WE NATURALLY ASSUME that industrial
enterprises are the most fertile grounds for e-business implementation. And we assume that
conducting e-business requires communications infrastructure and a minimum level of
computer literacy. On a recent trip to India, I discovered how wrong those assumptions
are. A quiet digital revolution is reshaping the lives of farmers in remote Indian
villages.
In these villages, farmers grow soybeans,
wheat and coffee in small plots of land, as they have for thousands of years. A typical
village has no reliable electricity and antiquated telephone lines. The farmers are
largely illiterate and have never seen a computer. But farmers in these villages are
conducting e-business through an initiative called e-choupal, created by ITC, one of
India's largest consumer product and agribusiness companies.
Think of an e-choupal as an Internet kiosk,
village gathering place and e-commerce hub all rolled into one. In fact, the word choupal
means "village gathering place" in Hindi. The e-choupals are run by an operator
called the sanchalak, who is himself a farmer recruited by ITC to be the interface
between the computer terminal and the farmers.
Low Tech, High Impact
Setting up and managing these e-choupals
required ITC to think out of the box. It designed a hardware solution that includes a
desktop computer with power backup through batteries charged with solar panels. ITC also
convinced 175 local telephone exchanges to upgrade their equipment to support data
transmissions, initially at ITC's expense. To overcome limited bandwidth, they cached
static content locally so that only dynamic content needed to be streamed. And to overcome
illiteracy, ITC made the transactional capabilities of the site available to farmers
through the registered sanchalaks.
The results to date are impressive. Within
two years of its launch in June 2000, e-choupal services reach 600,000 farmers in 6,000
villages through 1,000 kiosks. ITC, which exports $140 million worth of agricultural
commodities, sourced $15 million worth of soybeans from e-choupals in the past year. By
purchasing directly from farmers, ITC can source better quality produce that commands high
prices in the international market. By avoiding intermediaries for conducting the
transactions, ITC saves $5 per ton on soybean procurement. The sanchalaks get a commission
for every transaction they process, which translates into healthy earnings for them.
ITC overcame the lack of computing and
communications infrastructure by creating a human interface to overcome literacy
limitations.
The farmers gain from better prices and
lower transaction costs. Traditionally, farmers had to wait as long as two days to dispose
of their produce at local auctions. They also had to pay for bagging, loading and
unloading their produce in the local market. In the e-choupal system, farmers take only a
sample of their produce to a local kiosk and receive a spot quote from the sanchalak. If
the farmers accept the quote, they can drive their produce directly to ITC's collection
centers and get paid within a couple of hours. The average farmer saves between $8 and $10
per ton of soybeans. Farmers also benefit from improved information and price discovery.
With help from their sanchalak, they can access real-time information on crop prices,
weather and scientific farming practices online.
ITC's long-term plan is to evolve the
e-choupal into a one-stop shop for farmers to take care of many different business needs.
S. Sivakumar, CEO of ITC's international business division, told me his company modeled
the e-choupal on a concept I originated, which I called a metamarket. Ultimately, ITC
envisions the e-choupal as an e-commerce hub for the village—a single point of
contact among farmers and a wide range of suppliers of agricultural inputs and consumer
products. Already, seed producers such as Monsanto and fertilizer manufacturers like
Nagarjuna Fertilizers and Chemicals take orders and market their products through the
e-choupal sites. Future plans include services like small business loans and insurance.
Meanwhile, ITC has maintained a role for
the traditional commission brokers, who are now called samayojaks
("coordinators"). The samayojaks manage physical flows in the supply chain, such
as logistics, and they collect pricing data from local auctions and maintain records.
Back to Basic Best Practices
The e-choupal initiative offers the
following important lessons for any e-business initiative.
Leverage existing assets and
relationships. ITC's tobacco and agribusiness divisions own a distribution and
collection system with unparalleled reach into rural India. It also has strong
relationships with farmers and intermediaries in the agricultural supply chain. These
assets and relationships allowed ITC to create a unique and defensible online franchise.
Define a clear value proposition for
everyone. The e-choupal venture benefits ITC by reducing procurement costs, improving
quality of produce procured and creating a lucrative information franchise. For farmers,
it reduces transaction costs, gets them better prices and empowers them with information.
And the sanchalaks get the opportunity to run their own business.
Adapt solutions to the business
context. ITC creatively overcame the lack of computing and communications
infrastructure by creating appropriate technology solutions, including a human interface
to overcome literacy and Internet access limitations.
Reintermediate, don't disintermediate.
Instead of eliminating the middlemen, ITC redefined their role by decoupling information
flows from physical flows in the supply chain. In this way, ITC mitigated any channel
conflict.
Co-opt customers in designing
solutions. ITC recognized that getting farmers to adopt technology would pose a huge
challenge. By recruiting the sanchalaks from within the villages, ITC was able to get
buy-in from the farmers. ITC also made the sanchalaks take a public oath of office,
recognizing that a social contract was far more effective than a formal contract.
Think big, but start small. ITC's
long-term vision for e-choupal is grand. But the company started with a modest and focused
value proposition—helping farmers get better prices for their crops. This phased
approach allows ITC to gain credibility through early successes and to learn from its
mistakes.
Clearly, the e-choupal initiative is a long
way from becoming e-business nirvana for rural India. Telecommunications infrastructure
costs are significant, adoption is slow, the network is unreliable, and the sanchalaks
have limited experience managing a business. There is no guarantee that ITC will achieve
its ambitious goal of expanding the e-choupal network to cover 100,000 villages and 10
million farmers in five years. Nevertheless, what it has achieved so far paints a
tantalizing picture of the possibilities of e-business for rural India. And it offers
valuable insights into using creativity and pragmatism to overcome barriers in
implementing e-business solutions.
Mohanbir Sawhney is the McCormick
Tribune Professor of Technology at Northwestern University's Kellogg School of Management.
