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Case in focus Itc's E-choupal: Taking E-business to Farmers !ar"ani

The case examines the initiatives taken by leading Indian !"# com$any% IT"% to utili&e the $otential o' in'ormation technology 'or im$roving the $er'ormance o' its agricultural commodities ex$ort business in the early ()st century* This exercise% carried out under the name +e,choupal- was essentially an e''ort to build a strong su$$ly chain network 'or sourcing o' agricultural $roducts* The case discusses in detail how the com$any designed and executed the e,choupal $ro.ect in the country-s rural areas* The measures taken to overcome the various $roblems 'aced while im$lementing this $rogram have been ex$lored in de$th* The case also describes the bene'its that the com$any derived out o' the e,choupal initiative and $rovides in'ormation regarding IT"-s 'uture $lans to make o$timum use o' the network* What started as a cost-effective alternative supply chain system to deal directly with the farmer to buy products for exports is slowly going to expand into an alternative distribution mechanism for rural India. - S Sivakumar, Chief Executive, ITC Agribusiness, in March 2 The purpose of the e-chou$al is to empower farmers with real time information on weather and prices so that they can insulate themselves from the unpredictable climate conditions and price fluctuations. - " C #evesh$ar, Chairman, ITC, in #ecember 2 A #uiet $igital Re"olution In the technologically advanced global business environment o' the ()st century% e,business and e,commerce initiatives have become /uite $o$ular* The very mention o' such initiatives con.ures u$ an image o' organi&ations with so$histicated in'ormation technology 0IT1% communication in'rastructure and an IT,savvy work'orce* Thus% it would $erha$s be rather di''icult to think o' $oor% illiterate 'armers in the remote% dusty villages o' India making e,business a $art o' their daily lives* 2 ty$ical village in India does not have even basic amenities such as electricity% tele$hones and trans$ort 'acilities* 2 huge $ro$ortion o' the 'armers in the country are illiterate and most o' them are not even aware o' the existence o' a com$uter% let alone the Internet and e,business* 3owever% in (44(% this very clan o' illiterate and ignorant 'armers could be seen conducting e,commerce transactions with great ease* 2ll this became $ossible due to the innovative and revolutioni&ing conce$t o' +e,choupal)-% introduced by one o' India-s leading agribusiness and consumer $roduct com$anies% the tobacco to hotels ma.or% IT"* The e,choupal initiative aimed at networking the villages via the Internet and $rocuring agricultural $roducts 'rom the 'armers 'or ex$ort $ur$oses* The initiative 2! 2!

enabled 'armers to sell their $roduce more conveniently and at much better $rices* Starting with .ust six e,choupals in (444% IT" had managed to establish )%(44 e, choupal centers in a$$roximately 5%644 villages in India by December (44(* The com$any $lanned to set u$ a network o' 4*) million villages across )7 states within the next 'ive to seven years* !anagement gurus and com$anies in India as well as other $arts o' the world a$$reciated IT"-s e''orts to success'ully carry out this initiative* IT" was being seen by many as an exam$le o' the role big cor$orations could $lay in 'illing u$ the institutional ga$s by making use o' IT* IT"-s success in this endeavor becomes all the more commendable% considering the 'act that many similar initiatives undertaken by leading Indian com$anies including Tata "hemicals% !ahindra 8 !ahindra% Rallis and EID 9arry had 'ailed 0Re'er Exhibit I1* "ommenting on the revolutionary conce$t% !ohanbir Sawhney o' the :ellogg School o' !anagement said% ;IT"-s long,term vision 'or e,choupals is grand* But the com$any started with a modest and 'ocused value $ro$ositionhel$ing 'armers get a better $rice 'or their cro$s* This $hased a$$roach allows IT" to gain credibility through early successes and learn 'rom its mistakes*; <hat set IT" a$art 'rom other similar initiatives was the manner in which it im$lemented this $ro.ect* 9ro'* :rishna 9ale$u% $ro'essor o' Business 2dministration% 3arvard Business School said% ;It is a brilliant idea* I' this ex$eriment works% you will have 'or the 'irst time% enough communication ca$acity to connect with a market segment that is currently underserved% but clearly had the $urchasing $ower* On this backbone% one can imagine other !"