Patan Handicraft Trying with a New Business Model

Handicraft businesses in Nepal suffer myriad problems and the business owners complain that they can do nothing about them as most of these problems are beyond their capacities. Being small, proprietary firms, they cannot produce sufficiently big volume to be economically profitable. The arrangement of raw material, marketing of the final products, financing, design and technology – all become problems.

The solution seems to be in developing a new business model. And the one being tried by Patan Handicraft Centre (P) Ltd. seems to be working quite effectively.

According to Pravin Chitrakar, Director of the firm, the model his company is following is like a cooperative of the artisans, though the word ‘cooperative’ was struck off from the company’s name sometime back after the promoters found that it was inviting too much interference from the regulators of the cooperatives.

Initially set up as a retail shop nearly a decade ago, the company has now turned into a production house as well. And in the process, it has developed a number of subsidiaries in partnership with different artisans. While these subsidiaries produce the articles, the parent company does the marketing and provides technology, design and finance to the producers.

The company is presently involved mainly in four category of products – silver jewellery, buttons, paper products, wood products and other various articles. The beginning of each line of business has its own story, though there is a common thread in all of them. As Chitrakar explains, the company promoters did not feel good just being the intermediary - collecting goods from the producers and selling them by adding the marketing margin. “We felt it was not ethical as we were benefiting just by virtue of our contact with the buyer. If the buyer wanted he or she would easily go direct to the producer and that would benefit both of them.”

But it was not the only ethical issue that prompted the company to enter also into production. The earlier model of getting the articles made from outside parties involved a lot of risks. For example, if the company was to get the silver jewellery job done from an outside party, it would have to provide the silver to the artisan and there was the risk of the silver being adulterated or the artisan himself vanishing with the silver. And there was no guarantee that the product would be delivered in time. The Nepalis have a very high holiday culture. It is more so among the artisans.

So the model the company thought of was to make the craftsman a partner in that particular line of business. Now, the company sets up a subsidiary firm with the company and the artisan of that particular field as the shareholders. The production facility of each such business is based inside the company premises. The product is bought by the company at a price and the artisan gets remuneration for his labour plus a share in the profit. Most importantly, as the artisan would be working in the same premises of the company, there would not be any risk of him vanishing with the raw material or adulterating it.

Following this method, the company now has three units – silver jewellery, buttons and paper products – all located in the same premises. These items account for some 85% of the total turnover. For wood products, the production unit is located away from the company premises. However, for other products, the company is still depending on the outside parties. In all, the company is now employing about 130 people including artisans and management staff and the plan is to increase it to 150 within a couple of months by adding new production lines.

And the model seems working very well as indicated by the fact that, as Chitrakar informs, the company’s sales volume continued doubling every year since 1994 till 2002 though it increased slightly less than 100% in the year 2003.

Of course it does not mean that the company has no problems. Government policy restricting import of silver, silver jewellery accessories and gems are the major hindering factors apart from the customs related problems. Since silver jewellery exporters are not allowed to import these raw materials, there is a lot of smuggling going on in these items. And the quality of the silver made available to the jewellery makers is below the standard.  Due to the lack of one window service, there is a lot of paperwork involved in getting the export permission. Moreover, the meticulously completed packing of the article is opened in the customs points causing additional expenses and effort on the part of the exporter.

Plan

Despite these and many other problems, the company is not perturbed and it is targeting to increase the volume and gain the first position among the handicraft exporters from Patan. “At present we are at the third or the fourth position,” evaluates Chitrakar.  For the purpose of increasing business volume, the company has recently set up a metalcraft unit.

Next plan is much more ambitious, but not unrealistic. “If the government policy is right, we intend to develop an artisan village,” he says. But what about the craft village that the Handicraft Association of Nepal, the Lalitpur Chamber of Commerce and Industry and the government are reported as planning to set up? Chitrakar says, while that is a very good initiative, only one such village is not going to be enough.

But the project is considered expensive not only for the physical infrastructure. “The major challenge is in training the artisans not on the skills and art, but on such qualities as sense of time, discipline, less holidays and avoiding alcoholism,” says Chitrakar. “This will require a lot of time and energy though not much in financial costs. However, we are ready to do that while expecting policy reforms from the government,” he adds.

But as Chitrakar points out, the cases of government involvement in handicraft sector have been flops. First such instance is the Handicraft Emporium which is now in the process of liquidation. Then there was the Products of Nepal (PON) showroom in the Manhattan of New York for which the space was provided free of cost by the US government. But it is now closed while the people sent there to manage the PON showroom have been doing their own good businesses. Similarly, there is a showroom run by Salt Trading Corporation (STC) in Bangkok. That too is not doing good, comments Chitrakar. The reason? STC buys from the market on its own and in the process a lot of favouritism is practiced. So the genuine handicraft producers are not getting any benefit out of it.

Send your feedback to the editor: bizline@mos.com.np  
2004 © 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 NEW BUSINESS AGE may be reproduced without the permission of Mercantile Communications Pvt. Ltd. For reprinting rights, please write to us.  Send us your feedback : contact us.