“The problem with meat in Nepal is that it is disorganized. From the way it is butchered to the way it is delivered, the whole process is disorganized and unhealthy. Unsafe to eat any of it,” my friend began from across the table.
Then he cut a piece, stuck it in his mouth and chewed it with vigor, as if relishing every bite. He seemed to have missed the point of what he had just said.
I looked down at the meat on my plate with apprehension.
“What I’d like to do is create a supply chain all the way from where the meat is produced to every outlet in Nepal. Every package I sell will be clean, neatly packaged and sold in safe conditions,” he continued between mouthfuls.[break]
That’s the meat I’d like to eat, I thought.
“There is a big market here for that kind of meat—the kind that is packaged and sold in safe, clean, healthy conditions. And I know exactly how to do it. There’s just one problem,” he said.
He paused for another bite. Another bout of vigorous chewing followed and finally, there was the satisfying gulp.
“We simply don’t have a chain of cold storage where the meat can be safely kept during transport. I could create that chain but we don’t have the electricity to run the cold storages. And it is not feasible to run them on diesel,” he continued.
I took a bite of the meat on my plate. Until the fellow’s cold chain was up and running, this was all I would have to contend with. I chewed and swallowed with equal vigor.
“It is the damn shortage of electricity, the lack of energy,” he was saying. “If only we could solve that, I could deliver safe, clean and well-packaged meat to every corner of Nepal.”
“The problem is not as challenging as you make it out to be,” I told him when I was done chewing. “You are trying to solve someone else’s problem. Instead of you trying to build and run that cold storage, why don’t you simply get someone else to do it? Why don’t you have someone else build the cold chain and you contract to guarantee use of say 75 percent of the storage for 20 years? That way someone who knows how to build, operate and source the energy for the cold storage will run that part of the show. You focus on raising, butchering, packaging and selling the meat. You do what you are good at and someone else does what they are good at. In the process, everyone’s problem is solved,” I volunteered.
My friend thought about it for a long time, looking down pensively at the meat on his plate.
“Yeah, but why should I let someone else profit from my business?” he said finally with a mouthful.
That conversation over dinner remained etched in my mind. I couldn’t quite put my finger on it but in that one conversation, I felt, lay the essence to why our businesses remain stunted.
“Leakage,” a merchant in Delhi pinpointed it out to me a few months later when I had finished narrating the conversation over dinner. “We call it leakage. When our business operations allow someone else to profit from it by being a part of our supply chain, we call it a leakage. We call it leakage because that’s profits we could have retained if we had kept that part of the supply chain. If they can do it, so can we. Basically, we don’t like to build businesses where there are such leakages.”
The failure to integrate supply chains into business operations that are owned by others is one of the key reasons our businesses and our economy remain stunted. It is a major distraction if the fellow that knows how to raise, butcher, package and sell the meat also wants to get into the business of supplying energy to the cold storage. Very soon he will also want to produce the feed for his chicks, supply medicine for his animals, build coups for his chickens and do just about everything related to the business.
The need to retain ownership over all aspects of the supply chain remains our biggest curse. After all, there is only so much that one person, one business or one enterprise can do entirely on its own. The parts that require collaboration across expertise and the pooling of resources remains unattended. The chain of cold storages that will bring fresh, healthy meat from the farms to the store is limited to paper.
One of the reasons that such collaborative supply chains fail to develop is because of the perception that there is finite profit: if I don’t lock in my share, somebody else will. The point that collaborative supply chains help to expand the available profits so that more is available to everyone is lost.
The single biggest limitation to the growth of effective supply chains is the lack of contract sanctity. Businesses can’t collaborate if they can’t be sure that their contract will be enforced by rule of law or if they can’t recover damages for the negligence of their partners. The absence of a sound regulatory and legal framework clearly undercuts the prospects of such supply chains.
But there are also ways that businesses can get around the absence of regulatory or legal certainty. They can create self-adopted norms for contract enforcements, binding voluntary rules for arbitration and settlement, and a better business bureau that requires adoption of a specific code of conduct. There are many such binding voluntary mechanisms that businesses could adopt in the absence of regulatory and legal certainty to provide a layer of protection for contract sanctity.
In the absence of healthy supply chains, our businesses will continue to remain stunted and our economy will continue to sputter. Once we strip away at the arguments for why supply chains are unable to evolve, we are left with the core observation that businesses operate in an environment of great distrust. It seems the only way to run a successful business in Nepal is to own everything from the start to the end.
Such level of distrust and the need to vertically integrate across the supply chain cannot provide the basis for a growing economy. One option may be to wait for our political leaders to sort it out and get their act together.
The other option is for businesses to be more proactive. They could do this by creating pockets of collaborative supply chain using binding voluntary agreements that challenge the negativity and prevailing mood of distrust.
Can businesses help create an ecosystem of interlocking, interdependent, mutually reinforcing enterprises that are reliant on success of each other? Somebody sure needs to show that there is hope.
bishal_thapa@hotmail.com
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