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International Business
Ace Institute of Management, Pokhara University

Term Paper

“Dabur Nepal Pvt. Ltd”

Submitted by:
 Krishma Khatiwada
 Nagina Shrestha
 Shusan Chaudhary
 Sushant Aryal Submitted to:
MBA-Trimester IV Mr. Pradeep Raj Pandey
Section: B Instructor: International Business
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Table of Contents

Abbreviations...................................................................................................................................3

Background......................................................................................................................................4

Current performance of the company..............................................................................................6

Foreign partnership- Advantage and Disadvantage.........................................................................7

Government policy or regulatory issues..........................................................................................8

Constraints in Foreign Investment in Nepal....................................................................................9

Suggested measures.......................................................................................................................10

Future prospects and conclusions..................................................................................................13

References......................................................................................................................................15
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Abbreviations

DNPL Dabur Nepal Private Ltd.

FDI Foreign Direct Investment

NRB Nepal Rastra Bank

HACCP Hazard Analysis and Critical Control Point

FMCG Fast Moving Consumer Goods

IBN Investment Board Nepal

ICIMOD International Centre for Integrated Mountain Development

TDS Tax Deducted at Source

FITTA Foreign Investment and Technology Act

LIBOR London Interbank Offered Rate

Background
Foreign Direct Investment (FDI) is a prerequisite for a growing economy like Nepal. Realizing
his notion, Nepal opted for liberal investment policy to attract FDI in the early 1990s (NRB,
Economic Research Report, 2021). Leaping and crawling into making appropriate changes in its
laws, regulations and operating bodies, Government of Nepal has now established a one-window
system at the highest level under Nepal Investment Board to facilitate potential investors at each
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step that might encounter during FDI influxes. Adding to this, other government institutions like
Nepal Rastra Bank-(NRB) and even parliamentary bodies Notwithstanding, Nepal still lacks
substantial FDI investment in the country. In recent years, Nepal's ambition of attracting more
FDI was deterred due to COVID-19 pandemic with a decline of around 35 percent in 2020
(NRB, Economic Research Report, 2021). This decline is presumed to be more severe than the
Global Financial Crisis of 2009.

Talking of recent reforms related to FDI investment in the country, the Government of Nepal has
initiated a number of institutional and legal reforms to attract FDI which will be vital to
complement the resource gap that exists in our country's capital formation. New ordinances and
acts were coined and put into implementation. Nepal Rastra Bank, Economic Research
Department annual paper tabulates such acts which were coined to increase the FDI in the
country. One among these is the Foreign Investment Policy, 2015. It largely facilitates potential
investors into investing without any inter-governmental hindrances and hassles. Like it, there is
Foreign Investment and Transfer of Technology Act, 2019- Public-Private Partnership and
Investment Act, 2019 and Industrial Enterprises Act, 2020 which came into existence to aid FDI
investors in the country. Implementation part can be subjected to discussion, however, still these
are positive interventions from the government and suggest that the Government of Nepal is
eying on to welcome FDI in different sectors of the economy.  

Besides the above acts, the Government has positively intervened in the scenario with major
institutional reforms like establishment of one stop service center to facilitate foreign investment
and Nepal Rastra Bank Foreign Investment and Foreign Loan Management by-law, 2021 (NRB,
Economic Research Report, 2021).

Despite all policy reformations and institutional interventions from the government, influx of
FDI in the country seems modicum and dispiriting. Primarily, this is due to issues like turbid
inter-governmental systems and national neglect in a large sense. Adding to this, restrictive FDI
regime, high import tariffs, exit barriers for firms, stringent labor laws, poor quality
infrastructure, centralized decision-making processes, and lack of export processing zones and
Export Trading House make Nepal an unattractive investment location (nkcs.org, 2021). These
issues and their instances are alike for most FDI investors which can be better illustrated taking
one FDI as a reference. Dabur Nepal Private Limited.
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Dabur Nepal Private Limited, FDI manufacturing industry which was established through FDI
investment in 1989 and started commercial production in 1992 A.D. It has started its operation
with 10 crores of FDI investment in the manufacturing setup. Dabur has a long history whose
foundation was laid by the late S. K. Burman in 1884 A.D. It has been a pioneer in
manufacturing Ayurveda and natural health care companies in the global arena.

