Swimming through Blue Ocean - The ITC eChoupal Story

Over the years, ITC eChoupal story has been told from many perspectives. On the occasion of the launch of India Blue Ocean Strategy Research Centre by TAPMI, I was requested to share the story using the Blue Ocean Strategy framework. Following is a summary of that talk. The ppt I used is here.

If you are unfamiliar with the Blue Ocean Strategy (BOS), or would like to refresh, this presentation by the BOS authors provides a quick overview.

In essence, the aim of BOS is not to out-perform the competition in the existing industry (a bloody battle akin to a red ocean), but to create new market space (a blue ocean), thereby making the competition irrelevant. BOS framework includes 'formulation' & 'execution' principles to minimise risks and maximise opportunities while creating blue oceans. A 'visual strategy canvas' frames the context, and a 'new value curve' with 'four actions framework' offers the tool kit to craft the strategy. 'Six paths' to BOS pull you out of a mindset of "competing within" to "creating across" the dimensions of industry, offering, orientation, time etc

The eChoupal story is written in normal font and the references to BOS framework are in italics.

Am using rural marketing as the scene of my story today. Feature stripped products at low prices, or single serve packs at unit prices, are the most common strategies adopted by companies, while targeting rural consumers in India. These efforts did succeed to some extent, but growth & profitability are limited, because everyone is competing for a larger share of the same small wallet. The outcome is a bloody red ocean! Many companies, in fact, started wondering if there indeed is a fortune at the bottom of the pyramid, or just some small change...

Comes along ITC eChoupal, and says "why not raise the incomes of rural people and then get a larger share of their expanding wallets?" "And if we can raise their incomes profitably, that becomes a unique business opportunity in itself, and will also create a virtuous cycle; more profits to ITC --> higher incomes to rural producers --> more spends by the rural consumers --> more profits to ITC -->" In other words, fortune "for" the bottom of the pyramid as a route to discover fortune "at" the bottom of the pyramid!

Thus, instead of following the conventional logic of outpacing the competition on the same counts by offering a better solution (lower prices) to the given problem (low incomes), ITC eChoupal redefined the problem itself and offered a blue ocean solution that made the competition irrelevant. This 'reconstructed' the market boundaries and eliminated the 'search risk'.

BOS recommends a sequence in which the strategy must be created to ensure a win-win in the new market terrain, viz. 'utility' of the offering to the customer, 'price' that is relevant to the customer, a target 'cost' that leaves sufficient profit for the company at the relevant price, and finally make certain that the customer 'adopts' the offering... In fact, ITC eChoupal can be called a "deep blue ocean strategy" because this sequence itself was made redundant by "raising incomes, at no charge to the customer; the questions on pricing and adoption didn't even arise"!

In the language we use internally, "raising incomes" was only an "opportunity insight". We still needed a "solution insight" that could actually seize that opportunity...

In fact, our solution insight actually killed five birds with one stroke, much like the Hungarian Bus Company (NABI) example cited in the BOS book. So, I fancied the title "Five Birds with One Stroke" for my next section :)

Before coming to that, let me describe another red ocean in the context of rural producers. I illustrate this by using the example of farmers. Most of you know that farmers receive only a small share of the consumer price; this is because of an institution called "mandi" (an auction centre) in the value chain between a farmer and a consumer. Farmers take their produce to a "mandi", typically some thirty kilometres away from their village, to sell. Representatives of Agri Business Companies or their agents look at the produce to assess the quality and bid a price. At the end of such a bidding, the farmer is under pressure to sell the produce even if he is not happy with the price because of the sunk cost of transportation. Taking the produce back and bringing it again would mean twice the cost, with no guarantee of a better price the next time around. The total transaction costs also multiply because the produce is first taken from the village to the mandi from where it is brought to the Buyer's warehouse. Since mandis became monopolies, cartelisation to bid lower prices, higher commission charges and malpractices (eg under-weighment of the produce) etc became common. But there was no better option than a mandi, because the farmers were small, the quality of their produce was heterogeneous and they lived in dispersed geographies.

