E-COMMERCE IN RURAL MARKET

A

Research Paper on

E-COMMERCE IN RURAL MARKET

Presented to the Faculty of the

AURO University

Surat

In Partial Fulfillment

Of the Requirements for the Degree of

Master of Business Administration

Submitted by:

VEER J THAKKAR

Submitted to:

DR. ROHIT SINGH

Rural Marketing

December 2014

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EXECUTIVE SUMMARY

The research attempts to highlight the future of e-commerce by consideration the condition of

its mass rural areas. For many businesses, India’s rural markets hold the key to future growth.

Companies that recognize this enormous opportunity are stepping up efforts to gain a strong

foothold in these markets. Yet the high costs required to serve rural consumers make it

difficult for companies to establish a profitable presence at scale.Still, executives shouldn’t be

deterred by these challenges research reveals that making real profits in India’s rural markets

is possible, even in the short term.with the help of the e-commerce.More over the paper talks

about the ITC e-coupal and its growth and difficulties.

Keywords:ITC,ITC-e-coupal,E-commerce,Rural market.

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Que.: E-Commerce played a vital role in changing the contours (boundaries) of marketing.

Various companies have started using this mode to enter into different segment. Do you

feel rural market can be tapped through this mode. You are required to do extensive

secondary research and submit your findings by concluding whether or not e-commerce

will be successful in rural set up. What is your opinion?

Answer:

E-commerce scenario in india

Recent years have seen a remarkable transformation in the way India shops and trades. E-

commerce has taken the world of retail by storm and captivated the imagination of an entire

generation of entrepreneurs, with e-commerce ventures with various business and

commercial models. The explosive growth in the last few years has already catapulted the

biggest firms among these ventures past the billion-dollar territory. The sector has grown

three times in four years to nearly 12.6 billion USD in 2013. Various industry estimates

project that the sector will further growth five to seven times over the next four to five

years.Online retail, while today representing a small fraction of the e-commerce space is one

of the fastest growing segments. It is also the most challenging in fulfilling its fundamental

proposition of transcending physical boundaries to deliver a variety of products to the

customer’s doorstep. Logistics and infrastructure in e-retailing becomes the very backbone of

the fulfilment network and the basis on which stringent service level expectations are set and

met, and customer mind-space among competing alternatives is won. In India, these are

arguably the weakest links, and therefore the enhanced need for greater attention and

management bandwidth to these critical functions.We estimate that a large proportion of

investment in e-commerce retail will flow into logistics and infrastructure. In the absence of

an incumbent ecosystem, e-commerce providers are beginning to build these functions from

scratch. This will also spawn infrastructural investments into allied sectors such as

warehousing, air cargo, road and rail-based transport transportation. As delivery reach and

fulfilment networks become more entrenched and increasingly complex, opportunities will

emerge for logistics service providers and 3PL players. All of these trends point to a bright

future for talented entrepreneurs, operational managers as well as greater employment

opportunities for blue-collared workers.

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Challenges for the e-Commerce sector in India

Absence of e-Commerce laws

Low entry barriers leading to reduced competitive advantages

Rapidly changing business models

Urban phenomenon

Shortage of manpower

Customer loyalty

History of the company

Established in 1910 as the Imperial Tobacco Company of India Limited, the company was

renamed as the Indian Tobacco Company Limited in 1970 and further to I.T.C. Limited in

1974. The periods in the name were removed in September 2001 for the company to be

renamed as ITC Ltd. The company completed 100 years in 2010 and as of 2012-13, had an

annual turnover of US$8.31 billion] and a market capitalisation of US$45 billion. It employs

over 25,000 people] at more than 60 locations across India and is part of Forbes 2000 list.