Dabur Nepal is a well-known name for Nepalese and Indian consumers. It has redefined the
ayurvedic market in the global arena and its commodities are exported to India and other
countries and has been a significant contributor to the national economy. It has been involved in
manufacturing of commodities related to health care, personal care, food products, home care
and other segments of consumer health products. Currently, Dabur Nepal employs over 1000
people and over 30,000 are indirectly associated with Dabur Nepal for sustenance and a living.
Dabur Nepal has been felicitated with a number of awards like Best Exporter Award of Export
Promotion Board in 2000 and other certifications like Certificate of Hazard Analysis and Critical
Control Point (HACCP).

However, amid all these positive influences Dabur Nepal has brought about in the country, it has
been facing numerous challenges and obstacles which reflects hindrances and deterrents every
FDI investor ought to face in the country. Labor issues, stringent policies from government
institutions to thwart business growth, unfavorable circumstances for business expansion, acute
shortage of electricity and obstacles from other independent institutions like media are some
primary reasons which are constraining the smooth operation of Dabur Nepal.

Instances of the deterrence are evident in different newspaper articles and bulletins at different
times. One example of this is the malicious campaigns by Nepalese media houses in 2013 A.D.
Though the actual reasons are still covert, it was presumably the dispute of financing and
advertising in different Medias which caused this campaign (Business Standard, 2013).
Government was largely unable to cater proper attention to the situation, a result of which Dabur
Nepal's lost its brand value and social image which it garnered through persistent effort over
years. Another instance is a month or long labor strike in 2008 which was largely fueled by
political sister concerns existing in the manufacturing labor market. Company shut down its
production unit after the Maoist-affiliated workers locked up its main factory at Birgunj in Parsa
district. It jeopardized the whole production system for a year or so which caused the halt of FDI
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earlier decided by the promoters in India. These are few instances which are in fact a
representative image of issues that FDI investors face often in the country. Failure to address
such an image badly tarnishes the image of the country making investors more suspicious of
their investment.

Current performance of the company

India is Nepal's greatest supplier of FDI in terms of sanctioned amounts. Most notably, India is
responsible for about half of Nepal's total foreign direct investment. Dabur Nepal is one of
Nepal's biggest joint ventures with India. Dabur Nepal accounts for 5.34 percent of Nepal's
export commerce. Dabur International Limited owns 97.5 percent of Dabur Nepal, while a
Nepali partner owns 2.5 percent. Dabur, which first arrived in Nepal in 2047, has been
manufacturing and exporting items to India, including juice. DNPL has received multiple honors
in the past for its export business and volume, including top taxpayers in the export business,
commercially important individuals, and so on, from various government authorities.

Due to the impact of Covid-19 on the company's activities, which were considerably interrupted
due to the government's lockdown, DNPL's gross income from product sales decreased by 22%
to approximately a quarter of sales in 2020. The company's net sales have decreased in tandem
with its gross sales. Profit Before Interest, Lease Rentals, Depreciation, and Taxation were all cut
by 35% as a result of the decrease in income. It mostly affected juices since consumers were
fearful of drinking cold liquids as a result of Covid-19, but subsequent health supplement items
compensated for some of the company's losses. DNPL's business is focused on the food industry,
which has contributed roughly 70% of the company's revenue throughout the years.

Although the firm sells additional FMCG items such as personal care, health care, and
digestives, their proportion to overall sales is small. Because juice consumption had declined
during the peak Covid-19 era and demand for Consumer Care Development items had soared,
the food category contributed 60% of total income in 20220. Furthermore, DNPL's income is
focused on a single customer, DIL. DIL imports DNPL's goods, which are primarily juices and
digestives. Export sales to DIL accounted for 58.86 percent of DNPL's gross sales revenue in
fiscal year20, accounting for 99.51 percent of the company's total export sales.
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Dabur has prioritized expanding manufacturing capacity for commodities with greater export
potential. Real Juice, Dabur Chyawanprash, Dabur Red Toothpaste, Dabur Hajmola, Dabur
Amla Hair Oil, Dabur Honey, Dabur Glucose D, Gulabari, Fem, Prostyle, Odonil, and hand wash
are some of Dabur's most popular products.

