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"Dabur plans to invest nearly Rs. 10 billion over the next five years"

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"Dabur plans to invest nearly Rs. 10 billion over the next five years"

Harkirat Singh Bedi is the Business Head of Dabur Nepal and Myanmar. He came to Nepal as the Head of Sales and Marketing in 2007 and has served for fourteen years in various capacities, including as the Country Manager of Dabur Nepal. Madan Lamsal, Editor-in-Chief of New Business Age caught up with Bedi to talk about Dabur Nepal’s business, the cost of the pandemic and the company’s plans. Excerpts:

Your stay has been a long one, hasn’t it?
Yes, I came to Nepal as the Head of Sales and Marketing in 2007. Since then, I have been associated with Dabur Nepal for fourteen years in various roles.

By that, can we infer that your Nepal stint has proved fruitful?
It has been enriching and rewarding in terms of both individual as well as professional development. I was shouldered with the responsibility of Head of Sales and Marketing when I first came here, got subsequently promoted to Country Manager in 2012. In 2016, moved up as Business Head of the Dabur Group for the SAARC region based out of Delhi. At present my role is that of Business Head - Nepal and Myanmar, two important markets for Dabur.

Dabur has been present in Nepal for around the last three decades.  What has the journey been like so far?
Dabur Nepal is one of the most successful JV operations in Nepal and it is testament to the success of the Foreign Direct Investment (FDI) initiative the country embraced in the 1990s. Dabur came to Nepal in 1989 and formally started its operations in 1992. From a turnover of Rs 5.3 million in our first year of operation we have progressed to Rs 11.38 billion in the last year (FY 2077/78). Had it not been for COVID, we would have fared even better. Furthermore, our investment has been increasing over the years, from an initial investment of Rs. 80 million to approximately Rs. four billion till date. Nepal is a crucial and important operation for the Dabur Group, and we will continue to grow our business and investments here.

Can you tell us about the impact of the pandemic?
Our business is concentrated largely in three areas - domestic, export and agro-forestry. Our export business was significantly affected as we largely export fruit juices to India. We service 60% of the total requirements of fruit juice for Dabur’s Indian business. On account of Covid, consumers in India reduced consumption of cold beverages based on the perception that they should have hot beverages like Kadha, Kwath etc. Also, as Out-of-Home consumption declined due to the severe lockdowns across the country juice sales suffered. As demand in India came under pressure, so we experienced a drop in our export business. In the domestic market, too, we suffered in the juice business on account of the same reason stated above, however other business segments such as health supplements (Chyawanprash & Honey), Home Care & Hygiene, Pure Play Ayurveda did exceedingly well. So, in a manner we were able to offset to a great degree the drop in juices from the aforementioned categories.

How is your company prepared to cope with the possible disruption likely to be induced by the Omicron variant of Covid?
The first wave was challenging, everyone was taken by surprise and most businesses were ill prepared and thus suffered substantially. However, with the lessons from the previous two waves of the pandemic, we are better prepared to cope with the possible disruptions of Omicron. Ensuring a smooth and robust supply chain was a massive challenge then, however now we have developed new alternate vendors on the supply side and we have increased coverage of raw materials and packing materials, especially materials of a strategic nature. On the demand front, we will be concentrating more on driving the health care part of the portfolio. We are giving extra credit to the dealers if required and building up inventory in the market so that there are no shortages at the consumer end. The company field force has been doubly vaccinated and for our indirect sales force we have covered them under a health insurance policy. So, both from a demand and a supply perspective we have made several interventions to minimise disruptions.

How did the alternative delivery mechanism help your business in the pandemic?
The share of ECOM business is very negligible for us and in fact for most of FMCG companies. For us to makeup sales from e-commerce is very difficult as 90% of our business is from the core general trade. On account of the severe lockdown, general trade suffered the most. Also, in the juice business a good share of the sales comes from the hotels, restaurants, café (HORECA) channel. As people were worried about their health, they stopped going out. Frequencies of celebrations, gatherings, parties, conferences, seminars, etc. came down sharply. Also, there was a cap on the number of attendees. This obviously impacted demand. This year, we have seen better demand, a revival compared to last year.

