Making It Big

  My choice was made: I vowed to take the plunge into the international market, a new world for me.

  Sometimes a defeat opens the door to more success in life. Had I not lost that election, I might have still been stuck in the world of FNCCI politics, and my business interests might have been limited to the country of Nepal. I want to give credit to that defeat for pushing me in new directions, to new heights. If one believes in fate, only destiny could have written that subplot of my life. I was disenchanted with my friends and colleagues, and with everything else that held me emotionally attached to Nepal. This was the time for change.

  Today I feel no disenchantment with anybody or anything. On the contrary, I am filled with gratitude towards all the visible and invisible powers that contributed to my defeat. My happiness today is born out of the sadness I experienced then; I am successful today because I was unsuccessful then.

  That was the time of globalization. Huge business empires were competing to invest beyond the national boundaries. In South Asia, Indian business groups such as Reliance, Infosys and the Tatas, which had been operating under the socialist model promoted by Jawaharlal Nehru ever since the country’s Independence back in 1947, were also internationalizing their businesses. They were compelled to quickly adapt to the wave of globalization. Those were the days when home-grown vehicles such as the Ambassador and the Padmini were dominating the Indian market. Telecom was the monopoly of a state-run giant. Suddenly, the country switched to economic liberalization and these companies faced tough competition from international players. Indian industrialists then sought a ‘level playing field’, arguing that if foreign companies were going to be allowed to enter the Indian market, then they should also be allowed to invest abroad.

  My campaign to establish a multinational company is based on the same notion—that if foreign companies are allowed to invest in Nepal, we must also be allowed to invest abroad. If Maggi can be allowed into Nepal and compete with our Wai Wai, why cannot Wai Wai take on Maggi in India? Today no nation can stop the wave of globalization. The government must allow its citizens to take their enterprises across the world. It is only a matter of time before the state wakes up and faces this reality.

  South Korean President Park Chung-hee had invited all the leading industrialists of his country to a meeting to tell them it was high time that Korean companies followed in the footsteps of the Japanese. All the leading companies in Japan are in private hands. The state supported them in their global expansion, and they have all become multinational companies today. Emulating Japan’s model, Park Chung-hee helped Korean companies to grow internationally. To achieve this goal, he handed over specific sectors, such as automobile, power and construction, to each of the leading industrialists. Owing to the direct backing of the state, each of these companies rose to distinction. They grew significantly in size and competence, and were able to take on the world.

  Park Chung-hee’s message to the Korean industrialists was loud and clear: stop competing among yourselves and start competing with the world. This is the story behind the success of companies such as Hyundai, Samsung and LG.

  The Nepali leadership may not have the vision and determination of a Park Chung-hee, but I was convinced that they would not block my way if I sought to grow internationally. Moreover, I was not ready to extinguish my dream just because of a dearth of laws to regulate such a move. I had also heard that the information technology and software industries had flourished in India under similar circumstances. India did not have a law to regulate the software industry when it switched to economic liberalization. Had Azim Premji of Wipro and Ratan Tata of the Tata Group waited for the state to enact the law, India could never have made the strides it has in the field of IT. At times, an entrepreneur must have the guts to brush aside incomplete or impeding legislation for the right reasons.

  The fledgling that I was in the world of international business, I attempted my flight, nevertheless.

  Singapore

  I have been familiar with this place since the days we brought foreign goods for Arun Emporium from here.

  In those days, Nepal had close relations with Singapore, which was a trading hub of South East Asia. Most of the goods from third countries were brought to Nepal through Singapore. Not all the goods shipped from Singapore were manufactured on the island, but most of the global companies had their authorized dealerships there. Obviously, Singapore was a popular market for traders like us.

  I made many friends, both personal and professional, during my trips to Singapore. Some of my close friends even ended up settling there.

  When I started to think about expanding my business beyond Nepal, Singapore was naturally the first destination of choice. I thought I would open a modest office there to begin with. I filed an application with Nepal Rastra Bank, seeking permission to open a branch office of the Chaudhary Group in Singapore. The central bank did not respond. I am talking about the year 1995. Finally, the bank did approve my application—but almost fourteen years after it was filed! Even the Supreme Court had not taken more than five years to rule in my favour in the Nabil Bank case.

  I do not actually want to hold the regulators responsible for the red tape in Nepal. The crux of the problem lies in the law of the land. The existing Foreign Investment Control Act bars Nepali citizens from investing abroad. We have to show our source of income to open even a bank account in foreign currency. If the law were to be stringently followed, a Nepali national would not have been able to open a bank account in India, even for the education of his children. The biggest challenge for me was to minutely explore the loopholes in the law so that I could circumvent it and be immune from legal challenge.

  I found a loophole in a provision pertaining to Non-resident Nepalis (NRN) in the Income Tax Act. A Nepali who lived outside the country for more than 183 days a year was an NRN in the eyes of the law. He was free to invest abroad. To take advantage of this provision, I decided to become a temporary citizen of my homeland by staying abroad for 183 days a year. Today, my sons Rahul and Varun look after my business interests outside Nepal as NRNs. I coordinate with them from Nepal, in the role of guardian and consultant. It would be no exaggeration to say that this is part of my broader strategy to expand my business internationally, and that this strategy is entirely within the law.

