ITC E-CHOUPAL: CORPORATE SOCIAL RESPONSIBILITY IN RURAL INDIA
It was August 2006, and Mr S. Sivakumar, CEO of the International Business Division (“IBD”) of ITC, one of India’s leading conglomerates, was listening to the Indian prime minister’s Independence Day address.
India has marched a great distance forward in these sixty years [of independence], but the challenge of banishing poverty remains with us. We have yet to banish hunger from our land. We have yet to eradicate illiteracy. We have yet to ensure that every Indian enjoys good health. […] I see that our farmers in many parts are in crisis, not managing to eke out a decent living from their land. When I visited Vidarbha, the plight of the farmers there made a deep impact on me. The agricultural crisis that is forcing them to take the desperate step [of committing suicide] needs to be resolved. We need to think about how we can provide a decent livelihood to our farmers.
- Dr Manmohan Singh, prime minister of India1 As Sivakumar considered this statement, his thoughts turned towards Misrod. Misrod was like most Indian villages; farmers were underserved and overexploited. As a participant in the agrarian supply chain, ITC was familiar with these abysmal conditions; but held to ransom by its own supply chain constraints and the associated bureaucracy, it was unable to do much. However, its e-Choupal2 movement in 2000 changed everything. Conceived as ITC’s answer to mitigate the constraints of the agrarian supply chain, e-Choupal not only transformed the business of farming but also with it the life of the Indian farmer. Under the initiative, ITC set up small internet kiosks in the villages that provided farmers access to an efficient and more transparent alternative to the traditional mandi3 for marketing 1 Prime Minister’s Independence Day Speech (2006) http://pmindia.nic.in/lspeech.asp?id=365 (accessed 11 April 2007). 2 Choupal is a Hindi word meaning “gathering place”. 3 A mandi is a traditional government-designated marketplace.
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their produce.4 By establishing a direct channel between themselves (ITC) and the farmer, e-Choupal significantly marginalised the role of the middlemen, who played a vital role in linking the supply chain but were also responsible for several inefficiencies. By eliminating these inefficiencies e-Choupal ensured farmers got more money for their produce, thereby raising their standard of living from the sub-penury levels they had invariably sunk into. Emerging from his thoughts, Sivakumar heard:
The challenge for us as a nation is to address this duality5 to ensure that, while we keep the wheels of progress moving rapidly forward, no section of society and no part of the country is left behind; to ensure that growth generates the necessary wealth which can then finance the welfare of marginalised groups; to ensure that growth generates employment and a bright future for our youth.
- Dr Manmohan Singh, prime minister of India6 Faced with a host of strategic challenges, ranging from the lack of physical infrastructure to the dearth of qualified human capital, Sivakumar considered how e-Choupal could contribute to overcoming this rural isolation? How could e-Choupal’s scope be widened to provide sustainable development and what would it mean for ITC? How far and how fast could he expand e-Choupal’s service offerings without stretching its basic fabric? Could he liaise with other ITC group companies to deliver business synergies? What more could e-Choupal deliver?
History of ITC and its International Business Division
Incorporated in August 1910, ITC went on to become one of India’s foremost private sector companies with a market capitalisation of nearly US$18 billion and an annual turnover of US$4.75 billion by December 2007.7 Rated among the “World’s best big companies”, Asia’s “Fab 50” and the “World’s most reputable companies” by Forbes magazine, ITC ranked third in pre-tax profit among India’s private sector corporations. Identified as being among the “Top 10 most valuable (company) brands in India” by Brand Finance, a leading independent brand valuation consultancy in the world, ITC’s business interests were spread over tobacco, hotels, agri-business, packaged foods, retail, information technology and branded apparel, among others [see Exhibit 1]. From 1997 to 2006, ITC was one of the country’s biggest foreign exchange earners, aggregating about US$2.8 billion in revenue.8 Of its various divisions, the IBD was the single largest contributor at about 60%.9. Set up in 1990, IBD’s objective was to leverage ITC’s agri-business competency to promote the export of agricultural commodities such as soybean meal, rice food grains, wheat and wheat products, lentils, marine products and coffee.10 Over time, leveraging IBD’s expertise in sourcing wheat, ITC also forayed into the domestic Indian market with its wheat products. 4 According to the Agricultural Produce Marketing Committee (APMC) Act, 1962, agri-companies could only purchase
commodities through government-designated mandis. 5 This duality is that of sustaining high levels of growth while providing for the economically weaker sections of society. 6 Prime Minister’s Independence Day Speech (2006) http://pmindia.nic.in/lspeech.asp?id=365 (accessed 11 April 2007). 7 For details see ITC’s website http://www.itcportal.com. 8 For details see ITC’s website http://www.itcportal.com. 9 ITC-IBD (Date unknown) “About ITC-IBS”, http://www.itcibd.com/aboutitc.asp (accessed 5 May 2007). 10 ITC-IBD (Date unknown) “FAQs”, http://www.itcibd.com/faq.asp (accessed 5 May 2007).
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Within two years of its launch, its domestic flour brand, Aashirvaad, became the foremost flour brand in India, with a market share of about 50%.11 In its 16 years of operation up until 2006, IBD had not only grown to become a US$600 million division, but had also become the flag-bearer of the company’s “Citizen First” mission.12
The innovative combination of digital, physical and human assets constitutes the basis for your [our] company’s deeper engagement with the rural economy through the progressive development of low cost broadband fulfilment capability. For ITC, these are expressions of a commitment beyond the market, of a conviction that country must come before corporation [and] of a true pride in being “Citizen First”.