Product and brand of ITC

Cigarettes

ITC Ltd sells 80 percent of the cigarettes in the India, where 275 million people use tobacco

products and the total cigarette market is worth close to $6 billion (around Rs.35,000 crore) 

ITC's major cigarette brands include W.D. & H.O. Wills, Gold Flake Kings, Gold Flake

Premium,Gold Flake Super Star, Navy Cut,Insignia, India Kings, Classic (Verve, Menthol,

Menthol Rush, Regular, Citric Twist, Mild & Ultra Mild), 555, Silk

Cut, Scissors, Capstan,Berkeley, Bristol, Lucky Strike, Players, Flake and Duke & Royal.

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Other businesses

Foods: ITC's major food brands include Kitchens of India; Aashirvaad, Mint-

o, Sunfeast, Candyman, Bingo! and Yippee!.[32] ITC is India's largest seller of branded

foods with sales of over Rs. 4,600 crore in 2012-13.[33] It is present across 4 categories

in the Foods business namely Staples, Snack Foods, Ready-To-Eat Foods and

Confectionery.

Lifestyle apparel: ITC sells its products under the Wills Lifestyle and John

Players brands. Wills Lifestyle was accorded the ‘Superbrand’ status and John Players

was included in the top 10 ‘Most Trusted Apparel Brands 2012’ by The Economic

Times.[6]

Personal care products: include perfumes, haircare and skincare categories. Major

brands are Fiama Di Wills, Vivel, Essenza Di Wills, Superia andEngage.

Stationery: Brands include Classmate, PaperKraft and Colour Crew.[36] Launched in

2003, Classmate went on to become India's largest notebook brand in 2007.

Safety Matches and Agarbattis: Ship i Kno and Aim brands of safety matches[40] and

the Mangaldeep brand of agarbattis (Incense Sticks).

Hotels: ITC's Hotels division (under brands including WelcomHotel) is India's

second largest hotel chain with over 90 hotels throughout India. [42] ITC is also the

exclusive franchisee in India of two brands owned by Sheraton International Inc.

Brands in the hospitality sector owned and operated by its subsidiaries includeFortune

Park Hotels and WelcomHeritage Hotels.

Paperboard: Products such as specialty paper, graphic and other paper are sold under

the ITC brand by the ITC Paperboards and Specialty Papers Division.

Packaging and Printing: ITC's Packaging and Printing division operates

manufacturing facilities at Haridwar and Chennai and services domestic and export

markets.

Information Technology: ITC operates through its fully owned subsidiary ITC

Infotech India Limited, which is a SEI CMM Level 5 company

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ITC E-COUPAL

e-Choupal is an initiative of ITC Limited "Imperial Tobacco Company", a conglomerate

in India, to link directly with rural farmers via the Internet for procurement

of agricultural and aquaculture products like soybeans, wheat, coffee, and prawns. e-Choupal

tackles the challenges posed by Indian agriculture, characterized by fragmented farms, weak

infrastructure and the involvement of intermediaries. The programme installs computers with

Internet access in rural areas of India to offer farmers up-to-date marketing and agricultural

information.

ITC Limited has provided computers and Internet access in rural areas across several

agricultural regions of the country, where the farmers can directly negotiate the sale of their

produce with ITC Limited. Online access enables farmers to obtain information on mandi

prices, and good farming practices, and to place orders for agricultural inputs like seeds and

fertilizers. This helps farmers improve the quality of their products, and helps in obtaining a

better price.

Each ITC Limited kiosk having Internet access is run by a sanchalak — a trained farmer. The

computer is housed in the sanchalak's house and is linked to the Internet via phone lines or by

a VSAT connection. Each installation serves an average of 600 farmers in the surrounding

ten villages within about a 5 km radius. The sanchalak bears some operating cost but in return

earns a service fee for the e-transactions done through his e-Choupal. The warehouse hub is

managed by the same traditional middle-men, now called samyojaks, but with no exploitative

power due to the reorganisation. These middlemen make up for the lack of infrastructure and

fulfill critical jobs like cash disbursement, quantity aggregation and transportation.

Since the introduction of e-Choupal services, farmers have seen a rise in their income levels

because of a rise in yields, improvement in quality of output, and a fall in transaction costs.

