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Saturday, January 29, 2011

ACase Study of NGO types of Handicraft Shop in Nepal: Mahaguthi Shops

Mission Statement
Providing high quality  product development and design assistance to craft producers, offering effective and efficient  retail outlet linking producers and markets, and to contribute for the development of Nepalese handicraft production as an income generating activity for poor and disadvantaged groups within Nepal by supporting program of rehabilitation for destitute women and children.

Mahaguthi Shops formed in 1994 under Nepal Chakra Pracharak Gandhi Smarak  Mahaguthi (NCPGSM) umbrella. It offers Nepalese handicraft retailer, wholesaler, exporter and social service agency than as a profit-seeking, competitive retailer. As social service it provides food, shelter, health facilities, literacy courses, vocational training and sewing and weaving to poor women, schooling for children. Its contribution of Profit 76% profit in purchasing the material woven by the women trainees of Tulsi Mehar Ashram and 25% profit distributed as producer incentives or retained by the shop. Shop had gross profit margin of 23% in the first year and sales of NRS. 2.8 million. Mahaguthi shops offer Hand woven fabrics, block printed material, cushion covers and simple clothing and goods manufactured are primarily for  export. Although the mahaguthi exports had grown, total sales growth had slowed for the past three years. Raw materials come from India and purchased on the open markets. Presence of inconsistency and unreliability among producers is one of the biggest problem, where most of the producers were uneducated, subsistence farmer first and handicrafts producer second. Beside that there are  two types of competitors in market .
– Dhukuti & Hastakala 
– Commercial retailer

SWOT analysis of Mahaguthi Shops

• Increasing numbers of order from overseas.
• Potential sources of employment.
• Provides financial support so that the producer received appropriate entrepreneurial and business start-up training.
• Well –developed network of suppliers and those were charitable and commercial, rural and urban men and women.
• Mahaguthi is created as a social service agency who support destitute women and disadvantages villagers of Nepal so the customer who shopped at Mahaguthi were willing to pay more for social benefit.

• Lack of knowledge about international requirements and market.
• Lack of marketing or promotion plan of products to reach export markets.
• Unaware about production capabilities because producer groups tried to fill orders that were too large for their production capabilities.
• Lack of support from government bodies.
• Lack of skilled labor force.
• Lack of proper arrangement of training program to the unskilled labor force.
• Lack of infrastructure and communication facilities.
• Lack of understanding and awareness of quality issues.

• Increasing attraction of primary tourist and expatriates living in Nepal towards Nepalese handicraft.
• E-Commerce and Internet are emerged as promissory distribution channels to market and sell the craft products.
• Time to time availability of grants to implement producer programs.
• Rising demand for handicraft products in foreign countries.

• Unreliable raw materials suppliers and producers.
• Market supply was dependent with good trade relations with India.
• Inconsistency and unreliability among producers.
• Quality products produced by  competitors with low price than Mahaguthi .

Strategy recommendation to revitalize Mahaguthi Shops
I would have recommended following strategies plan and functional plans and policies to Surendra to revitalize the mahaguthi shops.
Design strategy:

Design is a very crucial aspect. Mahaguthi shops should hire a full time permanent designer . Designer should get an attractive salary plus various other incentives .

Marketing strategy
• Marketing mix:
• Product: Handicrafts products including wood carvings, silver jewelry, traditional wood dolls and puzzles handmade Nepali paper, wool knit sweaters etc
• Price: Price on par with the products of “Hastakala” and “Dhukuti
• Place: Retail outlets in Thamel, Durbarmarg etc where the arrival of tourists is maximum.
• Promotion strategies: advertisements in Nepal traveler magazine, the mirror. Also, emphasis should be given on personal selling.
• Mahaguthi shops must have their own websites and online business must be encouraged.

HRM strategy:
• Proper training of the sales people on how to deal with customers plus “effective communication”
• Sales people --- motivation by giving incentives on the basis of sales performance.
• Sales people must trained, how to do sales through Internet and Websites.
Strategic plan and functional plans and policie

Thursday, January 27, 2011

Ways people deal with conflict

In every situation we are responsible for our actions. Conflict situations offer each of us an opportunity to choose a style for responding to the conflict. The key to effective conflict prevention and management is to choose the conflict management style appropriate for the conflict. Most of us have a favorite style that we use in conflict situations, but we are all capable of choosing a different style when it is appropriate.

1. Avoid it. Pretend it is not worth there or ignore it.
a. Use it when it simply is not worth the effort to argue. Usually this    approach tends to worsen the conflict over time.
E.g., a. If two subordinates are arguing for some unnecessary matters (culture, religion), which is not import subject for the running office system. One can avoid it.
People who chose the avoiding style do not get involved in a conflict. A person choosing the avoiding style might say "you decide and leave me out of it."
A turtle is a symbol for the avoiding style because it can avoid everything by pulling its head and legs into its shell to get away from everyone.

2. Accommodate it. Give in to others, sometimes to the extent that you compromise yourself.
a. Use this approach very sparingly and infrequently, for example, in situations, when you know that you will have another more useful approach in the very near future. Usually this approach tends to worsen the conflict over time, and causes conflict within you.
Eg. Some time when your boss comments something serious about your job, you just listen to him and do not reply, although you may not like it. He is boss, so you comprise yourself to some extent.
People who choose an accommodating style put their interests last and let others have what they want. Many times these people believe that keeping a good friendship is more important than anything else.
A chameleon is a symbol of the accommodating style because it changes its color to match the color of its environment. By changing its color to accommodate its surroundings, the chameleon fits quietly into its environment.

