Vol. 3 :: No. 3 February, 2001 (Magh-Falgun)

Economy

Asia-Invest For Europe-Asia Business Links

This European Community initiative offers small and medium sized firms from Nepal and other Asian countries an opportunity to develop business ties in Europe.

But the situation can be managed, if Nepali and European firms become partners helping each other in each-other’s country. And that is what Asia-Invest, a program initiated by the European Union, is offering them, said Geneviene-anne Dehoux, senior Project Manager of Asia-Invest, in a seminar held in the capital to apprise the Nepali business community about the Asia-Invest program. Also the European firms are eager to develop their business links in the emerging Asian market, and Asia-Invest aims to help them do so by assisting them find business partners in Asia. And in the process the benefits accrue also to the Asian firms.

It is not that no Nepali firm has benefited so far from Asia-Invest which started in 1997 as a five-year program. Nepal’s IT company Unlimited Numedia participated in an Asia-Invest program held in Luxembourg last November met some potential European partners, with whom negotiations are now going on for further development of the link.

To benefit from the Asia-Invest Program, the aspirant firm has to contact a Chamber of Commerce or some other non-profit organisation representing business firms, which in turn will prepare a team of similar aspirants and finally apply to the Asia-Invest. What the EU initiative offers is a grant for the project that the applicant Chamber or association wants to undertake. Such projects may be market place monitoring in Asia for the benefit of EU companies. But its other two components, i.e. language and business culture familiarisation and technical assistance are to benefit both EU and Asian companies. These trainings help the companies bridge the cultural divide and become familiar with the prevailing business systems, rules and regulations in each other’s country. The technical assistance is to help the Asian companies to upgrade their technical and management capabilities. This is available also for Asian Chambers of Commerce to build and develop their in-house capabilities and services.

Asia-INTERPRISE and Partenariat, the other instruments of Asia-Invest are tailor-made matchmaking events to help Asian and EU companies to find suitable business partners in each-other’s country. Asia-Invest’s one publication claims that these events are based on tried and tested models of similar partner search events that are being held in Europe for many years.

But how could Nepal with such a small market size be attractive for European firms? Dehoux appreciates the concern and says, Nepal does have a very peculiar problem, but there might be interest among European business to develop some niche with Nepal. She means, some specific know how and technology that is well developed in Europe may be applied in Nepal, for example in power turbines for micro-hydro sector. She informs that Asia-Invest is going to issue very soon an investor’s guide to help European investors desirous to develop business in Nepal.

By Business Age Reporter

Technology is the Key

Asian companies wishing to internationalize their operations must understand that the global market is the most demanding marketplace of all. The products that Asian companies are manufacturing for their local markets are not necessarily acceptable in global markets. Gerry D. Constantino, Investment Promotion Manager with the European Chamber of Commerce of the Philippines (ECCP) shares his views on the importance of adopting new technology to compete successfully in the global market.

Technology drivers

The EU is strict about standards and Asian companies that are not prepared to meet these standards will not be able to serve the EU market effectively or successfully. But preparing Asian firms for international business goes beyond assisting them in making products that follow the EU’s technical standards. European clients are increasingly requiring their business contacts and partners to be ISO certified and to operate in an orderly, efficient, environment-friendly and socially responsible manner. Competition in the EU market is very stiff, so Asian companies must have a good record on productivity and be able to offer competitive products in Europe.

The challenge for Asian companies is not only centred on developing better products and services, but also on developing a company that is fit for international business. Nowadays, it is not surprising for European clients to ask if Asian companies’ products have CE markings or if a company has a web site. These questions point to the need for companies to adopt new technologies and processes.

ECCP has been managing the EC-funded Business Cooperation Fund (BCF) since 1993. The BCF has financed technical assistance projects in support of various sectors like the electronic components, furniture, jewellery, footwear, leather, low-cost housing and other industries. The BCF has also funded project identification missions aimed at understanding the technical needs and cooperation requirements of Filipino and EU firms.

From its experience in managing the BCF programme, ECCP discovered that there is one important lesson many companies realise too late: the importance of reinvesting earnings in new technology. Many Philippine companies have gone under because of their failure to reinvest earnings in new technologies.

Market experiences

In the early nineties, a Filipino lighting equipment manufacturer that was doing well in the local market became complacent, believing that the company’s products will always be better than the imports. Within a few years, the business climate changed and economies opened up, the company suddenly found itself competing with the same imported products, but which were now of higher quality and sold at cheaper prices. The complacency of the company forced it to abandon manufacturing and instead concentrate on trading imported products.

By contrast, a jewellery company serving the local market adopted new production technology to develop a capability for casting and reorganised production to improve workshop efficiency. The company has succeeded in manufacturing jewellery that meets both volume and quality requirements for export markets. It can now make mass produced and designer jewellery in short production periods. The new technology, yielding higher production efficiency, opened up the global market to the company and made it a more attractive production partner for European firms as well.

