Management Trends and Scenario in Nepal | MGT 213

This unit covers growth of the business sector in Nepal, major industries, existing management practices, and current management trends and challenges in Nepal.

Growth of the Business Sector in Nepal

The historical growth

• Nepal's business sector began with the Company Act 1936, which established a few business houses, and the setup of Biratnagar Jute Mill marked the beginning of organized industry. India was always the largest business partner, with some trade with China in agricultural products and animals; early business was limited to trade and cottage industries, often in collaboration with Indian business houses.

• Modern industries began during the Second World War, but due to a lack of strategic approach, industries couldn't sustain afterward and much foreign capital was withdrawn. From 1956, Nepal started planned industrial development, and import-substitution and export-promoting industries were prioritized during the third plan (1965–1970), with several public-sector industries set up with USSR and Chinese assistance.

• The strategy shifted after the mid-1980s from state-led development to a market-led open economy, and after the 1990 restoration of democracy, many public enterprises were privatized. The government-Maoist conflict later hurt business through frequent bandhs and strikes, but the 2006 Jana-andolan II and peace agreement smoothed the way for future growth.

Major Industries in Nepal

Background

• Biratnagar Jute Mill was Nepal's first institutional industry, established as a joint venture in 1993 B.S. During WWII, many public enterprises were set up with Chinese and USSR support. After the 1990 economic liberalization, public enterprises were privatized and joint-venture industries emerged in banking, cigarettes, cement, textiles, hotels, and tourism.

Four classifications of major industries

1. Manufacturing industries: Industries that process raw materials into finished goods, such as sugar, cigarettes, brick and tile, and textiles.

2. Export-oriented industries: Industries producing mainly for foreign markets—carpets, garments, leather, handicrafts, agro and forest-based products, and Pashmina.

3. Import-substituting industries: Industries that produce goods domestically to replace imports—pharmaceuticals, food and beverages, and iron and steel.

4. Service industries: Industries providing services rather than goods—banking, insurance, hotels, airlines, and communication.

Existing Management Practices in Nepal

Overview

• Most management practices in Nepal are still traditional, with a lack of professional management systems and corporate culture. Public sectors are affected by bureaucratic practices, while private organizations (banking, insurance, hotels, airlines, joint ventures, and MNCs) are moving toward modern management.

Practices by management function

1. Planning: Managers mostly plan on personal intuition and judgment without long-term strategic plans or SWOT analysis, though WTO membership and the emergence of MNCs are compelling more effective planning.

2. Decision making: Decisions are made by top-level management without subordinate participation, and are poorly implemented without proper guidance or follow-up, though some private firms now consider both qualitative and quantitative aspects.

3. Organizing: Organizations adopt traditional vertical structures divided by function, with unclear and centralized authority and poor coordination, though joint-venture companies are improving these practices.

4. Staffing and conflict management: There's no proper HR plan or job analysis; selection is influenced by "source-force and favoritism"; skill development is neglected; and most conflicts are solved by managers convincing the parties.

5. Leadership: Autocratic leadership with centralized authority dominates, with managers distrusting subordinates' skills, though joint ventures and MNCs emphasize participative management while public-enterprise managers are politically appointed and less accountable.

Business Culture in Nepal

Meaning of business culture

• Business culture refers to the shared values, beliefs, and behavior of individuals within an organization—the patterns and norms all members follow. Organizations with strong business culture perform at higher levels, and a strong culture provides focus, unity, and competitive advantage.

Observations on Nepalese business culture

1. No uniform culture: Business culture varies widely across family-owned businesses, organized corporate houses, and multinational companies.

2. Family-owner dominance: Most Nepalese businesses are family-owned and guided by the owners' interests and profit motive rather than professionalism.

3. Leg-pulling over teamwork: Although teamwork exists, leg-pulling is common, and talented people are seen as threats by colleagues and superiors.

4. Communication and power issues: Hierarchical structures block free communication, and workplace unionization creates power politics and disharmony between management and employees.

Cultural practices adopted by Nepalese business

1. Traditional greetings at the start of business interactions.

2. Preceding serious discussion with informal conversation before getting to business.

Situation of the Service Sector in Nepal

Overview

• The service sector is the largest sector in Nepal's economy, covering wholesale and retail trade, hotels and restaurants, transportation and communication, financial intermediation, real estate, and health and education.

Sector-by-sector situation

1. Wholesale and retail trade: One of the fastest-growing sectors due to rising GDP, population, and income, boosted by strong VAT implementation—contributing about 14.2% to GDP over the last decade.

2. Hotel and restaurant: Nepal's natural beauty (mountains, lakes, temples, heritage sites, biodiversity) makes it a top tourist destination, though the sector contributes about 1.4% to GDP.