3. Competing. Work to get your way, rather than clarifying and addressing the issue. Competitors love accommodators.
a. Use when you have a very strong conviction about your position.
Mostly very ambitious students or leadership quality people or very bully nature people have competing nature. Some time selfish people also have competing style of working.
Choosing a competitive style means that a person is putting his/her interest before anyone else's interests. In fact, sometimes people who use the competitive style try so hard to get what they want that they ruin friendships.
A lion can be a symbol of a competitive style. The lion's roar helps the lion to satisfy its interests. For example, if the lion's family is hungry and needs food, the lion may use its strength and loud roar to get the food because it is important for the family.

4. Compromising. Mutual give and take
A. use when the goal is to get past the issue and move on.
Eg. Mostly business men do the compromising deals. Besides business man state dealings are also mostly compromise in conflict situation. Like Kashmir line control issue between Pakistan and India is compromise deal. Peace deal of Nepal is also compromising deal between seven national parties.
People choose a compromising style when it is important for them to satisfy some of their interests, but not all of them. People who compromise are likely to say "let's split the difference" or "something is better than nothing."
A zebra can be a symbol for the compromising style. A zebra's unique look seems to indicate that it didn't care if it was a black horse or a white horse, so it "split the difference" and chose black and white stripes.

5. Collaborating. Focus on working together.
a. Use when the goal is to meet as many current needs as possible by using mutual resources. This approach sometimes raises new mutual needs.
b. Use when the goal is to cultivate ownership and commitment.
E.g., Nepal has lot water resources but not mush fund and know how to produce the electricity, but India need lots of electrical power and has lots fund and know how too. But do not have water resources like Nepal. So Nepal and India can do collaboration in this power cut situation. Mostly the political problem of Nepal and India is also due utilization of water resources.
            Choosing a cooperative problem-solving style enables people to work together so everyone can win. Using this style, people try to find a solution that will help everyone meet their interests and help everyone maintain a good relationship.
A dolphin usually chooses a cooperative problem-solving style. Dolphins use whistles and clicks to communicate with each other to catch food cooperatively and to summons help. For example, when a dolphin is sick or injured, other dolphins will help it to the surface so it can breathe.

Wednesday, January 26, 2011

Types of Leadership Style

The impact of gender on leadership style should emerge especially clearly on measures of style that reflect the agentic norms associated with the male gender role and the communal norms associated with the female gender role. Using such an approach, the classic work on leadership Defined styles that are primarily agentic or primarily communal. Most common was a distinction between two approaches to leadership: task oriented style, defined as a concern with accomplishing assigned tasks by organizing task-relevant activities, and interpersonally oriented style, defined as a concern with maintaining interpersonal relationships by tending to others’ morale and welfare. This distinction was introduced in1950 and developed further in the Ohio State studies on leadership. In this research, task-oriented style, labeled initiation of structure, included behavior such as encouraging subordinates to follow rules and procedures, maintaining high standards for Leadership Styles of Women and Men performance, and making leader and subordinate roles explicit. Interpersonally oriented style, labeled consideration, included behavior such as helping and doing favors for subordinates, looking out for their welfare, explaining procedures, and being friendly and available.

In summary, to the extent that gender roles spill over to influence leadership behavior in organizational settings, the behavior of female leaders, compared with that of male leaders, may be more interpersonally oriented, democratic, and transformational. In contrast, the behavior of Male leaders, compared with that of female leaders, may be more task-oriented and autocratic. In addition, the greater incongruence of the female than male gender role with typical leader roles Leadership Styles of Women and Men May make it more difficult for women than men to manifest the more agentic leadership styles. However, because of the constraining impact of leadership roles, any differences between women and men who occupy the same role are unlikely to be large in size.
Task-Oriented, Interpersonally Oriented, Democratic, and Autocratic Styles

Studies that compared men and women on task and interpersonal styles and democratic and autocratic styles. In this meta-analysis the comparison between male and female behavior for each relevant study was represented in terms of its effect size (or d), which expresses the sex difference in units of the study's standard deviation. With each finding represented by an effect size, multiple studies were collectively represented by the average of their effect sizes.

Although the findings on task and interpersonal styles thus provided some support for the social role principle that the constraints of leadership roles cause sex differences to decrease in magnitude, the absence of this pattern on measures of democratic versus autocratic style Invites interpretation. To the extent that female managers favor more democratic and participative styles than male managers, this tendency may reflect the attitudinal bias against female leaders that arises from the incongruity of the female gender role and many leader roles. The resulting lack of legitimacy for female leaders can make the clear-cut exercise of power and dominance difficult for women because they encounter resistance to their Authority. Women may thus encounter negative reactions when they take charge in the especially authoritative manner of autocratic and directive leaders. This interpretation is also in line with meta-analysis of studies examining evaluations of male and female leaders whose behavior had been experimentally equated. Their findings showed that participants evaluated autocratic behavior by female leaders more negatively than they evaluated the equivalent behavior by male leaders. Because men are not so constrained by others’ attitudinal biases, they are freer to lead in a more autocratic and non-participative manner, should they so desire. Furthermore, as research on motivation to manage suggests, Men are somewhat more interested than women in taking charge in a clear-cut manner in hierarchic relationships.

Placating subordinates so that they accept a woman's leadership may to some extent require that she allow them some degree of control over these decisions. This sort of collaborative Leadership Styles of Women and Men decision-making no doubt introduces interpersonal complexity not encountered by leaders who proceed in a more directive manner. Because women's communal repertoire encompasses social skills, it may be easier for women than men to behave in this participative Manner. Moreover, to the extent that female leaders have internalized gender-stereotypic reservations about their capability for leadership, they may gain confidence by making collaborative decisions that they can determine are in line with their associates' expectations. Thus, proceeding in a participative mode may enable many female leaders to overcome others’ resistance, win their acceptance, gain self-confidence, and thereby be effective.