It has been quite some time since Dabur stopped investing in Nepal. Earlier Dabur added juice, herb farming and processing plants. But for about 6 to 7 years now no new ventures have been noticed. Any reasons for this stagnation?
I would not put it that way. We had set up our business in the country with an initial investment of Rs. 80 million and have increased it to Rs. four billion till date. We have been consistently investing in capital expenditure, increasing the manufacturing lines of juices, investing in new plants and upgrading existing facilities for our consumer care business. We are also waiting for approval from the Investment Board of Nepal for an investment of approximately Rs 9.70 billion over the next five years. This investment will be utilised in strengthening both our export and domestic business. Also, as far as herb farming is concerned, we have significantly increased the number of species and the overall acreage in terms of cultivation.

How would you compare the business environment in Nepal with those of other countries where you head Dabur operations?
The business environment is challenging across countries in South Asia and Nepal is no exception. However, the business climate in Nepal is steadily improving. I have seen major improvement in the realm of industrial relations. From militant trade unionism we have seen much better employer-employee relations. And the climate in the factories has significantly improved. We do not see the kind of strikes, lockouts and shutdowns that we were used to in the past. Also, power outages were a massive issue and factories had to be heavily reliant on operating through diesel gensets. This also is a problem that has been remedied to a great extent and has definitely helped in bringing down the cost of production. Also, when compared to other countries, the laws here are more practical and reflect business realities. In a number of countries, we see first world legislation for 3rd world countries which is really impractical for business. Also, in Nepal the bureaucracy is very approachable and are open to hearing your problems and if they see merit in your reasoning, they are forthcoming with solutions.

You have also been looking after business in Myanmar. How is the situation there?
Myanmar has been a challenging environment to operate in after the military coup on 1st February 2020. Before the coup, Myanmar had an investment-friendly environment, the bureaucratic process was simple and streamlined, getting permits/licenses was not difficult. With increasing digitization, the whole process was very business-friendly. We had plans to grow our business more aggressively, seed new brands and were even contemplating local manufacturing for select products however that seems difficult in the current scenario. The country is in a state of flux and it is difficult to predict which way it will turn. So, we are being cautious and observing the situation closely.

So, at present, we are still operating in Myanmar, however the business performance is not up to our level of expectation. The currency in Myanmar is depreciating, there is a huge liquidity problem, access to funds for import is difficult, and there is rationalisation of import permits for non-essential goods and so on. The post-coup era has seen soaring inflation and a declining GDP. In fact, as an economy, Myanmar will be the worst performing in GDP terms in South East Asia for 2021. Also, Covid continues to pose a challenge and with low vaccination rates, the situation has further exacerbated. But I am hopeful, Myanmar will bounce back.

Has Nepal taught you any valuable business lessons?
In Nepal you need to be patient, you need to be resilient, you need to face adversity head on and you need to stay the course if you wish to succeed. These are some of the key lessons that I have learned here which is useful going forward. Apart from that, in Nepal, you understand the value of building strong relationships and networks, you see the impact of consumer centricity and focus on local context appeal and relevance and you see that there are opportunities in adversity. I feel, managers who have done well in Nepal can do well anywhere else in the world. The Nepal experience is a great training ground for young managers and leaders.

What kind of challenges have you faced in Nepal while doing business?
On account of political and economic instability, there are constant changes in policies. With frequent changes in policies, it is very difficult to operate a business. I would like to highlight some of the painful points which we and other businesses are facing today. Firstly, IPR regulations need to be strengthened, famous multinational brands and trademarks need to be protected. Secondly, restrictions on import of raw materials like black pepper should be lifted for the industrial users. Such restrictions from time to time impact business continuity. Thirdly, vendor payments for overseas vendors, especially service vendors. should be eased. The payment process has become very cumbersome and lengthy and needs to be addressed.

Also, manufacturing companies under FITTA (Foreign Investment and Technology Transfer Act) are restricted from engaging in contract manufacturing. There are lots of products we would like to try out in the market. If we can do contract manufacturing initially, we can scale it up later through our own investment depending on the success of the product. This restrictive legislation curtails us from bringing in new products and new technologies. If we start in-house manufacturing of every new product, it requires huge capital investment and it also comes with huge risks. So, allowing contract manufacturing for a limited portion of your turnover or for a limited time frame will be a very business friendly move.

If the above highlighted challenges can be resolved, it would be in the interest not only of Dabur but for most of the business entities operating in the country.