The Fast-Moving Consumer Goods (FMCG) giant has requested to invest an extra Rs 9.68
billion in its manufacturing facility for product diversification and capacity expansion, according
to a statement released by the Investment Board Nepal (IBN). The investment amount has been
authorized by Nepal's investment board, which is led by Prime Minister Sher Bahadur Deuba.
The firm has been aiming to increase capacity in the manufacture of a range of fruit juices as
well as other consumer goods including Dabur Honey and Dabur Hair Oil.

Foreign partnership- Advantage and Disadvantage

The partnership with foreign investors is going smoothly according to the rules and regulations
set by the government and foreign act. As FDI is majorly for the return of investment they can
take a dividend by paying 5% TDS. But, Dabur Nepal is reinvesting the profit to production and
in the exporting sector to grow the business more which would help to create employment
opportunities and increase exports as Nepal has a lot of trade deficit. This way it would be
beneficial for the country so the government approved this procedure of reinvesting the profit
instead of distributing it. It has been happening for almost 15 years in Dabur Nepal.

Dabur Nepal partnership with another organization had also gone well which was established in
2013 with ICIMOD. The cooperation built herbal garden at the ICIMOD Knowledge Park in
Godavari, with Dabur Nepal covering the initial expenditures and providing technical help also.
Dabur Nepal produces ‘Ayurvedic’ goods and has supported farmer lives in Nepal by
encouraging the production of endangered plant species via 50 cooperatives. The 30-hectare
Knowledge Park at ICIMOD will serve as a showcase for medicinal and aromatic plants'
significant role in livelihood and biodiversity. The relationship was expected to result in
information exchange and livelihood advantages related to the use of herbal medicine and
aromatic plants in sustainable landscape management.

Government policy or regulatory issues

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The Foreign Investment and Technology Act (FITTA) of 2019 regulates foreign direct
investments in Nepal, as well as other requirements from the Public Private Partnership and
Investment Act, the Labor Act, and the Companies Act. The FITTA acronym was originally used
in 1992 and was updated in 2019. The minimum criterion for foreign investment in Nepal under
the FITTA is NPR 50 million. If approval from the Nepal Rastra Bank (NRB) and a proposal
from the competent ministry are received, the FITTA 2019 allows enterprises with foreign
investment to borrow from foreign banks and financial organizations. The Act also clarifies
current provisions on dividend repatriation, profits, earnings, and proceeds, all of which are
subject to regulatory clearance. According to a 2021 modification to the FITTA, foreign
investors in Nepal must bring 70% of their intended investment before operations begin, and
another 30% during the next two years.

The Public Private Partnership and Investment Act requires the Department of Industry to
approve projects up to NPR 6 billion, while the Investment Board of Nepal must approve
investments over NPR 6 billion. Foreign direct investments are also covered under this act in the
fiscal year 2019/20, the implementation of FITTA increased permitted FDI by 51.3 percent and
net FDI inflow by 49.2 percent compared to the previous fiscal year. Despite the fact that
permitted FDI was 32.2 percent lower in 2019/20 than in 2017/18, FDI inflow increased by 11.3
percent during the same time. As previously stated, the 2021 revision of FITTA may close the
gap between permitted and actual FDI inflow in the country.

Constraints in Foreign Investment in Nepal

o Lengthy approval process: Foreign direct investment requires approval from several
authorities, making the procedure expensive and time consuming. The updated FITTA's
Single Window System has not yet been fully implemented. Foreign corporations can be
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registered electronically using the Office of the Company Registrar's website, however
physical copies of documents are frequently requested.
o Limits on Foreign Borrowings- The interest rates that foreign lenders can charge to all
sectors are limited to LIBOR + 5.5 percent. It's possible that this doesn't fully reflect the
hazards involved with specific industries. Furthermore, if there are outstanding debts to
international banks, the NRB will not enable settlement of foreign borrowings. This could
make foreign lenders wary of funding to Nepal since they see it as a high-risk investment.
Due to the interest rate cap, foreign lenders are unable to raise interest rates to compensate
for such risks. As a result, Nepal may not accept debt-based international investment.
o Sub-par copyright laws- The Nepalese Copyright Act does not fulfill international
intellectual property rights requirements. Brand names and trademarks of well-known brands
are routinely infringed upon by changing the letters but keeping the color scheme or emblem
the same. Several claims of trademark infringement by multinational corporations (MNCs)
have been filed, although enforcement proceedings are rare. Patents granted by other
countries are not recognized in Nepal. New MNCs are hesitant to enter Nepal due to a lack of
enforcement of copyright laws and protection of intellectual property rights.
o Repatriation of profits- Repatriation requires permission from a number of institutions,
including the Nepal Rastra Bank, as well as relevant government offices and, in some
situations, the department of industry. Clearance from the Nepal Telecommunications
Authority is necessary for telecommunications investments, while approval from the
Ministry of Finance is required for joint venture investments.

