ITC’s international business unit strikes the right note

Ch. Prashanth Reddy
Hyderabad, Aug 6

ITC’s International Business Division (ITC-IBD) launched Project Symphony three years ago to transform itself from a speculation and price-based commodity trading outfit into a knowledge-based and customer-focused enterprise.

The aim was to become a Rs 1,000-crore entity in three years. Last year, the division achieved a turnover of Rs 800 crore against around Rs 300 crore three years ago. Its agro-exports grew by over 48 per cent during 2001-02. The harnessing of information technology across the value chain from farm to the foreign customer is stated to have enabled ITC-IBD to substantially increase its export earnings.

"Now, the target is to achieve an annual turnover of Rs 2,000 crore by 2005-06," ITC-IBD’s Chief Executive, Mr. S. Sivakumar, told Business Line in an interview. Excerpts:

How successful is project Symphony?

Project Symphony starts with redefining the commodity business as service industry with customer-based management. The e-choupal initiative, the click-and-mortar capability, is also a part of it and serves as the back-end supply chain. We are looking at transformation from a speculation and price-based commodity trading house to a knowledge-based, customer focussed enterprise.

You targetted to become a Rs 1,000-crore company as a part of Project Symphony. How far did you succeed?

Last year, total sales by the agri-business division reached close to Rs 800 crore. I think we will go beyond the original milestone of Rs 1,000 crore and move towards the subsequent milestone of Rs 2,000 crore by 2005-06.

Your e-choupals are stated to be giving a competitive edge in trading? Is it true?

In the specific context, I can say the short-term business advantage we have is primarily two-fold. One is with respect to the cost and quality optimisation that we are able to achieve in our procurement and supply chain management for our commodity business. That is significantly superior compared to what we do in the mandi system of procurement.

Right from the source, we have an idea of the quality of the commodity we are buying. Therefore, we know how to optimise our purchases. Consequently, the price for the farmers is higher, and yet, it is lower to us.

The second advantage is vis-à-vis the market intelligence or information that is available, which is again an advantage both for the farmers and us. For example, in the current season, we are seeing what is happening to monsoons, where it is raining, where it did not rain and what is the status of a crop.

Are you planning to bring more commodities under e-choupals ?

Today, we are operating four commodities in e-choupals – soyabean, wheat, coffee and aquaculture. Over the next few years, the game plan is to get involved in horticulture, spices, rice and some other oilseeds which we are exporting.

In future, we will also get involved in some of the other crops in niche segments such as organic farming. We will be more diversified.

The strategic intent of the company is to enhance farm productivity manifold and to create farming metamarket across India through e-hubs. This e-infrastructure can also be used to create a unique channel for the two way flow of a range of goods and services in and out of rural markets, thereby serving as a source of future growth in revenues.

Are you going in for more agri processing units ?

The number of units where we are processing is an annual tactical decision. On a strategic basis, we are operating through third party processing because there is plenty of processing capacity which is under-utilised.

Rather than setting up more processing units which would only amount to further blocking of capacity and capital, we normally hire capacities, and today, across various commodities, we operate through 26 different units in 14 States. Certainly, as the business expands, the number of units also have to expand.

How do you envisage the future of agri exports from the country ?

Indian agricultural exports are stuck in what is called a classical "lemon’s problem". That is, a seller goes to the market and offers a consumer a basket of good and bad lemons.

The consumer has to bid for the whole basket without identifying and choosing. Hence, a customer is likely to bid at lower than the average price to minimise his risk. Consequently, the next time around, the seller comes back with a basket of lesser quality lemons because there is no incentive for improved quality and the customer is likely to bid even lower. This vicious cycle continues.

In India, we have very good quality, average quality and also very bad quality agricultural produce. Similarly, we have very good exporters, average exporters and fly-by-night operators. Generally, India has got labelled as an inferior quality producer and unreliable exporter having inconsistent quality and processing facilities.

As a result, there is a lower price that is normally offered to Indian products. Barring a few special products, general Indian commodities are typically bought at a discount in the international market.

Consequently, the Indian exporter is not interested in enhancing the quality. Because the quality enhancement efforts are not happening, the price discount is getting standardised in the international market.

Hence, in this context, if we go on operating in the current manner, the future is not very bright as there are many countries which are increasing their agricultural productivity. That is the context behind our symphony concept where we look at the specific customer needs and then develop and deliver those kind of products.

Even if the general market has a discount, even if the general market is bogged down by unreliability problems, the customers are willing to pay the right price.

What are the future plans of ITC-IBD ?

One aspect is lot of emphasis on serving customers of different kind in the international as well as domestic markets. We wil look at different needs of international customers such as their own preferred packaging, preferred shipping time and other logistics requirements.

The servicing of customer needs includes meeting specialised quality requirements such as organic farming and crops grown under certain conditions.

The second aspect relates to servicing ITC’s food business. We would deliver a sourcing advantage through our e-choupals to be able to get a cost-effective and quality-oriented supply chain that provides the back-end to the food business in terms of supply of raw materials.