Transformational, Transactional, and Laissez-Faire Styles

We investigated transformational, transactional, and laissez-faire styles of male and female leaders in a large sample of managers that had been assembled to provide norms for the most widely used measure of these styles, the Multifactor Leadership Questionnaire (MLQ; Center for Leadership Studies, 2000). These managers were predominantly from the United States but included managers from eight other nations. Ratings of the managers (by mangers’ subordinates, peers, or subordinates or by the managers’ themselves) indicated how frequently a manager engaged in the behaviors that are prototypical of the five subscales of transformational Leadership, the three subscales of transactional leadership, and the one laissez-faire scale. In our current research we are also meta-analyzing a group of studies that compared women and men Leadership Styles of Women and Men on the MLQ and similar measures.

In contrast, men exceeded women on the transactional scales of active management-by exception and passive management-by-exception and on laissez-faire leadership. These findings suggest that male managers, more than female managers, (a) paid attention to their followers’ problems and mistakes, (b) waited until problems became severe before attempting to solve them, and (c) were absent and uninvolved at critical times. The largest of these differences in the male direction was on the passive management-by-exception scale. However, the relatively negative behaviors associated with the scales on which men exceeded women cannot be regarded as typical of male managers because raters perceived relatively low frequencies of these behaviors for both sexes, albeit higher frequencies for male than female managers.

Why did women fare better than men on the measures of styles and effectiveness? One Possible interpretation is that women have to meet a higher standard than men to attain leadership roles and have to maintain better performance to retain these roles. Substantiating this interpretation is research demonstrating the operation of a double standard in perceiving women as highly competent. In addition, men’s greater likelihood of Manifesting ineffective styles–namely, passive management-by-exception and laissez faire leadership, suggests that men may have greater leeway to remain in leadership roles, despite poor performance.

Another reason that women fare better than men may be the tendency for the female gender role to foster more feminine styles. Thus, individualized consideration and, to some Leadership Styles of Women and Men extent, contingent reward may involve being attentive, considerate, and nurturing to one’s Subordinates, tendencies that are consistent with the female gender role. Being encouraging and supportive of subordinates may foster showing optimism and excitement about the future, the tendencies assessed by the inspirational motivation subscale. Perhaps these qualities then foster the respect and pride that are assessed by the idealized influence (attributes) subscale. Yet another possibility is that female managers may encounter resistance if they proceed in the more traditional command-and-control leadership styles, and they opportunistically discover the Advantages of the more interpersonally sensitive but inspirational type of leadership that is captured by measures of transformational leadership.

Empirical research comparing the leadership styles of women and men yields a pattern of findings that is more complex than that generally acknowledged by social scientists or writers of popular books on management. Consistent with research comparing women and men on numerous social behaviors; we have established that leadership style findings from experimental settings tend to be gender-stereotypic. In such settings, people interact as strangers without the constraints of long-term role relationships. Gender roles are moderately important influences on behavior in such contexts and tend to produce gender-stereotypic behavior. In addition, somewhat smaller, stereotypic sex differences appeared in assessment studies, in which people not selected for leadership responded to instruments assessing their leadership styles. Because respondents who were not under the constraints of managerial roles
Completed measures in these studies, some tendency for leadership styles to appear stereotypic were expected from the perspective of social role theory. When social behavior is regulated by Leadership Styles of Women and Men Leadership roles in organizational settings, it should primarily reflect the influence of these other roles and therefore lose much of its gender-stereotypic character. Indeed, findings for interpersonal and task styles supported this logic. However, gender in-congruent leader roles appeared to compromise leaders’ task-oriented styles and their effectiveness. Also, women’s leadership styles were more democratic than men's even in organizational settings, possibly reflecting the special legitimacy problems that female leaders face if they attempt to take charge in a clear-cut, traditionally hierarchical manner.

On measures of transformational, transactional, and laissez-faire leadership styles, which were designed to predict effectiveness, yet another pattern appeared. Female leaders exceeded male leaders especially on the female-stereotypic transformational dimension of individualized
Consideration and were higher than men on two additional subscales of transformational leadership as well as on the contingent reward scale of transactional leadership. In contrast, men exceeded women on the active and passive management-by-exception and laissez-faire subscales.
It is likely that the greater effectiveness of female than male leaders in this sample of managers reflected the negative relationships of the passive management-by-exception and the laissez faire styles to effectiveness and the positive relationships of the transformational and contingent
Reward styles to effectiveness.

One consideration in interpreting our findings is that even the largest of these sex differences would be described by most social scientists as small. However, as demonstrated, small differences, when repeated over individuals and occasions, Can produce large consequences. Moreover, because investigators face many barriers to achieving well controlled studies of leadership style, especially in organizational settings, uncontrolled Leadership Styles of Women and Men Variability would decrease the magnitude of any systematic effects, including those representing sex differences.

Additional primary research is needed to clarify the mechanisms underlying these findings. Based on existing evidence, we suggested that two underlying processes may be especially influential: (a) the spillover of the female and male gender roles onto leadership behavior and (b) the prejudice women may encounter in leadership roles, especially if they are Male-dominated or if women behave in an especially masculine style. One manifestation of this prejudice is the operation of a double standard by which women have to meet a higher standard of effectiveness to attain leadership roles and to retain them over time.


