HUGE QUANTITY OF FOOTWEAR IS SMUGGLED INTO NEPAL

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HUGE QUANTITY OF FOOTWEAR IS SMUGGLED INTO NEPAL

Amir Pratap Rana is the Managing Director of Kiran Shoes Manufacturers Pvt Ltd - the producer of the popular Hathi (elephant) brand of Hawaii slippers and Goldstar shoes. The story of the firm, established by his father Noor Pratap Rana in the 1970s by bringing plant from Thailand, represents a very important instance of a business success in Nepal's economy history. In an interview with New Business Age, he shared the struggles that his father made to produce and market footwear in Nepal. Excerpts:

To begin with, please tell us about your family background.
Our ancestral home is at Bhairavsthan in Kavre of Palpa. However, I got a chance to go there only a few years ago after the death of my father Noor Pratap Rana. I got emotional for a while after reaching the place. During the reign of Rana rulers, the administration of that time tried to kill our great grandfather Indra Pratap Rana. He fled to Palpa and settled there. Our ancestral home is still there. At that time, it was not even possible to go to school in rural areas. My father studied secretly in Gorakhpur, India. Later, he graduated from Tri Chandra Campus and subsequently went to Bhairahawa for the first time and started Lumbini Bus Service.

What made him go to Bhairahawa to start a business?
My father’s elder uncle, Purna Pratap Rana, was living near Danda Khola in Kawasoti at that time. My father stayed with him in childhood and studied there. He has made a lot of contributions to make my father a capable man. My father’s uncle had a business mind and he was already running different businesses. My father learnt the nitty gritty of business from him at a very young age.  

My father’s uncle used to stay in Bhairahawa most of the time due to his business. That is why my father had a connection with Kawasoti and Bhairahawa. My father used to treat his uncle like a father. When my father felt it was time to do something, he went to Bhairahawa and bought two buses from Jalandhar in partnership with his friend Thaneshwar Ghimire and started Lumbini Bus Service.

Your father was also involved in the import business, wasn’t he?
Yes. My father was focused on business from a young age. He had a lot of passion and interest in business. He had become business-minded due to the company of his elder uncle. He used to say you need to work hard if you want to progress. At that time, he had also ventured into the business of mica. He also used to import stones used in lighter. Later on, he started a textile business by importing nylon and cotton fabrics. At the age of 21, he started Lumbini Bus Service on his own with the money he earned from the business.

Jagdish Chaudhary was my father's best friend at that time. He is still close to us. He himself introduced some traders to my father while expanding the business. At that time, Jagdish uncle introduced a businessman to my father who had a vision of starting a factory of Hawaii slippers in Nepal. My father was attracted to the business idea. Realising that the ongoing businesses were not sustainable, he decided to invest in a slipper factory. At that time, Hawaii slippers with thick soles used to be imported to Nepal from Thailand. My father brought the plant and started the factory in Hetauda. It was the first factory manufacturing slippers in Nepal. Hetauda’s Hathi brand of slippers are popular even today.

What were the problems that your family faced while starting a factory in Hetauda?
We all were happy when the factory opened. But the happiness evaporated after just a few months. We had to face a lot of obstacles and difficulties in the initial days. We brought the plant from Thailand and made it operational in 1970. But the rubber formulation didn’t work no matter how hard we tried. We didn’t know how to set the chemicals. The journey to Hetauda from Kathmandu was not easy in those days. We weren’t seeing good results after even eight months of investing in the factory. We couldn’t manufacture slippers. My father was very upset. We were worried that our investment would go to waste.

Later, we brought another consultant to the factory. Only then the factory started producing Hathi brand of Hawaii slippers.

What was the reaction when your product went to the market for the first time?
The factory finally started manufacturing slippers. When the slippers produced on the first day went to the market, the response was very good. There was a lot of demand. As we didn’t have the capacity to meet the demand, our slippers were in short supply. Some started selling them in black market at higher prices. The response encouraged us a lot. We realised something can be done in this business.

How long was the plant operational in Hetauda?
I think we operated the Hetauda plant for 13-14 years.

