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February, 2003 |
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Cover Story |
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Strategies
of Survival Year
2002 (Y2K2) was a really difficult year for almost all of the Nepali
business firms. However, there are some exceptional ones that have
managed to beat the recession that gripped not only Y2K2, but is likely
to do so also in Y2K3. New Business Age had exactly a year ago presented
a review of the efforts that the companies were trying with to avoid the
imminent slump (NBA January 2002). Now it tries to draw some lessons
from the experiences of how some individual firms managed to remain
afloat during the last 12 months:
Among
the sectors, the most adversely affected by the recession in Y2K2 were
garments, carpets, pashmina, hotels and airlines. While the specific
number of units closed down in each sector is not available, some
estimates can be made. Though none of the major hotels has closed down,
the occupancy reduced to 44% in Yak & Yeti (a hotel in the middle of
the city) and to 34% in Soaltee Crowne Plaza, according to the annual
reports of the respective companies. In airlines, though the other
players have been managing to remain afloat, Mountain Air became a
scandalous case of an airline folding its wings as its two airplanes
were taken back by the American supplier for the failure of the airline
to pay the rentals. The decline in tourist arrival (28% over the year as
of December end 2002), is as well publicized as the decline in carpets,
garments and Pashmina are. Due to the continued decline in tourist
arrival, Nepal Recreation Centre scaled down Fun World, the recreational
centre adjoining the casino it is operating in hotel Soaltee premises. Labour Factor
Some of the
businesses during the year managed to remain alive by reducing the wage
bill. While some companies did it by reducing the pay-package, the
others resorted to a war of attrition. Reducing pay package was
practiced by hotels in various manners. For example, the annual report
of Soaltee Hotel Ltd. for FY 02 mentions that all the employees
contributed about 8% of their pay in average to the company as the
company was going through hard times. Some other companies continued
with the business without paying the employee for several months in a
stretch. Tired of the delay some employees left the job on their own
forgetting the dues that the company owed them. The examples of such
strategies being practiced can be found widespread in the informal
sector and also in privately held companies including in some newspaper
firms. However, the major
trend of the year was management decision to retrench employees by
offering Voluntary Retirement Scheme (VRS). Nepal Lever Ltd. (NLL) did
this towards the end of the year, i.e. in October-November. Similarly,
HISEF Finance Ltd. too bade adieu to six of its middle level managers by
offering VRS. However, NLL’s
VRS was not in response to the decline in the sales at home. Rather it
was due to the decline in its export sales. At home, the company managed
to record an impressive 25% annual growth in sales. But as the volume in
domestic sales was quite low and incomparable with the exports, the
growth was not sufficient to compensate the loss in the exports volume.
Though the company officials went out of their way and made a number of
bitter remarks about the unprofessional behaviors of the tax department,
the government was not sympathetic towards it. Acquisitions,
Mergers & Diversification A recessionary
period is the best for acquisitions provided you are comfortable with
cash reserves or have a good track record with the banks. It is a period
when the property to be acquired is available cheap and the banks are
also desperate to off-load the liquidity in their vault provided they
are confident that they are putting it in the hands of a trusted client.
But no significant cases of acquisition could be noticed during Y2K2. However, there were a number of examples of diversification, the prominent being that of Surya Tobacco Company (P) Ltd. changed its name i |