Finally, the aspects of these findings that have the clearest implications for the effectiveness of female and male leaders pertain to transformational, transactional, and laissez-faire styles. Women are more transformational style and greater use of contingent reward as well as their lesser use of passive management-by-exception and laissez-faire style should enhance organizational effectiveness. These findings thus resonate with the attention that journalists have given to the possibility that women are better managers than men. For example, an article in Business Week asserted that “After years of analyzing what makes leaders most effective and figuring out who’s got the Right Stuff, management gurus now know how to boost the odds of getting a great executive: However, women’s advantages in leadership style may sometimes be countered by a reluctance, especially on the part of men, to give women power over others in work settings. Moreover, social and organizational changes place women, more often than men, in the position of being newer Entrants into higher-level managerial roles. As newcomers, women may reflect contemporary Leadership Styles of Women and Men trends in management, including an emphasis on transformational leadership that may threaten older, more established managers. A reluctance to allow women to ascend in organizational hierarchies may thus reflect resistance to changing managerial styles as well as a prejudicial tendency to evaluate women’s leadership behavior less positively than the equivalent Behavior of men. Nonetheless, on the whole, research on leadership style has very favorable implications for women’s increasing representation in the ranks of leaders.

The challenge of crossing cultural boundaries

In cross-border business, we step into different cultural environments characterized by unfamiliar languages, distinctive motivations, and different values.  Culture refers to learned, shared, and enduring orientations of a society, which are expressed in values, ideas, attitudes, behaviors, and other meaningful symbols and artifacts. Cross-cultural risk arises from a situation or event where a cultural miscommunication puts some human value at stake. Ethnocentric orientation refers to using our own culture as the standard for judging how good other cultures are.  Polycentric orientation refers to a host country mindset where the manager develops greater affinity with the country in which she or he conducts business.  Geocentric orientation refers to a global mindset where the manager is able to understand a business or market without regard to country boundaries.
1. The meaning of culture: foundation concepts

Culture is the collective mental programming of people.  It influences consumer behavior, managerial effectiveness, and the range of value-chain operations, such as product and service design, marketing, and sales. Culture is not inherited, right or wrong, or about individual behavior. Culture is like an iceberg in that most of its elements and influence are hidden below the surface.
2. Why culture matters in international business

Managers need to develop understanding and skills in dealing with other cultures. Culture matters in international business in areas such as developing products and services; interaction with foreign business partners; selecting foreign distributors; business negotiations; dealing with customers; preparing for trade fairs; and preparing promotional materials. Cross-cultural differences complicate workplace issues such as teamwork, employment, pay-for-performance systems, organizational structures, union-management relationships, and attitudes toward ambiguity.
3. National, professional, and corporate culture

There are three layers of culture: national, professional, and corporate. Working effectively within these cultures is a major challenge. The influence of professional and corporate cultures grows as people are socialized into a profession and their workplace.  Most companies exhibit a distinctive set of norms, values, and beliefs that distinguish them from other organizations. Such differences are often as distinctive as the differences in culture between nations.  Managers can misinterpret the extent to which a counterpart’s behavior is attributable to national, professional, or corporate culture.
4. Interpretations of culture

Culture can be interpreted through metaphors, a distinctive tradition or institution that serves as a guide or map for deciphering attitudes, values, and behavior. Stereotypes are generalizations about a group of people that may or may not be factual. An idiom is an expression whose symbolic meaning is different from its literal meaning. Low-context cultures rely on elaborated verbal explanations, putting much emphasis on spoken words. High-context cultures emphasize nonverbal communications and a more holistic approach to communication that promotes harmonious relationships.
Hofstadter’s typology of cultural dimensions consists of
Individualism versus collectivism, power distance, uncertainty avoidance, masculinity versus femininity, and long-term versus short-term orientation.
5. Key dimensions of culture

The dimensions of culture include values and attitudes, which are shared beliefs or norms that individuals have internalized. Deal-versus-relationship orientation describes the intensity with which manager’s get down to business, as opposed to developing relationships. Manners and customs are ways of behaving and conducting oneself in public and business situations. Perceptions of time refer to the temporal focus of life, and dictate expectations about planning, scheduling, profit streams, and what constitutes lateness in arriving for work and meetings. Monochromic cultures tend to exhibit a rigid orientation to time in which the individual is focused on schedules, punctuality, and time as a resource. In contrast, polychromic cultures refer to a flexible, nonlinear orientation to time in which the individual takes a long-term perspective and is capable of multitasking. Perceptions of space represent the area or physical room within which people feel comfortable. Religion provides meaning and motivation and is very significant in defining peoples’ ideals and values.  Symbolic and material productions refer to the intangible and tangible meanings, institutions, and structures that individual cultures construct for themselves.
6. Language as a key dimension of culture

Language is a “mirror” of culture. It is essential for communication and provides cultural insights. There are nearly 7,000 active languages, but most have only a few thousand speakers. The major languages include Mandarin Chinese, Hindi, English, Spanish, and Arabic. Language has both verbal and nonverbal characteristics. It is conditioned by our environment.  Sometimes it is difficult to find words to convey the same meaning in two different languages. Learning one or more common languages will enhance a person’s international business career.
7. Culture and contemporary issues

While culture is relatively stable, contemporary issues influence culture. In contact-based services such, as found in law and architectural firms, providers interact directly with foreign nationals in culture-laden transactions. Cultural differences may lead to mishaps in the exchange process. Technological advances are a key determinant of culture and cultural change. Improved transportation and the spread of communications technology have removed the boundaries that once separated nations. Technology also promotes culture. The Internet emphasizes the role of language in communications. Globalization promotes common culture and the consumption of similar products and services worldwide.
8. Managerial guidelines for cross-cultural success

Managerial guidelines include the need to acquire
Factual and interpretive knowledge about the other
Culture, and to try to speak their language. Managers
Should avoid cultural bias and engage in
Critical incident analysis to avoid the self-reference
Criterion. Critical incident analysis involves being culturally aware, not making value judgments, and selecting the most likely interpretation of foreign behaviors. Experienced managers develop cross-cultural skills, including a tolerance for ambiguity, perceptiveness, valuing personal relationships, and being flexible and adaptable. Cultural intelligence is the ability to function effectively in culturally diverse situations.