How do you see the government's regulations and standards related to food safety? Have they made any impact on your sales?
We work very closely with the Department of Food Safety and Quality Control, abiding by all their guidelines in respect to food safety. Over the years, there has been a lot of evolution in the food safety laws and Nepal is catching up with the rest of the world on that front. New laws regarding labeling regulations have come in which are more pro-consumer. Labeling declarations have become more stringent and greater clarity needs to be given now to the consumers about the ingredients, the manufacturing process and shelf life.   

We, as one of the leading food and beverage companies in Nepal, welcome such legislations and take a lead to comply with the same. We also urge other food companies to do the same so that the overall food safety environment in the country improves. With greater transparency will come greater trust and this will only lead to growth in sales and not the other way around.

There was an issue of illegally imported juice from Bangladesh which had an impact on Dabur’s juice business here. How is the situation now?
I don't see any challenges from juices from Bangladesh as of now. There were some positive changes in the regulations with respect to import duties. That was a welcome move from the government for the entire local juice manufacturing industry. All we ask for is a level playing field. Nepal should not be used as a dumping ground for cheap foreign products. Amongst the local manufacturers here, there is enough capacity as of now to cater to the demand for fruit juices for a number of years.

What about competition in the Nepal market from other Ayurvedic products marketers?
It is quite a heated battle. We are competing against some very strong brands like Patanjali, Zandu, Baidyanath and Bhaskar Ayurved. However, we are very confident about the quality of our products and have a very loyal consumer base. All I can say, in this space the consumer is king as he has a wide choice of quality products to choose from.

How is the juice business now and the competition? A couple of years ago when the government drastically raised import duties on juice imports, it was interpreted as a result of strong lobbying from Dabur. What is your take on that?
We had nothing to do with lobbying against anything or anybody. If we look at it purely from the government’s standpoint, it needs to encourage and protect manufacturing industries. Manufacturing industries are major contributors in generating employment opportunities, driving technological innovations, developing ancillary industries and they help in the overall industrial development of the country. Hence in our own small way, we are helping to build a climate of industrialisation in the country. Nepal has a population of only 30 million and most companies find it very difficult to manufacture in Nepal because of feasibility and viability issues. So, it is only apt that the government supports manufacturing industries and protects them from cheaper imports coming in from outside.

Yes, these companies also pay import duties. But how does Nepal gain in that respect? All the taxes, all the employment and all the industrial development happens in the country of origin of these products.  For the long-term economic development of any country, you need to have a certain degree of industrialisation and what all manufacturing industries want is that the government provides them a level playing field. Because if companies who have invested here do make a reasonable return, I am sure they will continue to invest. Also, the success stories of these companies will spur new investors and greater investment in the country. The ideal situation would be for new investors and investment to come in and for existing investors to keep increasing their investment.

Has Dabur Nepal any plans to export its products to countries like Bangladesh?
Apart from India, we also export products to Dubai, Qatar, Bangladesh and US. However, the volume of export to the non-Indian countries is very small, but we are making all efforts to scale up. The very fact that we have made successful shipments to the US gives us a lot of confidence since the US FDA regulations are one of the most stringent in the world. It fills us with immense pride that world class manufacturing is possible in Nepal.

How has performance been like segment-wise? Your business is concentrated in the food and beverage segment, particularly on juices. Any plans to expand the diversification?
The juice business has bounced back from the ravaging impacts of the pandemic driven by both domestic demand and the demand in India. The rest of the consumer care portfolio apart from health supplements is likely to see huge growths due to base impact.  On the whole, we are expecting to see stronger performance in the current year. There has been substantial diversification in our domestic business as apart from fruit juices we are present in health supplements, hair care, digestives, oral care, skin care and home care. For exports, we will be focusing mainly on the juice business as of now.

It's said that not a single drop of juice in a Real juice pack is from Nepal. All the raw material is imported. Why hasn’t there been any effort for backward integration?
That is not the right statement. All the value addition norms that the country requires are met by us. We need to see the whole situation from a raw material and packing material perspective. From the packaging perspective, we use Tetra Pak Laminates which we need to import as we don't have a Tetra Pak manufacturing facility in Nepal. When we talk about raw materials the main ingredients are concentrates / pulp. This comes from India and third countries and are provided by companies who are specialists in the concentrate and pulp processing business. They ensure the consistency in the blends that are crafted by our food technologists. So, we have left certain parts of the value chain to the specialists who handle that part the best. If the RM/PM was available here in Nepal there is no doubt that we would have procured the same locally.

