There are a Number of Good Policy Decisions in the Nepal Budget

  17 min 50 sec to read
There are a Number of Good Policy Decisions in the Nepal Budget

Amlan Mukherjee is the Managing Director of Unilever Nepal Ltd. He has been associated with Unilever for over three decades. He has worked with different departments of one of the largest multinational companies in the world. He is also a member of the Unilever South Asia leadership team. Madan Lamsal of New Business Age sat with Mukherjee to know more about Unilever operations in Nepal and its future plans. Excerpts:

You are heading Unilever Nepal from April 2020. How has been the experience over these three years? 

I'll address your statement in two parts, beginning with my personal experience. When I first arrived in Nepal, it was my first visit to this remarkable country. My journey coincided with the height of the COVID-19 pandemic, presenting a challenging scenario. While I can't pinpoint the exact moment, but I soon found myself deeply enamoured with Nepal. This nation is endowed with breathtaking natural beauty, and the genuine warmth of its people has left an indelible mark not only on me but also on my family. Having resided here for nearly three years, I've become a fervent advocate for Nepal's unique charms. I've welcomed numerous individuals, friends, and acquaintances to visit, and they continue to return because I persistently extol the unparalleled qualities of this part of the world. While it might not have received its due global recognition, Nepal undeniably possesses remarkable attributes.

Now, transitioning to the business aspect, my assumption of the leadership role in April 2020 couldn't have been more challenging, coinciding with the peak of the COVID-19 pandemic. For approximately two to three months, the majority of operations came to a standstill. Our factory ceased production, and the distribution network ground to a halt. During this critical period, our leadership team made a pivotal decision to prioritize the welfare of our employees, firmly believing that if we cared for them, they would take care of the business. This proved to be a prescient strategy. We spared no effort in ensuring the safety of our workforce, providing them with every necessary facility. It's not a matter of pride but a sense of responsibility that throughout that trying period, there were no COVID-19 outbreaks within our Unilever family. We arranged for comprehensive healthcare resources, including vaccines, and received invaluable support from the global Unilever team. We even received concentrators from various parts of the world, which we gratefully donated to the Nepalese government and army, while also reserving some for our employees.

This marked the commencement of a golden era for us. From 2021 until the present, our trajectory has been consistently upward. Our business strategy was rooted in a deep understanding of Nepali consumers, who exhibit unique characteristics shaped by their culture, preferences, and exposure due to the significant Nepali diaspora. Consequently, we introduced products tailored to local tastes and values. The rest, as they say, is history. In the past three years, we've added nearly NPR 3 billion to our top line, and our profitability has been notably impressive.

Allow me to share some compelling statistics. Based on unit sales, we move approximately 80-100 million products every month in Nepal. Our product range comprises 120 SKUs, spanning from shampoos to three-kilogram laundry detergents. Our calculations show that we reach 8 out of 10 Nepali households monthly and 9 out of 10 every quarter, effectively impacting 80% of households. This has been an immensely gratifying journey for me over the past three years.

Additionally, Unilever's "Purpose" is to make sustainable living commonplace. Our endeavors, such as collaborating with the Nepal Army to clean mountains, significantly reducing our plastic footprint by collecting and reusing post-processing materials, and transitioning nearly 70% of our factory's energy consumption to solar power, reflect our commitment to social, environmental, and national responsibility. We believe that what is Good for Nepal is Good for Unilever Nepal!

If you look at the FMCG consumption, Nepal is one of the lowest in South Asia. Is it so? 

While Nepal's per capita consumption of certain goods may be less than half of what you'd find in countries like Sri Lanka and Bangladesh, we perceive this as a promising opportunity. On the other hand, in specific categories such as beer, liquor, and other products, Nepal stands out with one of the highest per capita consumption rates in South Asia. This is a noteworthy indicator of disposable income among consumers. This fact holds particular significance for us as marketers, as it underscores our responsibility to influence their spending choices, whether it's directing them towards indulgent discretionary items or essential products like shampoo.

You also said that Nepali consumers are very different from other South Asian consumers, including India. How are they different? 