Tuesday, January 25, 2011

Do you believe that a manager should analyze Business Environment to stay and compete in business?

#Q1People in business who has been unaware of or ignores their changing environment has at best; lost opportunities for profit and at worst, led their company to disaster. Do you believe that a manager should analyze BE to stay and compete in business?
*Ans: With big “yes”, I believe the manager should always analyze Business Environment to say and compete in business. We know very well in real world when the ground rocks, structures must bend. The same is true for companies competing in today’s turbulent business environment. Organizations that are best able to anticipate and the analyze the market movements, re-emerge from the worst system shocks and take advantage of gaps left by those unable to withstand the impact will win. Doing so requires organizational promptness.

For most companies, the path to organizational alertness involves transformation, the ability to carve away at inefficiency and regroup around what is truly core to the business. While the task may appear discouraging, there are a number of steps that management can consider to lighten the burden of change:

1. Integrate and automate fundamental knowledge-sharing processes. Such integration will enable IT to advance an organization’s ability to problem-solve, improve decision-making and convert information into insight. The tangle of forces that created the current economic difficulties looks set to leave an undercurrent of volatility even after the global recession eases. Competitive advantage will go to those who align their businesses well to embrace and respond to change.

2. Optimize core processes. By minimizing excess spending and non-core programs, companies can better direct limited resources to satisfying customer expectations, activities that position a company well not only during times of recession but also for long periods of growth.

3. Minimize information silos. Barriers to change include conflicting departmental goals and priorities, a culture of risk aversion and silo-based information. By reducing silos, business leaders can improve collaboration inside and outside their enterprise and better align departmental goals and performance measures with overall strategy.

We take the example of the market turbulence of the past year may have foreshadowed a new phase of globalization, one in which volatility is likely to remain a constant. Even after the current recession lifts, underlying fluctuations in energy, commodity and currency rates, the emergence of new and non-traditional competitors, and rising customer demands will continue to roil traditional business and operating models for some time to come. To be competitive, companies may find themselves in a big challenge. How can they respond quickly and nimbly to the changing environment without getting caught in knots? In today’s knowledge age, the ability to transform information into insight in response to market movements is core to sustainability. Companies must think of ways to make their processes more flexible. The challenges are the organizational agility, particularly in tough economic times. The major factors are as following (according to the EBI):

1. Organizational agility is a core differentiator in today’s rapidly changing business environment.
Nearly 90% of executives surveyed by the Economist Intelligence Unit believe that organizational agility is critical for business success. One-half of all chief executive officers (CEOs) and chief information officers (CIOs) polled agree that rapid decision-making and execution are not only important, but essential to a company’s competitive standing. Agility may also be linked to profitable growth: research conducted at the Massachusetts Institute of Technology (MIT) suggests that agile firms grow revenue 37% faster and generate 30% higher profits than non-agile companies.

2. Internal barriers stall responsive change efforts. More than 80% of survey respondents have undertaken one or more change initiatives to improve agility over the past three years, yet 34% say they have failed to deliver the desired benefits. The main obstacles to improved business responsiveness are slow decision-making, conflicting departmental goals and priorities, risk-averse cultures and silo-based information.

3. Yet most companies admit they are not flexible enough to compete successfully. While the overwhelming majority of executives view organizational agility as a competitive necessity, actual business readiness is more mixed. More than one-quarter (27%) of respondents say that their organization is at a competitive disadvantage because it is not agile enough to anticipate fundamental marketplace shifts.

4. Technology can play an important supporting role in enabling organizations to become more nimble.
Technology should function as a change agent in the use and adoption of best-in-class knowledge sharing processes, so companies can improve their use of critical data.


From all above survey reports, and  the facts we can say as manager  People in business who has been unaware of or ignores their changing environment has at best; lost opportunities for profit and at worst, led their company to disaster.