Some issues-

Pulp, concentrates, and sugar are the company's primary basic ingredients for juice
manufacturing. Concentrate and pulp prices are very unpredictable and are dependent on crop
supply, creating a seasonality concern. DNPL is strategically acquiring raw materials based on
crop availability to protect against inflationary pricing, however owing to the perishable nature
of raw materials, stocking time is relatively short. Furthermore, the Government of Nepal has
increased the import duty on sugar from 30% to 40% to support domestic sugar production, as
well as imposed a ban on sugar imports from October 2018 to July 2019, which has impacted
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raw material costs, forcing DNPL to source its sugar locally at higher prices. The capacity of the
corporation to pass on changes in raw material prices to finished goods without affecting the
company's profitability will be the most important consideration. In order to safeguard the
public's health, the Government of Nepal has created and implemented many legislation and
standards relating to food safety in Nepal. Changes in policy, such as the GoN's prohibition on
sugar imports, have a direct influence on the company's profitability.

Across all segments of the FMCG industry, there are organized and unorganized companies.
DNPL competes in a fragmented sector, since it must compete with both domestic and
international firms who manufacture identical items and sell them domestically. Similarly,
DNPL's key rivals in most of its divisions are dealers active in the import/trade of numerous
worldwide brands.

Suggested measures

 In the current scenario of ‘International Business’, foreign investment is unavoidable. FDI is an
attractive one for bringing foreign investment in Nepal as it is critical to the advancement of
modern economic relations. This is a globalization phenomenon that contributes to closing the
investment gap and boosting the economy significantly. It uplifts the living standards of the
people by providing various employment opportunities as well. So, in order to attract large
investment, Dabur Nepal must also adopt pragmatic policies and conduct other required changes
for its foreseeable future sustainability.

As FDI is favorably connected with a country's economic progress, it improves the efficiency of
financial development and promotes business growth. It also contributes by making available
much needed capital, expertise and new technologies which make international business systems
more competitive. This places a premium on risk sharing, diversification as well as mitigates the
effect of domestic shocks. This can be maintained with the favorable country's economic policy
such that it not only would have to focus on recruiting FDI but also to enhance investment in the
economy. On the other hand, it will also be necessary to maintain external stability. 

Despite the fact that foreign investment has always been a top priority for DNPL (i.e. merely
mentioned in this paper), there are a variety of causes behind this. This could be either with
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delays due to not having any industrial ministry in Nepal or it could be simply due to not having
efficient workforces in the company itself. Though DNPL has already been in the height of
success, these can be a serious threat for a company in upcoming sustainability issues. These
issues must be resolved in a timely manner.

Some suggesting measures for mitigation and improvement of these issues are pointed out as
follows:

1. As of now, we have a more import based economy which is not favorable one. So, if the
export based economy is enhanced, it aids in improving the efficiency of financial
development and promoting business growth more conveniently. For that, the government
should encourage export by providing subsidies and export incentives like cash subsidies
ranging from 3 to 5 percent of the value of export transactions for a select group of products.

2. Here, we have a less favorable investment climate due to various political instability caused
by political parties’ disputes. So, if a unanimous and favorable environment is developed for
FDI, a proper investment will be made. This allows for more FDI and leads to more
production within a country itself which uplifts the local and agro-based manufacturing. 

3. The policy specifies Celebrate Life! But the reality might be different in practice. In
practice, there may be issues of hygiene of consumers. The essential necessity is to
concentrate on the hygiene factor of every consumer as far as possible.

4. Most of the supplies required for production like sugar is imported from a third country due
to which the price of the products become dynamic and sometimes trade barriers are created
by the government, which halts the company's production. So, in-order to mitigate this issue
DNPL should encourage local farmers to supply locally available raw materials. In addition
to this, replacing imports and manufacturing in their own country is the best solution for
DNPL.

5. Similarly, the government has to play a crucial role in assuring foreign investors about the
safety and quick decision of investment being made here in Nepal. Our government can
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encourage investors to provide debt or make investment in the global context as most of the
deals won’t be accomplished because of safety of investment to be made.

