PESTLE analysis of Transport Service Industry in Nepal

Environmental Analysis of Public Transport Service Industry in Nepal

 

Tulsi Jung Basnet

Ace Institute of Management

 

Public Transport Service Industry in Nepal: An introduction

We all make use of the services provided by transportation companies. We probably have caught the bus in town or travelled on a school bus or made an intercity journey by Nepal Yatayat or Safa Tempo. Some of us have travelled on a super green energy-efficient Trolley bus. We know that, Nepal does not have a long history of transport service industry. Even though, with a population of 25 million, Nepal is a potential market for transport industry.

 

Public transport is popular as a cheap, easy and reliable access of transportation in the country. Sajha Yatayat was established as first public transport industry in Nepal. It was established on B.S.2018,Chaitra 3^rd as per the cooperative act B.S. 2016. On Shrawan 1, 2019, Sajha Yatayat started providing services with 6 buses and 14 employees. It was successful in its early days and created its brand image as good service provider. Besides the Sajha Yatayat, the trolley bus also provides the service as public transport in the Kathmandu valley. At present other private entrepreneur are attracted in public transport industry. Now popular public transport services in Nepal are Nepal Yatayat, Makalu Yatayat, Agni Yatayat etc.

 

External influences

Running a business would be simple if the chief executive only had to think about what went on inside the business. They could concentrate on internal decisions, such as determining routes, timetables and operating buses. However, a business planner has to understand what goes on outside the business. Businesses are able to identify external changes that may affect it by carrying out a PESTEL analysis. This is a business tool in which each of the letters in PESTEL describes a type of change that takes place in the external business environment.

 

Many of these external changes may be outside the control of the company, for example, new government legislation. Some changes may present a threat to the business, such as a Competitor using new or improved technology. Social changes may bring opportunities, for example, migrant workers bringing new skills to the service market. Environmental impacts, such as those caused by carbon dioxide (CO2) emissions or the management of waste, are of particular concern to businesses. A business must assess what external changes are likely and which it needs to react to or take advantage of. Business planners can then create strategies to help the business respond effectively.

 

An industry has to work within a changing environment and respond to many factors over which it may have no control. They are 'external' factors because they are problems arising from groups or forces outside of the industries' control. When assessing the main impact of external factors on any business or organization, it is helpful to group these together using the acronym PESTLE.

 

This stands for the four areas that represent the most common external influences. These are:

• Political and Legal factors – for example, new laws and regulations or decisions made by governments
• Economic factors – changes in the economy, people's spending power, patterns of wealth
• Socio-cultural factors – changes and trends in society, for example, the number of people aged over 60 in society
• Technological factors – changes in techniques or equipment that can lead to the development of new goods and services or new ways of doing things.

 

 

Economic Factors

 

The most significant of all external forces with which a business must contend is the economic environment of the country. The general economic conditions and trends are the most crucial to the economic viability and success of the business. The economic environment consists of factors that affect consumer purchasing power and spending patterns and it depends on income level, price, savings, and availability of credit. The purchasing power of Nepalese people is very low due to political instability, higher inflation rate and unemployment. The recent slowdown economy is principally led by contraction in manufacturing and tourism industry, and steep drop in exports.

 

Businesses need to make money to continue to exist. They do this by listening to customers to ensure they keep their customers and attract new ones with good services that customers want and need. It is extremely important for businesses to respond to changes in demand from customers. Market research showed that Nepalese passenger wanted cheaper and safer transportation services and public transportation fulfill the public demand.

 

Another economic factor affecting the transport service is increasing fuel price. High fuel price encourages passenger to switch from using private vehicle to more economical public transport.

Overcrowding in cities like Kathmandu also encourage people to switch to other forms of transport. For example, in major cities where parking is inconvenient, cheaper and wide available public transports are easy.

 

Political Factors

 

The country in the present day is in the transitional phase. The Constituent Assembly Polls being the major issue so various other matters are overlooked. The existing political instability as the constituent election has successfully completed is anticipated to be stabilize, which will certainly help the business environment to become favorable in the country. With so much of instability in Nepalese political sector, it is apparent that the rules and regulations are unstable as well. Hence, it is very important for any company to be extra cautious and adaptive to the changes in the policies regarding the laws and legislations.