Sunday, January 23, 2011


History of Nepalese banking system
The initiation of formal banking system in Nepal commenced with the establishment in 1937 of Nepal Bank Limited (NBL), the first Nepalese commercial bank.The oldest bank of Nepal, Nepal Bank Ltd (NBL) was inaugurated by Late King Tribhuvan Bir Bikaram Shah Dev on 1994 B.S. Kartik 30, Monday 5:15 pm (1938 A.D.). NBL's authorized capital was Rs. 10 million (1 crore) & issued capital Rs. 2.5 million (25 lakh) of which paid-up capital Rs. 842 thousand with 10 shareholders, most of them Ranas. Out of 25000 equity shares of Rs.100 face value, 40% was subscribed by the government & balance was offered for sale to the private sector. The preliminary expenses of Rs.20,000 was occurred. The total deposit in the first year was Rs.17,02,025 divided into current account Rs.12,98,898, fixed account Rs.3,88,964 & saving account Rs.14,163. The total assets at the end of the first year was Rs.28,40,000 with net profit of Rs. 99,000 & the loan disbursed & outstanding at the end of the first year was Rs.19,85,000.There were only 12 employees & the first director was Commanding General Bahadur Shumsher Jung Bahadur Rana(1994/7/30-1996/3/25). The first chief manager was, Mr. Thakur Singh Kathayat.The logo of the bank was prepared by Late Balkrishan Sama. The first branch of NBL was Kathmandu Banking Office.
The country’s central bank, Nepal Rastra Bank (NRB) was established in 1956 by Act of 1955, after nearly two decades of NBL having been in existence. A decade after the establishment of NRB, Rastriya Banijya Bank (RBB), a commercial bank under the ownership of Government of Nepal (G/N) was established. Thereafter, G/N adopted open and liberalized policies in the mid 1980s reflected by the structural adjustment process, which included privatization, tariff adjustments, liberalization of industrial licensing, easing of terms of foreign investment and more liberal trade and foreign exchange regime was initiated. With the adoption of liberalization policy, there has been rapid development of the domestic financial system both in terms of number of financial institutions and as ratio of financial assets to the GDP. As of July 2005, the number of commercial banks has reached 17 and their branches numbered 375. A total of 60 finance companies and other Development Banks and numerous credit cooperatives have also been established. Total financial assets in 2004/2005 reached around 54.09 percent of GDP and the M2/GDP ratio, which shows the financial sector development or financial deepening increased from in 12.4 percent in 1975 to 50.9 percent in 2000.
In the context of banking development, the 1980s saw a major structural change in financial sector policies, regulations and institutional developments. G/N emphasized the role of the private sector for the investment in the financial sector. The financial sector liberalization, started already in the early eighties with the liberalization of the interest rates, encompassed further deregulation of interest rates, relaxation of entry barriers for domestic and foreign banks, restructuring of public sector commercial banks and withdrawal of central bank control over their portfolio management (Acharya et al, 2003). These policies opened the doors for foreigners to enter into banking sector under joint venture. Consequently, the third commercial bank in Nepal, or the first foreign joint venture bank, was set up as Nepal Arab Bank Ltd( now called as NABIL Bank Ltd ). in 1984.
There after, two foreign joint venture banks, Nepal Indosuez Bank Ltd. (now called as Nepal Investment Bank) and Nepal Grindlays Bank Ltd (now called as Standard Chartered Bank Nepal Ltd.) was established in 1986 and 1987 respectively. There after, another 12 commercial banks have been established within the period of 12 years. Nepalese banking system has now a wide geographic reach and institutional diversification. Although, Nepalese financial sector is dynamic, a lot of scope for development of this sector exists. This is because the banking and non-banking sectors have not been able to capture all the potentialities of business till this time. It is evident from the Rural Credit Survey Report that the majority of rural credit is supplied by the unorganized sector at a very high cost – perhaps being at two or three time of the formal sector - suggesting that the financial sector is still in the path of gradual development. Overdue loans and inefficiency of the older and the larger of commercial banks have aggravated and have been made to compete with the new trim banks with no rural operations. Also, the commercial banks, domestic or joint venture have shown little innovation and positive attitude in identifying new areas of saving and investment opportunities.
Existing scenario of banking sector
As mentioned in the previous section, there are 28 commercial banks presently in operation. Among these banks some are established under joint venture with foreign banks while some are fully domestic bank. Out of total commercial banks, 6 commercial banks are with foreign joint venture and 21 are fully domestic banks.
I. Capital Structure of Banks:
The current regulation of NRB prescribes that all the new commercial banks are to be established in Kathmandu at national level should have minimum paid up capital Rs. 1 billion; the existing banks in operation are required to enhance the capital level to Rs. 1 billion by the end of FY 2065/66 BS. For this purpose and objective all the commercial banks have furnished their plans to enhance the level of capital accordingly. In the mean time, there are separate provisions on capital requirements for the national level banks to be operated outside the Kathmandu. Banks to be established out side the Kathmandu valley are required to have a minimum paid up capital of Rs. 250 million.10 The total paid up capital of 17 banks as at July 2005 has reached at Rs 9.423million. The paid up capital of commercial banks operating in Nepal is on an average of Rs. 554 million
II. Banks under Foreign Participation:
All together nine banks were established under foreign participation in Nepal but three of these have divested their stake to Nepalese promoters. Six banks still have foreign joint ventures. The banks operating under foreign participation are NABIL Bank Ltd, Standard Chartered Bank Nepal Ltd, Himalayan Bank Limited, Nepal SBI Bank Ltd, Everest Bank Limited and Nepal Bangladesh Bank Ltd. Initially, Bank of Kathmandu, Nepal Credit and Commerce Bank and Nepal Investment Bank were also established under foreign joint venture.
III. Assets of Banks under Foreign Participation:
The banking asset with the foreign joint venture banks is gradually increasing. As of July 2005, the commercial banks under foreign participation hold 37.54 percent of total banking assets. The deposits and credits are still of greater proportion. Foreign joint venture banks possess 39.65 percent of total deposits and 38.45 percent of total credit of the banking system.
Existing rules and regulations relating to the banking sector
Followings are the requirements for establishing a new commercial bank in Nepal
I. Regarding Paid up capital Requirements
1. To establish a new commercial bank of national level, the paid up capital of such bank must be at Rs. 1000 million.
2. To have an office in Kathmandu, the bank is required to have either joint venture with foreign banks and financial institutions or a technical service agreement (TSA) at least for three years with such institutions.