Y.C. Deveshwar, chairman of ITC13
The Birth of e-Choupal
Business Rationale Although IBD was a key business unit of the ITC family, the going was not always smooth for it. Despite there being a huge demand for its products in both the domestic and international markets, IBD was unable to make the most of the opportunity for a long time. Eight years into operations, up until 1998, IBD was only making a marginal contribution of about US$112 million to ITC’s annual turnover of US$1.9 billion.14 At a time when competing in the international markets required an organisation to be both agile and decisively competitive, ITC was part of an agrarian supply chain that was regulated by the archaic government regulation of Agriculture Produce Marketing Committee (APMC) Act, which made things both painfully slow and grossly inefficient. In accordance with the APMC Act which was enacted during the 1960s, agri-companies could only buy agricultural produce through designated markets called mandis and exclusively through registered commission agents. As a consequence, once the crop was harvested, the farmers would cart their produce to the mandis where their produce was auctioned through these commission agents. By virtue of being the only channel between the farmers and the processor, these agents would typically aggregate multiple small lots before selling/transporting to a processor, thereby ensuring there was no price and quality transparency along the chain. Moreover, since the mandis were at a distance from the villages, once the farmer transported his produce to the mandis they were under pressure to sell irrespective of the price they received. The movement of goods through this rather long, traditional, farm-to-factory cycle [see Exhibit 2] resulted in costly delays, higher procurement costs for the company [see Exhibit 3] and low price realisation for the farmers. Although ITC had mandated its contracted agents to
11 Interview with S. Sivakumar, chief executive ITC-IBD, interviewed on 4 April 2007. 12 “Citizen First” was an expression of commitment beyond markets. Of a conviction that country must come before corporation.
For details see ITC’s website: www.itcportal.com. 13 ITC Chairman’s Speech (2006) “Vision, Values and Vitality Powering ITC’s Transformation”, http://www.itcportal.com/chairman_speaks/chairman_2006.html (accessed 5 May 2007). 14 Upton, David M. and Fuller, Virginia A. (2004) “The ITC e-Choupal Initiative”, Harvard Business School, Case No.9-604-016.
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pay a set price for the produce that was guided by the prices in global markets, the agents typically procured the crops at a lower price, sold it to ITC at the mandated prices and pocketed the difference.15 Operating in such a paradigm allowed the middlemen to skim away most of the gains and virtually suffocate the procurement process for ITC. Being the only conduit between the farmers and the processing companies, the middlemen constantly abused their position to create information asymmetry and to block market signals. Not only did they indulge in constant price manipulation but also rarely compensated the farmers commensurate to the quality of their produce, therefore thwarting the incentive for farmers to sow a high quality produce. Yet, the role played by middlemen was very critical as they made up for the lack of infrastructure and kept the system working. Such was the state of the agri-business cycle. The key stakeholders— processors like ITC and the farmers—were stuck in this unproductive cycle wherein they were continually exploited by the inadequacies of the system. Suffering from these pitfalls and facing increasing competition from Brazilian and US producers, ITC realised that the key to its international competitiveness was inextricably linked to the competitiveness and competence of the entire value chain. Thus, in a bid to marginalise the ill-effects of the power wielding middlemen and improve its own procurement process, Sivakumar and his team at IBD sowed the seeds of a new digital revolution, e-Choupal. Surmounting the regulatory barriers of the APMC Act by convincing the political and bureaucratic leadership that the spirit of the Act (to benefit the farmers) was better served through e-Choupal’s,16 ITC set up its first e-Choupal in Misrod Village in Madhya Pradesh. Rolled out in June 2000 under the e-Choupal initiative, ITC set up small internet kiosks in villages aimed at delivering the key benefits of what it described as an “improved supply chain”. Creating a direct channel between itself and the farmer, e-Choupal helped ITC eliminate wasteful intermediation and multiple handling costs [see Exhibit 4]. Now the farmer could directly liaise with the sanchalak, ITC’s contact in the village, obtain a rate for his or her produce, go directly to the ITC hub to deliver the grain and get paid. While ITC saved on the transportation costs and the commission it previously paid its agents, the farmers too emerged wealthier. With the elimination of a host of non-value-added activities, the traditional farm-to-factory cycle had been completely metamorphosed [see Exhibit 5]. The expulsion of the middlemen and removal of a multitude of activities from the supply chain (eg, bagging, repeated transport and storage), ITC left more money in the farmer’s hand. The farmer saved 50% of the transaction costs while ITC paid 20% less than what it had in the pre e-Choupal days.17 As an additional benefit, the direct liaison also allowed ITC to monitor the quality of the produce it bought and offer incentives to the farmers to adopt modern agricultural practices. In doing so, it was able to improve both the quality and quantity of the produce it received. Initially designed to tide over the concerns specific to its soybean procurement chain, the scope of e-Choupal was subsequently widened. Seeing its profound impact, the e-Choupal network soon embraced the procurement chains of wheat and other commodities, as well. While e-Choupal was continually nudging ITC’s bottom line, it was also delivering a bigger social objective—that of enabling rural transformation by adopting technology to reduce
15 Upton, David M. and Fuller, Virginia A. (2004) “The ITC e-Choupal Initiative”, Harvard Business School, Case No.9-604-016. 16 Asia Pacific Development Information Program (17 October 2006) “e-Choupal, Ujjain, Madhya Pradesh”,
http://www.apdip.net/resources/case/in06/view (accessed 5 May 2007). 17 IBN Live (23 February 2007) “Internet Brings Prosperity for Farmers”, http://www.ibnlive.com/news/internet-brings-
prosperity-for-farmers/34299-7.html (accessed 5 May 2007).
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poverty and rural isolation. For its work, the project received numerous awards [see Exhibit 6]. By 2007, e-Choupals were already spread over 38,000 villages with 6,500 e-Choupal installations serving close to 3.5 million farmers.
Social Benefits
The business rationale of launching e-Choupal was not intentionally altruistic. However, in empowering the community, not only had ITC realised both brand recognition and actual value in profits but had also germinated the seeds of a profound social and economic transformation. The farmers for the first time had an alternative. Although the prices offered by the e-Choupal were similar to those prevailing at the nearest mandi, the absence of overheads [see Exhibit 4] and the prevention of handling losses meant farmers got more for their grain. Furthermore, trading via e-Choupal safeguarded farmers’ interests by rewarding them for their product quality.