Even small farmers have gained from the initiative. Farmers can get real-time information

despite their physical distance from the mandis. The system saves procurement costs for ITC

Limited. The farmers do not pay for the information and knowledge they get from e-

Choupals; the principle is to inform, empower and compete. e-market place for spot

transactions and support services to futures exchange

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There are 6,500 e-Choupals in operation in 40,000 villages in 10 states, affecting around 4

million farmers. ITC plans to scale up to 20,000 e-Choupals by 2012 covering 100,000

villages in 15 states, servicing 15 million farmers.

The big picture of e-coupal

E-Choupal as a more efficient supply chain aimed at delivering value to its customers around

the world on a sustainable basis.

The e-Choupal model has been specifically designed to tackle the challenges posed by the

unique features of Indian agriculture, characterised by fragmented farms, weak infrastructure

and the involvement of numerous intermediaries, among others.

The value chain i.e Farm to Factory gate

'e-Choupal' also unshackles the potential of Indian farmer who has been trapped in a vicious

cycle of low risk taking ability > low investment > low productivity > weak market

orientation > low value addition > low margin > low risk taking ability. This made him and

Indian agribusiness sector globally uncompetitive, despite rich & abundant natural resources.

Such a market-led business model can enhance the competitiveness of Indian agriculture and

trigger a virtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer

risk management, larger investments and higher quality and productivity.

Further, a growth in rural incomes will also unleash the latent demand for industrial goods so

necessary for the continued growth of the Indian economy. This will create another virtuous

cycle propelling the economy into a higher growth trajectory.

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The Model in Action

Appreciating the imperative of intermediaries in the Indian context, 'e-Choupal' leverages

Information Technology to virtually cluster all the value chain participants, delivering the

same benefits as vertical integration does in mature agricultural economies like the USA.

'e-Choupal' makes use of the physical transmission capabilities of current intermediaries -

aggregation, logistics, counter-party risk and bridge financing -while disintermediating them

from the chain of information flow and market signals.

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With a judicious blend of click & mortar capabilities, village internet kiosks managed by

farmers - called sanchalaks - themselves, enable the agricultural community access ready

information in their local language on the weather & market prices, disseminate knowledge

on scientific farm practices & risk management, facilitate the sale of farm inputs (now with

embedded knowledge) and purchase farm produce from the farmers' doorsteps (decision

making is now information-based).

Real-time information and customised knowledge provided by 'e-Choupal' enhance the

ability of farmers to take decisions and align their farm output with market demand and

secure quality & productivity. The aggregation of the demand for farm inputs from individual

farmers gives them access to high quality inputs from established and reputed manufacturers

at fair prices. As a direct marketing channel, virtually linked to the 'mandi' system for price

discovery, 'e-Choupal' eliminates wasteful intermediation and multiple handling. Thereby it

significantly reduces transaction costs.

'e-Choupal' ensures world-class quality in delivering all these goods & services through

several product / service specific partnerships with the leaders in the respective fields, in

addition to ITC's own expertise.

While the farmers benefit through enhanced farm productivity and higher farm gate prices,

ITC benefits from the lower net cost of procurement (despite offering better prices to the

farmer) having eliminated costs in the supply chain that do not add value.

The Status Of execution

Launched in June 2000, 'e-Choupal', has already become the largest initiative among all

Internet-based interventions in rural India. 'e-Choupal' services today reach out to over 4

million farmers growing a range of crops - soyabean, coffee, wheat, rice, pulses, shrimp - in

over 40,000 villages through 6500 kiosks across ten states (Madhya Pradesh, Haryana,

Uttarakhand, Karnataka, Andhra Pradesh, Uttar Pradesh, Rajasthan, Maharashtra, Kerela and

Tamil Nadu).