Nepali consumers are a distinct demographic, not an extension of any neighbouring country. To illustrate this point, let's compare Nepal's largest festival, Dashain, with India's biggest festival, Dussehra, also known as Navaratri. While both are celebratory occasions, Dashain in Nepal has a more inward focus, revolving around family and close friends. In contrast, in some neighbouring countries like the Bengal region in India where I come from, it leans towards external celebrations and similar festivities. In Nepal, Dashain is all about strengthening familial and friendly bonds.

Over the course of approximately seven to eight days, there's a flurry of social engagements. People aspire to look and feel their best during these gatherings. As marketers and as an organization, our mission is to figure out how we can be an integral part of this uniquely Nepali celebration. Instead of imposing external ideas, we aim to align with the local culture. This is how Nepali consumers choose to celebrate, and we respect that. Our goal is to seamlessly integrate into their festivities while acknowledging their exposure to the wider world.

It's worth noting that nearly one out of every seven to eight families in Nepal have a member living abroad. What does this signify? It indicates exposure. These families are already well-versed in various brands and products due to their global connections. Therefore, there's no need for excessive advertising or branding efforts because they are already informed consumers. Our role as marketers and as a business organization is to make these offerings more accessible to them.

Hence, gaining a deep understanding of our consumers is of paramount importance. I can confidently assert that my team has, for at least the past three years, been highly engaged with local consumers. Their research has consistently maintained the highest standards, and we intend to continue this approach. We firmly believe that what benefits Nepal will ultimately benefit us in the long run.

How do you see the present economic environment in the context of the FMCG industry? 

First and foremost, I want to commend the government for its outstanding efforts in maintaining economic stability. It's evident that our neighbouring economies are grappling with severe economic crises and having a role in the leadership team of Unilever South Asia, I've witnessed the immense challenges they've faced. Nepal, on the other hand, has managed these difficulties with remarkable resilience and foresight.

However, it's crucial to recognize that the economic cycle now needs to accelerate. The key driver for a faster economic cycle is increased consumption. When people consume more, it generates a ripple effect of heightened economic activity and greater production. In Nepal's case, this may involve a combination of imports and local production. The time has come for Nepal to catch up and move forward.

To achieve this, the government must consider stepping up its spending and enhancing access to finance. It's imperative that funding becomes readily available for those looking to initiate economic activities. Improving liquidity and boosting consumption are essential steps, and the government's increased expenditure is pivotal in this regard. In essence, the entire economy needs to shift into a higher gear, and we must work collectively to make this happen.

What strategic changes are happening in Unilever Nepal? 

Our foremost strategic initiative centres around technology. We firmly believe that technology enhances efficiency across our extensive network of outlets in Nepal, even in remote and hard-to-reach areas. Approximately 90% of the outlets we cover are equipped with GPS tags, enabling us to monitor our coverage areas, timing, and service quality meticulously. It's not enough to create a product; you must also ensure its timely delivery, and technology plays a pivotal role in achieving this. Consequently, our overarching focus in all our operations today revolves around leveraging state-of-the-art technology.

The second pillar of our strategy is a deep understanding of the consumer. Allow me to illustrate this with an example. Every year, during the Dashain festival, we run a significant campaign called 'Sunsilk Dashain Vibes' with the Sunsilk gang of girls. Kantar, the world's largest market research agency, conducted a study that highlighted Sunsilk as one of the brands with the highest global penetration. This success story includes 'Sunsilk Dashain Vibes' from Nepal. Through this campaign, we effectively engage consumers through digital media, captivating their attention and sparking their imagination. Understanding consumers and offering the right product are paramount. We actively practice social listening, monitoring digital conversations without identifying specific participants. This approach led us to identify a trend where consumers were discussing the benefits of onion. In response, we launched an onion shampoo, which became one of our best-selling products within six months.

Our strategy involves harnessing technology for efficiency and digital consumer engagement, alongside a strong focus on localisation. Over the past year, we've successfully localised 22 new product lines that were previously imported from neighbouring countries. These products are now manufactured in Nepal, contributing to 40% of our growth. 

In summary, our strategic framework encompasses technology integration, consumer understanding, new product innovation, and reducing business waste.

You said that you are more into technology. How are you doing that? 