The e-Choupal initiative rests on the principle that what farmers need first is empowered access to markets. If that is available, the awareness of rights will follow.
- S. Sivakumar, chief executive of ITC-IBD18 e-Choupal was the catalyst transforming the decades-old way of doing business. It decoupled the flow of information from the physical transaction, therefore allowing farmers to make informed decisions regarding their sales. Information and knowledge about the price of the produce was provided to the farmer for free via the e-Choupal. This way the farmer knew the price of their produce even before leaving the village allowing them the flexibility to time the sales. e-Choupal was transforming the hitherto powerless and humiliated farmer into an empowered and confident entrepreneur. Concerns revolving around the auction process and payments too were set to disappear:
Agents and mandi employees go from trolley to trolley, auctioning them one at a time. They would raise bids Rs. 0.05, 0.10, 0.25 at a time.19 We used to feel ashamed of our worth. We would have brought Rs 25,000–50,000 worth of produce, yet [increments] would be mere Rs. 0.25. We would get very angry but what could we do? We had no other option.
- Indian Farmer20 With a mere visual inspection of their product lasting less than a minute, the farmers found the entire auctioning process very demeaning and appalling. Since these inspections did not employ the more appropriate scientific measurement standards for determining the quality viz. density, oil content or moisture content etc. in the produce, the price realisation mechanism was never satisfactory. Consequently, the advantages of acquiring better seeds or adopting better farming standards were never rewarded. Not only did this dissuade farmers from incurring higher costs, but it also pushed them deeper into the vicious circle of low productivity [see Exhibit 7].
Furthermore, farmers faced great difficulty in receiving the money:
18 Interview with S. Sivakumar, chief executive of ITC-IBD, interviewed on 4 April 2007. 19 US$1 = Rs.40.5 on 5 June 2007. 20 Prahlad, C.K. (2005) “The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits”, Pearson Education,
Inc., Video published on e-Choupal, ITC.
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After the weighing, we had to wait for receiving our payment. There it was so hard to collect payment. [The trader] would pay us for one sack and keep us waiting for the rest. Those were such bad days that only God had mercy on us. May God not show those days to anyone ever!
- Indian Farmer21 Exploiting the farmers’ position, most traders never paid the farmers a fair price, cheated them on the weighing scale and also delayed their payments. However, in the absence of alternatives the farmer had no choice, and in this predicament was the alarming reminder of the crisis facing the Indian farmer. However with e-Choupal, ITC was silently ushering in a rural transformation anchored on providing farmers with more transparency and choice. The e-Choupal delivery framework was structured in the following way.
The Website (echoupal.com) The website, specially developed by ITC’s subsidiary—ITC Infotech Limited—in multiple local languages, delivered unique value to farmers that bundled the knowledge of what to use (eg, fertilisers, seed and pesticides) with information on when to use it (eg, weather briefings and monsoon timing) and assistance on how to use it (eg, superior agricultural techniques). The website also delivered real-time and relevant information. In addition to offering the weather forecast and the latest technological trends in the farming domain, the website also offered the commodity prices as prevalent on the various stock exchanges. In this way, e-Choupal eliminated information asymmetry regarding prices and allowed farmers to time the sale of their produce, consequently fetching higher prices. Anecdotal evidence suggested that farmers would monitor future rates on the international commodity exchanges such as Chicago Board of Trade also before deciding when to sell their produce.
The Sanchalak Sanchalaks were the kiosk managers—locally elected farmers who acted as an interface between the computer terminal and the often illiterate farmers. In addition to assisting farmers with the services on e-Choupal, sanchalaks assisted farmers in assessing and pricing their produce. ITC had trained them to evaluate a sample of produce and provide a spot quote to the farmer. This allowed the farmer to make an empowered decision on whether to sell to ITC or to try alternate market mediums, or even wait for a better price. Since the farmer had not yet travelled out of the village, as would have been in the case of the mandi option, he was under no pressure to log the deal.
The IBD Processing Centre (Choupal Saagars) The focal point of e-Choupal’s hub-and-spoke model, Choupal Saagars were introduced as an alternative to the mandis, with one Choupal Saagar catering to about 40 choupals and working within tractor-able distance of all. Here, the farmers enjoyed the benefits of accurate weighing through electronic weighing scales as well as prompt and full payments and another hitherto unknown luxury: customer care. The farmers were paid on time and in full. Typically, a payment was made in less than two hours, ensuring that the farmer got back home for dinner, unlike in the earlier days when farmers had to travel overnight to queue up at mandis and wait. In addition to housing the granaries, Choupal Saagars also doubled up as rural malls
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where the farmers could buy several agricultural products, such as fertilisers, seeds and fumigants. While the e-Choupal initiative had carved a more rewarding engagement for the farmers, ITC had displaced another section of the society, the trader commune. Cognizant of the social and business ramifications of such an act, every effort was made to facilitate the absorption of these traders into the new model. Some of these agents were employed as samyojaks (co-ordinators), who assisted ITC with either identifying new e-Choupal locations or managing the logistics at the hubs, or as managers to whom some of the activities at the Choupal Saagars were outsourced.
Corporate Social Behaviour at ITC
Corporate social responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.
- World Business Council for Sustainable Development22 In spite of agriculture contributing close to 20% to the Indian gross domestic product, or GDP [see Exhibit 8], core benefits like economic development, clean drinking water, education for employability 23 and health care still eluded the farmer. System-wide inefficiencies in governmental policies and general apathy had long hindered farmers’ economic stance. Although aware of these challenges, most of the companies associated with the agrarian society struggled to find the means to balance both the social commitments of their enterprise and the financial objectives of their shareholders. However, with e-Choupal, ITC had discovered a model that demonstrated sustainable convergence between these presumably divergent needs of the corporation.