  I laid the foundation for a multinational company in Singapore in collaboration with established foreign entrepreneurs such as Mahbubur Rahman, Abdul Awal Mintoo, Jal Shroff, Yusuf Mohamad and Kamal Kishore Sharma. As the strategy partner, I took the lead when it came to preparing the business model, exploring areas for investment and expanding the business network. They, as working partners, allotted me equal shares. Even though the Act relating to foreign investment barred us from making investments abroad, the Foreign Exchange Act did not bar us from getting shares in a foreign company if we received them free of charge. All we had to do was to notify the central bank about it. Many Nepalis own shares in foreign companies through this procedure.

  The start-up company followed a kind of venture capital model, one very popular in international trade. Big business houses across the world have set up venture capital outfits. When they come across a new business idea, they can mobilize the venture capital instead of directly investing in the project. It was this kind of venture capital that I accessed to fund my business expansion worldwide. Rahman, Mintoo and a few other friends came on board.

  I have already mentioned Rahman and Mintoo in the context of the purchase of shares in Nabil Bank. Both of them are promoters of NB International, which holds the majority of shares in Nabil Bank.

  Jal Shroff is a prominent industrialist based in Hong Kong. He is the chairperson of the international company Fossil Inc., which is listed on Nasdaq. Fossil has branches in more than ninety countries around the world. I had met Shroff at a World Economic Forum meeting.

  Yusuf Mohamad is the chairperson of a leading Japanese business firm, Mieyo Boyeki Shokai. Its trade has spread from Japan
to Korea, Hong Kong, Singapore, Pakistan and the Middle East. It mainly trades in cloth, synthetic yarn and weaving machines. Actually, Yusuf is a friend of father and I got to know him during the days when father used to import clothes from Japan.

  Kamal Kishore Sharma is a family friend. He is related to my wife. Based in Singapore, Kamal is the founder managing director of Global Trade Well Private Limited. He has been in the polyester yarn trade for more than twenty years and has invested considerably in the markets in both the Far East and South Asia. The main reason for my choice of Singapore for international trade was my close ties with Kamal Kishore.

  I explained my model and plans for the international expansion of our business to these ‘strategic investor’ friends. What returns would they get if they deposited their capital in a bank instead? Five to 10 per cent. And if they invested the money in stocks? Ten to 12 per cent. I proposed a plan that projected an annual return of 20 per cent on their investment. They were convinced.

  After agreeing on the fundamentals, we did a bit of brainstorming for naming the company. I wanted the name to be representative of the Chaudhary Group, either directly or indirectly.

  One day, Nirvana entered my office with a file. He placed it on my desk and walked out of the room. I opened it. There was an A4-sized paper with a word printed on it in a big font: Cinnovation.

  I did not understand the meaning of the word. There was another computer printout beneath the top sheet. On this paper the word was broken up like this: C+ Innovation, and the term was explained: Chaudhary’s Innovation.

  Now that I understood the meaning of the word, I felt it was exactly what I wanted. It was linked to the Chaudhary Group and at the same time it was something that could be of international appeal. I telephoned Nirvana immediately. He was, in fact, waiting for my call. As soon as I said hello, he asked, ‘Papa, did you like it?’

  ‘Brilliant!’ I replied.

  I wrote an email to all my partners telling them that the company’s name—Cinnovation—had been decided upon.

  By evening, their replies were already in my inbox.

  ‘Beautiful.’

  13

  The Multinational Journey: Partnership with Taj

  The Tatas are a distinguished Indian business house. Indian Hotels Company Limited (IHCL), the hospitality arm of the Tatas, runs world-class hotels, resorts and palaces in many countries under the brand name of Taj and other sub-brands. The Taj hotel in Mumbai is one of them.

  A friend of mine, Rajiv Gujral, was a senior executive with the Taj Group. He was vice-president of the international arm of the group. We were both members of the Young Presidents’ Organization (YPO) and became good friends from meeting at YPO conferences. After establishing Cinnovation, I made a proposal to Rajiv: ‘We want to open a hotel in Nepal in collaboration with your group.’ The Taj Group had invested in the Annapurna hotel, but the amount involved was not significant. I also knew that they had some disputes with their Nepali partner, Helen Shah.

  ‘I will put your proposal to the board,’ Rajiv replied.

  Taj’s board of directors was favourably inclined towards my proposal, but they were not willing to make further investments in Nepal until their dispute regarding the Annapurna hotel was settled. ‘We are, however, willing to work with you on a project in Sri Lanka,’ Rajiv said.

  The Taj Group had opened a hotel called Taj Samudra in Sri Lanka around twenty years ago. The hotel was close to defaulting on its loans. The promoters were now in a quandary—should they file for bankruptcy or not? Filing for it could affect Taj’s reputation. They could not make additional investments in the hotel either, as the company’s internal policy discouraged investment in any conflict-torn country. To overcome this situation, they were looking for a reliable partner.