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The problems encountered while setting up and managing these 'e-Choupals' are primarily of

infrastructural inadequacies, including power supply, telecom connectivity and bandwidth,

apart from the challenge of imparting skills to the first time internet users in remote and

inaccessible areas of rural India.

Several alternative and innovative solutions - some of them expensive - are being deployed to

overcome these challenges e.g. Power back-up through batteries charged by Solar panels,

upgrading BSNL exchanges with RNS kits, installation of VSAT equipment, Mobile

Choupals, local caching of static content on website to stream in the dynamic content more

efficiently, 24x7 helpdesk etc.

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Going forward, the roadmap includes plans to integrate bulk storage, handling &

transportation facilities to improve logistics efficiencies.

As India's 'kissan' Company, ITC has taken care to involve farmers in the designing and

management of the entire 'e-Choupal' initiative. The active participation of farmers in this

rural initiative has created a sense of ownership in the project among the farmers. They see

the 'e-Choupal' as the new age cooperative for all practical purposes.

This enthusiastic response from farmers has encouraged ITC to plan for the extension of the

'e-Choupal' initiative to altogether 15 states across India over the next few years. On the anvil

are plans to channelise other services related to micro-credit, health and education through

the same 'e-Choupal' infrastructure.

Another path-breaking initiative - the 'Choupal Pradarshan Khet', brings the benefits of

agricultural best practices to small and marginal farmers. Backed by intensive research and

knowledge, this initiative provides Agri-extension services which are qualitatively superior

and involves pro-active handholding of farmers to ensure productivity gains. The services are

customised to meet local conditions, ensure timely availability of farm inputs including

credit, and provide a cluster of farmer schools for capturing indigenous knowledge. This

initiative, which has covered over 70,000 hectares, has a multiplier impact and reaches out to

over 1.6 million farmers.

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Other companies with E-commerce in rural market

1. SNAP DEAL:

Snapdeal is set to tap into the rural areas in India. In partnership with FINO PayTech,

Snapdeal will reach out to people living in slums like Dharavi in Mumbai, and villages in

Rajasthan and Haryana, among many others. The e-commerce company plans to set up as

many as 5,000 e-commerce kiosks across 70,000 rural areas in India. These kiosks will

include PCs and tablets for people to go online and shop, and will also act as collection points

for packages. A FINO agent at the kiosk will login and help people shop for products across a

wide range of categories including speakers, juicers, solar lanterns, diner sets, cameras and

mobile phones among others. Snapdeal’s Kunal Bahl believes that by tapping into the rural

market, the company will be able to reach around 5-10 crore new customers in the next three

years.

Snapdeal isn’t the only company looking to tap into the Indian rural market. Amazon India is

reported to be in talks with the government to improve the Indian Postal service, and also use

to ramp up its delivery mechanism to within 24 hours anywhere within the country. Flipkart’s

was recently quoted as saying that the company was in talks with the government to roll out

better connectivity in rural areas, which would boost e-commerce in these areas.

Snapdeal has been on a roll recently, having raised $627 million (approximately Rs 3,845

crore) from Japan-based Softbank. The company said that it would be using this investment

to ramp up its supply chain and technology efforts. It will also increase its fulfillment centers

to 30 cities.

2. Amazon India:

Amazon started practicing the market place model by launching its site in early 2013 in India.

It started registering electronics goods sellers and ended FY 2013 offering nearly 15 million

products. Amazon India has two fulfillment centers in Mumbai and Bangalore and plans to

start five new fulfillment centers across the country. Known for its strong last-mile delivery

network, Amazon India has set up a logistics arm named Amazon Logistics and started

offering same day delivery. Recently Amazon tie up with Indian Postal Services to expand

their distribution network.