The primary purpose of any commercial organisation is to deliver shareholder value. One can do that by being indifferent to the society or at times even at the cost of the society, but if one can do that through serving the society—as we have done—then nothing can be more exciting and sustainable than that.
- S. Sivakumar, chief executive of ITC-IBD24 The e-Choupal program was carefully interwoven into Sunehra Kal, ITC’s corporate social responsibility (“CSR”) initiative to act upon objectives, akin to UNESCO’s Millennium Development Goals [see Exhibit 9]. e-Choupal’s physical infrastructure was used to ensure the smooth and continuous delivery of services, and its human infrastructure for monitoring them. In the sanchalaks, ITC had cultivated a driving force that ensured both local expertise and social acceptability. Having the sanchalaks on the ground allowed ITC to constantly monitor the progress of its various schemes. As Sivakumar said, “Accountability is the central issue […] lots of schemes take off, but in some time they are forgotten.”25
22 For details see World Business Councils for Sustainable Development’s website http://www.wbcsd.org. 23 Young people develop skills and knowledge that help them develop an understanding ensuring lifelong learning and work. 24 Interview with S. Sivakumar, chief Executive ITC-IBD, interviewed on 4 April 2007 25 Interview with S. Sivakumar, chief executive of ITC-IBD, interviewed on 4 April 2007.
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Primary Education through e-Choupal The focus of ITC educational initiatives is to make more children join school and finish school, critically supporting the existing government primary school network by creating an ambience of encouragement, assistance and access to learning resources.
- ITC website26 Rural India had long been disadvantaged by a lack of education for employability and knowledge about opportunities. This meant that children in rural India grew up mostly unaware of non-agricultural opportunities. With a burgeoning services sector in India, such an act of deprivation practically contributed to keeping 66% of India’s population away from participating in the country’s growth. Although the government of India had identified illiteracy as a key concern and had launched the Sarv Shikhsha Abhiyan (Education for All) program, it still left a lot to be desired. There were still about 13.4 million out-of-school children; 27 education had to be made more accessible and appealing to them [see Exhibit 10]. To supplement the efforts of the Sarv Shikhsha Abhiyan program, ITC extended the e-Choupal framework to provide digital content and virtual training sessions for children on a pilot basis. These training sessions provided weaker students additional tutoring in the hope of improving their scholastic abilities and ensuring lower dropout rates. The digital material offered was also used by several NGOs to organise various programs, including vocational training and other extra-curricular activities, to foster the holistic development of children. In addition to abetting the learning environment through the kiosks, ITC also established Supplementary Learning Centres (“SLC”), which provided infrastructural support such as uniforms and books for students. As Sivakumar recalled, “It is not the e-Choupal website which sees the maximum traffic from these kiosks […] it is the news portal”. By connecting the villagers to the world, ITC was awakening rural India by addressing some of the evils of illiteracy, including superstitious beliefs, social taboos and ignorance of innovations in science. Anecdotal evidence also suggested that the e-Choupal kiosks were used by children for other tasks such as downloading their examination results, reading the latest movie reviews, chatting and preparing greeting cards—the things an urban teenager would also do. The information deprivation of the village community—especially that of children—was now a thing of the past.
Women’s Empowerment In order to awaken the people it is the woman who has to be awakened. Once she is on the move, the household moves, the village moves, the country moves and thus we build the India of tomorrow.
- Jawahar Lal Nehru, India’s first prime minister28
26 ITC (Date unknown) “ITC’s Rural Development Philosophy at Work”
http://www.itcportal.com/sets/rural_frameset_education.htm (accessed on 5 May 2007). 27 World Bank (15 March 2008) “World Bank Supports India’s Elementary Education Program with US$600 Million”,
http://newsletters.worldbank.org/external/default/main?contentMDK=21769659&theSitePK=442942&pagePK=64109805&piPK=64106905 (accessed on 26 May 2008).
28 Agrawal. Meenu (2007) “Women Empowerment: Today’s Vision for Tomorrow’s Mission”, Mahamaya Publications: India.
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In many parts of rural India, women still lived in the shadows of their husbands, confined to the four walls of their houses. Realising the need to engage this latent force, ITC forged an empowering partnership with rural women by providing them both information and market linkages via the e-Choupal network. In partnership with several NGOs, ITC worked with village women to link several non-farm-skill-based services of rural origin to global markets. By fostering these initiatives, ITC provided for the economic empowerment of women. ITC also supported services for livestock development and micro-credit programs. Since women were traditionally involved in livestock management, any income generated from these activities benefited women. This transformation of the rural woman from homemaker to bread-winner not only led to the building of a complementary livelihood stream, but also meant additional money was being spent on children’s welfare.29 By taking the convergence approach in working with society, not only had ITC made a substantial improvement to its bottom line but had also accrued numerous intangible benefits, such as brand equity, staff loyalty, reputation and trust.
Healthcare Services through e-Choupal In a country where public spending on healthcare was less than 0.9% of the GDP in 2004–2005 and out-of-pocket spending accounted for more than 80% of total health spending,30 affording health expenses was not easy for the poor. In spite of various technological advancements, access to primary healthcare in rural India was still very disparate. Consequently, several communicable diseases, including HIV/AIDS, tuberculosis and typhoid, were still rampant in rural India. Although there were several government agencies working to address the needs of the rural poor, their efforts were woefully insufficient. Realising that inexpensive and accessible healthcare was an essential prerequisite for rural renewal, ITC planned to extend its e-Choupal framework to deliver quality health services. Still in its pilot phase at the start of 2007, ITC had tied up with several healthcare companies to use the e-Choupal infrastructure to create a health services platform that would ease the constraints associated with delivering medical aid. Under the arrangement, ITC developed its three-tier Choupal Health Care model [see Exhibit 11] to catalyse the deployment and delivery of both preventive and curative healthcare services to the villagers.