So, as of now, it looks very difficult to go for backward integration as our forte is in manufacturing marketing and selling. We don’t have linkages with fruit farmers across the world and do not have expertise in concentration preparation and pulp processing. There are specialists who have the requisite skills, knowledge and can provide the same at a much cheaper price. So, one can try backward integration, but if you are not good at it, there will be inefficiencies which will get loaded onto the end consumer and that is something we don’t want to do.

The government's top priority has been to check the ballooning trade deficit. It has come up with a number of policies to promote exports including the cash incentive scheme for exports. How do you see those initiatives?
I think the government has been pro-export. Exports to India are duty free. As far as Dabur is concerned, we exported goods worth Rs 7 billion in the last year and in our own small way we are helping the government reduce the trade deficit. We have been instrumental in getting valuable Indian currencies to the country. I am more than happy and appreciative of the efforts of the government. The legislations, cash incentives are extremely positive. We are seeing year-on-year growth in our export business, bringing in more and more investment into the country. So, all in all, that is possible only because the whole eco-system created by the government for exports is pretty encouraging. Juices are now in the top ten commodities being exported out of Nepal.

It's said companies which are doing extremely well like Dabur Nepal are not giving the whole story to foreign investors interested in Nepal. What would you like to say about that?
I would disagree with you in this regard. I have been here for the last fourteen years. A number of professionals from different companies have met with us and wanted to know about our Nepal experience. They have sought advice with regards to investing in the country.

We have been very encouraging in that respect and at most forums I have been a votary for investing in Nepal. There is enough growth and opportunities in the Nepal market. Our story is a testament to it. So why should we discourage anyone?

Can you share a few points on why a foreign company should come to Nepal and invest?
A lot of companies are operating in Nepal through the trading route. They have seen their sales go up, and are now reaching a certain critical size. Also, with the frequent change in governments, there are policy changes, changes in duties, changes in regulations regarding imports, changes with respect to paying for imports etc. So, these companies are now looking for stability and they feel local manufacturing and operation is the way to go. However, the market size is small and they fear feasibility issues and are mired in fears of security of their investment and whether they will be able to recoup the same and make a decent return and also whether they will be able to repatriate their dividends.

In spite of all the challenges, there are ample success stories in the market namely Surya Nepal, Dabur Nepal, Unilever Nepal, Asian Paints, Berger, Kansai Nerolac. So, they need to look at these companies and learn from their experiences. I don't know what is holding them back, why they can't take the plunge. Also, the overall macroeconomic indicators of the country are fairly good and early investors will definitely be rewarded, that is if they are willing to take the risk.

You mentioned the small market size; but we are in between two giant economies. Is that not a boon for Nepal?
It is in terms of exports. Using one singular facility, companies can have both a sizeable domestic business and export business. I can talk about our export experience with India, but not China as we do not export to China. It is relatively easy to export to India since we share an open border, contiguous geographical terrain and exports to India are duty free. Some companies in the past have used this model. That would be a perfect fit.

While the population of Nepal is seemingly small, Nepal is a young and growing economy, people are aspirational, purchasing power has gone up, consumerism has come in and spending has taken off so it does offer opportunities to new investors.

Because of digitization and globalization, Nepali consumers are aware of the latest trends and want equally world class products. I don't think any Nepali consumer will settle for any inferior product. To succeed here, companies also must produce quality products. That is one point I also wish to make.

Please tell us about your CSR initiatives in Nepal.
We have done lot of CSR in villages surrounding our Simara factory. We have done CSR in the areas of sanitation, education and health care. Apart from this, we are also engaged in CSR in our agro-forestry business by providing free samplings to farmers working with NGOs, INGOs, community forest groups etc. Some of these saplings are provided free and some are charged at very nominal rates. This year we have done CSR in the health care space, by donating critical care equipment worth Rs 2.5 million to Bir Hospital. In the coming days, we will be largely focusing on building the health infrastructure since COVID has taken a heavy toll. However, we are not focused on COVID related medical infrastructure but on critical care related infrastructure. We will be providing grants or distributing medical equipment both to private and government hospitals.

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