3. Transportation and communication: Tough terrain, lack of funds, political instability, and outdated technology have limited growth—contributing about 6.4% to GDP.

4. Financial intermediation: Grown rapidly due to rising remittances, with banks seeking mergers and acquisitions to meet NRB capital requirements.

5. Real estate and business services: Saw unexpected growth that NRB later regulated to make it legal and sustainable, slowing progress—contributing about 11.9% to GDP.

6. Health and social work and education: A sensitive sector important to the nation's future despite modest growth, contributing about 7.1% and 4.9% to GDP respectively.

Major Problems of Business in Nepal

The key problems

1. Unstable government policy and regulation: Frequent policy changes with each government change hurt the industrial sector, and the open border with India causes unlawful trade and smuggling that Nepalese firms can't compete with.

2. Low quality of products and higher cost: Major exportable goods fall below standard, purchasing power is limited, and cheaper Indian and Chinese goods undercut Nepalese products, lowering demand.

3. Weak / traditional technology: Industries suffer from high interest rates, collateral demands, and lack of advanced technology, making finance and modernization difficult—especially for small firms.

4. Lack of proper physical infrastructure: Poor transportation (blockades, strikes, syndicates, limited trucks) and unreliable electricity (irregular supply, load-shedding, low voltage) hamper industrial development.

5. Lack of energy and fuel supplies: Firms depend on imported raw materials from India, and export industries like carpets, garments, and Pashmina lag due to raw material scarcity, supply interruptions, and high transit and transport costs.

6. Lack of mutual trust: Trust and cooperation between government and private sector is missing, with government acting as controller rather than facilitator, and bureaucracy seen as a barrier to growth.

Policy-related problems (summary)

• Frequent government policy changes, ineffective policy implementation, and poor administration of tax laws create problems for firms. The open border with India enables unauthorized trade and smuggling, making it hard for Nepalese firms to compete with illegal imports.

Human Resource Practices in Nepalese Industry

Key HR practices

1. No proper HR planning: Nepalese organizations don't prepare proper human resource plans or systematic job analysis and recruitment.

2. Favoritism in selection: Employee selection in both public and private organizations is heavily influenced by "source-force and favoritism."

3. Neglect of skill development: Little emphasis is placed on developing HR skills, and employee evaluation depends mainly on the manager's judgment and recommendations.

Important Questions and Solutions

Exam-style questions with solutions for this unit.

1. Explain the business culture used in Nepalese organizations. (2083)

Business culture refers to the shared values, beliefs and behaviour of the individuals within an organization, that is, the patterns and norms that all its members follow. Organizations with a strong business culture perform at higher levels, because a strong culture provides focus, unity and competitive advantage. The business culture used in Nepalese organizations can be explained as follows:

1. No uniform culture: Nepal has no single business culture. It varies widely between family-owned businesses, organized corporate houses and multinational companies. A small family shop and a commercial bank, for example, work in very different ways.
2. Dominance of family owners: most Nepalese businesses are family-owned. Decisions are guided by the owners’ personal interests and profit motive rather than by professional management, and key positions often go to family members.
3. Leg-pulling over teamwork: teamwork does exist, but leg-pulling is common. Talented and capable employees are often seen as threats by their colleagues and superiors, which discourages innovation.
4. Hierarchical communication: rigid hierarchical structures block the free flow of communication. Information mostly flows from top to bottom, and subordinates hesitate to share their views openly.
5. Unionization and power politics: unions at the workplace, often linked to political parties, create power politics and disharmony between management and employees.
6. Traditional greetings and informal conversation: business interactions begin with traditional greetings, and serious discussion is usually preceded by informal conversation to build a relationship before getting down to business.
7. Relationship-based dealings (“afno manche”): personal contacts and relationships strongly influence business deals, hiring and approvals. This is also reflected in the “source-force and favouritism” seen in employee selection.
8. Respect for seniority and religious and festival practices: seniority and age are highly respected. Festivals such as Dashain and Tihar shape business activity, bonuses and holidays.
9. Centralized and autocratic style: (partly from your notes on management practices) authority is concentrated at the top, and subordinates’ participation in decisions is limited.
10. Emerging corporate culture: banks, insurance companies, joint ventures and MNCs are developing a modern, professional culture based on participation, merit and customer focus.

Nepalese business culture is still largely traditional, family-centred and hierarchical. Globalization and the growth of joint ventures and MNCs are gradually shaping it into a more professional and performance-oriented culture.