If we figured a way to "discover the price in the village" despite these constraints, we could eliminate substantial part of these non-value-adding transaction costs and split that saving between the farmer and ITC. That was our "solution insight" to raise farmers' incomes. We did this by using the Internet for disseminating the generic price, and a lead farmer (Choupal Sanchalak) to assess the quality in the village itself. Once the price was discovered, the farmer could decide - with no pressure of sunk cost on him - when and where to sell his produce for best price realisation. If he decided to sell his produce to ITC, he brought it to ITC's factory or warehouse (typically at a similar distance as a mandi) to realise a higher net revenue, because he paid no commissions nor incurred any labour charges. Electronic weighing ensured correct weighment. Since the material is delivered at ITC's warehouse, ITC saved on transport costs. The savings are different for different commodities and geographies, depending on the levels of non-value-adding costs in those chains.

This is the first bird, and in a sense, is like "Eliminate", one of the four actions to design a new value curve under BOS; eliminate some of the factors that the industry takes for granted!

But, 'inefficiency elimination' as a source of value becomes obsolescent with the passage of time, as the market efficiency improves once many competitors imitate the model. So we needed to discover more sources of value. And, we did not need to go far! The same price discovery solution became the source of another value, the second bird :)

The case study of ITC's Aashirvaad Atta is the best illustration of this idea. Indian consumer living in different parts of the country seeks different traits in Atta (wheat flour) based on the cooking habits in those geographies, viz. colour, texture, water absorption capacity etc. But the traditional mandi system did not allow this value to be offered to the consumer! The different varieties of wheat that could deliver these traits got mixed up at the mandi before moving to the wheat mill. As a result, the consumer did not see value in buying packaged atta and preferred buying select wheat and getting it ground in a neighbourhood chakki, however inconvenient it was. With farmers bringing their produce to ITC eChoupal hubs themselves without any comingling of varieties as happened at mandis, ITC could preserve the identity of the varieties & grades through its supply chain and produce discrete blends of atta for different markets of India based on consumer demand. And, Aashirvaad became a market leader with over 50% share in under two years of its launch. And the market itself has doubled since then, as the consumer is now finding the traits she wanted in atta itself! The farmer now received a larger share of a higher value delivered to the consumer; and ITC built a premium brand...

This is another idea described in the four action framework, as "raising" a factor of the value curve well above the industry standard!

The third bird was a revelation for us when we went to the farmers for feedback during our first season. The higher price and the lower costs were only second and third benefits on the farmers list. To our surprise, the first was the restoration of their pride through dignity of choice! Many farmers said that they felt humiliated by the system of "auctioning" their produce at mandis, as they had no way to set their own price for their months of toil & risk as any other business person did. Nilaami of someone's property was a disgrace in villages, as this happened only to the insolvent... But, in farm produce there was no other choice.

It occurred to us that the traditional functional orientation of the industry (a strictly price based transaction), suddenly got transformed into an emotional orientation. This is one of the six conventional boundaries of competition described in the book, when broken through would lay a new path to Blue Ocean Strategy. And this revelation also reinforced our tagline "Kisanon ke Hith mein, Kisanon ka Apna". A simple and compelling tagline is a key attribute of a sound BOS, along with two other complementing characteristics viz. must have an undiffused focus on some key competitive factors, and the shape of the value curve must diverge from that of other players in the industry.

This re-orientation of the relationship helped with the fourth bird! The trust reposed by the farmers in the ITC eChoupal brand enabled us to create a rural marketing platform that could endorse products & services on offer to rural consumers helping deeper penetration. In turn these products & services filtered by ITC through its knowledge and bargaining power raised the quality of life in rural India finding better destination for the higher incomes. The same digital (access to Internet), human (Sanchalaks & Samyojaks - more on this later) and physical infrastructure of eChoupal was leveraged for the reverse flow, reducing the effective cost of reach into rural India. Today more than 160 organisations ride on this platform creating an "increasing returns model". More partner companies bring more customers, and more customers attract more partner companies!

This fourth bird is like another method of the four actions framework i.e. "create" some factors that the industry has never offered before, to craft a new value curve.

Using this rural marketing platform to deliver agri inputs together with agri extension, raised farm productivity and quality of the farm produce. This was the one more way of raising the farm incomes, while creating another new business opportunity for ITC!

The shot not only delivered the fifth bird, but also broke another of the conventional boundaries of the competition by expanding the scope of offering through a complementary service (extension bundled with input) to chart another BOS!