Tier One: The Choupal Since many illnesses and deaths could be averted by the timely availability of information and treatment, it was crucial to promote awareness about the various health risks and provide preventive healthcare details. Managed by a Choupal Health Champion—a trained paramedic, village health worker and sanchalak—the kiosks delivered general medical advice and stressed crucial health determinants, thereby dramatically reducing the risk of chronic conditions. Their responsibilities included: • Providing basic medical and health services • Dispensing over-the-counter drugs and health kits on advice of the Choupal Saagar
doctor31 • Creating awareness in the villagers, fostering preventive healthcare • Communicating the villagers’ medical needs to the Choupal Saagar doctor • Interacting through “telemedicine” with the Choupal Saagar doctor • Administering simple pathological tests 29 Interview with S. Sivakumar, chief executive ITC-IBD, interviewed on 4 April 2007. 30 Bajpai, N., Dholakai, R.H. and Sachs, J.D. (November 2005) “Scaling Up Primary Health Services in India”, Centre on
Globalization and Sustainable Development, Working Paper Series No. 29, The Earth Institute at Columbia University. 31 A Choupal Saagar doctor was a doctor stationed at the Choupal Saagar.
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• Working under the supervision of the doctor at the Choupal Saagar.
Tier Two: The Choupal Saagar The curative needs of the villagers were taken care of at the Choupal Saagars. Every Choupal Saagar possessed: • A clinic managed by a doctor, assisted by a technician • A laboratory with a microscope, autoclave, basic reagents and kits • A pharmacy to dispense drugs, both generic and branded • A telemedicine centre connecting the Choupal Saagar to the network hospital partner.
Tier Three: The Network Hospital While the smaller clinics at the Choupal Saagars were designed to handle regular medical cases, complex cases were transferred to these hospitals. These bigger network hospitals were linked to the Choupal Saagar clinics and used telemedicine facilities to provide: • Specialist online medical advice through telelink • Render high level and specialist medical attention • Required medical information for Choupal Saagar doctors. Taking dispersion of information on health seriously, ITC promoted multiple new channels of communication. Beyond the regular methods of camping and canvassing, ITC introduced a new section on health in their newspaper, published in collaboration with Agriwatch [see Exhibit 12], and also on the e-Choupal website. Even the multimedia capabilities of the computers at the e-Choupal were put to use as they were used to prepare and showcase promotions on important health and other societal messages. Furthermore, ITC also anchored a new radio channel, Choupal Radio. Choupal Radio aired messages on disease symptoms and preventive measures, and called in experts to answer villagers’ questions. They not only encouraged community level accountability but also sought to deliver “timely, cost-effective, quality healthcare at walking or tractorable distance for the rural citizen”.32 Seeing the value in using technology to dispense information at such a rapid pace, ITC sought to roll out its medical services across all its sites by 2008.
Impact
If we stop thinking of the poor as victims or as a burden and start recognising them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.
- C.K. Prahalad33 With the cost of servicing the last mile in rural markets being prohibitively expensive, many companies had ignored them. With e-Choupal, however, ITC had changed the rules of the game. By building a cost-efficient and effective distribution platform, ITC had opened doors to this once elusive market. With a population base of almost 700 million, rural India was a market waiting to be tapped. Given the value proposition that e-Choupal offered, a host of companies had queued up to use the Choupal network to peddle their own products. Thus what had begun as a project to
32 ITC Corporate Presentation (2007) “Mission e-Choupal Rural Health Services Model”. 33 Prahalad, C.K. (2005) “The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits”, Pearson Education:
USA.
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streamline the supply chain had now created a new business opportunity for ITC [see Exhibit 13].
Retailing via Choupal Saagar After the success of the e-Choupal network in distributing packaged consumer goods through its rural outlets,34 ITC cultivated the Choupal Saagar dream to provide full-scale retail services to the rural population. The first Choupal Saagar retail outfit was set up in August 2004 in Sehore, Madhya Pradesh.
Improving the lives of the billion of people at the bottom of the pyramid is a noble endeavour. It can also be a lucrative one.
- C.K.Prahalad Dubbed as “rural hypermarkets”, Choupal Saagars worked as hubs for clusters of villages within tractor-able distance. Villagers visited Choupal Saagars not only to deposit their grains at the processing centres, which were situated in the same physical location, but also to shop for the products available at the hypermarket. Stocking products from over 110 companies, Choupal Saagars had become an efficient multi-company marketing channel. Products ranging from small-ticket items like oral care products, branded apparel and home appliances to big-ticket items like tractors and motorcycles, were all distributed under the same roof. Bundled along with these consumer goods were additional sophisticated service offerings. At the Choupal Saagars, the farmers could seek services ranging from soil testing to banking to insurance and even medical facilities. However, one of the major achievements of the Choupal Saagar initiative was the sale of liquefied petroleum gas as a cooking fuel. Not only did this accrue environmental benefits such as reduced tree felling, but it also positively impacted the health of rural women. Such malls, working in synergy with the e-Choupal network, evolved to serve as a part of the core infrastructure of ITC’s rural distribution strategy. Thus ITC spent extensively on scaling up the number of Choupal Saagars to 24 by year 2007.
Financial Product Marketing
1,00,248 farmers have committed suicide between 1993 and 2003. - Sharad Pawar, union agriculture minister of India35
The financial crisis in which Indian farmers often found themselves had for long forced them to take the extreme step. Although the government had tried to mend the situation through several schemes, the lack of timely and adequate credit delivery was one of the major challenges. Identifying this as an opportunity, ITC offered to sell credit facilities through its network.
Kisan Credit Card The Kisan Credit Card (“KCC”), promoted by the government of India, was offered by public sector banks to provide cheap credit to Indian farmers. However, in the absence of far-reaching delivery networks and other logistical issues, the penetration level for these cards was very low. As a consequence, a significant number of farmers still had to turn to village 34 Initially, small product sachets were distributed via the sanchalaks at the kiosk level. 35 Faleiro, Sonia (9 September 2006) “Death of a Son, Grandson and all of Life’s Dreams”, Tehelka, http://www.tehelka.com/story_main19.asp?filename=Ne090906death_of_CS.asp ( accessed on 5 May 2007).
