors attracting the domestic and neighboring markets. Manakamana Cable Car led the way, let there be more.
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Brook
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| ashu |
Posted
on 01-Apr-03 05:07 PM
KPU,
You are right.
Here is what I just dug up from:
http://www.adityabirla.com/adityabirla/group/profile.htm
"Born June 14, 1967, Mr. Kumar Mangalam Birla was raised in Calcutta and Mumbai. He is a Chartered Accountant and earned an MBA (Masters in Business Administration) from the London Business School, London. Mr. Kumar Mangalam Birla and his wife, Neerja's eight year old daughter, Ananyashree, and five year old son, Aryaman Vikram, are schooling. February, 2003."
Will inform Mr. Rana accordingly -- and diplomatically -- when I next meet him.
Bal, thanks for your words.
Brook, enjoyed reading your thoughts. You are right. Maybe someday people liek you should run the Nepal Tourism Board, which is still being run by bureaucrats wearing tie and coat.
oohi
ashu
ktm,nepal
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