Nepalese business environment (A perceptual study of small and medium enterprises)

Abstract

Factors that affect the internal and external operations of a business directly or indirectlyare known as business environment.A business does not function in vacuum. Everybusiness is surrounded by various environments; economic, political-legal, socio-cultural,technological, and global environment. These factors affect the internal and externaloperations of the business. We are all aware of the important contribution made by the small and medium enterprise(SME) sector to the Nepalese economy. The sector constitutes more than 90 percent ofthe total industrial establishments, contributes about 80 percent in the industrialemployment generation by the industrial sector, and shares about 80 percent of theindustrial sector’s contribution to the national gross domestic product (GDP). Yet, theNepalese SME sector today is confronted with multiple barriers and challenges, whichhave been a concern to all. With Nepal’s accession to the World Trade Organization(WTO), the rules-based multilateral trading system, and the current political system andineffective law, the sector is likely to be in a more vulnerable situation. Though Nepal’smembership to the WTO is likely to bring opportunities in many areas, there may appearnew forms of challenges as well. This clearly necessitates that the Nepalese SMEs aregiven high priority,and adequately provided with proper safety nets so that they survivewithin the multilateral trading order. At the same time, high priority should also be givento make timely reforms in policies and working strategies in order to improve thecompetitiveness of the SME sector. The study begins with the introductions of the environment and SMEs in Nepal. Themain objective of the study is to analyze the current situation of the SMEs in Nepal andcomparing the environmental dimensions of manufacturing and non-manufacturing; andnew and old companies in Nepal. To fulfil the objectives, review of different papers,articles and studies were done. In addition to this a questionnaire was prepared and respondents’ views were collected. For the analysis of the data, hypotheses were set. T-test and ANOVA were done to test the hypothesis. The study is based on the survey conducted to identify the general environmental ofSMEs in Nepal. Fifty two Nepalese respondents were selected from the KathmanduValley. All respondents were collected from the SME sector. Result showed veryconsistent result with the theoretical assumption i.e. there is not appropriate environmentfor the SMEs to operate smoothly with reasonable return. Research identified five factorsnamely political-legal, socio-cultural, economic, technological, and global. Among thesefive, socio-cultural business environment was found the most affecting and globalenvironment has the less impact. But the entrepreneurs of export based companies arehighly affected by global environment than other environment. Similarly, manufacturingcompanies were more affected than the non-manufacturing companies by the currentbusiness environment. Further, there were no significant differences between theenvironments of new and old companies i.e. both type of companies were affectedequally by the environment. Among the various reasons, frequent strikes and lockouts,and the current energy crisis are the most important factors that have made difficult tosurvive for NepaleseSMEs in this competitive market. From the study it is also found that most of the SMEs are very small, based on traditionalskill and local raw materials. There is always market problem for Nepalese SMEs. On theother hand the competition is also very high from the foreign products. This studyconcludes that the SMEs in Nepal must be supported by the government by drafting newpolicies and making new strategies. Nepalese SMEs must focus on producing purelyNepalese products such as handicrafts because of low competition in this industry.Similarly, focus must be given to infrastructure development, training for the workforce,and use of new technologies to strengthen the condition of the SMEs in Nepal.