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ITC to rope in more MSMEs to expand agarbatti business
Business Standard - 13 Nov 2012

The company will add up to 10 vendors to its 20-strong supplier base

Business conglomerate ITC is planning to rope in more small  enterprises to expand its agarbatti (incense sticks) business. The company’s  association with small enterprises is a classic example of synergy between SMEs  and large corporate entities.

ITC’s Mangaldeep brand is one of the largest national  agarbatti brands in India’s Rs. 3,000-crore agarbatti industry. The industry is  dominated by unorganised players, with ITC’s market share estimated at 7-8 per  cent.

The industry was  growing at a compounded annual growth rate of 12-13 per cent and ITC Agarbattis  was growing at over three times that rate, said V M Rajasekharan, chief  executive of ITC’s agarbatti division.

The company has engaged 20 small units in finishing the  agarbattis, which together supply about 700 million sticks a month. In a bid to  increase output, it would add five to 10 more vendors, Rajasekharan said.

The existing vendors are located in Tamil Nadu, Karnataka,  Andhra Pradesh, Chandigarh, Delhi, Tripura, Assam, Bihar and a few other  states.

“One of the major problems of small units is the inability  to market their products, though they are good at manufacturing. We offer our  vendors assured buyback, no matter how much they produce,” Rajasekharan said.

The agarbattis are marketed through more than half a million  retail outlets, which distribute ITC’s other consumer products. The incense  sticks cater for both urban and rural markets.

But becoming a vendor for ITC is not easy, as the company  has stringent quality standards. “We are sourcing sticks from small-scale and  cottage vendors across the country, six of whom have received the ISO-9001-2000  certification — a first for any incense brand in India,” said Rajasekharan.

The association between ITC and small units, he said,  provides a livelihood for some 13,000 people — mostly under-privileged women  —through self-help groups, small entrepreneurs and NGOs. Mangaldeep has signed  agreements with state governments across the country, including those of  Orissa, Tripura and Assam, because of the agarbatti industry’s potential to  create sustainable livelihoods for rural India.

Developed as co-operative units, the initiative helped  enhance the bargaining power of small units and aligned their product with  market demand, minimising transaction costs, optimising logistics and  facilitating access to formal credit facilities from banks and financial institutions,  said Rajasekharan. Some of the units even got credit at competitive interest  rates from banks, he added, since they were associated with ITC.

A business model that synergises competitiveness with  societal value creation is particularly relevant in backward rural communities  where, in view of the inordinate dependence on agriculture, falling  agricultural incomes and productivity, the creation of sustainable off-farm  livelihoods is of critical urgency, Rajasekharan added.

Kashi Vishwanath Gupta, a small entrepreneur who has set up  two factories that supply agarbattis to ITC and produces his own brand, Ananth  Agarbattis, at a third facility (in Bangalore), says the ITC tie-up has helped  add value.

“We learnt from ITC that quality alone is not enough, and  looks, physical appearance and standardisation are also important in creating a  first impression among consumers,” said Gupta. He said he and other small  suppliers had also benefited greatly from ITC’s marketing strengths.

“Earlier we used to think that our own brand would bring us  more benefits than our sales to ITC. But the competition has become so fierce  that now there is not much difference in benefit between the sales of our own  brand and sales of agarbattis to ITC,” he added.

Gupta said the contribution of small suppliers to the tie-up  was their understanding of the product and of consumer needs, which helped in  product conceptualisation and the production process.

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