# services and $roducts being o''ered* But% like everything else% it de$ends on execution*; %ackgroun& 'ote IT" was incor$orated into the =: based tobacco com$any B2T% in 2ugust )>)4 as the Im$erial Tobacco "om$any o' India ?td* 0Im$erial1* During the next six decades% the com$any $rimarily concentrated on growing and consolidating its cigarette and lea' tobacco businesses and soon emerged as a leader in the cigarette industry* 3owever% Im$erial reali&ed that o$erating only in the cigarette business would become risky in the long run% as the $roduct was considered in.urious to the health o' consumers* !oreover% the constant increase in the excise duty on cigarette was beginning to a''ect the com$any-s $ro'itability* Thus% the com$any took a conscious decision to diversi'y into other businesses and entered the marine $roducts ex$ort business in )>@)* In )>@7% the com$any-s name was changed to IT" ?td*% and soon a'ter the com$any diversi'ied into several businesses* The com$any entered the hotel business in )>@6% the textile business 0with Tribeni 3andlooms1 in )>@@ and the $a$er business 0with Bhadrachalam 9a$erboards1 in )>@>* In )>A)% the com$any diversi'ied into the cement business by buying a BBC stake in India cements 'rom IDBI* 3owever% this investment did not 'etch the re/uired synergies 'or the com$any and there'ore two years later the com$any divested its stake* In the early )>A4s% IT" set u$ an in'ormation systems division and named it IT" In'otech India ?td* In )>A5% the com$any incor$orated the IT" 3otels grou$ and also entered the 'inancial services business by setting u$ a subsidiary% IT" "lassic inance 0consolidated with the banking ma.or% I"I"I in )>A@1* In )>>4% the com$any set u$ an International Business Division 0IBD1 'or ex$orting agricultural commodities* In )>>7% IT" a$$roached the renowned consultants !c:insey to undertake a detailed study o' the com$any-s businesses and make recommendations* !c:insey advised the com$any to concentrate on its core businesses and withdraw 'rom non,$ro'itable businesses* ollowing !c:insey-s advice% IT" decided to 'ocus $rimarily on its tobacco% hos$itality and $a$er businesses* It either sold o'' or gave u$ the controlling stake in several o' its non,core businesses* The com$any divested 6)C o' its stake in IT" 2grotech to "on2gra% the world-s 'ourth largest com$any in 'ood business based in the =S* IT" 9alm Tech and IT" Deneca% the seed manu'acturing com$anies were also merged with the new agribusiness entity* Tribeni Tissues% which manu'actured thermal $a$er% news$rint% carbon and

bond $a$er was merged with IT"* "ontinuing with its decision to reduce its 'ocus on the tobacco business% and seemingly going against the consultants- recommendations% IT" diversi'ied into many other areas by the beginning o' the ()st century* These included greeting cards% gi'ts% stationery and accessories% retail store chains to sell clothes and accessories% 'oods and commodities% and branded matchboxes* In (44)% the com$any-s name was changed to IT" ?td* By (44(% IT" s$orted a well,diversi'ied $ort'olio o' businesses% encom$assing cigarettes and tobacco% $ackaging% s$ecialty $a$ers% $a$erboards% hotel% retailing% IT and agri,ex$orts* In its >4,year old history% IT" earned many awards% distinctions and honors , both national and international* In the ET644 survey conducted by India-s leading 'inancial daily% The Economic Times% ranked IT" sixth among the 644 listed com$anies on the basis o' its market ca$itali&ation 0)>>>1* The Far Eastern Economic Review survey o' Indian com$anies ranked IT" eighth among the to$ )4 cor$orates in the country 0(4441* The 'inancial $er'ormance o' the com$any also showed a steady im$rovement over the years* By (44(% the agri,ex$orts business had emerged as one o' IT"-s star $er'ormers% with IBD ex$orting agricultural $roducts worth Rs* @*6 bn and thus becoming India-s second largest ex$orter in the business(* IBD-s main ex$orts were rice% soyabean% a/ua $roducts% $eanuts% wheat% co''ee% black $e$$er% sesame seeds and $rocessed and 'ro&en 'ruits and vegetables* Over the years% IBD had established tremendous credibility with international customers% making IT" the su$$lier o' 'irst choice 'or most o' its +very loyal- clientele* IBD was chosen as a leading su$$ly chain $artner by well,known international organi&ations like "oca,"ola% !itsubishi and 2bu Dhabi eed !ill 'or agricultural and 'ood $roducts* The ex$orts 'rom IBD could be broadly divided into 'our grou$s* irst% ex$orts o' bulk $roducts like soyabean% sugar% wheat% rice and oil 0worth Rs* 7*6 bn1E second% ex$orts o' a/ua $roducts worth 0Rs* ) bn1E third% ex$orts o' $roducts like $e$$er and co''ee 0between Rs* @64 mn,( bn1E 'ourth% ex$orts o' small /uantities o' value,added items like 'ruit $ul$ and basmati rice 0worth Rs* (64 mn1* The division contributed earnings o' Rs* (44 mn in (444,4)* 3owever% IT" believed that the $ro'it margins were not as high as they could ideally have been* The com$any did not get the desired results due to several reasons , 'irstly% it did not have su''icient control over the su$$ly chain o' the agricultural $roduce* or instance% in !adhya 9radesh% soya 'armers were generally located in remote villages scattered throughout the state* In :arnataka% the roles o' co''ee $lanters 0large and small1% traders and agents were not clear in distribution and as a result the com$any did not have any direct control over the /uality o' the $roducts* as the /uality o' the $roducts was very im$ortant to be able to attract and retain international buyers% IT" su''ered* ?ack o' in'rastructure 'or storage% handling and trans$ortation o' the $roduce acted as a ma.or hurdle* Fext on the list was the $roblem o' middlemen or intermediaries* The com$any was com$letely