  I travelled to Sri Lanka with Rajiv Gujral to see the hotel.

  This gave me an opportunity to get first-hand information about Taj Samudra and other Taj subsidiaries. Even the Sri Lankan partners of the Taj Group were reluctant to invest any more in Taj Samudra. The Liberation Tigers of Tamil Elam (LTTE) had just blown up seven aircraft in a single attack. Investors were panicky. They were more than happy to leave Sri Lanka even if they could only recover half the amount they had invested there. The bankers were of a similar mindset.

  Despite all this, I still felt confident about the project. I felt that I could get a good deal if I negotiated well with the banks at a time when investor confidence was at an all-time low. Moreover, the banks that had lent money to the hotel were planning to invoke the guarantee, etc. A project that everyone is trying to get rid of is the easiest to negotiate for.

  ‘I am ready to rescue the Sri Lankan project,’ I said in my proposal to the Taj Group, sent through Rajiv. ‘But for that you have to agree on a 50 per cent partnership.’

  Though I had floated a proposal to ‘rescue’ this project in Sri Lanka, my real goal was different.

  After inspecting the Taj Samudra in Sri Lanka, Rajiv and I had visited the Maldives. There we had stayed at the Taj Lagoon. It was a very modest hotel, which charged around US$80 a night. Against the backdrop of the high-end tourism market of the island nation, this hotel was nothing more than a lodge. Taj had another hotel in the Maldives, Taj Coral Reef, which was just constructed and yet to open.

  In just two days of the Maldives sojourn, I came to realize that both these hotels were dogged by internal financial problems. I saw the Maldives as a silver lining against the dark cloud of Sri Lanka.

  Negotiations with the Taj Group began. My team of negotiators included R.C. Bhargava, who was then chief executive of Maruti Suzuki, and currently chairman. His presence alone made our side dependable and strong. The ILFC’s venture investment banking CEO, Shahzaad Dalal, and Nabil Bank’s CEO, D.C. Khanna, provided additional support.

  I told the Taj Group’s CEO, R.K. Krishna Kumar, ‘Taj is a big company and highly respected throughout the world. That’s why I am here. But let me tell you that nobody knows that your hotel group is a global brand.’

  ‘Leave alone the world, you don’t have much of a presence in Asia (except India) itself,’ I continued. ‘The Oberoi is much better known.’

  Krishna Kumar was impressed by my candid approach.

  ‘This is the reality that we all know,’ he said. ‘What do you have in your mind, young man?’

  I floated the idea that in current times, all world expansion is based on joint ventures. If you can find investors with a strong network in a particular region, that would not only help to raise capital but would also expand the company and the Taj brand rapidly. Krishna Kumar understood and appreciated the network we had built in the ASEAN countries over the last forty years in the course of our other businesses; he took my proposal as an opportunity to grow the Taj brand, apart from also refinancing the existing projects that were suffering as a result of over-leveraging.

  ‘Though created back in 1903, the Taj Group is limited to a handful of countries besides India. If you want your company to become a global brand, then you have to strike separate partnership deals in Asia, the Middle East, Africa, Europe and America so that local partners can help you establish the brand quickly.

  ‘We have old ties with many countries in Asia. But Taj has no presence in ASEAN. We can play a pivotal role in expanding Taj across Asia by using our network,’ I said. ‘This is possible only if we become a strategic partner involved in its growth and not just one of the investors. Our partnership is meaningful only if we have a role at your policy-making level and in the process of rejuvenating your brand.’

  They eventually agreed to my proposition.

  I then disclosed to them my biggest desire, the one that had brought me to the negotiating table, but in a very relaxed manner.

  ‘I have been to the Maldives, and I could see that both the Taj hotels there are in bad shape. The Lagoon has tarnished your image. It is not fit to be branded a Taj,’ I said.

  They agreed.

  ‘Why don’t you upgrade
them?’ I was slowly coming to the crux of the matter.

  ‘Financing is an issue,’ was the frank reply.

  This was the best possible opportunity for me.

  ‘If you agree, then I am ready to rescue the projects in the Maldives too,’ I said. ‘Let’s agree on a package.’

  They did not think twice before accepting my proposal.

  Taj not only agreed to my proposal but also offered to create a very special mechanism to support the growth of our joint venture in terms of cash-flow generation. The management agreements were signed for our joint venture—thus, Taj Asia was born. We had created an equal partnership with one of the world’s premier groups and owners of the Taj brand. A provision for rotating chairmanship of the board was a huge feather in my cap. For our family, this was the giant step marking the beginning of our creation of a multinational venture.

  The Taj venture was my first international expansion.

  Many in Kathmandu were surprised when they heard about our partnership with the Taj Group.

  How could a person like me, who had no knowledge of the hospitality industry, land such a deal with Taj?

  Nobody can make a quantum leap in any field without good planning. And I had timed mine very well. The reshuffle in the Taj management and the restructuring of various debt-ridden projects just before our agreement with them played a crucial role in my landing the deal on my terms. I had, at the right juncture, floated my proposal for a partnership with Taj, through Rajiv Gujral.