No Frontiers

Trade liberalization means that domestic markets have become global markets open to competition. Competitors are no longer the companies within the country. Every company has to come to realize that they are now operating in an increasingly borderless world and competition has become global.

Globalization also brought significant reductions in telecommunication costs and thanks to advances in computer power and Internet technology over the past decade, a new economy has emerged. Technology has made it possible for companies to interact and transact electronically, giving rise to e-business and e-commerce. A new era has begun in which economies and business culture are shaped by the world’s data networks. This new on-line economy is changing the way companies are setting up and conducting their businesses.

For Asian firms, such a technological revolution has opened up a vast universe of potential buyers, sellers, and business partners at the click of a mouse. IT has given firms, especially small enterprises, easy access to the global market. Asian companies must take hold of IT developments in order to exploit its benefits. Since late 1999, ECCP has established a business-to business (B2B) platform which companies can access to launch themselves in the on-line world. It created the web site ‘virtual-fairs.com’ to provide a service for exhibiting products in cyberspace like a trade fair does on the ground.

Internet technology has hastened the globalization process. Companies and individual customers are now shopping for goods and services on-line. People are using the Internet to scan for information on products, services and business opportunities; to do banking; to book a flight; to read the latest business news; and others. The list is endless. The world has changed and the process is practically irreversible.

Information Technology

Companies with IT capabilities stand to gain the most in the years ahead. The IT sector offers the most exciting investment opportunities for Asian companies.

According to Henry Schumacher, Executive Vice President of ECCP: "Europe is trying to catch up in e-commerce but realises that it does not have the IT-specialists to create the interactive Internet presence. Germany alone lacks about 75,000 IT experts and is willing to provide 20,000 non-EU experts with ‘Green Cards’. Here is an opportunity for selected Asian countries to offer solutions to European firms. The answer cannot be the ‘export’ of people rather the objective should be the development of joint ventures and strategic alliances between European and Asian firms. There are already existing, successful joint ventures between Asian and European companies with a wealth of experience." "While Europe may be behind in e-commerce, Europe is ahead in m-commerce, in mobile Internet applications. This, too, should be an excellent field of cooperation between Europe and Asia," says Mr. Schumacher.

Asia-Invest Instruments

Business priming fund for

• Market place monitoring (available for companies from EU member countries only).
• Language & business culture familiarization
• Technical assistance - for transfer of know how (available for Asian countries only).

Aisa-INTERPRISE and Partenariat

• Asia-ENTERPRISE (Business-to-business events between firms from Asian and EU countries in one sector or two related sub sectors).
• Asia-Invest business meetings (medium scaled business-to-business events covering at least four sectors).
• Asia-Partenariat

Large scale multi-sector business-to-business events that take place in Asia and focus on one or several Asian countries.

• Europartenariat

Large scale multi-sector business to business events that take place in EU, in which Asian companies are invited to participate.

The Asia Investment Facility

To carry out country wide or sector specific studies to provide European companies with key information on Asian economies.

Does your product conform to EU standards?

To succeed in the European market place, Asian and European companies must keep up with EU legislation and ensure compliance with international standards.

To facilitate cross border and intra European transactions, in 1985 a "New Approach" to technical harmonization involving a conformity assessment and the awarding of CE marking was launched. It represented an innovative way to technical harmonization. The idea behind the New Approach Directives was to fix ‘essential requirements’ to establish a necessary level of safety. Each family of products has its own directive such as machinery, construction products, medical devices, toys, packaging, etc.. There are also directives for horizontal tasks like electromagnetic compatibility, personal protective equipment and low voltage goods.

The European Standards Bodies have the task of drawing up corresponding technical specifications or harmonised standards that meet the essential requirements. Except where health and safety issues are concerned, standardization in all other areas is carried out voluntarily by the relevant industries, working together internationally. Organizations such as ETSI, the Euro

pean Telecommunications Standards Institute, the European Committee of Standardization (CEN) and its sister-organization the European Committee for Electromechanical Standardization (CENELEC) have helped co-ordinate this campaign. As a result, in the European Economic Area (EEA) today, only 10% of standardization work leads to national standards compared to 90% in the 1980s. More information can be found on the European Commission’s web site: http://europa.eu.int/business.

Provided that products satisfy the essential requirements of the directive they are free to travel unfettered throughout not only the European Union but the greater European Economic Area as well. Products manufactured according to the harmonised standards are presumed to have met the essential requirements.

On the international scene, standardization is also spreading. Governments, which are parties to the World Trade Organization’s (WTO) Agreement on Technical Barriers to Trade, have committed themselves to use international standards as a basis for their regulations. The European standard-setting organizations have laid down clear rules on co-operating with international organizations such as ISO, IEC and ITU. Visit the WTO web site: http://www.wto.org.

Indications of Slowdown

Monetary data from Nepal Rastra Bank (NRB) indicate economic slowdown going on.