Before I close, let me illustrate a couple of "execution principles" of BOS by sharing what I consider the real breakthrough innovations of ITC eChoupal. Both of these are similar to having your cake and eating it too, the hallmark of value innovation under BOS!

First of these is the co-option of the traditional middlemen into the eChoupal model as Samyojaks. These middlemen added value to the agri chains by making up for the lack of infrastructure; especially in the areas of physical transmission of goods, handling cash and managing counterparty risk. But they spun exploitative cycles of dependency around farmers and extracted value for themselves, by blocking information flow and market signals. ITC eChoupal co-opted them as service providers to handle physical jobs, yet bypassed them in the information chain by using Internet. In this manner, who could have been potential detractors of the new strategy were converted into friends. The devil is silenced, per BOS language!

Even more interesting is the creation of a new institution called Sanchalaks, lead farmers from within the village. Through a "fair process" of selection and work practices, the Sanchalaks were evolved into nano-enterprises who are equi-distant from the farmers as well as the companies riding on the platform at the same time. Both of them considered a Sanchalak a reliable trustee of their interests. The angel is leveraged, per BOS language!

With these execution risks managed effectively, ITC eChoupal initiative is now scaled to serve 5 million farmers (or 20 million consumers) spread across 50,000 villages of rural India.

Thank you...

PS: ITC eChoupal story is narrated using the BOS framework with a hope to trigger more innovation for the benefit of society, but the initiative itself precedes the BOS book by five years!

Rainbow Revolution in Indian Agriculture through innovative Agri Extension

Earlier today, I chaired a session on "Agri Business Extension" at the NAARM - IFPRI Workshop on "Redesigning Agricultural Extension in India". Since that was the last technical session of the Workshop, I had an opportunity to include "my take-aways" from the deliberations in all the four previous sessions in my opening remarks. My closing remarks were based on the presentations made in that session and the discussions that followed.

My Opening Remarks:

After the Green Revolution for Grains, White for Milk, Yellow for Oilseeds and Blue for Aquaculture, the phrase 'Rainbow Revolution' has been used in Indian agriculture to describe the growth of the horticulture sector. Today I would like to use that label to signify the revolution we can bring about through innovative agri extension services. For a reason... At the beginning of this workshop, we had a white canvas on which we could paint the future of agri extension. While reflecting on the deliberations of the earlier sessions in my own mind, I visualised seven distinct colours on such a painting, if we were to achieve the revolution we all want. Hence my choice of expression, "Rainbow Revolution"!

The first colour I visualised suggested that our focus must be on the farmer. Not just as a passive recipient of Knowledge, as in the traditional paradigm of 'Last Mile in the Technology Transfer", but as an active Co-creator of Knowledge in a multi-way knowledge exchange paradigm. This would ensure access to personalised solutions to the farmer, besides setting a reality oriented agenda for agri research itself...

The second colour depicted synchronised delivery of information, knowledge and inputs. This takes us beyond just transfer of knowledge to actually applying it on the ground. Inputs here mean credit, seeds, nutrients, crop protection chemicals, access to farm equipment, risk management solutions etc.

The third colour called for an alignment with the Government's flagship agriculture programme RKVY, to be able to create a force multiplier. This in turn means building the capacity for village and district level planning. At the same time, there is also a need for redesigning Government programmes to ensure that they don't unduly distort markets; because at the end of the day, we are relying on a market economy.

The fourth colour sought integration of agri extension into the full value chain of that produce. This approach will figure a way to create value by serving the changing needs of an evolving consumer. This also will consciously extend the role of agri extension into the vital post-harvest arena.

The fifth colour I had visualised demanded accountability of the system to all its stakeholders. An outcome oriented system instead of input or output as the only metrics. Today, by making the extension service free, we may have taken away the farmers' right to demand quality. Even a token payment will work wonders in ensuring accountability!