As a global company with a presence in nearly 100 countries, technology plays a pivotal role in our operations. Managing a diverse range of countries, each with its own technological landscape, poses significant challenges. To address this, we adopt a unified technological approach across our locations. We leverage technology from our parent company's global network and tailor it to suit our specific requirements. It's important to note that in addressing complexity, more technology isn't always the answer. Our business in Nepal, for example, offers 120 product lines, compared to the 800 to 900 product lines in neighbouring countries, inherently making our operations less complex. Therefore, while we integrate available technology, we prioritize solutions that align with our needs.

To ensure that our technology is user-friendly and aligned with local nuances, we rely on a team of local IT professionals. The majority of our team members are local talents, with only a handful, like me, coming from different countries. We maintain a dedicated IT department. I always encourage my team not just to excel within Unilever Nepal or within Nepal itself but to aspire to be the best within the global Unilever network. This mindset positions them for success not only in Nepal but also on the global stage. Recent internal and external recognition underscores the fact that Nepal boasts high-quality resources that are on par with those in other countries.

What is your approach when introducing a new product?

It's crucial to acknowledge a unique advantage that Nepal enjoys. This advantage arises from the fact that products successful in neighbouring regions often resonate well with consumers here, given the cultural similarities. Our research efforts in these areas are primarily geared towards finding the right formulations tailored for the Nepali market.

In addition, we invest significantly in research to develop effective communication strategies that are locally relevant. Our dedicated research team plays a pivotal role in this process, conducting all our research within Nepal. These insights guide our decisions on product manufacturing, introductions, and exclusions.

Consumer research is a fundamental principle for Unilever globally, and we collaborate with companies specializing in this field. While conducting research itself is not the challenge in Nepal, doing it the right way is where global guidance becomes indispensable. Unilever brings valuable assets to the table, including advanced technology and high-quality products. We take immense pride in maintaining the quality of our products, our research capabilities, and our technological advancements. Modern research methods no longer necessitate door-to-door visits; digital platforms enable us to gather data efficiently. Above all, Unilever's greatest strength lies in its profound understanding of consumers. 

Our core competency as a marketing-focused company lies in our capacity to understand consumer needs. Failing to stay attuned to these needs could place our market leadership across several categories in Nepal at risk.

How has the business progressed since the pandemic-related challenges have subsided?

After a remarkable run spanning nearly eight to nine quarters, where our share prices soared to an unprecedented high of NPR 39,000, we now find ourselves navigating a challenging phase demanding a decisive turnaround. Two critical factors are under scrutiny.

First and foremost, we expect a resurgence in consumption as liquidity infuses the market. This is an undeniable certainty.

The second urgent concern that demands immediate attention revolves around the role of banks. Relying solely on government intervention is not a sustainable solution. Collaboratively, financial institutions and government support must forge an enabling environment for legitimate business owners to access vital funds.

Our hopes are firmly pinned on the forthcoming festive season. We anticipate a significant uptick in consumer spending during this period. Despite current low consumer confidence, which has led to a preference for saving, we foresee a shift towards heightened spending during the upcoming festivities, potentially injecting a substantial impetus into the economy.

How is the current situation regarding the issue of counterfeit products and the influx of grey market imports for Unilever brands?

The proliferation of counterfeit or grey market products poses a significant threat, ultimately leading to substandard quality goods infiltrating the consumer market. These products are often imported from various corners of the world, where they may be discontinued, nearing expiration, or already expired. After repackaging, they find their way into the market. This is not a challenge exclusive to Nepal; it's a global issue. Unilever is taking a proactive stance to combat this problem. A pressing concern arises when consumers unknowingly select these products, assuming they are authentic Unilever brands. Regrettably, they remain unaware that we are not responsible for these subpar products.

I must acknowledge that recent government actions have displayed commendable robustness. The government now mandates that importers' details and addresses be included on product stickers. While the right steps are being taken, we eagerly await the implementation phase. Our team maintains a close collaboration with the government because our brand holds immense importance for us. While Nepal takes this issue seriously, I want to emphasize that it is not unique to Nepal; other countries also grapple with similar challenges. Given that Nepal heavily relies on imports, it is crucial for the government to rigorously enforce these regulations and impose penalties on those who bring substandard products.

