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April, 2003 |
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Management |
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Soaltee’s
Experience in Entrepreneurship by
Prabhakar SJB Rana While
the entrepreneur invests his money, it is basically the managers who
should run the enterprise. But this is exactly what the businesses in
our country are missing, and this is exactly why businesses here do not
grow. Of course, our culture has been for family businesses and there is
nothing fundamentally wrong with that. Some of the largest businesses in
the world are family businesses. But the family must train its
successors to do the business. Your family members must not be barred
from taking the management positions but at the same time you must not
forget that you have to choose the best management personnel that can be
available. Such personnel can be from within or outside the family. The
family-management concept of business will automatically die down as the
business grows larger. Nobody can manage the business only with his own
family-members when the business grows beyond a certain level. He then
will need more management skills. So, more young managers will be
needed. Therefore, ultimately the professional managers have to take
over the business at a certain stage. Look at the Ford
company. It was a family-held company for long. But Henry Ford IV
ultimately had to realize that as the company his great grand-father had
established had grown too large and the shareholders had spread
worldwide, he could not continue to manage the company single handedly.
Therefore, slowly he had to give up the control in the company. But from
then onwards Ford company began to do very well again. Similarly, take the
Birla family of India. Aditya Birla, who was the youngest of the family,
inherited what his elders did not want to take. But he outpaced his
uncles and elder brothers within five years. So, I think if your
family member is qualified, he or she should not be barred from taking
over the management positions in your business. To carry the Birla
family story further, when Aditya Birla died at a quite young age, his
son Kumar Mangalam had not even completed his MBA. So everyone predicted
the imminent collapse of Aditya Birla’s business. But we can see that
now, after six years of his father’s demise, Kumar Mangalam has
tripled the business empire that his father left behind. How? One reason is
of course that the entrepreneurship of the Birlas is in him. But if you
look at his organization, you will also notice that he has chosen such
managers who are among the best in the world. And they are all under 45
years in age. If we turn to our
setting, we can see that in our culture the older generation does not
want to give up. That is a totally wrong attitude. As we all know, the
market situations and the systems of doing business keep on changing
very frequently. Undoubtedly, the younger generation is in a better
position to understand and to cope with the new systems. When some of my
friends, who are much younger than me, complain that the last three
years have been very terrible for business, I ask: “Then how come the
six multinationals have been growing at a compounded rate of 30 percent
per annum?” I think the answer lies in the fact that the managements
in these companies are able to understand the changed situation better
and adopt the system to the situation so changed, and are taking
advantage of the inability of the competitors to do the same. For the
old manager, any change in the system is an attack on his domain. But an
young man or women is always ready for the change. Entrepreneurship
requires such readiness to adapt to the change. Shifting
entrepreneurship to next generation is however a difficult process.
There is always a fear whether the transfer will really be successful.
But if you corporatize your business, then the process becomes smooth.
Perhaps it would be even better if the younger generation becomes
demanding of more responsibilities and authorities. Corporatization is
good because a corporate body never sits satisfied whereas an individual
will be satisfied after some level of achievement. Business
Selection Nepal is best
suited for service industry, not for manufacturing, because we are
located between large manufacturing-industry-based economies. We cannot
compete with either of them in manufacturing. But we Nepalis are, by
nature, very good at service industry. It will take very long time for
us just to learn the manufacturing know-how. Soaltee Group has therefore
focused on tourism which is a service industry. The next
opportunity for Nepal is in hydropower and then in high value
agriculture. But our country’s entrepreneurship has not been able to
utilize the comparative advantage in these fields. The Royal Nepalese
Consul General in Lhasa was telling me recently that China was ready to
give Nepal the contract for supply of rice to entire Tibet Autonomous
Region. But there were two conditions that the Chinese had put down:
First, they said, “make sure that the merchandise is exactly according
to the sample.” It may be recalled that similar rice business was lost
by Nepal a few years ago as the merchandise differed significantly from
the sample. Second condition they put, according the consul, was that
there must be a guarantee of timely delivery. Obviously and logically,
if you are given the monopoly, you must provide such guarantee. And the
consul was complaining that he talked about it with all the agencies
concerned in Nepal, both private sector and the government, but nobody
showed any seriousness about the business offered. During the last two
years we were complaining that because of the extra production in India,
