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March, 2004 |
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Corporate Focus |
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NEBICO's Strategies As
the policymakers are adamant to amend the labour laws, Nebico (P) Ltd.,
the pioneer in the biscuit industry in Nepal, is forced to go for higher
automation. For competition under the WTO regime, the Nepali biscuit
companies must go for automation, say the company officials. The
reason is the costly labour in Nepal. “The machine investment is a
one-time investment and the annual operating costs are fixed as a
certain percentage of the initial machine cost for depreciation and
interest on the capital employed. But as the labour laws do not allow
flexibilities, investment in the machines is cheaper in the long
term,” says Rabindra Shrestha, Managing Director of NEBICO. However,
it is not that the NEBICO decision is promoted by the latest change in
the environment by the decision of Nepali government to join WTO. The
company was gradually reducing the manpower in the factory for the last
several years. Only recently, 36 workers of NEBICO went to Dubai to work
in biscuit factories there. Some others are preparing to leave now for
the same destination. These people are not being replaced as machines
are being planned to substitute the labour, informs Shrestha. “Once
there were as many as 460 employees in the NEBICO factory which had
started with 50 persons over 40 years ago. The idea in increasing the
employee number was to run the factory three shifts. But it is now
running only two shifts,” he adds. The
next change being contemplated is installation of a diesel engine
operated plant looking at the imminent shortage of electricity in a
year. The factory had started with a diesel operated machine which was
substituted in 1971 by an electric machine as the electricity
availability was then improved. Though it is continuing with that
machine till now, the company’s MD says, a diesel engine is going to
be imported as a power shortage is projected for the next year.
Moreover, the surcharge that the Balaju Industrial District (BID)
imposes on the power supplied to the units within the district is making
electricity costlier to the units situated within the District. Having
already received the ISO 9002 certification, NEBICO has no problem on
the quality front to compete under the WTO regime. However, now it is
also trying for ISO 14000, a certification of environment-friendly
production process, which will make it further easier to compete in the
new system. Moreover, NEBICO is one of the first Nepali companies
committed to the Global Compact of the UN Secretary General. This also
serves as a certification of fair trade practice. Market
Size According
to Shrestha, Nepal’s market size for biscuits is about 1000MT per
annum and NEBICO holds about 22% of it, the rest being shared among the
30 odd other factories. However, some of the factories are already
closing down, Shrestha informs. In his estimate, the biscuits market is
growing paltry 5% per annum while the market for instant noodles is
estimated to be growing at about 15-20% per annum. The
analysis shows that a large share of the biscuits market has been
gobbled up by the instant noodles, thus making instant noodles as the
major competitor. Once Glucose biscuits and instant noodles would sell
at Rs. 3.5 per packet. Now the same packet of noodles sells at Rs. 10 or
11 per packet, but Glucose biscuit sells at Rs. 7 only. That means the
biscuits factories have failed to compete effectively with noodles. Why? According
to the explanation of Shrestha, it is related first with the consumer
taste. “Nepali consumers have no sweet teeth. The sugar content in the
Nepali biscuits is less than what is normal in foreign biscuits. The
Nepalis go for tangy taste and that is provided by noodles,” he says.
Second, the freebies offered by instant noodles marketers. “Our
marketing team says it is not advisable to offer freebies for biscuits,
because it is costly. As the noodles companies are offering diamond
necklace, we have to match that. But the increase in sales volume
expected from such freebies is not sufficient,” he adds. As some
biscuit companies that had tried offering freebies to match the noodles
companies have now stopped their schemes, Shrestha’s explanation seems
quite valid. Barriers in exports Being situated in Kathmandu, NEBICO cannot export to India as the transport cost is higher for it as compared to the competitors that have their factories located at the Terai. Neither is it possible to export to Tibet as the trade with Tibet is still under barter system under which only the traders can benefit. Though money transaction is started recently on the Tibet trade, the banking system is still not properly developed. Most importantly, the sales volume in Tibet export would be very low, as Shrestha estimates that one truck load of biscuits would last there more than six months. |
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