When did you shift to Kathmandu? What was the reason behind shifting production to Kathmandu?
Our products were doing well in the market. We were struggling to meet the demand. Everybody knew about our plant. Later we started suffering problems in our plant. Workers went on strike. We had no option but to shut the plant. We arrived at the conclusion that it won’t be possible to operate the plant in Hetauda.

When did your plant in Kathmandu open?
After we started facing problems in Hetauda, we were thinking of shifting production to Kathmandu. Very soon we set up a modern production unit in Kathmandu. Our Hetauda plant was based on old technology, but the one in Kathmandu was modern. I think we shifted production to Kathmandu at around 1986.  Initially, we opened the plant near the Ring Road close to Chabahil. The locality today is popular as ‘Chappal Karkhana’ (Slipper Factory). We have now shifted the plant to Balaju. We are producing Goldstar Shoes from that plant.

After the success of slippers, you turned toward production of shoes through Kiran Shoes Manufacturers. How did it become possible?
After tasting success with ‘Hathi’ brand of slippers, we were in an internal study on what new things can be done. Our income was good and we were also making some savings. The practice of taking loans to expand the business was not prevalent at that time. There were only two banks - Nepal Bank Ltd and Rastriya Banijya Bank.

We had two options at that time - first was to increase the production capacity of slippers, and the second was to invest in manufacturing of shoes. I was studying at Siddhartha Banasthali School at that time. Coincidentally, I was also present in the meeting organised to hold discussion about starting a new plant. Only the Bansbari Leather Shoes Factory Company was producing shoes in Nepal at that time. It used to make leather shoes only. The meeting concluded that we need different types of shoes if we are to compete with Bansbari Leather Shoes Factory Company. We started preparations accordingly. But as the government was not licensing new companies at that time, our plan didn’t move forward.

Why was the government not licensing new companies at that time? What was the government’s view toward a new shoes factory?
Our two plants producing slippers were in operation in Kathmandu and Hetauda at that time. Though we had thought of shutting the plant in Hetauda due to regular strikes and also to focus on Kathmandu, the plant in Hetauda was still in operation.

As we were preparing to open a new shoes factory in Kathmandu, the government had taken the policy of discouraging large factories in Kathmandu. It was not possible to set up another plant in Hetauda as we had already decided to shift productions from there. The government told us to open the factory in Dhangadhi instead. However, It was impossible to open a plant in Dhangadhi at that time due to lack of infrastructure like roads. The Karnali bridge was yet to be built. Surya Bahadur Thapa was the Prime Minister and Narayan Dutta Bhatta was the industry minister at that time. My father managed to get the license to set up a plant in Kathmandu after a lot of lobbying only.

Right after getting the licence, we opened a letter of credit and imported the plant. But we faced the same problem as in the slipper factory. We couldn’t produce shoes despite numerous efforts. Again, we brought a consultant to oversee our production process. Only then we became successful in producing shoes. We started sending ‘Spark’ brand of shoes to the market. This shoe factory was an example of a successful industry started by Nepalis in Nepal.

What are the problems that the company has been facing at present? How did exports to India become possible?
At that time, there were only two companies producing footwear. We were producing new designs of shoes to be different from the other company. Our shoes were designed for the Nepali market. But traders in India started producing counterfeit shoes and started selling them with the ‘Goldstar’ label. In Nepal, too, we can see many knock offs of Goldstar products.

Our products were available in the Indian market much before we officially started exporting to India. Our wholesalers and retailers were selling our products to Indian traders. We formally started exporting Goldstar footwear products to India in 1990. I still remember three Indian importers had placed orders for 3,000 pairs of shoes. We didn’t know at that time that a certificate of origin was needed to export Nepali goods. Later, we managed to get a certificate of origin from Nepal Chamber of Commerce. Those traders placed orders for another 10,000 pairs about a week later. This encouraged us a lot.

How was the feeling?
Our products were doing well in the domestic market. When we first got orders from Indian traders, we were very surprised. But it also brought challenges for us. The three Indian traders took their first consignment via aerial route.  From the second consignment, they used containers saying that airfare was too expensive. Our exports to India grew consistently over the years. We were enjoying 20-30% growth by 2015. The 2015 earthquakes directly affected our business. But we were confident of bouncing back.