If the flow of credit from the banking system is any indicator, the first five months of the current fiscal year (mid-July to mid- December, 2000) experienced an expansion in the government sector and contraction in the private sector.

Making public the monetary statistics for the period, Nepal Rastra Bank (NRB), the country’s central monetary authority, says, total domestic credit of the banking system decelerated from 6.6 per cent (Rs. 8854.8 million ) last year to 5.7 per cent (Rs. 9071.5 million) this year. This was in spite of higher growth of credit to government and government enterprises.

According to NRB, the growth in the flow of credit to the private sector decelerated to 6.3 per cent (Rs. 6944.8 million) during the review period (meaning the first five months), compared to 8.8. per cent (Rs. 7965.5 million) in the preceding year. The reason for the sluggish growth in the credit to the private sector is the "sluggish demand for credit for imports", NRB has stated.

Imports growth decelerated to 11.6 per cent during the first five months of the current fiscal year as compared to 38.2 per cent during the same period last year, reveals NRB. At the same time, exports also registered a decelerated growth of 29.3 per cent this year as against 39.7 per cent last year.

All these indicate a slowdown going on in the economy. But the government has managed to increase the growth rate in development expenditure (34.8% against 32.9% last year) and regular expenditure (21.2% against 24.2% last year) as well as in revenue collection (15.1% against 13.2% last year).

Still the increased revenue collection was not sufficient to cover the increased expenditure as the foreign cash grants received during the period was lower this year. That resulted into a wider resource gap (Rs 4180.9 million as against Rs. 2634.4 million last year) which was met through higher foreign cash loan (Rs. 563.5 million), treasury bills (Rs. 2087.1 million) and overdraft from NRB (Rs. 1530.3 million). Whether the increased government spending will generate sufficient demand to re-expand the economy is yet to be seen.

Among the major export items overseas, the first five months of the current fiscal year saw woollen carpets decline 9.6%. Ready-made garment, that has become the largest export item for some time nudging out woollen carpets from the berth of number one exports of Nepal, declined a hefty 15.6% this year. The third largest export item of last year, Pashmina, is still in the same relative position, but registered an impressive 324.1% increase in the volume over that of the last year. Other items in which export growth was experienced were those which are historically experiencing sudden boosts and declines. Both Pulses and tanned skin, which had declined sharply last year have both registered a hefty increase this year. But another of the six most important export items overseas, silverware and jewelleries, declined this year 17%. These six items together have 92% share in Nepal’s total overseas exports. Their trends indicate that the high volatility in Nepal’s exports are still continuing. At the same time, the co-called pillars of Nepali exports carpet and garments are shaking.

(21.2% against 24.2% last year) as well as in revenue collection (15.1% against 13.2% last year).

Still the increased revenue collection was not sufficient to cover the increased expenditure as the foreign cash grants received during the period was lower this year. That resulted into a wider resource gap (Rs 4180.9 million as against Rs. 2634.4 million last year) which was met through higher foreign cash loan (Rs. 563.5 million), treasury bills (Rs. 2087.1 million) and overdraft from NRB (Rs. 1530.3 million). Whether the increased government spending will generate sufficient demand to re-expand the economy is yet to be seen.

Among the major export items overseas, the first five months of the current fiscal year saw woollen carpets decline 9.6%. Ready-made garment, that has become the largest export item for some time nudging out woollen carpets from the berth of number one exports of Nepal, declined a hefty 15.6% this year. The third largest export item of last year, Pashmina, is still in the same relative position, but registered an impressive 324.1% increase in the volume over that of the last year. Other items in which export growth was experienced were those which are historically experiencing sudden boosts and declines. Both Pulses and tanned skin, which had declined sharply last year have both registered a hefty increase this year. But another of the six most important export items overseas, silverware and jewelleries, declined this year 17%. These six items together have 92% share in Nepal’s total overseas exports. Their trends indicate that the high volatility in Nepal’s exports are still continuing. At the same time, the co-called pillars of Nepali exports carpet and garments are shaking.

Monetary Survey

Government Budgetary Operation
(During the first Five Months of the Fiscal Year) (Rs. in Million)

Export of Major Commodities to Third Countries

(First five Months)

Rs in Million

Direction of Foreign Trade

(First five months)

Rs. in Million

Send your feedback to the editor: bizage@ecomail.com.np
1999 © Mercantile Communications Pvt. Ltd. P.O. Box 876, Durbar Marg, Kathmandu, NEPAL. Tel : 977 1 220 773, 243 566 . Fax: 977 1 225 407. Reproduction in any form is prohibited without prior permission. No part of the articles which appear in the internet version on BUSINESSAGE may be reproduced without the permission of Mercantile Communications Pvt. Ltd. For reprinting rights, please write to us.  Send us your feedback:contact us . CLICK HERE FOR PAST ISSUE. This site is best viewed at : 800 X 600 resolution

Back to the top