 

To sum up, because of the unorganized political sectors it is pretty hard for business bodies to carry on the plans within the specified time frame. Thus, the unnecessary red tape and the bureaucratic systems of the government have been creating an intense problem for the service sector to grow. Nepal is facing increasing inflation day by day. The purchasing power of people hence, has become much less. People cannot afford to own private vehicle so there is a need of much cheaper mean of transportation to travel. Public transportation service therefore must identify and grab the market by establishing brand, service at a low cost, reliable and convenient method to travel and cater the needs of deprived Nepalese all over the country.

 

However beside private owned transport services, government protected public transport service is in loss due to excess political influence. These organizations have become a recruitment centre of political party. Due to over politicization the problem of over staffing, mismanagement and lack of leadership occurs which were the factors responsible for its loss. So these organizations instead of making a profit are running into irrecoverable losses.

 

Socio-cultural Factors

 

Socio-cultural environment is composed of various class, structure, beliefs, values, social institutions, accepted patterns of behavior, customs of people and their expectations. Hence, any industry must take into consideration the socio-cultural environment for developing its policy and strategy. Socio-cultural environment influences the demand and supply of goods and services.

 

Social trends are one of the key factors affecting a business. People's buying patterns and service utilizing pattern are determined by trends. Just as the demand for some popular clothes are determined by fashion, demand for mean of transport is determined by social trend and income level. Transportation means are always changing. The trend of leaving the country and staying abroad is arising for better lifestyle and to enhance their living condition. Lack of opportunity for youth, political instability, insurgency and educational purposes are major reasons for leaving the country. Due to this the income level of families has rise. Currently most medium class people are attracted towards car and motorbikes. But due to highly increased fuel price and shortage of fuel, people are shifting towards public transportation.

Society's habits and tastes are changing. People are being educated and are more aware of the importance of the environment and healths and are becoming 'green consumers'. Green consumers prefer goods and services that are environmentally-friendly' and which have less impact on the environment and is good for health. The green consumer, for example, prefers to travel by bus or cycle.

Technological Factors

 

Technological environment refers to all the technical surroundings that affect business. It includes skills, methods, systems and equipment. Technology consists of the forces that create new technologies creating innovative services and market opportunities. The most dramatic force shaping people's lives is technology.

 

Businesses are continually developing new technologies to provide the best solutions for the market place. Intelligent companies find out what the most appropriate technologies are for their businesses and use them. This is particularly true in transport.

A good example of change in technology is buses that lower the floor for easy entry. These provide better accessibility for disabled and elderly people. Technologically, Nepalese transportation industries are far behind the international transport industry.

Various types of sophisticated technologies are invented and implemented in international transportation Service. Services like path navigator, wireless communication in vehicle and other safety measures are already in use in international industry but in Nepal it is lagging behind. Crowded and the unsafe module of the procedure are till we considered. That makes the capacity below the actual level and makes difficult to compete with other. It ends up with a poor working condition for the employees.

Legal

 

Responsible businesses not only abide by the law, they seek to create standards above minimum requirements. Public transportation has to be aware of a number of legal factors. Legal changes that affect business are closely tied up with political ones. Many changes in the law stem from government policy. The Department of Transport Management (Dotm) government's transportation services governing body used to recommend the transportation fare. Many other laws are nation-wide, for example, the standards for bus transport emissions. Public transport must make sure that all its buses meet these requirements. It has to anticipate and prepare to meet future legal changes. From 2010 Nepal is entering in WTO, as part of an initiative called Carbon Reduction Commitment, public transport and other companies will need to buy carbon credits. These credits will permit companies to generate specific quantities of carbon emissions.

Conclusion

 

It is possible to see PESTEL factors as threats. However, public transport should see on them opportunities. Social trends are creating increasing numbers of passengers seeking comfortable easy-to access buses. Government pressure is encouraging more and more individuals to use public transport. Many people are seeking a 'greener' form of transport. A detailed PESTEL analysis helps public transport to make appropriate plans to rise to the challenges of a changing environment. So public transport should be able to move forward with confidence and grow its business.

Tulsi;

A very good report. Keep it up. 87/100

 

 

 

 

Do Nepal has inherent strength in attracting MNCs?

Tulsi Jung Basnet

 

Do you think Nepal has inherent strength in attracting MNCs? If yes, in which areas and why?

If no, explain ten critical reasons to justify your argument. Give relevant examples.

 

A company engaged in producing and selling goods or services in more than one country is termed as

multinational company. MNC can be define as a parent company that

1. Engages in foreign production through its affiliates located in several countries,

2. Exercises direct control over the policies of its affiliates,

3. Implements business strategies in production, marketing, finance and staffing that transcend

national boundaries.

