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Country Commercial Guides for FY 2000: Nepal Report prepared by U.S. Embassy Kathmandu, released July 1999 Note*

CHAPTER IV. MARKETING U.S. PRODUCTS AND SERVICES

* DISTRIBUTION AND SALES CHANNELS

The channels of distribution and sales applied by most of the national and international manufacturers/sellers, is the conventional three-fold distribution system (Manufacturer ( Distributor/Wholesaler ( Retailer ). U.S. exporters sell through a Nepal-based intermediary such as a trading company or a local agent or distributor. Indirect local sales channels are most suited to selling U.S. goods and services in Nepal.

Pricing structures in Nepal are erratic. Imported goods are priced higher than locally produced goods. Imported goods' prices reflect transportation costs and other mark-ups.. Thus Indian manufactured goods, when available, are cheaper than imports from more distant countries.

* USE OF AGENTS/DISTRIBUTORS; FINDING A BUSINESS PARTNER

The local agents normally work as an exporter's sales representative on a commission basis. Specific responsibilities depend on the terms of the contract. The agent normally works on a commission ranging between 5 and 15 percent of the sales price, depending upon the nature of the product or services offered.

The distributor not only sells on a commission basis, but also buys and keeps goods in stock for resale, does local marketing, and handles after-sales product servicing as required. The distributor works on a profit margin so the commission rate and responsibilities (pricing, advertising, market promotion, after-sales service, etc.) should be defined in the contract. The distributor's commission in Nepal normally ranges between 15 to 30 percent, again depending upon the nature of the product.

Hiring a Commission Agent to assist in winning a contract can be effective when selling development-oriented goods such as construction services or heavy equipment and for selling to government departments and competing in an international tender exercise. Use of a local distributor is more effective when selling durable and non-durable consumer goods.

* FRANCHISING

Franchising is not yet a common sales method in Nepal. However, a recent instance involving introduction of an Australian fast-food franchise, via the master franchise agent in India, has proved highly successful. There is scope for further such ventures if they cater to the tourist, resident expatriate, and Nepali middle-class markets. Several U.S. franchise companies are currently considering the Nepali market.

* DIRECT MARKETING

Direct marketing is usually not cost-effective in view of the small Nepalese market for U.S. products and generally unreliable service offered by the local post office. Direct marketing via fax has been used to a limited extent and local firms are increasingly interested in the commercial potential of the Internet. In fact, Nepal has four Internet Service Providers (ISPs) and there are many Nepali business and industry home pages already. Two satellite/cable TV networks in Kathmandu and a state-owned broadcast TV channel provides additional marketing opportunities to reach an elite audience.

* JOINT VENTURES/LICENSING

Nepal officially encourages foreign investment and technology transfer under the Foreign Investment and Technology Transfer Act (FITTA) of 1992. Investment in the form of equity shares and reinvestment of earnings from share capital and loans are defined as foreign investment made by a foreign investor. Technology transfer refers to any transfer of technology made by agreement between an industry and a foreign investor as follows: (a) use of any technological right, specialization, formula, process, patent or technical knowledge of foreign origin, (b) use of any trademark of foreign ownership, and (c) acquiring any foreign technical consulting, management and marketing service. While technology transfer arrangements are legally permissible, the Government of Nepal has not yet determined where they are to be registered so no instances of such arrangements exist at present.

Foreign investments through joint ventures or wholly foreign-owned enterprises are allowed in any industry except for industries on a small negative list. For example, foreign investment is not permitted in defense-related industries, cigarettes, and alcohol (excluding 100 percent export oriented industries). Potential investors are invited to contact the American Embassy for current information on prohibited industries.

* STEPS TO ESTABLISHING AN OFFICE

Any foreign company that desires to undertake business in Nepal shall have the company registered after submitting the following documents required under the Company Act:

a) An authentic copy or translation in Nepali or English of the law or license under which the company was incorporated and established.
b) An authentic Nepali version of the memorandum and articles of the company.
c) Full address of the head office of the company.
d) A list of the directors, managing agents, manager, secretary, etc. of the company along with full particulars.
e) Name and address of resident representative or representatives of the company in Nepal, who is or are empowered to accept on its behalf time limits, notices, etc. issued to it.
f) The main place where the business of the company will be or is being run in Nepal and the full address of the company's office located at such place.

* SELLING FACTORS/TECHNIQUES

Market promotion can be done by sending messages directly to the target customers via the post or messenger. Facsimile messages may be more reliable and are certainly faster than the Nepalese postal system and are increasingly relied on by local businesses for most communications. Telemarketing, exhibitions, trade shows and trade missions, catalog and video shows, advertising media such as newspapers, radio and television, etcetera are used for market promotion. These can be done by the exporter directly or through a local agent/distributor. Direct marketing will likely not be cost-effective in view of the small size of the market. Participating in trade shows and catalog and video shows through a local agent/distributor can be an effective way to introduce new products into the market and to promote brand recognition.