our farmers could not get the remunerative price for paddy. I see very
clearly that if there was a real entrepreneurial support in Nepal,
whether in the government or in the private sector, we would have
started selling all our rice to Tibet (for a fairly good price as they
have no rice production), and buy rice for us from India (at very good
price as there is plenty of it). The Chinese were
also ready to give us similar business about green vegetables. For them
it was costly to supply green vegetables to Tibet. So it was again going
to be an almost monopoly business for us. The Chinese talked to lot of
us Nepali businessmen but nobody bothered about it. Four years ago I
went to Tibet and I saw that they were producing vegetables themselves
in a big scale. Now the situation is such that some vegetables come from
Tibet to Nepal. I get a bit annoyed
when I go on hearing Nepal being compared with a yam sandwiched between
two boulders. The yam seems to be pretty tough. We have survived so
long. Perhaps the new technology has made the yam self-surviving. My
point is, why don’t we look at the advantage of the proximity to the
market of two billion plus people on either side of us? The spending
power of these two billion people is rising at a very high speed. We say
we have problems in tourism and we go to USA and Europe trying to market
our country. Naturally we come back disappointed. The problem of the
Europeans or Americans not coming is not exclusive to Nepal. The
tourists from these regions prefer to stay closer to home because of the
security concerns. Our problem has been compounded by our own internal
reasons. Our planning in tourism has always been wrong, we always had
more supply of tourism facilities (i.e. hotels) than the demand for
these facilities. That has had a negative chain-effect, also at the
macro level. To keep the establishment running you begin to cut down the
price. That leads to cutting down the quality and you will start getting
cheaper segment of the market. Then the next round is continued, and the
industry will eventually die. What do the other
countries do? India too faced problems, as Nepali did, from the downturn
in international tourism. But big countries like India can promote
domestic tourism as a stop-gap measure. And that is exactly what India
did. Same is the case with USA. The number of Americans going outside
has declined, but the internal tourism in USA has increased. In Europe
they are now visiting short distances i.e. the European tourists are
visiting other European countries. Unfortunately we do not have large
domestic market. However, we have to mop up as much domestic market as
possible. Beginning some five years ago, the upper middle class of Nepal
had started going out for weekend. I think the occupancy of Pokhara
hotels and jungle lodges at the weekends must have been 30% Nepalis.
That has, off course, declined now because of the economic problem of
the country. But we do not have much choice. So, when the new
tourism minister asked me for my suggestion as to what he should do, I
said, “With whatever little resources we have, we must concentrate on
promotion in India and China.” Either in domestic
or international tourism, the largest component of the cost is the
airfare. So closer the market the better. Market Selection Business selection
has therefore another aspect as well, and that is of market selection.
To see how, let us take the example of garment industry in Nepal. It is
in a big problem now. Why? Because, first of all, it was a wrong market
selection. You must not depend on only one market. That is suicidal. Now
Nepal is going to USA and asking for some privileges which may or may
not be available. Though the same privileges are available in Europe, we
are not utilizing it. I think it is sheer laziness, not
entrepreneurship. Then there is a
very large market for garments in India. Surya Tobacco has tried to tap
this market by diversifying into garments from tobacco. This is made
easy by the partnership with ITC Ltd. of India which is already in
garments business with its Wills brand. They started five years ago with
three stores – one each in Delhi, Mumbai and Kolkata. Now they have 56
stores. In the coming three years, they plan to have 1500 stores. This
was the opportunity. The market was secure. The brand was already there.
And most of garment factories in Nepal were operating at a half or a
quarter of their capacity. Therefore, there was no need for Surya
Tobacco (now Surya Nepal) to spend money to create its own garment
factory. It has been three months now for the garment business of the
company and I believe that it is now selling about 3500 pieces of
garment a day. It started with two factories. Now there are seven
factories. The company hopes to have 26 factories within a year. What lies at the
bottom of this success? It is obviously the ability of the entrepreneurs
and the management to see the opportunity present in other fields of
business, the ability to change and the system set up to take benefit
from that opportunity. This I think is how the multinationals function.
They take advantage out of the amateurs who, for example, create the
production capacity but can not use it. Employee
Turnover When people see
greener pastures they will leave. In these days nobody will like to
remain your slave. But you need not worry. You will have a new, perhaps
more competent and much younger person to replace the one who leaves. If
your basic focus is on continuously training the human resource. That
way you benefit even when some of your people leave you. In fact both of
you – the employer as well as the employee who leaves – are happy. More importantly, I
think that an organization should be rather considered dead when it is
not getting new people or its people are not getting jobs elsewhere.