The importance of multinational enterprises has been growing in the world economy. Many MNC's

are establishing in various countries. New MNCs do not establish randomly in foreign nations. It is

the result of conscious planning by corporate managers. Nepal has inherent strength to attract MNCs'

in few areas but in most places it lacks to attract MNCs'. The reasons are explained below:

1. Market Size:

The market seeker is the model of the modern Multinational Company's that goes overseas to

produce and sell in foreign markets. Nepal is very small market with population size about 25

million to attract MNC. If the market is very small than MNC don't have much incentive to

invest in Nepal.

2. Political instability:

Nepal is going through political instability since long time. It has over come from the long

arm conflict and still there is no stable government. MNC are attracted towards the countries

which have stable political condition and Nepal fails to fulfill this condition to attract MNCs.

3. Geographical Condition:

The multinational company integrates the factor of production from various nations. Nepal is

landlocked country so to import raw materials, plant and machinery and other related things

for production, it has to rely on third country sea way or harbor. This is another major

difficulty that MNC have to face establishing in Nepal. So the geographical condition is not

much favorable for MNCs.

4. MNC trend:

The prevailing and past MNC's experience is not so good which make impact on new comers.

The famous American Multinational Company Kodak had withdrawn its investment from

Nepal due to political instability. Few other MNC like Colgate Palmolive, Dabur Nepal are

operating in unfavorable condition.

5. Growth motive:

An MNC expand its company is influenced with growth motive. Since Nepal is very limited

market for MNCs, it doesn't see it future growth investing in Nepal.

6. Competitive disadvantage:

Since Nepal lies in between two big economies which have more competitive advantage to

attract MNC than Nepal, so MNCs are more attracted to those countries rather than Nepal.

And other conditions required for MNC like market, labor cost, raw material, political

condition are more favorable for MNC in India and China. So Nepal has competitive

disadvantage to attract MNC than those countries.

7. Basic Infrastructure:

Nepal fails to provide basic infrastructure for MNC to operate. We can take irregular power

supply as one factor. Power supply is one inevitable factor required to run factories.

8. Liberal policy:

Nepal has no favorable rules and regulation required to attract MNCs. Nepal did not comply

with hire and fire rule of employee and also labor union are very strong which are supported

by political parties. Both are very unattractive for MNCs.

9. High Transportation Costs:

Transportation costs are like tariffs in that they are barriers which raise consumer prices.

When transportation costs are high, multinational firm's product will goes higher. Since

Nepal has only one way of transport that is road transport which is not so reliable and

expensive. So high transportation cost increases the cost of MNC and reduces profit which

distracts MNC to invest in Nepal.

10. Lack of Skill manpower:

Most MNCs are highly technological and have high tech machinery to operate. To operate

such equipment MNC requires high skill manpower to operate and Nepal cannot fulfill their

requirement. So due to lack of skilled manpower MNC are not interested to invest in Nepal.

11. Market competition

Due to higher transportation cost, imported raw material and expensive factor cost of

production the cost of production of MNC goes high which cannot compete with the product

of Chinese and Indian product. So the market competition is another factor that MNC do not

want to invest in Nepal

12. Technology:

Most MNCs are highly technological and required high tech machinery to operate. To support

such technology Nepal has not sufficient technological base. So due to lack of supportive

technology MNC feel unfavorable to invest in Nepal.

13. Exchange Rate Fluctuations

Exchange rate has huge impact on cost of investment. Nepal has fixed exchange rate with

India and floating exchange rate with rest of the world. Excessive fluctuations of exchange

rate distract the MNC to invest in Nepal.

 

Tulsi;

A very good write up. All the best for your final exam. 88/100

SAFTA and SAPTA

What do you think are the major challenges for small nation like ours in implementing SAPTA and SAFTA?

South Asian Preferential Trading Arrangement (SAPTA) was establishment to promote and sustain mutual trade and the economic cooperation among the contracting SAARC countries, through exchanging concessions in accordance with the Agreement. The member countries found slow trade development in the SAPTA, so (South Asian Free Trade Area) SAFTA was introduced by which they can maximize cooperation for development.
The main objective of SAFTA was Eliminating Trade Barriers, Facilitating Cross-border Movement of Goods, Promoting Fair Competition and Free Trade Area, Creating Mechanisms for Joint Administration and Resolution of Disputes, Establishing Framework for Further Regional Cooperation.