3. In general, the share capital of commercial banks will be available for the promoters up to 70 percent and 30 percent to general public. The foreign banks and financial institutions could have a maximum of 75 percent share investment on the commercial banks of national level. In order to provide adequate opportunity for investment to Nepali promoters in National level banks, only 20 percent of total share capital will be made available to general public on the condition that the foreign bank and financial institution are going to acquire 50 percent of total share.
4. Banks that are already in operation and those who have already obtained letter of intent before the enforcement of these provisions have to bring their capital level within seven years, i.e., by 16 July 2009 as per this recently declared provision. In order to increase in the capital such increase should be at a rate of 10 percent per annum at the minimum.
5. Banks to be established with foreign promoters’ participation have also to be registered fulfilling all the legal processes prescribed by the prevalent Nepal laws.
6. To establish the commercial banks in all the places in the kingdom other than in the Kathmandu valley, the paid up capital must be Rs. 250 million. In this case, the commercial banks to be established outside Kathmandu Valley, share investment of promoters and general public should stand at 70 percent and 30 percent respectively.
7. Banks to be established outside Kathmandu Valley could be allowed to operate throughout the kingdom including Kathmandu Valley only on the condition that they have operated satisfactorily at least for a period of three years and they have brought their paid up capital level up to Rs. 1000 million and also fulfilled other prescribed conditions. Unless and until such banks do not get license to operate throughout the kingdom, they will not be allowed to open any office in Kathmandu Valley.
8. Of the total committed share capital, the promoters has to deposit in NRB an amount equal to 20 percent along with the application and another 30 percent at the time of receiving the letter of intent on the interest free basis. The bank should put into operation within one year of receiving the letter of intent. The promoters have to pay fully the remaining balance of committed total share capital before the banks comes into operation. Normally, within 4 months from the date of filing of the application, NRB should give its decision on the establishment of the bank whether it is in favor or against it. If it declines to issue license, it has to inform in writing with reasons to the concern body.
II. Regarding Promoters Qualification
1. Action on the promoters’ application will not be initiated by the Nepal Rasta Bank if it is proved that their collateral has been put on auction by the bank and financial institution as a result of non-payment of loans in the past, who have not cleared such loans or those in the black list of the Credit Information Bureau and five years have not elapsed from the date of removal of their name from such list. The application will be deemed automatically cancelled irrespective of it being on any stage of process of license issuance if the above events are proved.
2. Of the total promoters, one-third should be its Chartered accountants or at least a graduate of Tribhuvan University or recognized institutions with major in economics or accountancy, finance, law, banking or statistics. Likewise, at least 25 percent of promoters group should have the work experience of the bank or financial institution or similar professional experience.
3. An individual, who is already serving as a director in one of the bank and financial institutions licensed by Nepal Rastra Bank, cannot be considered eligible to become the director in other banks or financial institutions.
4. Stockbrokers, market makers, or any individual/institution - involved as an auditor of the bank and institution carrying on financial transactions - cannot be a director.
III. Regarding the Sale of Promoters’ Share
1. Promoter group’s share can be disposed or transferred only on the condition that the bank has been brought in operation, the share allotted to the general public has been floated in the market and after completion of three year from the date it has been registered in the Stock Exchange. Prior to the disposal of such shares, it is mandatory to get approval from the Nepal Rastra Bank.
2. The share allotted to the general public has to be issued and sold within three years from the date the bank has come into operation. Failing to fulfill such provisions, the bank cannot issue bonus share or declare and distribute dividends.
3. Shareholders of the promoters group and their family members cannot have access to loans or facilities from the same institution. For this purpose, the meaning of the family members will comprise of husband, wife, son, daughter, adopted-son, adopted-daughter, father, mother, step-mother and depended brother and sister.
IV. Regarding Branch Expansion Policy
The Commercial banks established with a head office in Kathmandu will initially be authorized to open a main branch office in the Valley and thereafter, they will be authorized to open one more branch in Kathmandu Valley only after they have opened two branches outside Kathmandu Valley.
Existing Supervision relating to the Banking Sector:
Promotion of financial stability, development of safe and efficient payment systems, regulation and supervision of banking and financial system and the promotion of healthy and competitive financial system are some of the objectives of functioning of Nepal Rastra Bank.
To attain the above objectives Section 84 of the Nepal Rastra Bank Act 2002 has entrusted Nepal Rastra Bank with the necessary powers to perform inspection and examination of any commercial banks or obtain necessary information for the purpose of supervision of the commercial banks.
Currently the Bank Supervision Department in Nepal Rastra Bank carries out the function of supervision of all commercial banks in Nepal. Since foreign banks have their presence only in the form of Joint Venture establishments – that is in collaboration with the local entrepreneurs – Nepal Rastra Bank supervises foreign establishes in the same manner as it supervises other local banks. For the purpose of supervision, the department is required to prepare annual supervision plan for onsite examinations as well off site surveillance of the commercial banks. The same is to be approved by the Governor of the Bank.
The Bank Supervision Department carries out both onsite examinations as well as off site surveillance of the commercial banks as per its annual supervision plan.
I. on site Examination
The Bank Supervision Department can carry out onsite examination of commercial banks in Nepal by sending examination team to the commercial banks. Onsite examination can be corporate level inspection covering all aspects of functioning of commercial banks or can be targeted branch level inspection.
