Business Environment analysis of Nepalese Bakery Industry

1. Business Environment analysis of Nepalese Bakery Industry Laxman subedi (17334)

2. Introduction • Company Name: The Cup N Cakes Bakery • products: sliced bread, pastry, fruit cakes, buns muffins and birthday cakes to order • Objective: CUP n CAKES bakery aims to offer high quality bakery products at a competitive prices to meet the demand of middle to high income customers’ • Operate as a sole proprietorship firm • Revenue model: sale of bakery products

3. Why bakery? • As more Nepalis develop an appetite for breads and confectionary, bakers are rising to their communities’ challenges • FMCG sector has championed the Nepali manufacturing establishment • Annual growth of the FMCG sector to be around 20 percent (IBN 2017) • GDP contribution industry: 15.4%, manufacturing: 6.3%

6. The consumption pattern • Increasingpattern of consumption expenditure in FMCG • Strong inflow of remittances as well as rising economic activities in the country • An average Nepali consumes less rice then a decade ago( 87.5 kg rice /year) 3rd in south asia • Changing lifestyle

7. Regulatory bodies: • Department of Small and Cottage Industries • Department of Industry • Concerned local body • Department of food technology and quality control(DFTQ) • Nepal Council for Standards (NCS) and Nepal Bureau of Standards and Metrology (NBSM)  Acts: • Industrial Enterprise Act, 2016 • Private Firm Registration Act, 1958 • Food act 1966, Food rules 1970 • Labor Act, 2017 • Environment protection rules 1997 • Income tax act 2002

8. Political environment • Ease of doing business 2016: 107 2017: 105 • 4th most competitive economy in south Asia(WEF 2016/17) • Corruption Perception Index • 2016 :131st out of 176 countries (29) • 2017 :122nd out of 180 countries (31) • Free movement of goods among states (Constitution) • Rigid policy of government towards start-ups • Political stability

9. Legal Environment

10. Legal Environment • Obtain PAN number form Inland Revenue Department after registration • Manufacturing industries are entitled to preferential duties (under the Excise Act, 2002, Customs Act, 2007 and Value Added Tax Act, 1995) when importing plant, machinery and equipment required for direct production processes (Chapter 84 -Harmonized Customs Classification) • 25% flat tax rate in net taxable income • Lack of SPS monitoring and certification body. • Labor laws: minimum wages, working hours, engagement hours for female

11. Economic Environment • Contribution of industry sector in GDP is 15.4% of which manufacturing 6.3% and food and beverage 0.17% (0.154*0.063*0.59*0.2930) • Average growth in last ten years 1.18%(insustry) • GDP per capita Purchasing Power Parity (PPP) has reached USD 2,642 in 2017( 2,103 in 2012) • Average Nepali spend over 85 percent of their income on consumption yearly • Total household expenditure in Nepal has reached Rs 1,825 billion in FY2015/16 (Rs 1,622 billion in FY2014/15) • 53.8% of the total expenditure of Nepali households is on food items while only 46.2% on non-food items • More then 75% population is under the age 40

12. Imports and exports of product 1905: Bread, pastry, Biscuits and other bakers’ wares whether or not containing cocoa

13. Technological Environment • Mechanized production • More labor intensive • Slow technological pace • Recent FDI and joint venture is expected to bring in new technology

14. Socio-cultural environment • Consumption of wheat in Asia has gone up about 15 per cent in the last 3 years. • Acculturation: Kathmandu’s bakery culture has been rising among locals in recent years, who are starting to eat more western-style food (High demand in Christmas) • The change is due mainly to growing urbanization and exposure to the West. (4% increase in urbanizationyearly) • The growth in Kathmandu’s bakeries is not only a sign of a growing middle-class, but of a desire for people to create a sense of community.

15. International Environment Nepal is the member of following international organizations which affects the food safety related policy, rules and regulations. • Codex alimentarius commission •  World trade organization (WTO) • Food and agriculture organization (FAO) of the United Nations (UN) • South Asian association for regional cooperation (SAARC) •  Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC)

16. Environmental Environment According to environment protection rule 2054(1997) (Schedule 1 pertaining to rule 3) Initial environmental examination(IEE) report needs to be submitted to concerned ministry/ department for approval Solid waste management rule 2013

17. Globalization • Baking is not a Nepali culture • Migration • Tourism • Connectivity • Technology transfer

18. Globalization • The Indian food products corporation Britannia Industries Limited obtained permission as a 100% FDI entity from the DOI to invest Rs 1.11 billion to establish a biscuits and bakery products factory at Simara with an annual production capacity of 14,000 tons and employs around 345 people • In 2016, PatanjaliAyurveda in a joint venture with Nepali business tycoon UpendraMahato commenced a new factory at Bara with an initial investment of Rs 1.6 billion to produce 55 types of FMCGs including food and cosmetic products

19. References: • https://archive.nepalitimes.com/article/nation/cakes-and-community-bakery-kathmandu,3622 • http://www.foodandenvironment.com/2012/11/food-safety-regulation-in-nepal.html • http://www.newbusinessage.com/MagazineArticles/view/1884 • https://archive.nepalitimes.com/article/nation/cakes-and-community-bakery-kathmandu,3622 • Economic survey 2015/16 • International trade center trade map • Ministry of agriculture development