Business Models for E-Commerce

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.

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.