RENUKA RAI | Thimphu
Bhutan’s craft retail sector remains an established source of livelihood and an important part of the country’s cultural and tourism identity, but the industry is facing growing challenges from imported products, weak quality certification, limited local supply and practices that could undermine consumer trust.
A new study, A Study of Bhutan’s Craft Retail Sector: Challenges, Practices, and the Path to a Dynamic and Sustainable Industry, by the Competition and Consumer Affairs Authority under the Ministry of Industry, Commerce & Employment found that the sector is structurally stable but constrained by weaknesses in quality assurance, market transparency and its heavy dependence on tourism.
The study, conducted among 31 small-scale craft retailers in Thimphu and Paro, found that 58 percent of businesses have been operating for more than 10 years, while 32 percent have operated between two and 10 years. Only 10 percent are relatively new businesses operating for less than two years.
The findings highlight the importance of the sector beyond retail. Bhutanese handicrafts are closely linked to the country’s cultural identity and are an important part of the experience offered to tourists. The craft value chain includes artisans, producer groups, wholesalers, dealers, transporters and retailers, meaning weaknesses at any stage can affect the wider industry.
However, retailers say imported products continue to fill gaps in local production, particularly where Bhutanese producers struggle with price, variety and consistency.
The study found significant differences in the share of local and imported products across craft categories.
Bamboo and cane products are entirely locally produced among the retailers surveyed, while wood products and yathra are also predominantly sourced locally. Souvenirs and knick-knacks are similarly dominated by domestic production, with 72 percent of retailers stocking only locally made products.
Metal and ceramic products, however, are overwhelmingly imported. Seventy-two percent of retailers selling metal products stock only imported items, while the remaining 28 percent stock both local and imported products. None of the retailers surveyed deal exclusively in locally made metal products.
Ceramics show a similar pattern, with 83 percent of retailers stocking only imported products and only four percent dealing exclusively in locally made ceramics.
Textiles present a different challenge. Despite Bhutan having a strong domestic weaving tradition, only 16 percent of retailers stock exclusively local textiles. A large majority, 81 percent, sell a combination of local and imported textiles.
The study suggests that the problem in textiles is less about the absence of domestic production capacity and more about price and product variety.
Retailers cited limited diversity of locally available products as the biggest reason for relying on imports, accounting for 27 percent of responses. Higher prices of local crafts followed at 26 percent, while 19 percent cited the inability to obtain desired products when needed and 13 percent cited unreliable supply.
This indicates that import dependence is driven largely by supply-side problems rather than a lack of interest in Bhutanese products.
One of the most concerning findings is the reported misrepresentation of imported products as Bhutanese-made.
Thirty percent of retailers said the practice does not occur, but another 30 percent said it happens frequently, while 17 percent described it as a consistent or ongoing practice. Taken together, the findings indicate that nearly half of respondents acknowledged that imported products are misrepresented as locally made to some degree.
The study says the practice can particularly affect tourists, who may be unable to distinguish genuine Bhutanese craftsmanship from imported substitutes.
Among retailers who acknowledged the practice, 29 percent identified buyer preference as a major motivation. Tourists often value locally made products as part of their Bhutan experience, creating an incentive for some retailers to label imported products as local.
Another 19 percent cited general market practice and competitive imitation, while another 19 percent pointed to better profit margins.
The concern is not only about individual consumers. The study warns that widespread misrepresentation could damage confidence in the craft market and disadvantage genuine artisans and retailers who sell authentic products.
Consumer demand for authenticity, meanwhile, appears strong. Eighty-four percent of retailers said customers sometimes or frequently ask about the origin of products. Only 16 percent said buyers rarely or never ask.
The study therefore recommends a credible certification and labelling system that would allow consumers to verify whether products are genuinely Bhutanese.
The study also raises concerns about pricing practices in the tourist-oriented craft market.
More than half of retailers surveyed, 52 percent, charge international tourists 10 to 25 percent more than local buyers. Another 32 percent charge between 26 and 50 percent more, while only 16 percent apply a markup of less than 10 percent.
For regional tourists, the price differences are comparatively smaller, although 25 percent of retailers still charge between 26 and 50 percent more than local buyers.
The study says that while some degree of price differentiation can occur in tourism markets, the size of the markups raises concerns about transparency and fairness.
Another major finding is the widespread use of commissions for tour-guide referrals.
Ninety-four percent of retailers reported paying commissions to tour guides for directing tourists to particular shops. Commission rates range from 10 to 25 percent of sales, with 20 percent being the most common rate.
The study says such commissions can become a hidden cost for tourists and may influence guides to recommend shops offering higher commissions rather than those offering better products or prices.
Retailers identified several structural challenges facing the sector.
Competition from mass-produced imported crafts was the most frequently cited specific challenge, accounting for 21 percent of responses. Low and unpredictable demand accounted for another 16 percent, while the absence of an effective product certification system accounted for 15 percent.
Limited or unreliable supply of local products was cited by 12 percent, while inconsistent quality accounted for another five percent.
Retailers are also calling for stronger government support.
Skills development for artisans and producer groups was the most frequently requested intervention, accounting for 24 percent of responses. Stronger enforcement against unethical business practices followed at 21 percent, while 17 percent called for a reliable product quality certification system.
Some retailers also called for higher tariffs on imported crafts, greater support for small businesses producing souvenirs and knick-knacks and a dedicated marketplace for authentic crafts.
The study recommends establishing a national craft quality certification and standardisation scheme, preferably through a voluntary and independently administered certification mark for genuine, quality-assured Bhutanese crafts.
It also recommends mandatory country-of-origin disclosure at the point of sale and stronger enforcement against misrepresentation.
For tour-guide commissions, the study recommends greater transparency, including disclosure of commission arrangements to tourists at the point of sale or referral.
The study further calls for investment in artisan skills, product diversification, production efficiency and costing. This could help address the two main reasons retailers turn to imports—limited product variety and higher prices of locally produced crafts.
It also recommends tailoring trade and industry policies to individual product categories. While supporting local production may be practical for textiles, clay and thangka products, replacing imports in categories such as metal and ceramics may not be realistic in the near term because of Bhutan’s limited raw-material and manufacturing base.
Another concern is the sector’s dependence on tourists concentrated largely in Thimphu and Paro.
The study recommends developing e-commerce and export channels for certified authentic Bhutanese crafts to diversify demand and give artisans access to markets beyond tourism and the two major craft-retail centres.
It also proposes a dedicated marketplace for certified authentic crafts, which could serve as a platform to showcase verified Bhutanese products and test measures such as origin disclosure and commission transparency.
The study concludes that Bhutan’s craft sector has a strong foundation, supported by established businesses and product categories where the country has genuine comparative advantages.
However, without stronger quality assurance, transparent pricing, reliable origin information and greater support for local producers, imported products and questionable market practices could weaken consumer confidence.
For Bhutan, the issue extends beyond the craft shops themselves. As handicrafts are closely connected to the country’s cultural image and tourism experience, protecting the authenticity of Bhutanese crafts is also about protecting the reputation of the Bhutanese tourism brand.