The sixth colour appealed that we be sensitive to the non-renewable natural resources. Agri Extension must promote Conservation Agriculture as much as possible. All of us know the three dimensions of agriculture vis-à-vis climate change (1) that agriculture is a part of the problem, causing climate change through Green House Gas emissions (methane from flooded paddy fields & ruminants like cows, nitrous oxide from the soils, CO2 from fossil fuels used in farm equipment etc), (2) that agriculture is also one of the most vulnerable sectors impacted by climate change (fall in productivity due to changing weather patterns), and (3) that agriculture can be an important part of the solution to climate change (through emission reductions, carbon sequestration, increasing soil organic matter etc)

Finally, the seventh colour stressed the need for a proactive agenda on gender issues in agri extension. Analyse gender roles in farming systems, enable gender sensitive agri extension methodologies...

To paint these seven colours, the speakers in this session have access to several new brushes.

For example, the leapfrogging developments in communication media, information processing and presentation. The medium must be relevant to the message and the context.

Power of partnerships is another good brush! Define complementary roles, varied resources of different partners, and the shared aspirations. Deal with the challenge of mistrust, as one of the earlier speakers pointed out.

Co-opting social capital resident in the communities for relationship building and group mobilisation.

Then, there are several innovations in aggregation methods, business models and conflict resolution approaches.

Our artistes, the business people that they are, have certain unique capabilities.

Consumer centrality is the essence of business. Understanding, designing and delivering consumer-relevant solutions is how businesses thrive.

These businesses are accountable through "choices". Consumers simply vote with their wallets and feet, when they have choices. Businesses become unsustainable if their solutions are redundant.

Governance processes and the management capacity of businesses need not be reminded to this audience.

Before I pass the floor on to our first speaker, let me also share the specific brush strokes I want to see from each of these artistes...

What's the role of agri-business in extension? What are the risks of businesses engaging in extension activity? What are the contours of a new regulation that can mitigate such risks?

Should the role of Government be restricted only to those areas businesses won't go? That is, poor farmers, backward regions, long term challenges, subsistence crops etc. How do we ensure that subsidies do not unduly distort the evolving agri services market?

My Closing Remarks:

So, we now have a colourful painting and a beautiful frame.

The painting portrays a "co-creation platform", if I can call it so. The platform provider could be Government, or a Co-operative or an Agri-Business. The platform operates globally, but enables seam-less local participation of multiple stakeholders who can simply plug & play. Such an orchestrated yet open platform has the ability to produce a rainbow at will...

The frame I see has the character of regulating by fostering competition, rather than by restricting. The subsidies are delivered through coupons, so farmers can exercise choice across multiple platforms!

Evolving Landscape of Rural India: Role of Mobile Devices

Mobility will play a central role and significantly influence the very evolution of rural India hereafter. Therefore, rather than suggesting a plain list of ‘many ways in which mobile devices can be used in rural areas’, I would like to start with a quick look at the underlying drivers of rural India and then propose a framework to visualize the consequent strategic role that mobile devices can play.

My presentation is set in four parts:

1. Aspirations of rural people
2. Fundamental characteristics of rural India and how they come in the way of fulfilling those aspirations
3. Components of value in general, and their relevance to rural India vis-à-vis the aspirations and characteristics
4. The role mobile devices can play in this backdrop

Over the thirty years I have been working in rural India, the most remarkable facet I observed is the transformation of rural mind-set from one of ‘resignation due to deprivation’ to ‘aspiration arising out of empowerment’!

• This transformation occurred as the rural infrastructure improved (especially roads and telecom) and their incomes rose. And the sources of income expanded too - within agriculture diversification helped, while the non-farm activities multiplied (livestock, sales & services in rural markets). Several Government schemes as well as remittances from the kin who migrated to towns brought in more money into rural hands.
• The aspiration is primarily for better basic services (education and health), and superior quality of life (access to consumer goods used in urban India, financial services and entertainment). People, naturally, are also looking for opportunities to step up their incomes further (new livelihood sources and appropriate production inputs are the needs here) to be able to afford such products & services.

However, three characteristics of rural India come in the way of realizing these aspirations…

• The wide geographic dispersion of our villages constrains access to products & services mentioned earlier, in terms of timeliness, quality and cost - if they access at all. Because villages are a long way away from the centres of action (urban areas) where specialists reside or these products & services originate.
• Extreme fragmentation in terms of the size of rural production units reduces their bargaining power when they buy their inputs or sell their output. This is true even for financial services and consumer goods as well, as the ticket size of their purchases is very small. Aggregation can empower them, be it in the form of cooperatives, or self help groups; whether physically or virtually
• Wide heterogeneity in circumstances of the people across rural India requires products and solutions that are personalised to their unique needs. Delivering such solutions is expensive as is, and is further unattractive when the unit volumes and paying capacities are small.

