April 27, 2009
Eric Ellis, Kathmandu
Kidnappings, extortion and mayhem make Nepal
a tough place to do business. But an American woman and her son have managed to
keep their distillery company going.
For Nepali businessman Raj Shah and his American-born mother, Maggie, the global
economic crisis is the least of their concerns. Working to keep afloat a family
drinks business that dates to the 1870s, they survived Nepal's 15-year civil
war. But the kidnappings, strikes and corruption continue, making the financial
meltdown look like a day at the park.
As conflict has raged throughout the poverty-stricken nation, a normal day at the Shahs' Himalayan Distillery Ltd. group, or HDL, has involved tasks such as mopping up after rebels bomb a bottling plant. Or negotiating ransoms when staff--including the Shahs--are taken hostage. Or fending off criminal gangs while placating the Maoist revolutionaries who overthrew Nepal's monarchy eight months ago. Last year HDL was forced to stop production for three months. "They don't teach you how to deal with these sorts of things at business school," says the University of Massachusetts-educated Raj, the 33-year-old managing director and the sixth generation of his family to head HDL. Says Maggie, matter-of-factly, "It's very difficult to run a business in Nepal."
With its 800-strong workforce, HDL is one of Nepal's biggest businesses, and it boasts some of its most famous brands: Royal Stag whiskey, Ruslan vodka and Ultimate gin. The Shahs own roughly 70% of HDL, but with the economy in a shambles, its market capitalization has been hammered down to only $6 million on the Nepal Stock Exchange.
Recessions in the U.S. and Europe have forced penny-pinching travelers to shelve plans to visit Nepal's magnificent mountains, hurting the company's premium brands. But it's the political instability that is causing the most pain. As Nepal's economy has gone backward, HDL's sales for the year ended last June were only $17.5 million, broadly unchanged from the previous year. Profit was a barely break-even $245,000.
The hospitality industry relies on visibility, but the Shahs feel that it's prudent to stay under the radar. The group's head office is in a house tucked away at a secret location in Kathmandu's suburbs. Visitors get dropped off at a nearby school and then are escorted to the house by armed security. Raj says he'd like to move to more appropriate offices "but the time is not right."
The lack of electricity is another hurdle for doing business in Nepal. Raj needs to cram his daily appointments into a four-to-eight-hour window when the state utility provides power. Businesses must rely on diesel generators to keep factories open, the fuel costs killing their bottom lines.
The Maoist insurgency put HDL--and anything else thought of as capitalist--in a tight spot. The liquor industry was among the biggest revenue generators for the previous government, so "naturally we became a target in the war," says Raj. Once, while Maggie and Raj were visiting a rural distillery, the rebels attacked it. "We called the police and the chief of the army," Maggie recalls, "and he said, 'Let us know when they've left.'"
Demands for protection payments have been never-ending. Says Raj. "We had to pay, everyone had to pay, but of course everyone denies it." The alternative? "They'll close your factory down, you'll get terrorized." Even with the war over, the extortion continues; it's now conducted by criminal gangs.
A kidnapping attempt left lasting scars on Raj. "I couldn't sleep for six months," he says. "It's banditry; off-duty cops, off-duty army guys, they go take someone for three or four days for the ransom and then let them go. Sometimes people get killed." Now Raj sneaks into HDL's plants. "I take the morning flight, show up for two hours and leave before everyone finds out. How do you work in an environment like this?"
It's all a balancing act, and Maggie plays a crucial role as corporate diplomat, being American when she wants to but no less Nepali for it. She is one of Nepal's most identifiable personalities, but in 1970, when she arrived in Kathmandu as a blushing 19-year-old bride, she wasn't sure what world she had entered. She was a nursing student when she met a Nepali engineering student, Vijay Shah, who was studying at Cincinnati's Xavier University. They fell in love, and Vijay spirited his fiancee to a new home that was exciting and bewildering for an Ohio girl on her first trip outside the U.S. She recalls that neither family was initially well-disposed to their union. "Nepali marriages tend to be arranged," she says, "and American girls didn't elope as a rule, certainly not to Kathmandu."
But Maggie quickly adapted. She mastered Nepali, and the Shahs had four children. Still, family politics was tricky and often centered on the distillery business, which fell into disarray after the death of Maggie's father-in-law, the Shah patriarch. As a non-Nepali, Maggie emerged as a compromise figure to lead the business. She joined the company in 1978 and became managing director in 1985, while her engineer husband managed the technical side. Employing Nepali cultural nuance and Western can-do, "she's gotten away with a lot of stuff," Raj marvels.
The 1980s were Nepal's boom years. The politics were stable, the popular King Birendra started democratizing, and Nepal graduated from a stop on the hippie trail to a mainstream tourist mecca. A middle class emerged among its 30 million people, and it developed a fondness for HDL's spirits. "She ran this company with an iron fist," says Raj. "She could be very loving, but she also wouldn't let people get away with things, and she'd let them know." In 2000 Maggie handed the reins to Raj, who had returned from his studies in the U.S.
Raj started by paying down debt and modernizing HDL. "We had a lot of loans, our competitors had gotten very aggressive, and everything had started coming apart." He entered a joint venture with Seagram, and regained lost market share with new lines that carried Seagram's foreign cachet. He claims a 60% share of the premium spirits sector; his main competitor is Indian tycoon Vijay Mallya's UB Group, headquartered in Bangalore. "Our classic customer is an upper-middle-class Nepali male," Raj says. "He's an educated person, owns a motorcycle, earns maybe $300 a month." That's roughly three times Nepali's annual gross domestic product per capita, according to the World Bank.
Today Nepal's old business clans such as the Shahs are taking a wait-and-see approach to the new regime. Raj says HDL is doing better and believes its best years are ahead. The problem now is finding growth for a mature business. "We don't have many places to go," he says, as he plans forays into rice beer, wine coolers and premixed drinks. "We tested a ready-to-drink line last year, and it did so well the government closed it down because it was threatening the beer industry. Sadly, that's how things work here."
These days Maggie devotes herself to charities promoting female empowerment, particularly in Nepal's impoverished countryside. When forbes asia saw her in Kathmandu, she was addressing, in fluent Nepali, a determined rally of 3,000 women who had marched to a downtown square on International Women's Day. But she remains an HDL director and company ambassador. Indeed, her eyes twinkle when describing the many times potential partners have arrived in Kathmandu expecting to do business with a Nepali matron only to encounter a woman from Ohio resplendent in a sari. "I may be American, but I'm also a Nepali," she says. "I love this country."