Sometimes it also happens that your person leaves you, joint a new
company, works there for some time, gathers new experience and comes
back to you better experienced. This has happened in Soaltee Group in a
number of cases and the Group has benefited very much as such people
come more experienced and with wider exposure. However, if you want to
retain people, because you have already made so much investment in them
and your losing that investment is bad, you should create new slots for
those people so that they see sufficient motivation in staying. Choosing Partner In choosing
partner, you have to be careful. Enter into only long-term partnership.
Secondly, go for a partnership with such a party which has the same
philosophy as that of yours. Otherwise the partnership will collapse
very soon. Changing from
Oberoi to Holiday Inn as its partner, Soaltee Hotel provides a good
example about it, I think. Though Soaltee had
25 years of successful partnership with Oberoi group, we decided not to
continue that partnership and brought in Holiday Inn because of three
reasons: first, Oberoi was only a deluxe category brand then and we
thought such hotels at that time were possible only in Kathmandu, not
outside it. And we were planning to go outside Kathmandu. Second was a
personal reason. Biki Oberoi was not in a good health. Though a very
much successful business, Oberoi was not a well-corporatized
organization till then. BK Oberoi had one son and one nephew and I was
frequently hearing in New Delhi that the young boys were not interested
in hanging around India. That frightened me. The third reason was that I
did not see Oberoi’s commitment to Nepal. They had invested only what
was received by them as the fee. I did not see them planning anything
for Nepal. They never thought to put up another hotel somewhere else in
Nepal. We finally separated strictly in accordance with the agreement.
It was a friendly separation. I and BK are still good friends. If you look at
Soaltee Group, we have partnership (except in trading) with
internationally renowned groups. In the beginning my fellow-shareholders
would question the logic of having bigger partners. They were afraid
that we would be bullied by bigger partners. But I said, “We can learn
more if we have bigger partners and we’ll also be safe as we can rely
on the back of the bigger partner.” Some people like to
have partnership with the government for the protection that such
partnership provides. But in today’s world you cannot depend on
protection. If you argue in favour of protection, then you better become
a professor in a university, but not an entrepreneur. It is not
government protection but combination of system, market and HRD that
make an entrepreneur successful. Government is the worst partner for a
business. With all the noise going on now-a-days about economic
diplomacy, let me note here that it is in fact the entrepreneur who has
to take the initiative, the government and its diplomatic missions
abroad can best be the facilitators only. They will be able to do no
more than facilitate what the entrepreneur wants. It is not that the
Embassy should work as your company’s marketing office. If it arranges
to introduce you to a potential partner in that country, it is enough. I
think you should be ashamed if you hope that the First or Second
Secretary in the Embassy will work as your guide. You should guide
yourself. Arrogance leads
to failure Soaltee also
provides a case example to show that in business you must not be
arrogant. At Soaltee we had once become so arrogant that we had started
feeling that whatever we would touch would turn to gold. So we decided
to have a shoe factory. GP Koirala was the Prime Minister then and he
had asked me to do two things: One, to bring investment in hydropower
and two, to do something to increase exports. Hence I thought a shoe
factory would be a good idea to produce exportable product. We had done
a lot of homework before starting the shoe factory, still we failed. In
this business we were first encouraged by International Finance
Corporation (IFC). They encouraged us to look at three businesses:
hydropower, leather and silk. But when we completed the project report,
IFC walked out. They were not finding satisfactory answers to two
questions: First, “everyone will be ready to sell the machines to the
shoe factory, but will they put in the equity?” Second, “Why had
Soaltee selected Thapar Group of India as the partners in the factory
while it knew very well that the Thapars too were quite new in this
business?” We did not listen to IFC and we sent the project report to
a first class bank, which rejected the project very quickly. That should
have been sufficient for us to decide not to go into that business. But
our arrogance prevailed and we pushed it with some local banks and
ultimately we made them finance the project. But we failed in the
business and learnt a valuable lesson. In hindsight, I see
that it was not the right time to go into that business. Moreover, it
was a highly competitive market. And most importantly, the partners (Thapars)
also failed in their own country in shoe business. (Rana
is Chairman Emeritus of Soaltee Group. This article is based on the
presentation he made in the February edition of Entrepreneurs' Forum
organized by Business Service Aadhar of GTZ.) SMEs and Business Services by
Leon Houdret How
do entrepreneurs in industrialized countries solve problems in their
enterprise? How do they improve
their production or their marketing, reduce cost in production or
administration, and improve the quality of their products or costing and
pricing? Most small and
medium size enterprises lack in-house expertise in all the required
fields such as, management, marketing, finance, production etc. They can
have competent staff but the staff is often not able to look at the