Value has three components. Value Creation, Value Delivery and Value Capture

• By a logical extension of the three characteristics already described, it is obvious that value can be created in rural India by delivering services remotely (overcoming dispersion), by personalizing solutions (that address heterogeneity) and by democratizing access (neutralizing scale / class disadvantage, eg. for poor people & women).
• What is not commonly appreciated is the fact, that the same three characteristics constrain rural people from taking advantage of even the available products & services unless they are delivered as a complete end-to-end solution. For example farm productivity won’t rise unless relevant agri advisory, real-time weather / market information, credit, seed, nutrients, crop protection chemicals etc are all available in a coordinated fashion. So, a well-orchestrated ecosystem is needed for actually delivering the value created by using the ideas mentioned in the first bullet.
• For any enterprise to scale and sustain over time, some of the value created & delivered must be captured for its financial investors. All of you know the famous examples of many dotcom companies that created value for their customers, yet went bust as their business models could not capture enough value for themselves! In case of rural markets, plain vanilla business models that try to capture more share of the small wallets find it difficult to sustain. Innovative models leverage aggregate volumes of these markets and get interested third parties to cross-subsidise (much like the media business), besides capturing some value from the rising incomes (having facilitated such rise in the first instance)

Interestingly, with their wide-ranging capabilities, mobile devices can play a central role in all the three components of value in rural India

• Remote delivery of certain virtual elements in areas like education, health, entertainment; both information & transactions in income generating areas like agriculture, financial services, governance & citizen services; exchanges for employment and matrimonial; social networking platforms etc are all already happening at some basic level using mobile devices by extending the applications designed for Web.
• Additionally, by integrating features like unique identification, crowd sourcing, GPS, GIS, visual mapping, text-to-voice, multi-player collaboration etc., several other value creating applications can be developed which wouldn’t be operationally feasible without mobile devices.
• Finally, with targeted delivery of content & advertisements mobile devices will facilitate the value capture process.
• Remote delivery at door-step, personalized solutions for relevance, virtual aggregation for economies of scale, collaboration for putting end-to-end solutions together, unconstrained access even for the disadvantaged – all so necessary for development of rural India, are now possible due to mobile devices

Let me now illustrate these propositions with some specific uses of mobile devices along these lines

• In education, e-learning will morph into m-learning; further moving to potentially deliver books over mobile devices as the screen sizes expand; with the ability to stay in touch on an ongoing basis, life-long delivery of continuing education is possible
• Last mile access in health services, drawing upon experiences from web based tele-medicine services. Mobile device itself as a medical instrument (eg pulse reader) is not a distant dream.
• Entertainment applications do not need much elaboration; will have instant demand
• Location based information services like Yellow Pages (eg doctors, agri input stores) can morph into mini meta markets
• In agriculture and other livelihood activities, starting with elementary services like information provision - delivered as text or voice - (eg. weather forecasts, market prices) to transactions (eg e-procurement through auctions, negotiations) to sophisticated applications like precision farming through personalized crop management advice (with the ability to click and transmit photographs on one hand, and integration with GIS on the other hand)
• Banking transactions
• m-commerce transactions like railway ticket booking
• Calendar integrated notifications and alerts
• Remote monitoring and activation of farm automation systems (eg irrigation, fertigation), some of which is already happening as a grassroots innovation
• Supply chain management applications in rural marketing (for FMCG, medicines etc) like order taking, promotions, information uploading, remote stock management in rural outlets
• Governance applications like voice / text alerts of Government Scheme; or operational activities like uploading of local data by Village Accountants, Anganwadi Workers, Warehouse Keepers etc
• Citizen reporters generated news and other local information, or even poll based market research, visually mapped by integrating with GPS for reading patterns & movements and re-casting for local action

In short, a mobile device can become a hand held transaction platform, a personalized bank branch, a retail store, a cinema screen, a teacher, a doctor and many such, besides being the good old communication tool. Thereby, playing the role of a key enabler in taking rural people forward with rest of India; delivering the much desired inclusive growth :)

PS:

1. This blog is a summary of my talk at the Nokia Strategy Summit in Amby Valley (Lonavala) on 29th April 2010.
2. I am thankful to so many friends (a record fifty four in all) who shared their thoughts via Twitter, Facebook and LinkedIn as valuable inputs for this talk.