2. Discuss the major problems of business in Nepal. (2082)

Nepal’s business sector has grown since the Company Act 1936, and especially since the economic liberalization after 1990. Even so, Nepalese businesses still face many problems that slow industrial growth and weaken their competitiveness. The major problems of business in Nepal are as Follows :

1. Unstable government policy and regulation: policies change frequently with every change of government, which creates uncertainty and discourages long-term investment in the industrial sector.
2. Ineffective implementation and tax administration: even good policies are poorly implemented, and weak administration of tax laws creates additional difficulties for firms.
3. Open border and smuggling: the open border with India enables unauthorized trade and smuggling. Nepalese firms cannot compete with these illegal, untaxed imports.
4. Low quality and higher cost of products: many exportable goods fall below standard, and production costs are high. Cheaper Indian and Chinese goods undercut Nepalese products, which lowers demand for them. Limited purchasing power at home makes the problem worse.
5. Weak and traditional technology: most industries still use outdated technology. High interest rates and collateral requirements make it difficult to finance modernization, especially for small firms.
6. Lack of physical infrastructure: poor transportation, including blockades, strikes, syndicates and a shortage of trucks, together with unreliable electricity (load-shedding, irregular supply and low voltage), hampers industrial development.
7. Lack of energy, fuel and raw materials: firms depend on raw materials imported from India. Export industries such as carpets, garments and Pashmina suffer from raw material shortages, supply interruptions and high transit and transport costs.
8. Lack of mutual trust between government and the private sector: the government acts more as a controller than a facilitator, and bureaucracy is seen as a barrier to business growth.
9. Lack of capital and low FDI: industries have limited access to low-interest capital, and foreign direct investment does not reach the industrial areas that need it most.
10. Poor international competitiveness and weak industrial infrastructure: high costs and lower quality make it hard to compete abroad. There is also a shortage of special industrial zones, industrial estates and tax incentives.

3. Explain about the existing management practices and business culture in Nepal. (2082)

Management practices in Nepal are still largely traditional, with a lack of professional management systems and corporate culture. Public enterprises are affected by bureaucratic practices, while private organizations such as banks, insurance companies, hotels, airlines, joint ventures and MNCs are moving toward modern management.

The existing management practices in Nepal are:

1. Planning: managers mostly plan on the basis of personal intuition and judgment, without long-term strategic plans or SWOT analysis. However, WTO membership and the arrival of MNCs are pushing firms toward more systematic planning.
2. Decision making: decisions are made by top management without the participation of subordinates. They are often poorly implemented because of a lack of guidance and follow-up. Some private firms now consider both qualitative and quantitative aspects.
3. Organizing: most organizations use traditional vertical structures divided by function, with unclear and centralized authority and poor coordination. Joint-venture companies are improving these practices.
4. Staffing and conflict management: there is no proper HR planning or job analysis, and selection is influenced by “source-force and favouritism.” Skill development is neglected, and most conflicts are settled by managers persuading the parties involved.
5. Leadership: autocratic leadership with centralized authority dominates, and managers often distrust their subordinates’ skills. Joint ventures and MNCs emphasize participative management, while managers of public enterprises are often politically appointed and less accountable.

Business culture refers to the shared values, beliefs and behaviour that all members of an organization follow. The business culture in Nepal has the following features:

1. No uniform culture: business culture varies widely across family-owned businesses, organized corporate houses and multinational companies.
2. Dominance of family owners: most Nepalese businesses are family-owned and are guided by the owners’ interests and profit motive rather than by professionalism.
3. Leg-pulling over teamwork: although teamwork exists, leg-pulling is common, and talented people are often seen as threats by colleagues and superiors.
4. Communication and power issues: hierarchical structures block free communication. Unionization at the workplace creates power politics and disharmony between management and employees.
5. Traditional cultural practices: business interactions begin with traditional greetings, and serious discussions are usually preceded by informal conversation.

4. State different effects of globalization. (2082)

Globalization is the process that ties the world’s people, markets and economies together. Its effects on business are:

1. Global competition: competition from around the world comes right to the doorstep, so even local Nepali firms compete with foreign brands.
2. Global perspective in management: managers must think and plan globally even while running a local business.
3. Wider markets and investment: firms can reach foreign markets, and FDI and technology flow in. Nepal’s membership of WTO, SAARC and BIMSTEC reflects this.
4. Threat to weak domestic industries: cheaper, better-quality imports can push less competitive local firms out of the market.

5. Write any four export oriented industries. (2082)

Export-oriented industries in Nepal are industries that produce mainly for foreign markets. The Four of them are:

1. Carpet industry: hand-knotted Nepali carpets are a major export.
2. Garment industry: ready-made garments are produced for foreign buyers.
3. Pashmina industry: fine Pashmina shawls are a well-known Nepali export.
4. Handicraft industry: metal, wood and paper crafts are made for export.

6. Write four problems of business in Nepal. (2081)

7. Write two cultural practices adopted by Nepalese business sectors. (2080)

Nepalese business interactions follow certain shared cultural practices. Two of them are:

1. Traditional greetings: business interactions typically begin with traditional greetings before any dealings start.
2. Informal talk before business: serious discussion is usually preceded by informal conversation, easing into the actual business matter rather than starting with it directly.