* ADVERTISING AND TRADE PROMOTION

Newspapers, radio and television are the main advertising media used for trade promotion. Television serves only a limited section of Nepalese consumers, primarily the more affluent urban population, but newspapers and radio reach most parts of the Kingdom. Selection of advertising media thus depends on the target group. TV advertising would be most appropriate if the target group is the urban middle and upper classes. For a basic consumer product, advertising in newspapers and via radio is more appropriate. Advertising costs are lower for newspapers and radio than for television. Names and addresses of major newspapers, radio and television are given below. Inclusion in this list does not constitute U.S. Government endorsement.

1. The Rising Nepal (English daily)
Dharma Path
P.O. Box 23
Kathmandu, Nepal
Phone: 977-1-227493
FAX: 977-1-244428

2. The Kathmandu Post (English daily)
Shantinagar, Naya Baneshwor
P.O. Box 8559
Kathmandu, Nepal
Phone: 977-1-480100
FAX: 977-1-470178
Email: kanti@kpost.mos.com.np

NOTE. The Kathmandu Post is also available on the Internet.
Internet Access : http://www.south-asia.com/news-ktmpost.html

3. Radio Nepal
Singha Durbar
P.O. Box 6034
Kathmandu, Nepal
Phone: 977-1-241921/ 223910/ 243569
FAX: 977-1-221951

4. Nepal Television
Singha Durbar
P.O. Box 3826
Kathmandu, Nepal
Phone: 977-1-228436
Fax: 977-1-227452

5. Space-Time Network
Nepal Satellite Cable Television
Space Time Building
Post Box No.: 8973 NPC-296
Kamaladi
Kathmandu, Nepal
Phone: 977-1-437-322, 323, 324
Fax: 977-1-437-325

6. Shangri-La Channel (P) Ltd.
Sangharsh Chamber, Gyaneshwor
P.O. Box 5852
Kathmandu, Nepal
Phone: 977-1-415299/411137
Fax: 977-1-416333

* PRICING PRODUCTS

Pricing strategies depend on the competitive situation, the level of demand for the product in the Nepalese market, and total costs required to bring the product to market. Before selecting a pricing strategy, the exporter should obtain as much information as possible from market research, potential customers, and competitors. When determining a price for U.S. products in Nepal, the exporter should keep in mind competition from India, which has an open border with Nepal. Chinese manufactures, mainly consumer goods such as appliances, shoes, and textiles, find a ready market here and are imported via Tibet. Products from the European Community, Japan, South Korea, and Taiwan are also popular.

* SALES SERVICE/CUSTOMER SUPPORT

After-sales service and product guarantee are very important for customers, especially when they are buying durable products. Given long shipping times to Nepal, doubts about after-sales service and availability of spare parts affect product choice. It is therefore preferable to make an arrangement with the local agent/distributor for reliable after-sales service and support.

* SELLING TO THE GOVERNMENT

The Government of Nepal fiscal regulations relating to procurement of goods and services state that goods worth up to Rs. 5,000 ($100) can be purchased directly from the market. For goods worth between Rs. 5,000 and Rs. 150,000 ($3,000), procurement is to be made by inviting quotations from at least five suppliers. For higher amounts, procurement should be made via tenders or bidding. Goods and services are generally procured from the supplier or contractor who quotes the lowest price. Notices of tender calls for major projects having sufficient lead time (a minimum of 45 days) are disseminated to U.S. businesses via the U.S. Department of Commerce Trade Opportunity Program (TOP). For other sales opportunities, use of a local distributor or commission agent is more effective.

* PROTECTING YOUR PRODUCT FROM IPR INFRINGEMENT

In order to prevent infringement of intellectual property rights, patents and trademarks should be registered with Nepal's Department of Industries in accordance with the Patent, Design and Trademark Act, 1965. Nepal is not a signatory to any international conventions protecting patents, copyrights, or trademarks, so registration in the United States does not automatically result in protection in Nepal. When registering a trademark of foreign origin, a copy of the home registration with application form, deed of assignment and four copies of the representation sheet should be included in the application. Trademark registration is valid for a period of seven years and can be renewed for an additional period of seven years. Similarly, the Copyright Act of 1965 -- even as amended in 1997 -- offers only limited protection for copyrighted works, which must in any case be registered in Nepal to qualify for protection.

* NEED FOR A LOCAL ATTORNEY

Use of a local attorney for preparing required documents will ease unnecessary delays in the process. The U.S. Embassy can provide a list of local attorneys.

* PERFORMING DUE DILIGENCE/CHECKING BONA FIDES OF BANKS/AGENTS/CUSTOMERS

Most Nepali business bona fides cannot be checked via traditional U.S. business channels. Businesses may wish to contact the Federation of Nepalese Chambers of Commerce and Industry by fax at: 977-1-261022 or the Nepal-USA Chamber of Commerce and Industry at fax: 977-1-478020 / email nusacci@vishnu.ccs1.com.np to obtain profiles of some Nepali businesses.