Investment Opportunities in Indian Food & Agri Business Sector

Here is a summary of my talk at the BRIC-IBSA Business Forum in Rio De Janeiro on 14 April 2010

Investment Opportunity in Indian Food & Agri Business Sector is founded on Four Pillars

1. Large Sector with further tremendous upside

2. Indian Consumer is seeking new products

3. Production system has potential to supply those new products

4. The Business environment is very conducive

Pillar 1: Large Sector & Further Upside

• Size > US$ 200 Billion

• 50% of household expenditure is on Food

• 50% of workforce is engaged in agriculture

• That rest of the economy is outgrowing agriculture, is a signal for investment opportunities in agriculture

Pillar 2: The Consumer Dimension

• More than 1 billion consumers

• Rising incomes & rapid urbanisation changing the profile of consumption

• Global experience: US$ 1000 per capita is the sweet spot for shift in food consumption patterns, from basic to value added food

• Consumer is looking for new value: quality, variety, safety, convenience etc.

• Besides this domestic opportunity, there are export prospects too in several products

Pillar 3: The Production System

• Large arable area > 150 million ha

• Rich & diverse agro climatic zones

• Characterised by small farmers

• Good scope for productivity enhancement through technology induction

Pillar 4: The Business Environment

• Significant private participation after policy reforms in the last decade

• Traditional farm labour seeking new jobs

• Large infrastructure investments in the recent past: roads, telecom, irrigation etc

• Thrust area for Government as a strategy for “inclusive growth”

The Investment Opportunities

• Innovation at the consumer end of the chain (Processing, packaging, retail formats)

• Effectiveness at the farmer end of the chain (Productivity, quality - pre & post harvest, labour saving technologies)

• Efficiency along the whole chain (Integration, coordination, infrastructure)

• Cross BRIC-IBSA collaboration imperative (Food Security, Climate Change)

Investment Opportunities in Rural India

Here is a summary of my talk on "Investment Opportunities in Rural India" at the Credit Suisse Investors' Conference, Hong Kong in the session on "Emergence of Rural Asian Economy" (24 March 2010)

My talk had three parts.

1. What factors helped rural India grow phenomenally in the recent past?

2. Will the growth sustain?

3. What are the investment opportunities!

Six factors helped growth

1. Infrastructure investments (roads by Govt, telecom by private)

2. Higher farm incomes (high commodity prices, more crop diversification)

3. Government programs like Universal Education, Employment Guarantee, Waiver of loan repayment by small farmers

4. Remittances from youth employed in towns

5. Rural non-farm (live stock, new services)

6. Income from sale of land (urbanisation, industrialisation)

While there is no problem to this growth momentum in the short run, there are several (six again!) show-stoppers that need to be dealt with

1. Food Security, due to stagnating farm yields and land use diversification; malnourishment of women & children in particular

2. Climate Change will compound the yields problem. An IFPRI model says Indian wheat yields can decline by 50% by 2050; rice 17%, maize 6%. We need to build the small farmer capacity in yield improvements and in dealing with climate variability

3. Need to create more urban jobs, especially in small towns; ratio of agri workforce to arable land is rising to unsustainable levels

4. Investments in "energy" still woefully inadequate

5. Policy reforms to link farmers to markets have slowed down / reversed

6. Quality of delivery mechanisms for basic services still poor (education, health care, financial services)

These challenges present opportunities in four specific areas of investment!

1. Infrastructure businesses (energy solutions, logistics, micro irrigation). PPP opportunity

2. Provision of Basic Services (education, healthcare, financial services). PPP + innovative business models required

3. New Technologies (labour saving crops, chemicals, equipment; mobile phone apps, rapid testing equipment for crop quality & biometrics)

4. Delivery Channels (Govt Services, Agri Extension, Basic Services as in 2 above, Consumer goods)

Blending Innovation and Social Entrepreneurship, Changing lives

Here is a summary of my opening remarks during the panel discussion on “Blending Innovation and Social Entrepreneurship, Changing lives” at the Villgro Unconvention on 11th Dec 2009 (http://nxy.in/7rxhn)

1. What is “changing lives”?

To me, “changing lives” has two aspects and one outcome

(a) Align capacity of the people. Am saying “align” rather than the more commonly used term “build”, because I believe everyone has some sort of special capacity innately. Capacity could be social rights, economics knowledge, communication etc

(b) Enable unconstrained access to markets. Markets for information, knowledge, inputs (products and services) into production activity and access to output markets

so that

(c) everyone can fulfill their aspirations whatever they are, including a better quality of life!