6. Furthermore, with the COVID-19 situation, there will be a significant influence on all sorts
of foreign investments. We cannot wisely predict the future of this sector but the powerful
forces that influence the future can be closely monitored in-order to put strategies forward for
effective foreign investment in the business of Nepal.
7. As major focus product of DNPL is food segment as it provide almost 60% revenue but
depending upon one segment is not appropriate as in Covid the sales of food segment went
down and other segments like personal care, health care, digestive etc. didn't perform well
due to not focusing as much as food segments. So DNPL should promote other products as
well in order to get maximum revenue from their products which might mitigate risk in an
uncertain environment like covid-19.

8. DNPL is operating in a fragmented environment as there are many domestic and

international companies selling the same type of products which is a real threat for them. So,
to maintain the same market demand, DNPL can upgrade their products as per consumer
taste through frequent research and development.

Future prospects and conclusions

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After the establishment of one-window service with the goal of providing effective and timely
services such as approvals, registration, and other administrative services to investors.
Registration, foreign currency exchange, visa facilitation, environment, infrastructure, land
administration, customs and taxes, and administration and law are the eight units that make up
the one-stop service center. At a time when procedural barriers have been highlighted as one of
the primary roadblocks to investment and company growth, the successful operation of the one-
stop service center will encourage investors to invest in Nepal due to which the investing
environment of Nepal is becoming quite favorable as before. 

DNPL is the succeeding business across the nation and it has been the choice of preference for
people over 30 years with various offered products. Certain improvements have been provided
by the government for an ease in foreign investment but still more comfort is required for DNPL
to go across the entire globe. As they have also got the approval of a new investment of 9.68
billion by the approval of ‘Prime Minister- Sher Bahadur Deuba’, they will expand their
production of beverages including fruit juice and this allows them to export more and grow.  So,
the future prospects of the company could be feasible and they could receive more FDI as they
have currently received. On the other hand, DNPL has maintained a good brand image and is one
of the highest tax paying company and supporting the economy of the country. Due to this, the
government provides incentives to increase the exports for the company which aids to minimize
the country’s trade deficit.

Issue of Dabur Nepal is a representative picture of what the actual scenario of Foreign Direct
Investment (FDI) is for potential investors. Though government is trying hard to attract investors
through more flexible and friendly policies, still things are lacking and feel wanting for investors.
This is primarily due to poor handling of these investors by inter-governmental agencies,
different social and labor issues, lack of quality energy and others. These issues should be
catered wisely by the government to influence positively and attract FDI in the country.

In a nutshell, FDI allows transfer of technology, innovation, promotion of exports through

establishment of new industries and so on. New types of capital inputs are not often available
only through financial investments or trade of products. This can be done through FDI only. FDI,
also, contributes to reduction in investment gap by boosting economy through different channels.
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As a result, FDI is beneficial to country’s economic development through influx of new

technologies, innovations, employment opportunities and many others.
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References

My Republica, 2022. Dabur Nepal investment.

<https://myrepublica.nagariknetwork.com/news/dabur-nepal-investing-rs-9-68-billion-to-
expand-its-production-plant-in-nepal-1/>

Business Standard, 2013. Media attack on Dabur to impact investment in Nepal: Ficci.
<https://www.business-standard.com/article/companies/media-attack-on-dabur-to-impact-
investment-in-nepal-ficci-110091000193_1.html>

Panday, B., 2009. MANAGEMENT AND PLANNING OF REVENUE OF DABUR NEPAL

PVT. LTD.

Care Ratings Nepal, 2021. Rating Rationale Dabur Nepal Private Limited. pp.1-4.

Shrestha, s., 2022. Overview of Foreign Direct Investment in Nepal. Nepal Economic
Forum<https://nepaleconomicforum.org/overview-of-foreign-direct-investment-in-nepal/>

Law commission, 2019. The Foreign Investment and Technology Transfer Act.
www.lawcommission.gov.np.
Pyakurel, B., 2018. Foreign Direct Investment in Nepal. NUTA Journal, 5(1-2), pp.48-55.

Adhikari, R., 2013. Indian Foreign Direct Investment in Agro processing Industry in Nepal A
Case Study of Dabur Nepal Pvt. Ltd. UNCTAD,