CHAPTER 1

INTRODUCTION

1.1

General Background
1.1.1 Background of the Study
The present study, Distribution Channel Analysis of Nepal Oil Corporation
(NOC) Ltd. with Reference to the Eastern Regional Office, Biratnagar, is
related to only one region of Nepal Oil Corporation i.e. Eastern Regional
Office, Biratnagar and it does not cover all the aspects of marketing but focuses
only on the Distribution Channel of Petroleum Products mainly petrol, diesel
and kerosene.
Marketing management is an important functional area of business
management. Though it has been defined differently, it is generally accepted as
a conscious effort to achieve desired exchange outcomes with target market. In
a broader sense, it is viewed as the process of planning and executing the
conception, pricing, promotion and distribution of ideas, goods, and services to
create exchange that satisfies both individual and organizational objectives.
Marketing is considered to be the heart of any business organization as it is the
business activity that directs the flow of goods services from producer to
consumer. The accomplishment of the organizational objectives is not possible
without the marketing potentiality and effective marketing system.
The process of distribution consists of the set of activities and functions aimed
at facilitating the movement of goods and services from producer to consumer.
In a logical sequence, distribution channel is considered as the route or path
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through which the movement of goods and services from the producer to the
consumer is facilitated in order to affect exchange process. It is also viewed as
set of interdependent organizations involved in the process of making a product
or service available for use or consumption. A number of intermediary
institutions are involved in the gap between manufacturers and users of
products or services. Therefore, distribution channel is also considered as a
system of relationship that exists among the institutions in the process of
buying and selling. It focuses on the process of buying and selling ownership
and physical transfer of commodities, products and services. The distribution
channel involves the decision such as the number of channel members,
characteristics and location and channel members in each layer, and terms and
conditions for working with channel members. Once the design of channel
system is decided, a firm has to implement these policies through selection of
channel members.
Distribution channel is, therefore, one of the critical decision areas in the field
of marketing. Its importance can also be visualized in the fact that it has
considerable impact on other managerial decisions in the field of product lines,
pricing, sales force and various other decision areas. Smooth functioning of the
distribution channel is a vital link in the firm's total marketing effort.
1.1.2

Background of the Organization

Nepal is a land locked country bordered by India in three sides and the northern
part by Tibet/China. Nepal does not produce any oil and depends totally on
imports in the refined form. NOC is the sole organization responsible for the
import and distribution of petroleum products. Nepal Oil Corporation ( NOC)
Ltd. was established in 26th Poush 2027 B.S. under the Companies Act, 2021,
with the main objective of assuring smooth and uninterrupted distribution of
petroleum products. After few years of establishment, Nepal Oil Corporation
was granted monopoly to import and distribute petroleum products. Before
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establishment of NOC, various foreign enterprises like Esso, Vermasale, and

Indian Oil International were fulfilling the needs of petroleum products.
The government owns majority of its share i.e. 98.36% and four enterprises
Nepal Bank Ltd.(0.23%), Rastriya Beema Sansthan(0.47%) , Rastriya Banijya
Bank(0.16%), National Trading Ltd(0.78%), have also invested in NOC. NOC
was established with authorized and issued capital of Rs.1 crore and paid-up
capital of Rs 10 lakhs. At present authorized and issued capital is Rs.50 crores
and paid-up capital is Rs. 9crore 67 lakhs and 15 thousand. NOC deals with
the trading business of various types of fuel like MS, HSD, SKO, ATF, FO,
LPG, etc. It brings fuel from a third country. All these different types of fuel are
sold and distributed all over the country. It has five Regional Offices, branch
offices, fuel depots and aviation fuel depots for distribution of the fuel from the
Eastern region to the Western region in Nepal. It has total storage capacity of
72,088 KL and around 753 employees. As NOC has no storage facility of LDO,
FO and LPG, it sells these petroleum products as per the import. For LPG,
NOC has private dealer firms that import and sell it with the prior permission
from NOC.1
The main objectives of NOC are as follows:1. To import different types of petroleum and its products like petrol, diesel,
mobil, lubricants oil, kerosene, grease, aviation oil from different countries;
2. To provide the technological service for the determination of required place
and the construction of tanks to fulfill the objectives as stated in (1);
3. To establish refining industry for refining and processing of imported crude
oil from different countries on its own or in collaboration with foreign
companies;
4. To establish a firm to investigate the possibility of mining, refining and
processing of oil and gas mines in Nepal;
5. To manage the storage of imported petroleum and crude products in Nepal;
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Milian Smarika 2069, Journal by Employees Organization of Nepal Oil Corportation