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moneylenders who charged astronomical interest rates. Sensing a business opportunity, ITC offered its e-Choupal network as a delivery platform for the State Bank of India to deliver the KCC.
By using the e-Choupal network, what the bank is able to do is two fold. They are able to reduce their transaction costs. A lot of things they were doing themselves are being outsourced to us now and, given our infrastructure setup in villages, we are able to do this at lower costs than what the banks are able to do. Second is that our knowledge of the consumer/borrower is a lot better because it goes beyond just the credit history of the person but also of the knowledge levels, what kind of farm practices are being used, asset ownership etc. Therefore our assessment of the credit worthiness and productivity usage is much better. So both the quality and the cost aspects are improved.
- S. Sivakumar, chief executive of ITC-IBD36
Third Party Loans In addition to distributing the KCCs, ITC also furnished third-party loans through the e-Choupal channel. With higher disposable incomes, assured payment inflows and access to better personal utilities and farming equipment, Indian farmers were beginning to think big. To support their aspirations of purchasing motorcycles or even tractors, ITC had tied up with a multitude of financing companies and banks to offer credit services via its delivery channels. The credit services were offered via the Choupal Saagar, providing the added advantage of one-stop, hassle-free service access.
Channel Credit At the start of the season, the agri-input companies, such as seed and fertiliser companies, made loans to the farmers to aid them in buying their products. However, these companies were always circumspect about the quality of the loan. In the absence of any organised activity, there was always the risk of default. Again, identifying this as an opportunity, ITC decided to share its e-Choupal structure to provide more secure loans, to be furnished in a two-step format. This credit, which flowed through its network, was called “channel credit”. These loans were furnished in a two-step process: farm input companies extended credit to the sanchalaks who in turn sold these inputs on credit to farmers. While the liability of repaying still belonged to the farmer, by allowing the sanchalak to disperse the loan through goods, the company was able to leverage upon the sanchalak’s knowledge of the credit-worthiness of the proposed recipient. With the sanchalaks and the recipient farmer coming from the same village, the sanchalak was usually able to better assess the credit risk and thus ensure that the quality of the loan was higher. Although ITC consciously waited for about five years before it started dispensing credit through its network, it was already servicing 15% of its market by 2007 and planned to scale its operations to potentially 100% by 2009.
36 Interview with S. Sivakumar, chief executive ITC-IBD, interviewed on 4 April 2007.
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Insurance To increase my crop yields and incomes I need to adopt better inputs and practices which require higher investments. But who will protect me if my crop fails?
- Indian Farmer37 This was the common lament of the Indian farmer. An estimated 90% of crop losses in India were attributed to the weather [see Exhibit 14]. With only 40% of the net sown area under irrigation, 60% was still at the mercy of the weather. Against this backdrop and in the absence of risk mitigation tools, it was not surprising that, despite being aware of expensive techniques to improve production, farmers kept away, preferring to keep their input costs low, even if that meant a lower quality of produce. Although farmers in India had been provided publicly administered crop insurance schemes since 1972, the effectiveness of the schemes was suspect. The schemes were plagued by high monitoring and administrative costs, lacked knowledge of crop growth cycles at the village level and had long claim settlement cycles. Rural farmers could not bear to wait one year to receive their claim amounts and thus the schemes failed to flatter. Realising the need for an efficient system that encouraged farmers to obtain higher yields per acre and seek better quality produce, ITC collaborated with insurance companies38 to provide weather insurance to farmers. Leveraging the local knowledge of their sanchalaks, ITC was able to design weather insurance products according to crop, district and phase, thereby improving the effectiveness of the risk cover offered. Since these policies were dispersed using the e-Choupal network, the distributing and servicing costs were very low, making it easier for people to acquire them. Now, for a premium, farmers could pass their weather-related risks on to a third party [see Exhibit 15]. Although these insurance schemes were also offered by government agencies, many farmers did not take them because agency structures were not very strong, claim conditions were unknown and other such factors. Cognizant of these problems, ITC delivered improved service levels by setting a benchmark of 45 days to settle claims, providing farmers with information on how to claim money, when to pay premiums and so on. Over time, the importance of life insurances policies was also advocated through the network. ITC distributed multi-media presentations through the network that highlighted the importance of having life insurance policies and how such policies cared for family needs (eg, by providing regular cash flow and covering costs of weddings and illnesses) in case of a family tragedy. Partnering with Life Insurance Corporation of India, ITC planned to offer group insurance policies that provided comprehensive benefits in terms of life insurance, pensions and disability income, as well as lump-sum survivor benefits to landless agriculture workers. With an increase in awareness, be it the sale of farmers’ produce, the quality and quantity of produce, finding suitable markets or even selling products at the right price, by making insurance policies accessible, ITC lent some stability to rural Indians’ cash flows.
37 Naik, Shailesh (2007) “Weather Insurance/Derivaties Marketing”, ITC Corporate Presentation, ITC-IBD. 38 In 2007, insurance services were being provided by ICICI Prudential Life, a private sector insurance company, and Life
Corporation of India. Several others were still exploring the possibilities.
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ITC Infotech Another ripple effect of the e-Choupal initiative was the positive effect it had on ITC Infotech. Given the positive ramifications it had on the rural population in India, the e-Choupal initiative had attracted a lot of interest. A host of governmental and multinational agencies had sought ITC’s assistance in implementing similar models in countries in Africa, Latin America and South-East Asia. However, with its eyes set on expanding its footprint in India, IBD politely declined such requests and offered ITC Infotech’s services instead. As the key architect of the e-Choupal infrastructure, ITC Infotech volunteered to offer both technical as well as business consultancy services for operations based on the e-Choupal model, thereby developing a new revenue stream for itself.