2. Why do we still need to talk about “changing lives”, despite so many centuries of civilisation?

I will illustrate my arguments referring primarily to the context of rural Indian people (because that’s Villgro’s canvas, and that’s where my experience lies in any case), but many of these observations are relevant to all poor people.

Because of certain inherent and fundamental characteristics of rural people (especially farmers) and certain other challenges, their access to markets is constrained. Consequently all their hard work, innovation and risk are burnt in sheer survival rather than creation of wealth. Incidentally, in the same panel, Paul Polak described such people as “survival entrepreneurs”

I call some characteristics fundamental, because they are unlikely to change (to any significant effect) in the foreseeable future. They are:

(a) Fragmented Size: Each of the 120 million Indian farmers owns an average of just about a hectare-and-a-half of land. Consequently, they end up with weak bargaining power in any value chains they are part of. They end up buying any thing they buy at a very high retail price at the end of a long chain. CK Prahalad called this “Poverty Premium”. On the other hand, whatever they sell they sell at a whole sale price at the beginning of another long chain; receiving only a small share of the consumer Rupee as a result.

(b) Geographic Dispersion: These 120 million farmers live in some 600,000 villages spread across a large geography. As a result access to real-time information is difficult and cost of reaching goods becomes expensive.

(c) Heterogeneity: Besides the broader variations in soil types and climatic conditions across India, the individual farmers also differ from each other so much (eg. access to finance, cash flow needs, risk appetite, family labour and so on) that any generic solution is not going to be optimal for many. Personalisation of solutions is an imperative, but personalizing isn’t viable for any business when these people are fragmented and dispersed!

The challenges arising out of these fundamental characteristics are further compounded by inadequacies in the infrastructure. Infrastructure of three types. The more commonly known physical infrastructure viz. roads, power, telecom; also irrigation in case of farmers. Then the social infrastructure viz. education for competence building, health – a major reason for indebtedness in rural India. Finally, and most importantly, the still evolving institutional infrastructure viz. credit ratings, dispute resolution, commodity price risk management, farm yield risk management etc.

As a result of these fundamental characteristics and the infrastructure inadequacies, when the farmers access markets such as banks for loans, agri extension officers for farm management knowledge, mandis for selling agri produce etc their transaction costs are high; that is when they are actually able to access.
Otherwise they have to rely on middlemen in the villages who provide them all these services at one shop conveniently, but extract their pound of flesh by spinning a cycle of dependency and exploit it to their advantage!

In other words, these two options are like relying on the Devil or swimming through the Deep Sea to access the markets. What’s the outcome you then expect, except the world still looking for solutions to “change their lives”?

3. In this back drop, I propose that innovation along three vectors can make a difference and possibly hold a light at the end of the tunnel for these people:

(a) Technology: For relevant products (e.g. energy solutions – solar lights, communication solutions – mobile phones) at better value for money price points, and for remote access (information, knowledge, e-learning, health diagnosis & delivery) by side stepping or making up for infrastructure inadequacies

(b) Institutions: Fusing technology, social capital (making up the missing institutions and provide an alternative to the traditional middlemen e.g. Joint Liability Groups making up the missing credit appraisal mechanism; ITC eChoupal Sanchalak for facilitating value added access to Internet) and collaborative networks (that orchestrate an ecosystem to bring end-to-end solutions to the poor like middlemen, yet offer freedom of choice like the unbundled market institutions) to create more equitable markets

(c) New Business Models: Enmesh the interests of people and business (e.g. identity preserved supply chains in eChoupal system that raises the incomes of the farmers and increases ITC’s profits), and third party pays business models (leveraging the volume ala’ media business) for fiancial viability and scalability of the enterprises