8. State and explain the situation of service sector industry in Nepal (2079)

The service sector is the largest sector of Nepal's economy, covering wholesale and retail trade, hotels and restaurants, transportation and communication, financial intermediation, real estate, and health and education. Its sector-by-sector situation is explained below:

1. Largest sector of the economy: the service sector is the single biggest contributor to Nepal's economy and spans a wide range of trade and service activities.
2. Wholesale and retail trade: one of the fastest-growing sub-sectors, driven by rising GDP, population, and income and supported by strong VAT implementation, contributing about 14.2% to GDP over the last decade.
3. Hotel and restaurant: Nepal's natural beauty — mountains, lakes, temples, heritage sites, and biodiversity — makes it a top tourist destination, though this sub-sector contributes only about 1.4% to GDP.
4. Transportation and communication: growth has been limited by tough terrain, lack of funds, political instability, and outdated technology, contributing about 6.4% to GDP.
5. Financial intermediation: this has grown rapidly on the back of rising remittances, with banks pursuing mergers and acquisitions to meet NRB capital requirements.
6. Real estate and business services: it saw unexpected rapid growth which NRB later regulated to make legal and sustainable, slowing its progress, contributing about 11.9% to GDP.
7. Health and social work: a sensitive sector important to the nation's future, contributing about 7.1% to GDP despite modest growth.
8. Education: likewise a nation-building sector with modest growth, contributing about 4.9% to GDP.
9. Employment and income base: collectively these sub-sectors provide a large share of employment and income, making the service sector central to livelihoods.
10. Growth potential: with tourism, banking, and trade expanding, the service sector holds strong potential to lead Nepal's future economic growth.

In sum, the service sector dominates Nepal's economy, with trade, real estate, and finance as major contributors, while sectors like tourism and transport still hold large untapped potential.

9. State any two major problems of Nepalese business (2079)

Nepalese business is constrained by several major problems. Two of them are:

1. Lack of energy and fuel supplies: firms depend on imported raw materials from India, and export industries like carpets, garments, and Pashmina suffer from raw material scarcity, supply interruptions, and high transit costs.
2. Lack of mutual trust: trust and cooperation between the government and the private sector is missing, with the government acting as a controller rather than a facilitator and bureaucracy seen as a barrier to growth.

10. Write down two disadvantages of multinational company. (2079)

A multinational company (MNC) is a firm that operates in several countries, and despite its benefits it carries certain disadvantages for the host country like Nepal. Two of them are:

1. Outflow of profit and capital: MNCs repatriate a large share of their profits to their home country, draining foreign currency and resources from the host economy.
2. Threat to domestic firms: with superior capital, technology, and brand power, MNCs can dominate the local market and drive smaller domestic businesses out of competition.

11. Enumerate the major problems of business in Nepal. (2077)

Business in Nepal is held back by a number of deep-rooted structural and policy problems that limit industrial growth and competitiveness. The major problems are enumerated below:

1. Unstable government policy and regulation: frequent policy changes with every change of government hurt the industrial sector, creating uncertainty for investors.
2. Open border and smuggling: the open border with India encourages unlawful trade and smuggling, and Nepalese firms cannot compete with cheap illegal imports.
3. Low product quality: major exportable goods fall below international standard, weakening their acceptance in foreign markets.
4. Higher cost and low demand: limited purchasing power and cheaper Indian and Chinese goods undercut Nepalese products, lowering their demand.
5. Weak and traditional technology: industries rely on outdated technology, and high interest rates and collateral demands make modernization difficult, especially for small firms.
6. Poor physical infrastructure: poor transport (blockades, strikes, syndicates, limited trucks) and unreliable electricity (irregular supply, load-shedding, low voltage) obstruct industrial development.
7. Lack of energy and fuel supplies: firms depend heavily on imported raw materials from India, causing supply interruptions and high transit and transport costs.
8. Raw material scarcity for exports: export industries like carpets, garments, and Pashmina lag behind due to scarcity of raw materials.
9. Lack of mutual trust: cooperation between the government and private sector is missing, with the government acting as a controller rather than a facilitator.
10. Bureaucratic barriers: ineffective policy implementation, poor administration of tax laws, and obstructive bureaucracy are seen as barriers to business growth.

In conclusion, unstable policy, weak technology, poor infrastructure, and a lack of trust between the state and private sector together form the major obstacles to business development in Nepal.

12. Write the names of four export-oriented industries in Nepal. (2077)

Export-oriented industries are those producing mainly for foreign markets. Four such industries in Nepal are:

1. Carpet industry
2. Garment industry
3. Handicrafts industry
4. Pashmina industry

(Others in this category include leather and agro/forest-based products.)