Challenges
Taking e-Choupal to rural India was not easy. Conceived at a time when rural India had no access to telecommunications, no power supply and low literacy rates, the challenge of taking technology to rural India was very onerous. Not only did ITC have to develop its own infrastructure to provide access to the internet, buy VSAT equipment, power backup units and telephone connections, it also had to tutor farmers on the benefits of the information and the operational use of the kiosks. With additional concerns emerging from archaic government rulings, another challenge was putting together a business model that would obtain the government’s buy-in. Another area of serious resistance came from the traders’ lobby. With e-Choupal challenging their trade monopolies, traders not only tried to lobby the government to derail the process but also created problems at the execution level. Having meandered around these initial hiccups, by 2007 ITC had drawn up ambitious plans to set up 20,000 e-Choupal kiosks by 2012 and about 700 Choupal Saagars eventually, to service these e-Choupals, entailing an investment of nearly US$1.2 billion. These numbers were not only reflective of an explosive growth strategy but also a reminder of the increased services ITC had adopted. The e-Choupal network was no longer the commodity-sourcing operation it was conceived to be; it was fulfilling its promise of “improving the quality of life in rural India”. However, in pursuit of continually delivering on its promises and expanding its geographical reach, ITC had to counter some key challenges in building its delivery infrastructure. The first concern was providing the digital infrastructure to cater to ever-increasing service offerings. Most of these pertained to delivering digital media in local languages, standardising web-forms and providing increased accessibility, all of which, according to Sivakumar, were minimalist concerns. “All these can be fixed at a cost”, he said.39 The second challenge was that of building the physical infrastructure—the Choupals and the Choupal Saagars—which were the key components of the unique hub-and-spoke model of ITC. Since the required backbone of rural infrastructure, including electricity, was virtually missing, ITC was forced to build things from scratch. Although it had employed innovative solutions to overcome some of these constraints, they were stretched by the economic investments required to build infrastructure. The additional need for funding these developments required ITC to pursue an innovative business model that would help it finance the investment.
39 Interview with S. Sivakumar, chief Executive ITC-IBD, interviewed on 4 April 2007.
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The third and, according to Sivakumar, gravest challenge facing ITC was that of “building the capacity of the human infrastructure”.40 For a model established on delivering a whole new experience, it was paramount that the company representatives—the sanchalaks and the samyojaks—be well versed in the complete bouquet of services offered, as well as the company ethos.
The basic raw material exists in terms of people […]. So to pickup people to manage the Choupals is not a problem […] But it is really the capacity of these people in doing so many varied businesses. To choose a farmer as a sanchalak or samyojak to do agriculture commodity sourcing is one level of challenge. But you expect the same person to sell farm inputs, sell insurance, deliver credit, and facilitate the delivery of health services, so this complexity is something which requires capacity to be built.
- S. Sivakumar, chief executive of ITC-IBD41 For some of these issues, the standard technical or economic solutions were available, but others required a broader perspective. One of the key challenges for ITC was how to recruit, train, nurture and maintain talent that could keep pace with its growth while at the same time not compromising its brand. The other challenge was, definitely, what to do next. Having already established the delivery framework, how could ITC leverage on it to deliver value to rural India? At the same time that Sivakumar was thinking about these challenges, he was also wary of the rising public expectations and accompanying criticism. ITC had drawn up aggressive expansion plans [see Exhibit 16] but certain sectors of society still complained about them not keeping pace with increasing innovation and not widening the service net fast enough. How could he convince people that e-Choupal was not just a CSR initiative but also a profit driven business initiative? How could he measure the effects of the CSR? For an organisation that had discovered the delicate balance between corporate profitability and social contribution, he wondered what would be the best performance indicators to articulate the tangible (financial) and non-tangible (non-financial) benefits of e-Choupals’ service offerings?
40 Interview with S. Sivakumar, chief Executive ITC-IBD, interviewed on 4 April 2007. 41 Interview with S. Sivakumar, chief Executive ITC-IBD, interviewed on 4 April 2007
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EXHIBIT1: ITC’S DIVERSIFIED BUSINESS PORTFOLIO
Source: Corporate website.
EXHIBIT 2: THE TRADITIONAL SOYBEAN SUPPLY CHAIN
Source: ITC e-Choupal Initiative Ravi Anupindi.
ITC
Hotels FMCG Paperboards Information Technology
Branded Apparel
Agri Business
Other FMCG Products
Cigarettes Tobacco Packaged Foods
Other Agri Products
Soya Bean
Inbound Logistics
Display & Inspection Auction Bagging &
Weighing Payment Outbound Logistics
Mandi* ITC ProcessingFarmer
Other Buyers
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EXHIBIT 3: THE TRANSACTION COSTS IN THE MANDI CHAIN
Source: S. Sivakumar (2004) “e-Choupal Experience sharing”, http://blog.lib.umn.edu/chri1010/symposium/sivkumar.pdf (accessed on 26 March 2008).
US$
370
Incurred by Processor
Commission to agent = 100 2.4
Cost of gunny bags (net) = 75 1.8
Freight to factory = 120 2.9
Handling at mandi = 40 0.9
335
Total 705
Rs.
9.13
US$ Rs.
8.27
Per Metric Ton
17.4
Trolley freight to mandi = 120 2.9
Labour = 50 1.2
Commission = 150 3.6
Handling loss = 50 1.2
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EXHIBIT 4: TRANSACTION COSTS IN THE E-CHOUPAL CHAIN
Source: S. Sivakumar (2004) “e-Choupal Experience sharing”, http://blog.lib.umn.edu/chri1010/symposium/sivkumar.pdf (accessed on 26 March 2008).