enterprise from an outside perspective. They can have an idea about the
problems faced by the enterprise and the possible causes. They can
come up with suggestions for improvement but unfortunately are not able
to come up with the solutions to the problems. This is because they lack
the specific expertise and also time to concentrate on implementation of
such improvements. This is where the
business services available in the market in industrialized countries do
help. Business services are, to mention just a few: training for skills
development, design, advertising, accounting and auditing, courier
delivery, computer maintenance and software development services,
business consultancy, legal services, market information and marketing
support, technical information, supply, installation and maintenance of
equipment etc. Inputs given in
training help the staff to improve their skills that in turn positively
contributes to the overall improvement of the business. Consultants can
work together with the management and staff, analyze the problems and
develop and implement appropriate action plans to overcome them. These
consultants mostly have an excellent academic background and, in many
cases in addition, years of practical experience in enterprises. Getting support
from consultants or sending the staff to participate in training courses
is not mainly an issue for sick industries. Experiences in Europe and
the USA show that expenditure for external support is higher in profit
making businesses. Being successful in the market, they concentrate on
activities to still improve their profit and increase their turnover. Another reason for
establishing linkages with service providers may be economy of scale.
Certain tasks related to operation or strategy of the enterprise may
require only part time expertise. Instead of building such expertise
within an enterprise and paying high cost continuously to maintain a
professional standard, outsourcing to a service provider is more cost
effective. In a small enterprise accounting services are frequently
outsourced. Typical examples for outsourcing are also catering and
transport services. In Nepal, many
small and medium size business entrepreneurs do not know about the
benefits that can be derived through involvement of external consultants
or from participation in training or from outsourcing to a service
enterprise. In the case of consultancy, the entrepreneurs are afraid of
sharing their knowledge on management, production, product design,
financial data and marketing strategies with outside parties. Before
seeking support from an external specialist, the entrepreneurs feel that
they have to identify and analyze the weak spots in their operations
themselves and be able to explain these findings to the consultant.
Mostly, they are unable to do this groundwork and ignore, that the
consultant, in interaction with the management and staff as a part of
his task, may identify major areas for improvement in the enterprise and
propose an action plan, time schedule and budget for this intervention.
The risk of such attitude is, that enterprises do not seek external
support at all and thus miss opportunities to improve and to grow. However, I must
hasten to add that in Nepal the offer and demand in different areas of
business services, which include training, consultancy and others are in
the rise. More and more competent professionals see a potential in
providing a higher quality of services and are offering them in the
market. Small Industries
Promotion Programme (SIP-P), funded by the Swiss Agency for Development
and Co-operation (SDC) and implemented in co-operation with the Ministry
of Industry, Commerce and Supplies through Swisscontact, has started a
campaign focusing on the business services market - the providers and
the users of services who are small and medium size enterprises. The
purpose of this campaign is, to inform entrepreneurs about the relevance
of business services and to encourage them to buy them. Information on
services in the market will be made available by encouraging interested
service providers to improve databases on service providers and their
range of services and the accessibility to such data for clients.
Interaction workshops between service providers and entrepreneurs on
services in general or on specific kinds of services will be organized.
A press campaign to increase awareness on services will be initiated. In this context,
the role of Chambers and Associations with respect to services should be
highlighted. They are fulfilling an important task as service
intermediaries. They inform about services and their providers, but may
also create awareness on the relevance of services and identify demand
among their members for specific services and approach providers to
develop tailor made training courses or other interventions. Some workshops,
considered to be minor steps in the overall marketing campaign
encouraged by SIP-P to stimulate the demand for services, have been
organized so far. A market research study among suppliers and buyers of
services has been initiated. Many other activities will follow. All of
the activities will eventually culminate in the “Services Pavilion”
as part of the Himalayan Expo in May 2003. More than 30 service
providers will be given an opportunity to promote their services to
enterprises in this business-to-business fair. Let me end this
article with a vision: In three years
time, a business services forum, managed by a network of service
providers who offer different kinds of services, will provide regular
information on services in interaction with entrepreneurs who benefit
from a higher quality and variety of services in the market. (Houdret is Project Manager SIP-P, a project of Swisscontact) |
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