6. To manage own tanks or private tanks for distribution and sales of

petroleum products in Nepal; and,
7. To do other auxiliary works for fulfillment of NOC's objectives.2
As mentioned above, NOC was established with the main objective of assuring
smooth and uninterrupted distribution of petroleum products. It started the
Eastern Regional Office, Biratnagar in Bhadra 2030 B.S. Earlier, it was located
near Old Airport in a rental house with 9 employees. At that time, NOC had
only 24 dealers. Thereafter, in 2035 B.S. it was relocated to its own building at
Kanchanbari. At that time, the storage capacity was: Petrol 280 KL, Diesel 710
K.L, and Kerosene 710 K.L. Thereafter, the capacity was enhanced further and
at present the storage capacity is: Petrol 560 K.L, Diesel 8910 K.L, Kerosene
2170 K.L and ATF 280 K.L. At present, 60 employees are working in Eastern
Regional Office. And the total number of dealers are 458. The number of
transporters throughout the Eastern region is 155 and the number of tankers
engaged is 265.
1.2

Focus of the Study

In this research the, main focus is to analyze the distribution channel adopted
by the NOC and to evaluate its strengths and weaknesses to suggest measures
for the effective distribution channel. Distribution channel is critical because an
organization uses these channels to meet their marketing and business
objectives by providing and delivering products and/or services that generate
profit and increase their customer base. It only studies the Eastern Region.

1.3

Statement of the Problem

Petroleum products are the backbone of the worlds energy mix and it is the
basis of numerous items that people use. It is a powerful tool that enables
technological advancement, social development and economical prosperity.

Prabhat 2066, Nepal Oil Corportation Journal by NOC

In the context of Nepal, NOC is the sole organization for the import and
distribution of petroleum products. Demand of petroleum products has
increased in recent years. Reason behind this increased demand could be slow
but steady development of social, economical and industrial area. There is road
construction and extension, number of private vehicle has been increased
because of remittance etc.
Nepal does not produce any oil and depends totally on imports in the refined
form. Distribution of petroleum products became crucial. It is necessary to
understand and analyze the distribution channel of NOC. So that it could fulfill
demand of petroleum products in coming years. As NOC is facing problems
due to political instability, financial loss, poor infrastructure. Threat of
competition from private sector etc. it is wise to have a SWOT analysis so that
NOC can run smoothly in coming years.

1.4

Objectives of the Study

The specified objectives of the study are stated below:
1. To explain the design of distribution channel adopted by NOC.
2. To analyze the strengths and weaknesses of the present distribution
channel.
3. To suggest measures for improvement of the distribution channel of
NOC.

1.5

Limitations of the Study

The marketing activity of NOC is spread throughout the country encompassing
various regions. This study is related to only one region of Nepal Oil
Corporation i.e. Eastern Regional Office, Biratnagar and it does not cover all
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the aspects of marketing but focuses only on the distribution channel of

petroleum products mainly petrol, diesel and kerosene.
In the study, the distribution aspect has been followed with the NOC's
viewpoint. The opinions, attitudes and recommendations of all the dealers and
the consumers could not be ascertained. Hence, a selected few was taken into
consideration, which is another limitation of the study. Time, money etc. were
also limited. Lack of proper literature and studies about the distribution aspect
of NOC was a major limitation for the study.
1.6

Organization of the report

The research study is divided into five chapters, including bibliography and
appendix
1. Introduction

Chapter one deals with the background of the study, this chapter starts with
background of the study shedding lights on marketing management and
distribution channel. Followed by introduction to the NOC and its objective,
main focus of the study, statement of the problem, objectives of the study and
limitations of the study.
2. Review of Literature

Review of literature is the second chapter of the study. Theoretical base of the
distribution channel is described here, together with distribution of consumer
and business goods.
3. Research Methodology
Research Methodology, forms chapter three which discusses research design,
population and sampling, nature and sources of data, method of data collection and
data analysis.

4. Presentation and Analysis of Data

Presentation and analysis of data is the fourth chapter of the study here data collected
are presented and analyzed in a logical manner. It contains description of present
distribution and marketing aspect of NOC, different statistics and analysis of NOC.
Dealers and customer survey analysis, SWOT analysis and marketing mix of NOC .
5. Major Findings, Conclusion and Recommendation

Major findings, conclusions and recommendation is the last chapter. It is based

on analysis of data and study done in previous chapters.