Even though SAPTA and SAFTA was established for regional cooperation, but there are many hindrance through which small nations has to go through.

The major challenges for small nations like ours in implementing SAFTA and SAPTA are as follows:

• Unequal Competition:
  

Least develop countries like Nepal have to face increased competition from larger member countries like India, Pakistan and Sri Lanka. Smaller countries have lesser competitive advantage in price and quality of products because production cost, technology, raw materials etc are imported from third country. It will be tough to attain sustainable competitive advantage for least develops country.

• Rules of Origin
  

SAFTA contains the rules of origin which restricts the reduction of tariffs to only some products which are produced by their own country and so hinders the expansion of intra-regional trade. In smaller country like Nepal , rules of origin is not favorable because most of raw materials are brought from abroad and processed in Nepal. Rule of origin doesn't allow to trade of such finished goods. So, this kind of agreement is not considered as productive to the extent expected for least developed countries.

• Limited capital and technology:
  

Lack of capital and technology for processing and manufacturing seems as a major difficulty for least developed countries. Due to lack of sound economic condition in the least developed and smaller countries lack advance technologies to process the raw materials available.

• Lack of transport and communication:
  

The important area to promote economic development and regional trade are transport, communication and energy. And all these are poor in small countries like Nepal. Nepal being a land –locked country faces an average of 50% higher transaction costs than equivalent coastal economies which adds on to the cost of the product. Also, the freight costs are higher.

 

• India's Unique Position
  

India has emerged as the region's unquestioned economic leader. The SAARC regional decision is largely influenced by India. So what ever decision is made in SAFTA and SAPTA is not much favorable to least developed countries like Nepal. It is mostly decided on Indian interest. Even if the decisions are made favorable it is not implemented properly and effectively

• Transit problems
  

Transit is another challenge that needs to be taken care of for least developed country like Nepal. There are several transit problems for Nepal and Bhutan. Due to being Landlocked country Nepal suffers from geographical disadvantage. The challenge is to remove these transits in order to flourish free trade.

• Entry problems
  

SAARC countries should simplify the formalities of entry problems at the borders which make the free trade concept more difficult for least developed countries like Nepal.

• Informal trade in the borders
  

Informal trade in the borders of the countries has been increasing. This has adversely affected the formal flow of trade between the countries. So there should be a governing body to monitor these flaws and make policies to control them because such cases can dilute the vision and mission of SAFTA. The effect of this kind of trade has greater impact on least develop countries.

• Not liberal
  

SAFTA had stood as a challenge for countries like Nepal as the bigger countries in the region are not as liberal as they should be. Referring to the blockage imposed by India on the export Nepali vegetable ghee into the Indian market. The heavy dependency on larger country like India for trade could be a hindrance to reap benefits from SAFTA for country like Nepal

• Weaker trade links
  

SAARC countries import products from non member countries though the product is sufficiently produced in the region. This indicates weaker trade links. The huge challenge is to maintain the link and strengthen it through various policies and actions.

• Lack of resources
  

Though least developed countries like Nepal have undergone major structural reforms and share of industrial sector has increased sharply, the industry is not lush with resources. They have to import requirements from the region which mainly consist of raw materials, capital goods and high-tech products from other larger countries like India. Least developed countries have insufficient and unreliable power supply, limited access to financing, inflexible labor market due to rigid labor laws and regulations, poorly defined property rights, inefficiencies at customs, and limited inland transport capacity.

In conclusion, SAFTA includes improving and strengthening the network of road and highways, railways and air and shipping agreements, harmonization of custom regulations, quality standards, easy visa regulations, dispute settlement mechanism, etc. SAFTA makes substantial provisions on simplification of banking facilities for import financing, transit facilities for the landlocked countries, removal of barriers to intra-SAARC investments, macroeconomic consultation, rules for fair competition and promotion of venture capital, development of communication systems and transportation infrastructure, easing foreign exchange controls on repatriation of profits, and simplification of procedures for business visa etc that may remove existing impediments to further expansion of intra regional trade. SAFTA protect a lot to the small nations to enhance their economic performances. But, there are many problems which affect the least developed countries which are unequal competition, rules of origin, limited capital and technology, India's unique position, transit problems, entry problems, informal trade in the borders, not liberal, weaker trade links and lack of resources.

 

 

 

 

 

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