Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
Most national and international manufacturers and sellers distribute their products by means of the conventional three-fold distribution system: manufacturer to distributor/wholesaler to retailer. Most U.S. exporters sell through a Nepal-based intermediary, such as a trading company, local agent, or distributor. For selling U.S. goods and services in Nepal, indirect local sales channels are generally the most suitable option. Most high-value electronics, electrical appliances, and machinery enter Nepal by air cargo via Tribhuvan International Airport in Kathmandu (currently Nepal’s sole international airport). However, bulk goods, such as foodstuff, large machinery, vehicles, fertilizer, construction materials, and various raw materials, are transported to Kolkata or Haldia, India, by ship and then transported to the India-Nepal border by truck or rail. According to customs data, up to 60 percent of goods that arrive via truck or rail enter through the Raxaul-Birgunj crossing on the India-Nepal border. Major distribution centers are located in the Nepali border cities of Birgunj, Biratnagar, Bhairahawa, and Nepalgunj, as well as in Kathmandu. A negligible quantity of goods (less than two percent) enter Nepal from China through the northern customs point in Rasuwa.
Using an Agent to Sell U.S. Products and Services
Local agents normally work as an exporter’s sales representative on a commission basis, with the size of the commission varying based on the nature of the product or service being offered. Specific responsibilities depend on the terms of the contract. In early 2018, Embassy Kathmandu became a “Partner Post” of the U.S. Foreign Commercial Service (FCS) in New Delhi. FCS India is responsible for commercial issues in India, Nepal, Sri Lanka, and Bangladesh and for assisting U.S. companies looking to export their products and services to these markets. A number of business services/programs, some fee-based, are provided through Embassy Kathmandu’s Political/Economic Section under this Partner Post arrangement, including commercial reports for U.S. businesses and connecting U.S. businesses with local companies of interest that could include buyers, agents, distributors, sales representatives, and other strategic business partners. Requests for these services can be directed to U.S. Export Assistance Centers or to the Commercial Service New Delhi office at: email@example.com.
In some cases, local agents also buy and keep goods in stock for resale, do local marketing, and handle after-sales product servicing as required. The distributor usually works on a profit margin, so the commission rate and responsibilities (pricing, advertising, market promotion, after-sales service, etc.) should be clearly defined in the contract. The distributor’s commission in Nepal normally ranges from 15 to 30 percent, again depending upon the nature of the product and services provided. Use of a local distributor is effective when selling consumer goods.
Hiring an agent to assist in winning a contract can be effective when selling infrastructure-related goods, such as construction services or heavy equipment to government agencies, or when competing for an international tender.
Due diligence on any potential distributor/agent is essential prior to entering the local market. Given the prevalence of corruption in Nepal, exporters are urged to carefully screen potential agents working on their behalf.
Establishing an Office
The Company Act of 2006 requires foreign firms seeking to do business in Nepal to register by submitting the following documents:
a) A notarized copy or translation in Nepali or English of the law or license under which the company was incorporated and established;
b) A notarized Nepali version of the memorandum and articles of the company;
c) The complete address of the head office of the company;
d) A list of the directors, managing agents, manager, secretary, etc. of the company along with their names, positions, contact details, and shareholdings, if any;
e) The name and address of the resident representative(s) in Nepal empowered to accept on the company’s behalf official documents; and
f) The proposed location where business will be, or is being, conducted in Nepal and the full address of the company’s office.
One hundred percent foreign ownership is allowed in most sectors in Nepal. The 2019 FITTA slightly reduced the number of restricted sectors for foreign investment to nine sectors, all listed in the annex of the FITTA. For example, sectors excluded from foreign investment include primary agriculture, real estate, and tourism related services.
Franchising is not yet widespread in Nepal but there is potential for franchising ventures that cater to tourists, resident expatriates, and the local middle class. A few U.S. franchises have entered the Nepali market, mainly in Kathmandu and Pokhara, both of which are tourist centers with a large market base. For example, KFC and Pizza Hut operate franchises in Kathmandu (run by an Indian licensee) and Baskin-Robbins has several outlets in both Kathmandu and Pokhara. Under the Foreign Investment and Technology Transfer Act of 2019, the Department of Industry (under the Ministry of Industry, Commerce and Supplies) grants permission to establish franchises. Since trademarks and brand names registered in a foreign country do not automatically qualify for trademark protection in Nepal, trademarks and brands should first be registered in Nepal under the Patent, Design and Trademark Act of Nepal of 1965 to limit possible infringement. Trademark registration is done by the Department of Industry. Nepal restricts outward foreign direct investment and limits access to U.S. dollars, making payment of franchising fees difficult.
Direct marketing is usually not cost-effective in Nepal due to the small market size for U.S. products, poor road infrastructure, and generally unreliable postal service. Local firms are increasingly interested in the commercial potential of the Internet. Nepal has 96 Internet Service Providers (ISPs), and many local businesses, tourist agencies, and industries maintain home pages.
Foreign investment is allowed in most industries through the establishment of joint ventures or wholly foreign-owned enterprises. However, foreign investment is not permitted in defense-related industries, cottage industries, travel and trekking agencies, cigarettes, or alcohol.
Nepal officially encourages foreign investment and technology transfer under the FITTA. Investment in the form of equity shares, reinvestment of earnings from share capital, and loans is included in the definition of foreign investment. Under the FITTA, technology transfer is any transfer made by agreement between an industry and a foreign investor for the: (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/or (c) acquisition of any foreign technical consulting, management, or marketing service. While technology transfer arrangements are legally permissible, the Government of Nepal has not yet determined whether they must be registered.
International companies, including FedEx and DHL, offer express delivery services between international destinations and Nepal. In addition, dozens of local companies offer express delivery services within Nepal. Nepal’s inadequate road network and mountainous terrain can make “express delivery” to remote villages a challenging proposal. In addition, street addresses can be inconsistent or non-existent, making it even harder to find delivery destinations, even in Kathmandu. As a result, most delivery services (e.g., online shopping portals or food delivery services) rely on mobile phone communication to identify delivery addresses, which has become the norm and works quite well.
U.S. businesses should check the bona fides of a Nepali company before appointing it as a local agent/distributor and/or entering into a trade deal. Most Nepali business bona fides cannot be checked via traditional U.S. business channels. In early 2018, Embassy Kathmandu became a “Partner Post” of the U.S. Foreign Commercial Service (FCS) in New Delhi. FCS India is responsible for commercial issues in India, Nepal, Sri Lanka, and Bangladesh and for assisting U.S. companies looking to export their products and services to these markets. A number of business services/programs, some fee-based, are provided through Embassy Kathmandu’s Political/Economic Section under this Partner Post arrangement, such as commercial reports for U.S. businesses, including company profiles of potential local partners, and connecting U.S. businesses with local companies of interest that could include buyers, agents, distributors, sales representatives, and other strategic business partners. Requests for these services can be directed to U.S. Export Assistance Centers or to the Commercial Service New Delhi office at: firstname.lastname@example.org.
Local Nepali trade associations could also be alternate sources of information. The key ones of which are:
The Federation of Nepalese Chambers of Commerce and Industry
E-mail: email@example.com, fax: 977-1-4261022
Nepal Chamber of Commerce
E-mail: firstname.lastname@example.org, fax: 977-1-4229998
The Nepal-USA Chamber of Commerce and Industry
E-mail: nusacci@.ccsl.com.np, fax: 977-1-4478020