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3. INDIA POST:

India Post has about 1.55 lakh post offices, making it the world's largest postal network. On

an average, a post office serves 21.21 sq km area and about 7,175 people. Within a year of

joining the e-commerce bandwagon as a distribution channel, government entity India Post

has transacted business worth Rs 280 crore in the Cash-on-Delivery (CoD) segment alone for

firms like Flipkart, Snapdeal and Amazon, Shopclues, Naaptol, Telebrands and Homeshop18

are some of them. Why the companies are availing the Indian post services, the major reason

behind it that the Indian Post service cover the large are of distribution network. By setting up

own network it will costly for companies that why they are utilizing Indian Post Services.

While the amount of revenue generated for it self could not be ascertained, government

officials said India Post is very keen on developing its e-commerce related services as a

major revenue model going ahead. In India, customers tend to prefer CoD as the online

payment modes are yet to catch up in many parts of the country while many people are not

comfortable with advance payments for products purchased online. India Post's cash handling

services like core banking solutions, money transfer and a robust account system can further

help e-commerce firms in collecting cash from users in urban as well as rural areas.

India Post has set up booking counters in the premises of some customers like Amazon and

Naaptol, while for Snapdeal it is exploring setting up of e-commerce booking kiosks in post

office locations. India Post is also ramping up its infrastructure to grab a major chunk of the

distribution, delivery or logistics, which will touch about $9 billion by 2021. According to

market experts, e-commerce business in India was about $6 billion in value in 2012 and is

expected to touch $76 billion by 2021 of which distribution, delivery and logistics constitutes

around 12 per cent.

4. FLIPKART:

One of the leading companies in online retail segment Flipkart has started as a price

comparison online portal with an initial investment of 8,000 USD and later turned into an e-

retailing giant which recently ticked the 1 billion USD in gross merchandise volume. It

started with a consignment model where goods were procured on demand and turned into

inventory e-retailer supported by registered suppliers since it provided better control on the

logistics chain.

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Flipkart established warehouses in Delhi, Bangalore, Mumbai and Kolkata managing a fine

balance between inventory and cost of delivering goods. Facing difficulties from the 3PLs in

the form of higher delivery cost, late deliveries and faulty products delivered resulting in

return and customer dissatisfaction, it has started its own logistics arm named e-Kart.

E-Kart provides a robust back-end support to Flipkart and ensures timely deliveries. To

achieve the economies of scale, recently e-Kart started providing back-end support to other e-

retailers. It has consolidated the market and added strengths by acquiring We Read,

Mime360, Chakpak.com, Letsbuy.com and Myntra along the way. The company employs

around 13,000 employees and plans to add 10,000 to 12,000 more in next one to three years

after a recent acquisition of Myntra

Conclusion

Due to the development of information technology and internet, the world market has

converted toward e-marketing and business. But the low literacy rate in the country is the

basic hurdle for the rapid growth of e-commerce; even the educated people are not able to

handle i-phone, laptop and desktop with cyber technology. Many players of e-commerce still

failed to reach many remote areas including the states of North East India. The benefit of e-

commerce is available only to the capital district of the state except Assam. This may be due

to the transportation facility and courier services are rarely available except speed post which

is also facing many problems to reach the unreachable. Unavailability of 3G service and

broadband is still a question in many rural areas of the country for the development of e-

commerce.

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References:

Sharma, M. R., & Rawat, D. S. (2014). Evolution of E-commerce in India.

The Rise and Rise of E-commerce in India. (2013). Indain Brand Equity Foundation.

Satpathy, S. (2014, November). Snapdeal Tapping Rural market by setting up E-commerce.

Websites:

http://www.pwc.in/assets/pdfs/publications/2014/evolution-of-e-commerce-in-india.pdf

http://www.ey.com/IN/en/Industries/Technology/Re-birth-of-e-Commerce-in-India

http://www.theglobaljournals.com/ijar/file.php?val=August_2013_1375511534_1c067_34.pdf

http://www.itcportal.com/businesses/agri-business/e-choupal.aspx

http://www.itcportal.com/sustainability/embedding-sustainability-in-business.aspx

http://en.wikipedia.org/wiki/E-Choupal

http://en.wikipedia.org/wiki/ITC_Limited

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