The Department also performs follow up of the earlier examination reports by visiting the branches to ensure necessary compliance of the NRB instructions. If information as to functioning of commercial banks against the interest of depositors’ or some serious irregularity is received, the Department can perform special on site examination in such cases. The Bank Supervision Department is required to carry out corporate level examination of all commercial banks at least once in a year as per its annual plan but the gap between two inspections at any time should not exceed two years. As per current policy of the Department, corporate examination of all commercial banks is carried out once in a year. For the guidance of the onsite examination, an “On site inspection manual” is in force. On completion of the onsite examination examiners perform CAMELS rating of the bank which is exclusively used for the supervisory purpose and is not revealed to general public.
II. Off site supervision
Off site supervision is a supplement to the onsite examination and is designed to act as an early warning system to identify banks with potential problems so that appropriate policies and action can be determined. Off site division of the Bank Supervision Department is carried out in a quarterly frequency as well as annual off site review based on the reports and returns submitted by the commercial banks
III. Quarterly offsite review
Off site division reviews performance of all commercial banks on quarterly basis which is submitted to the Governor of Nepal Rastra Bank. Such review involves assessment of the financial information as well as compliance of applicable rules regulations and legal provisions including NRB directives. Based on the review internal rating which is called CAELS Offsite Rating (COR) is also assigned to the banks.
IV. Annual Balance sheet review
The Department’s off site division reviews the balance sheet of the commercial banks at the end of each financial year and issues necessary instructions based on such review; this is then published in their annual report. In the course of such review the auditor’s report, audited financial statements, long form audit report preliminary, audit report and banks reply thereon are studied. Based on the review of above report consisting of the review of financial performance, compliance with Nepal Rastra Banks directives and applicable legal provisions, adverse observations of the auditors and other significant findings is prepared and necessary instructions are issued to the bank thereon.
For the guidance of the offsite surveillance off site supervision manual is in force. Till now there is no difference in the supervision methods used for the banks with foreign investment and other commercial banks.
Foreign bank branch:
The fifth Ministerial Conference at Cancun, Mexico which took place on 10 – 14 September 2003 approved the membership of the Kingdom of Nepal into the World Trade Organization (WTO) on 11 September 2003 (WTO, 2003), with Nepal subsequently becoming the 147th member of the organization on April 23, 2004 (WTO, 2004). Membership in the WTO entails a whole range of commitments along with their implementation time frames.
Presently, Nepal has not yet allowed foreign bank branches in the country and only permits commercial presence by a foreign financial institution – presently this is limited to a maximum equity of 75% (seventy five percent). However, during the course of accession negotiation for membership in WTO and at the request of some WTO members, Nepal has committed to allow foreign bank branches in the context of wholesale banking, only after 1 January 2010 (i.e. the transition period). In the mean time, the new Bank and Financial Institution Ordinance has been enforced from 2004, which has also incorporated a provision under section 4(3) that allows incorporating a bank and financial institution in Nepal, fully owned as a subsidiary of a Foreign Bank or a Financial Institution.
The commitment on WTO for foreign bank branches in Nepal is of particular interest to the Nepal Rastra Bank (NRB) – the central bank of the country—since it touches on the health and stability of the domestic financial system (NRB, 2002). That is, foreign bank branches have a direct impact on the health and stability of the domestic financial system through greater domestic competition in the financial sector from different corners like: financial intermediation in the domestic economy, technological transfer, greater level of service-choices to the consumers, higher levels of financial flows through the access to foreign capital, interlink of domestic financial system with global financial intermediation etc. Further, stability of the domestic financial system is important since it facilitates capital formation and assists in domestic economic growth and development.
Given the above description and necessity, it is essential to forward necessary rules and regulations to maximize the benefits from the commitment of allowing the presence of foreign bank branches in the country.
Commitments to allow the foreign bank branches in Nepal in the context of WTO membership:
During the course of negotiating for accession to WTO, Nepal made commitments for bank branches. However, three aspects are worth mentioning. First, there is a transition period where foreign bank branches are only allowed as of January 1, 2010. Second, entry of financial institutions is limited to a rating of at least “B” by Credit Rating Agency e.g. MOODI, Standard & Poor etc. Lastly, establishment of foreign bank branches are subject to the domestic laws, rules and regulations and terms and conditions of the Nepal Rastra Bank.
Special provision for Foreign Bank or Financial Institution to open their office:
A foreign Bank or Financial Institution desiring to open its office within the Kingdom of Nepal must submit an application to NRB in the form as prescribed along with the fees and particulars as prescribed. The NRB may issue a license to foreign Bank or Financial Institution to carry on financial transaction by allowing them to open a office within the Kingdom of Nepal taking into account the situation of competition existing in the banking sector, the contribution that could be rendered in the Nepalese banking sector and the reputation of such foreign Bank or Financial Institution.
The NRB may specify necessary terms and conditions in the course of granting transaction license and it shall be the duty of the Foreign Bank or Financial Institution to comply with such terms and conditions. The section 34(4) of the ordinance reiterates that the provisions of the ordinance are to be complied by such foreign Bank or Financial Institution. The foreign Bank or Financial Institution, which has been issued license to operate financial transaction by opening its office within the Kingdom of Nepal, can not open another Bank or Financial Institution in Joint Venture within the Kingdom of Nepal. However, the provision for the contact or representative office of any foreign Bank or Financial Institution will be as prescribed by Nepal Rastra Bank.
Financial institutions play an important role in financial intermediation to efficiently allocate scarce funds – this will spurt economic growth and development. That is why the multilateral commitment by the Kingdom of Nepal for allowing foreign (wholesale) bank branches “as of” 1 January 2010 is of great interest to the Nepal Rastra Bank since it will facilitate sustainable economic development of the country. To ensure that the Bank is fully prepared to provide appropriate rules and regulations in this regard, the Bank’s High Level Committee of WTO matters established the interdepartmental taskforce entitled - “Foreign Bank Branches and the Health and Stability of Nepal’s Financial system