Determining the precise percentage of such products is challenging, but their volume is undeniably substantial. These products are predominantly prevalent in the beauty product segment, mainly due to the higher profit margins it offers. I have not come across instances where Wheel powder or Lifebuoy soap faced counterfeiting. It's not just us; other companies also confront similar challenges. I earnestly urge the government to prioritize addressing this issue.

Multinationals like Unilever have been requesting the government for simplified permits for imports of products for test marketing purposes. Has any progress been made?

Our top priority is to ensure the production of products at the right price, and to achieve that, we must first present these products to consumers, showcasing their value proposition. However, there are two significant challenges we face in this regard.

The first issue pertains to taxation. In some cases, the tax imposed on raw materials nearly equals or even exceeds that of the finished goods. We believe this is an anomaly and hope the government will address it. In my interactions with responsible government officials, I have found them receptive to this concern, and I am optimistic that they recognize the need for action. We have made substantial investments in Nepal, and it feels unfair that we, who have invested significantly, face import restrictions, while others who haven't invested anything can freely import, sell, and leave the market.

The second point relates to our product range. We currently offer around 120 product lines, whereas in equivalent regions, there are some 800 to 900 product lines. The reason for this disparity is that we cannot predict how many of these products will succeed in Nepal. We cannot produce everything without the necessary machinery and capital. Blindly investing in capital expenditure without assessing latent demand for the product isn't feasible. Hence, it is crucial to allow manufacturing companies to import products.

I understand the government's concerns, but they should also consider that our commitment to Nepal is unwavering, demonstrated by our presence here for 30 years. The government should recognize that once we establish a product's viability, it becomes logical to shift from imports to local production. By allowing us to test the market with a range of products, we can gauge demand and, in due course, transition to local manufacturing. I want to reassure the government that we are committed to Nepal's growth, and we only seek the opportunity to prove our potential contributions.

How much do you think Nepali consumers are affected by the ongoing digital revolution?

I firmly believe that Nepal is making significant progress, and Nepali consumers are reaping the benefits of the widespread availability of digital and social media. However, it's not limited to advertising alone. In the financial sector, for instance, I find myself relying on services like eSewa more frequently than my physical wallet. We are currently actively working on establishing an online payment system for our retailers, aiming to streamline and enhance transparency in their transactions. In this endeavour, we are collaborating closely with multiple banks to explore further possibilities.

Another notable example of the transformative impact of digital technology is our experience in the general trade sector. Approximately 7-8% of our turnover is now generated through one B2B app. Rather than shopkeepers placing orders through our traditional sales representatives, they now utilize the app to submit their orders. These orders are then transmitted to the nearest distributor connected to the shopkeeper. The distributor ensures prompt product delivery within 48 hours, mirroring the order process seen in e-commerce companies. I foresee that, even though I might not be around to witness the full transition, a significant portion of our sales interactions will eventually adopt this model.

This transition introduces more cycles into the process, creating additional business opportunities for distributors. Our commitment is to ensure that ideally, orders arrive within 24 hours, or at most, within 48 hours. This level of service is not only crucial for our consumers but also for our valued customers.

The Finance Minister has announced a plan to introduce measures to address the loopholes related to transfer pricing. It appears that multinational corporations (MNCs) are the target of these measures. What are your thoughts on the government's plan?

We wholeheartedly welcome this initiative. The establishment of fair transfer pricing mechanisms, which prioritize transparency and enable the government to collect its rightful revenue while fostering traceable and accountable business practices, is unquestionably a step in the right direction. We stand in unwavering support of the government's intentions and are committed to adhering to these principles diligently.

Having said that, I'd like to underscore an essential aspect. Transfer pricing primarily pertains to products sourced from abroad and entering the country, inherently recognizing their external origin. As a global company, we rely on our parent organization, Unilever, for products, services, and technology. The parent company must invest in providing these essential resources. This investment can only occur if the operating companies appropriately transfer royalties to cover these costs. It shouldn't be perceived as a drain, but rather as a fair exchange for the services received. Central operations, vital to our global operations, require adequate resources to function effectively.

While we wholeheartedly support the government's new policy on transfer pricing, we urge the government to adopt a practical perspective regarding royalty payments made by multinational corporations to their parent companies. This balanced approach ensures that businesses can continue to operate efficiently while contributing fairly to the local economy. 

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