Nepal export industry enters new markets to offset lower US, EU demand

Nepal's exporters gain footholds in alternative overseas destinations such as Central and South America, where demand is stronger than in traditional merkets.

This report provides an analysis of the performance of key export industries in Nepal last year, and offers forecasts for this year. It is produced by the Hinrich Foundation, a development organization that aims to promote sustainable global trade by, among others, helping create jobs in emerging Asia.

Despite its small size, the export industry in Nepal actively explored unconventional opportunities for expansion in 2014. Because orders from the US and the EU fell slightly the year before, manufacturers were compelled to shift their focus on alternative destinations and enhance production to be able to reach new markets.

Suppliers are now starting to penetrate Central and South America and Eastern Europe. The demand for Nepal-made handicrafts in these locations is strong since products feature designs not typically provided by other countries. In particular, Brazil, Argentina, Chile, Bolivia, Guatemala Ecuador, Russia, Ukraine and Poland have shown to be reliable markets for handmade home and garden decor, fashion accessories and garments.

The switch to these new markets has also provided another benefit to Nepal makers in that they do not typically encounter harsh competition in these areas. Another way through which they are offsetting rivals from other sourcing centers is by offering value-added products targeting the midrange and high-end price segments.

Despite the industry’s drive to concentrate on alternative destinations, makers continue to maintain connections to the large Western markets. In fact, a number of companies are now producing home and garden decor, and fashion bags for major retail outlets in the US, which include Macy’s, Wal-Mart and Kmart.

Exports

Overseas revenue from specific product segments is generally difficult to determine because the government categorizes all handmade products as either textiles or nontextiles. Nonetheless, it is projected that foreign income from various segments generally grew in fiscal year 2013-14. Exports of textile goods reached $25 million, an increase of 24 percent compared with the previous period. Exports of nontextile products were recorded at $26 million, which translates to a growth of 6 percent.

Although shipments to the US fell last year, it is still Nepal’s leading overseas destination. The country took up $15 million, 6 percent more than the year before. Germany is the second-largest market, purchasing $4.1 million worth. Other key destinations are Japan, the UK, France, China, Denmark and the Netherlands.

Design trends

Products made in Nepal commonly feature design elements indigenous to the local culture, making the craftsmanship of handmade products the most important selling point. Wooden and stone models are usually accented with intricate patterns carved manually. Assembly of metal items, including singing bowls, wind chimes and wall hangings, typically involve labor-intensive procedures such as casting and hammering. The application of embellishments such as beads and semiprecious stones on finished products is also performed manually.

Adornments also reflect religion and culture. Statuettes and tabletop ornaments depict Buddhist and Hindu deities. Spiritual icons are also found in ceramic vases and pottery. Garden decor features temples, dragons, elephants and lions, which are a significant part of Nepal’s cultural heritage.

Fashion accessories such as bags, shawls and scarves frequently draw inspiration from Mithila and Dhimali arts. These are characterized by geometric and floral patterns in bright shade of red, blue, orange and green.

In terms of materials, the industry utilizes homegrown components to propel the line. Lokta paper, which is processed from the inner bark of evergreen shrubs in the forests of the Himalayas, is normally incorporated in photo frames, decorative boxes and wall calendars. Indigenous timber such as sal and haldu are mostly adopted in door accessories and tabletop ornaments.

Felt is another widely employed input. A type of nonwoven fabric made from wool, it is preferred by suppliers because of its versatility and unique properties, including strength, wear resistance and thermal insulation.

Not all designs come from the native culture, however. Manufacturers are also in touch with style trends that emerge abroad. With garments, makers have adjusted production to meet demand for models that have a slim fit as well as those that conform to different body types.

Challenges

Power shortage has been a perennial problem not only to export manufacturers but for the entire country in general. The government estimates industry losses to reach $800 million yearly because of blackouts. Outages during the dry season usually last up to 18 hours, bringing down the production efficiency of factories by roughly 40 percent. Suppliers try to offset this obstacle by using generators, although doing so is roughly 320 percent more expensive than using electricity from power plants.

The heavy dependence on imported materials is another critical roadblock facing the industry. Although wool is heavily used, roughly 90 percent is imported from New Zealand, Australia, Argentina and Chile. India, Germany and Thailand are the primary sources for silver. Fabrics, specifically cotton and silk, are largely purchased from mainland China and India. Glass beads are from the Czech Republic and mainland China. Polar fleece is procured from Taiwan and New Zealand.

The additional costs entailed in purchasing overseas diminish makers’ ability to offer competitive prices. Because of this, companies normally move up the value chain and target the midrange and high end.

Competitiveness is also compromised by the prevalent lack of innovation in Nepal’s export industry. Suppliers admit that some releases that feature traditional designs do not fit the needs of buyers abroad. Some cannot keep up with the latest trends due to limited knowledge and exposure to global styles.

2015 Outlook

Prices of handmade products from Nepal do not have a clear general direction this year. Quotes of home and garden decor and garments are expected to climb due to surging expenditure on imported fabrics and metal, and manpower. Prices of bags, jewelry and other fashion accessories are seen to remain unchanged to boost competitiveness.

Overseas revenue is projected to stay positive despite the numerous difficulties confronting the export industry. Strong demand coming from Central and South America is fueling optimism in the line. Nonetheless, the majority of outbound shipments is seen to go to Asia-Pacific, specifically Australia, New Zealand, Hong Kong, China and Japan. A considerable portion of output is intended for the EU, particularly Germany, Italy, France, the Netherlands and the UK.

Product development efforts are primarily aimed at enhanced decorative elements. These include colorful and elaborate motifs for bags, shawls and stoles, and fancier trimmings such as beads and semiprecious stones for jewelry. Bright colors will be featured primarily on home and garden decor.

For more information about the Hinrich Foundation's industry-specific sourcing reports spanning seven different countries in Asia, including Nepal, visit Online Developing Country Sourcing.

This article and its contents are provided by the Hinrich Foundation, a partner of Global Sources in promoting trade across Asia. The products and the suppliers featured in this article are export assistance program beneficiaries of the Hinrich Foundation.