Do you think the investment in shoes and slippers production at that time was good?
I am very much impressed by the work of my father to start the production of footwear in Nepal. Goldstar shoes have arrived at this stage because of his tireless work and efforts. He worked day and night to establish our products firmly in the market. I am still surprised by my father’s commitment and dedication even during the difficult circumstances of those days.

After my father’s demise, I felt I needed to take this business forward in a new way. I made a plan to make the entire process smarter because this was our pioneering business. The footwear production process has seen an immense change over the years. I decided to focus on this single business only. That is why I sold our other businesses like gas, pharmaceuticals and textile and increased investment in this factory. My father’s partners took over those businesses.

While most of the Nepali business houses are diversifying their portfolios, you are focused on only one business. What are the reasons behind this?
We had a lot of other businesses. But those were not in my priority because this was our pioneering business. I felt it was my responsibility to continue the business started by my father. Also, I realised that it is not possible for one person to look after different businesses. That is why I reduced investments in other businesses. I had seen room for expansion and growth in this business only. Likewise, I had decided to invest in only one bank. That is why our involvement is with Kumari Bank Ltd only. I am the chairman of the board of directors of this bank.

You are preparing to set up a plant in Bhairahawa. Are you trying to shift production from Kathmandu?
We don’t have an immediate plan of shifting production from Kathmandu. That is because Kathmandu accounts for about 30% of our market. Our market size is bigger in the eastern region, and comparatively smaller in the western region. But we have decided to focus on Bhairahawa for exports purpose. That way our export cost will come down a bit.

Has your exports to India dropped compared to the past? Is it because of demonetisation and goods and service tax (GST)?
Demonetisation in India certainly made an impact. The entire footwear industry was affected. Before that, our products were doing really great in India. Earlier, about 75% of our total production would go to India. Because of demonetisation and GST, it started falling gradually and reached as low as 30%. There were zero orders from India for some time after the demonetisation. GST compounded woes for us. However, things are improving gradually in recent years. Last year, around 40% of our total production was exported to India. This year, we plan to raise that to 50%. We are planning to increase our production capacity to meet the target.

Goldstar started branding exercise much later compared to other brands. Why?
I think there was no need to launch advertising campaigns as our Hathi brand of slippers and Goldstar brand of shoes were firmly established in the market. Frankly saying, I was not aware of all this. But my wife Bidushi kept on pressing me to do something on branding. She is also involved with Goldstar. We started branding exercises based on her suggestions only. While working on market expansion, we launched a ‘thank you’ campaign.

Goldstar shoes witnessed huge growth in sales during Maoist insurgency. Maoist combatants used to wear Goldstar shoes. This is because it was comfortable and was available at an affordable price. Not only Maoist combatants, security personnel also used to wear Goldstar shoes.

How is the demand from other countries?
We are currently studying international markets for our products. We are getting demands from Japan, Qatar and Bahrain. Our products are available in these countries. Likewise, Nepalis heading to those countries are also taking Goldstar products with them. We expanded our presence in the USA last year. Our franchise is in operation there. We have our store in Australia as well. We have plans to open a store in Africa too. But the major market for our products is Nepal.

Can you please tell us how many pairs of shoes are produced in a day?
We are producing more than 100,000 pairs of shoes and slippers every day. We will start production from the Bhairahawa plant very soon. The plant is spread over 7 bighas of land. The plant will be crucial for us to increase our production capacity in the future.

When did you formally join this family business?
I have been involved with this business from my early days. But I joined the business formally in 1995.

What is Goldstar’s share in the domestic footwear market?
I think Goldstar’s share in the domestic footwear market is only around 10%. One may ask who is dominating this market if it is not Goldstar. But the fact is, a huge quantity of footwear is smuggled into Nepal every year. Likewise, many companies are merely assembling footwear in the name of production. Some are only putting Nepali labels on products made in other countries. But no effort is being taken to control such malpractices.

You are a second-generation entrepreneur. How do you plan to hand it over to the third generation?
The main question is whether the third generation is interested in this business. We can only make a request. They need to study the business and have the plan to take it forward. Talking about the third generation, my son is still very young. But my daughter has a fair idea of our family business. She, too, is studying. 

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