Doing business in Nepal as a sustainable entrepreneur

 

“Most entrepreneurs exit Nepal after three or four years of doing business in Nepal. It’s difficult to keep going, primarily because of the difference in culture.”

 

Nepal has a long history of craftsmanship in making garments – a whole group of people, the Damai caste, are the traditional tailors of the country. It is not easy to do business in Nepal, which is ranked 105 out of 189 countries on the ease of doing business (Doing Business, 2014). Nepal lacks political and regulatory stability, which besides making legislation and regulation unpredictable and inconsistent also creates many ‘gaps’, or voids, in the institutional structure of the country. In essence, these are complex social and cultural challenges.

 

Nepal is a country where large apparel brands outsourced their production but when the Multi-Fibre Agreement put an end to the textile export quotas, these brands moved their production to more stable countries. Yet, for a number of sustainable and social entrepreneurs [link to definition], Nepal is still a country of opportunity, a place where they can access local craftsmanship and contribute to local sustainable development.  

 

This case is based on six sustainable entrepreneurs who produce in Nepal. We wanted to understand the complex production challenges they face and how they manage these in their daily operations. We identified three main challenges:

• Electricity blackouts

• Illiteracy, and a general lack of education

• Cultural distance

The challenge: electricity blackouts

“Nepal does not have the capacity … [and] the correct equipment to generate electricity.

Their equipment has remained the same for [decades].”

 

Electricity blackouts occur on a daily basis. Hydroelectric plants provide 92% of electricity but the current infrastructure can only supply 50% of the total demand (Gham Power, 2014). Blackouts occur randomly and up to six times a day. Working hours have to be flexible and adjusted to when electricity is available. This affects the planning of production, especially if products are produced with machines rather than handcrafted. But a lack of electricity also creates hazardous working conditions. Factories have insufficient lighting, no air-conditioning and poor ventilation.

 

The factories use large generators to supply electricity during blackouts. But generators use expensive and imported diesel, which is not a sustainable or green energy alternative and increases the costs of production. In addition to generators, one of the factories used a large battery which recharged when electricity was available but had limited capacity. Faced with intermittent electricity supply, the sustainable entrepreneurs have to make trade-offs between the continuity of their production and their sustainability values.

 

What can you do?

“… problems, like electricity cuts, is beyond the ability of the entrepreneur and it is
up to the government to carry the responsibility of improving this situation. …
we must stay realistic when setting standards for the sustainable entrepreneur.”

- statement from a NGO that monitors social conditions of factories
 

For entrepreneurs, there are no easy solutions to this very complex problem. While the use of solar panels for electricity is a green solution, the costs for SMEs are prohibitive. Entrepreneurs could join forces with investors, local factory owners, NGOs and local authorities to start small-scale pilot projects using solar panels. The only way to improve electricity supply is by collaborating with key stakeholders, locally and internationally.

 

The challenge: illiteracy

“… the caste system … keeps everyone in their place. Although the younger generation wants
to develop and educate themselves, the current infrastructure does not allow them to do so.
Youngsters from a lower caste often leave school at a very young age to earn money to support their families.”

 

The garment workers, generally the Damai and Dalits people, do not have good access to public education. Illiteracy is pervasive and creates practical problems, like not having a bank account. Wages have to be paid in cash and setting up retirement funds for factory workers is impossible.

 

The biggest problem though is operationally. English is not widely spoken and factory workers have difficulty comprehending sketches and drawings of new designs. They are unable to translate conceptual drawings of clothing, jewelry or bags into a physical product. They need step-by-step instructions.

 

“The whole level of education is so different than ours, it’s the most
simple things that are difficult for them, which we cannot get across.”

 

What can you do?

It is important to be physically present in the factory to demonstrate how the new product or collection is designed and produced. After demonstrating the production process, the workers are able to directly copy the prototype. This also gives the entrepreneur an indication of the time needed for production. However it is expensive to be physically present each time a new collection or product needs to be produced.

 

“During my one month stay in Nepal, I was in the factory every day and made a
prototype together with the employees. I was constantly checking what they were doing
and if they were applying the correct method to make the bag. Eventually, we
made 4 prototypes, which they then continued to copy when I wasn’t [there any more].”

 

Beyond just managing the gap in education, the entrepreneurs are also trying to reduce it. One of the entrepreneurs donates a percentage of her net income to the local cooperative, which organizes courses and training for the employees to improve their level of education. By providing educational opportunities and fair wages, the entrepreneurs contribute to a more socially responsible and sustainable work environment. Furthermore, to reduce illiteracy the entrepreneurs could support and cooperate with organizations such as READ.

 

“To me, receiving a fair salary and ensuring that the children of factory workers
can go to school are the most important factors of sustainability.”

 

The challenge: cultural distance

“There are many unwritten rules: pride, shame and hierarchy. [The Nepalese] will never
admit mistakes or indicate when things are not going well. If you would confront them, … this
would put them off even more. A completely different method of social interaction
is needed and a completely different logic in order to communicate [well].”

 

The Nepalese have a different sense of time and urgency and they will not directly say ‘no’. It is difficult to judge whether a specific task is understood or can be done on time. To manage delays in production, the entrepreneurs use contingency planning (moving deadlines forward by a few weeks) to create flexibility. As a consequence, the entrepreneur has to make a trade off on the costs of either holding inventory or having late deliveries.

 

“We always have a backup period as the Nepalese never meet their deadlines.
We tell them the deadline is the first of September, when in fact
we need the materials by the fifteenth of September.”

“I anticipate this by stocking up on supplies [and inventory]. I always make sure that there
is enough stock available. It’s a matter of carefully judging what sells well.”

 

Production planning is also affected by the numerous strikes, national holidays and festivals, when production work comes to a halt.

 

“During Diwali [a festival], the factory is closed for two weeks, no one shows
up for work as everyone [goes home] to see their families. [The workers] will only
return when they need money. One has to wait and see when they return from the mountains.”

 

What can you do?

It is essential to establish clear communication with the factory and monitor the production process. Ideally the entrepreneur should have an on-site representative in the factory. All the entrepreneurs work with local agents who communicate with the factories and monitor the production process. The entrepreneurs have daily direct contact with their agents and fully trust them to monitor social conditions, such as providing fair wages. The local agents are educated and traveled; they are able to effectively bridge the cultural distance between Europe and Nepal.

 

“She [the local agent] knows the Nepali culture and Western culture. She knows how to
translate my wishes to the crafters, who have to make the end product.”

 

It is still very important for entrepreneurs to conduct their own audits and visit the factories they use. One of the entrepreneurs travels to Nepal twice per year and recognizes that a more frequent presence has advantages.

 

“When you’re physically there [in Nepal], they do so much for you.
When [you leave], they suddenly stop working hard for your garments.”

 

All companies that internationalize face cultural distance. It is essential to recognize the differences and proactively bridge the distance. Supplier relations based on good communication and trust are essential, but entrepreneurs should reach out and communicate to the community through outreach programs. They should publicize their achievements to the local community to gain credibility, legitimacy and goodwill in the community.

 

 

 

For this case study, six entrepreneurs that produce in Nepal and one non-profit organization were interviewed. The quotations above represent the views of the different interviewees.