Commission to sanchalak = 100 2.4
Cost of gunny bags (net) = 75 1.8
Freight to factory = 120 2.9
Storage and handling at hub = 40 0.9
Trolley freight to mandi = 120 2.9
Labour = 50 1.2
Commission = 150 3.6
Handling loss = 50 1.2
370
335
120
50
Cash Disbursement Costs = 50 1.2
215
US$Rs. US$Rs.Per Metric Ton
1.2
8.27 5.3
2.9 9.13
8.2
Incurred by Farmer
Incurred by Processor
16.9335
Total 705
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EXHIBIT 5: MODIFIED SUPPLY CHAIN
Source: ITC e-Choupal initiative as described in an interview with Ravi Anupindi.
Inbound Logistics
Display & Inspection Auction Bagging &
Weighing Payment Outbound Logistics
Mandi*
Farmer ITC
eChoupal(Internet kiosk)
Processing
Other buyers
Inbound Logistics
Display & Inspection Auction Bagging &
Weighing Payment Outbound Logistics
Mandi*
Farmer ITC
eChoupal(Internet kiosk)
Processing
Other buyers
Market conditions, weather updates, best practices etc.
Price Discovery
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EXHIBIT 6: LIST OF AWARDS WON BY ITC FOR E-CHOUPAL The Stockholm Challenge 2006. This award is for using information technology for the economic development of rural communities. Innovation for India Award 2006. ITC e-Choupal was awarded under the Social Innovations category for business organisations. The first of its kind in India, based on the parameters of number of lives impacted, degree of impact on organisation and environment, uniqueness, leverage of resources and whether it was scalable and sustainable, e-Choupal was declared one of “India’s Best Innovations”.
The Development Gateway Award 2005. Previously known as the Petersberg Prize, ITC was the first Indian company and the second in the world to win this prestigious award for its trailblazing e-Choupal initiative. The Golden Peacock Global Award for Corporate Social Responsibility in Emerging Economies for 2005. The company received this award for its e-Choupal and social and farm-forestry initiatives, which are transforming lives and landscapes in rural India. The Corporate Social Responsibility Award 2004. Presented by The Energy and Resources Institute for its e-Choupal initiative, the award provides impetus to sustainable development and encourages ongoing social responsibility processes within the corporate sector. The inaugural World Business Award 2004, instituted jointly by the International Chamber of Commerce, the HRH Prince of Wales International Business Leaders Forum and the United Nations Development Programme. This award recognises companies who have made significant efforts to create sustainable livelihood opportunities and enduring wealth in developing countries.
Enterprise Business Transformation Award 2004 for Asia Pacific, instituted by Infosys Technologies and Wharton School of the University of Pennsylvania.
PC Quest’s IT Implementation Award 2004 in the “Best Project” category. Golden Peacock Innovation Award 2004. The NASSCOM award for “Best IT User in Fast Moving Consumer Goods Companies” in 2003. The award is a recognition of ITC’s successful integration of its information technology usage with its business processes. Seagate Intelligent Enterprise of the Year 2003 award, for the most innovative usage of information technology.
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EXHIBIT 9: MILLENNIUM DEVELOPMENT GOALS
a. Eradicate extreme poverty and hunger: by 2015, reduce by half the proportion of people who suffer from hunger.
b. Achieve universal primary education: by 2015, ensure all boys and girls complete a
full course of primary schooling.
c. Promote gender equality and empower women: eliminate gender disparity in primary and secondary education primarily by 2005, and at all levels by 2015.
d. Reduce child mortality: by 2015, reduce the mortality rate among children under five.
e. Improve maternal health: by 2015, reduce the maternal mortality rate by three-
quarters.
f. Combat HIV/AIDS, malaria and other diseases: by 2015, halt and reverse the spread of HIV/AIDS, incidence of malaria and other diseases.
g. Ensure environmental sustainability: by 2015, reduce by half the proportion of people
without sustainable access to safe drinking water.
h. Develop a global partnership for development: further develop an open trading and financial system that is rule-based, predictable and non-discriminatory.
Source: UNESCO (Date unkown) "World Water Assessment Programme", http://www.unesco.org/water/wwap/facts_figures/mdgs.shtml (accessed on 16 May 2008).
EXHIBIT 10: DELIVERING PRIMARY EDUCATION
Primary Education - At a glance Agenda for the 2010 Number of schools assisted 134 Number of schools assisted 1,000Students receiving books 50,260 Students receiving books 50,000
Supplementary learning centres 775 Supplementary learning centres 1,000 Source: ITC company website: http://www.itcportal.com/sets/rural_frameset.htm (accessed 13 May 2007).
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EXHIBIT 11: ITC THREE-TIER CHOUPAL HEALTHCARE MODEL Source: Rural Healthcare Services through e-Choupal, ITC Presentation.
Others* 10% * includes storms, earthquakes, disease, pests, negligence etc.
Source: Parchure, Rajas (2002) “Varsha Bonds & Options: Capital Market Solutions for Crop Insurance Problems”, http://www.utiicm.com/Cmc/PDFs/2002/rkparchure%5E36.pdf (accessed on 26 May 2008).
MARKETS
FARMERS
Branded Foods
Lifestyle Retailing
Stationery & Greeting
Matches & Incense
Non-Farm Skill based products
Fresh AgriProducts
MARKETS
FARMERS
Branded Foods
Lifestyle Retailing
Stationery & Greeting
Matches & Incense
Non-Farm Skill based products
Fresh AgriProducts
Branded Foods
Lifestyle Retailing
Stationery & Greeting
Matches & Incense
Non-Farm Skill based products
Fresh AgriProducts
Branded Foods
Lifestyle Retailing
Stationery & Greeting
Matches & Incense
Non-Farm Skill based products
Fresh AgriProducts
Branded Foods
Lifestyle Retailing
Stationery & Greeting
Matches & Incense
Non-Farm Skill based products
Fresh AgriProducts
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EXHIBIT 15: EXPLAINING WEATHER INSURANCE
EXHIBIT 16: ITC’S PLANS FOR E-CHOUPAL
Milestones 2007 2012
States covered 9 15 Villages covered 38,500 100,000
e-Choupal installations 6,500 20,000 Empowered e-farmers 3.5 m 10 m
