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Y.C. DEVESHWAR AND S. SIVAKUMAR
Chairman, ITC & CEO, IBD, ITC |
One
day in the spring of 1999, ITC Chairman Yogi C. Deveshwar was closeted
with some of his key managers in the company's headquarters, Virginia
House in Kolkata. ITC is one of India's oldest professionally run
companies-it was founded in 1910-and Deveshwar, an engineering graduate
from the Indian Institute of Technology, Delhi, one of its most
respected managers. In 1991, the government handpicked him (on loan
from ITC) as the Chairman and Managing Director of Air India, the
state-owned national airline, a position he held till 1994. Since
1996, when he was named to head ITC, Deveshwar has had to manage
the company's uneasy relationship with its single-largest shareholder
British American Tobacco. And he has had to constantly think about
a Plan B for a company, much of whose revenues come from cigarettes.
Growing awareness of the hazards of smoking-Deveshwar
himself gave up smoking three years ago-is shrinking the market
for cigarettes, even in India, and the government is considering
banning all cigarette ads. Tobacco companies, if the government
has its way, will not even be allowed to sponsor sports events or
teams, something that almost left the Indian cricket team without
a sponsor in February 2001 when ITC's Wills brand, the then sponsor
decided to be proactive and move on before it was forced to. In
his seven years in office, YCD, as most people know him, has scripted
several Plan B forays: these include a growing emphasis on the company's
hotels business and diversifications into information technology,
ready-to-wear apparel and ready-to-eat foods, and confectionery-the
man himself is said to be partial to Minto, a brand of mints his
company acquired in March 2002.
The meeting wasn't about any of these; it was
about the company's International Business Division (IBD). Although
its name doesn't say as much, the IBD is India's second-largest
exporter of agricultural produce, including soya, wheat, sesame,
pepper, shrimp, and coffee. In 2002-03, the division contributed
Rs 1,040 crore to ITC's revenues of Rs 11,024 crore. India's archaic
laws regarding agriculture (corporate farming, for instance, is
a no-no), and a legacy of fragmented land holdings makes this business
a difficult one to manage. It is replete with inefficiencies, middlemen,
and logistical snafus-the perfect setting for a radical solution.
The discussion was heading nowhere, so Deveshwar
suggested to one of ITC's brightest young managers, then still in
his thirties, that the solution would probably require an entirely
new model for the business, one that used the power of the internet
to hook things up, and together. The manager was S. Sivakumar, now
43, and the Chief Executive of the IBD.
It must be factors related to history and geography
that make the Institute of Rural Management, Anand (IRMA, for short)
a very different kind of B-school. Anand, after all is home to the
Gujarat Co-operative Milk Marketing Federation (GCMMF), India's
most successful co-operative. And IRMA was founded by Verghese Kurien,
the architect of Operation Flood, the world's largest dairy development
programme. Not everyone who passes through IRMA ends up working
for a developmental institution, but the school does leave its mark
on most.
Even as a graduate student at Silver Jubilee
College, Kurnool, Sivakumar craved "a career option that would
combine development and management." He was set to take the
entrance examination for the Indian Administrative Service or enroll
in a MBA programme when he heard about IRMA, and 1981 saw him headed
for a 60-acre campus characterised by verdant lawns, abundant foliage,
and black-faced monkeys.
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e-choupals have emerged as an alternative
distribution system for tapping the potential of the rural market |
Deveshwar's brief appealed to Sivakumar. Here
was a chance to look for a solution that was an equal mix of the
yin and the yang; that satisfied the usually conflicting objectives
of community development and private profit. And so, he and his
team set out to create a business model that would improve the lot
of farmers, take the company closer to them, render middlemen redundant,
and improve efficiencies all along the chain.
Misrod (population: 3,000) is a village in
the central Indian state of Madhya Pradesh that isn't famous for
anything, not even the soyabean most of its farmers grow. In June
2000, it was here that ITC decided to kick-off the implementation
of the solution Sivakumar had put together: it was an internet-enabled
one that was at once knowledge-based and customer-focussed, all
three novelties in the agricultural commodities business. At the
core of the solution was the concept of e-choupal, a hybrid word
ITC created combining the e of e-biz with choupal, the Hindi word
for a village gathering place. The front-end of the e-choupal at
Misrod was an internet kiosk that enabled the village's populace
access the www; the back-end, an IBD portal soyachoupal.com (now
available in Hindi and Marathi) that provided farmers with information
on agricultural inputs, best practices in soyabean farming, the
market price, and the weather apart from serving as a trading platform.
Result: "A typical farmer's income in Misrod is up 25 per cent,"
says Sivakumar. "But the real impact has been the empowerment
of farmers."
Today, ITC has 3,000 e-choupals connecting
18,000 villages across Madhya Pradesh, Uttar Pradesh, Andhra Pradesh,
Karnataka, and Maharashtra. Apart from soyachoupal.com, the company
boasts three more portals, plantersnet.com (for coffee traders in
Karnataka and the site is available in English and Kannada), echoupal.com
(wheat farmers; Uttar Pradesh; English and Hindi) and aquachoupal.com
(shrimp farmers; Andhra Pradesh; English and Telugu). And it has
spent around Rs 60 crore on the initiative.
Sivakumar's masterstroke, one that often gets
overlooked, was his approach to separate the flow of information
in the commodities chain, from that of the products. Middlemen typically
controlled both. In the e-choupal model, the internet takes care
of the information bit: the IBD appoints a local farmer sanchalak
(conductor in Hindi) to serve as an interface between the computer
and other farmers-he gets a commission of 0.5 per cent on the produce
sold. And rather than appoint someone to aggregate, store and transport
the produce, Sivakumar thought it a good idea to use the existing
middlemen rendered that much powerless by the fact that they no
longer controlled the flow of information. ITC rechristened these
individuals samayojaks (co-ordinators); each samayojak earns a commission
of 1 per cent on transactions.
The e-choupals have helped ITC's IBD improve
the quality of products it sources and reduce costs (on soyabean
it saves Rs 250 a tonne). In the business of agricultural commodities,
where margins can often be as slim as 1 per cent, that's a lot.
Then, there's what it has done for the farmer. None of this, however,
is as relevant as the e-choupals' transition into an alternative
distribution system in a country where the potential of the rural
market has never fully been tapped. Today, 60 companies, including
the likes of Nagarjuna Fertilizers, Monsanto, Eicher, BPCL, TVS
Motor, Hero Cycles, LIC, and ICICI Prudential sell their products
through the e-choupal network: ITC earns a commission of anything
between 3 per cent and 40 per cent on these. Not surprisingly, Deveshwar,
expects the e-choupals-the network would cover 1 lakh villages by
2010-to bring in more revenues than the cigarette business by the
end of the decade.
Sivakumar, a Carnatic-music aficionado with
a knack for understatement is loath to take credit for the e-choupal
revolution. "This was no one's idea," he says, adding
that some "15-20 management concepts" and a synthesis
of the business models of five different companies, "seeds
major Cargill, ITC's own tobacco division, retail monolith Walmart,
American credit card company Capital One, and online auctioneer
eBay" have gone into it. Still, someone had to put it all together
and come up with a radical solution to reach India's 700 million
rural populace. Someone did.
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