de$endent on the middlemen 'or obtaining good /uality $roducts* the middlemen exerted in'luence on the 'armers by concealing the $revailing market $rices and other related in'ormation* They made large $ro'its 'or themselves by blocking access to such in'ormation* IT" had been trying to devise strategies to overcome all the above $roblems it had been 'acing 'or the $ast many years* The com$any reali&ed that the Indian 'armers were not able to make ade/uate $ro'its because they were tra$$ed in a vicious circle o' low investment% low $roductivity% weak market orientation% low value addition% low margin and low risk,taking ability* Thus% des$ite the 'act that India had rich and abundant natural resources% the Indian 'armer remained globally uncom$etitive* This was re'lected in the $oor $er'ormance o' the Indian agribusiness sector on a global scale* There was thus% a need 'or a system that would enhance the com$etitiveness o' the 'armers and the Indian agricultural sector as a whole* The e,choupal initiative was devised as an answer to these $roblems* The immediate aim o' taking u$ this $ro.ect was to integrate IT"-s association with the rural su$$liers as well as to develo$ new markets 'or its own

and third $arty goods* "ommenting on this% Sivakumar said% ;<e began with conceiving an alternative su$$ly chain management model* The main challenge 'or any cor$orate in agribusiness is in dealing with 'ragmented 'arms% in'rastructure bottlenecks and numerous intermediaries* These intermediaries make unreasonable $ro'its 'or themselves by blocking market and $rice in'ormation* But they cannot be wished away as they add critical value at very low cost by substituting 'or the in'rastructure ga$s along the chain* <e used the $ower o' the Internet% and worked out a model which not only leverages the $hysical transmission ca$abilities o' these intermediaries% but also disintermediates them 'rom 'low o' in'ormation and market signals*; $etailing t(e E-choupal Initiati"e Traditionally% a 'armer sold his agricultural $roduce to a small trader re'erred to as a !accha adat." The small trader then sold the $roducts to a larger trader called the #a$$a adat"% who sold the $roduce in a mandi" 0market $lace1* 3ere% brokers interacted with these large traders and hel$ed them sell their $roduce to cor$orates like IT" 0Re'er Exhibit II1* This whole $rocedure involved many intermediaries% which resulted in $rocurement costs being as high as Rs* @44 $er ton o' soya* I' losses in transit and taxes were added to the original $rocurement cost% the costs increased 'urther* Initially% IT"-s main ob.ective was to reduce the number o' intermediaries in the whole $rocess* 3owever% the com$any soon reali&ed that it could not eliminate all intermediaries 'rom this $rocess as some o' them $er'ormed valuable 'unctions like collecting the $roduce% taking care o' logistics and $roviding trans$ortation* 9er'orming all these activities by itsel' would have turned out to be a costly a''air 'or IT"* =$on closer study% IT" reali&ed that it actually needed to eliminate the hitches in the 'low o' in'ormation* This was so because a ty$ical 'armer did not have enough resources to take his $roduce to the mandi* 3e had to de$end on in'ormation like weather re$orts given by others involved in the value chainB and acce$t the $rices /uoted to him by the intermediaries* "ommenting on this% Sivakumar said% ;The intermediary has in'ormation and thus% extracts a greater margin*; "onse/uently% the 'armers did not get a 'air share o' money* Thus% the $rimary task 'or IT" was to bring this in'ormation to the 'armers and using the +go betweens- that added value directly* The com$any decided to utili&e IT tools to network the villages and leverage the Internet to $rovide in'ormation to the 'armers and other $eo$le involved* The basic idea was to e/ui$ village choupals with a $ersonal com$uter 09"1 and $rovide them Internet connectivity* The $ro.ect% initially named as +9ro.ect Sym$hony- took the 'orm o' a click and mortar model7 and was eventually launched under the name +e,choupal- in the villages o' !adhya 9radesh 'or the soya 'armers% with the website www*soyachou$al*com* IT" invested a sum o' Rs* 4*) mn,4*B mn 'or each center* irst% IT" o$ened three soya $rocessing and collection centers6 to act as the hubs around which the e,choupals were to be built* Then% IT" created a role o' a sanchala$" 0convener1% an individual who would su$ervise and coordinate the activities in an e,choupal* Once this was done% the com$any began looking out 'or 'armers 'rom the villages around these collection centers to head each choupal* The selection was not an easy .ob* The sanchala$ had to be chosen very care'ully because i' he was big 'armer5% he would show little interest in making the choupal work and i' the 'armer was small% the rest o' the 'armers would not acce$t him as their leader* There'ore% a sanchala$ had to be a $erson o' reasonable stature in the community* The 'armers acce$ted this conce$t better because this way% the coordinator o' the choupal was someone known to them* The sanchala$ was a$$ointed to o''ice a'ter a $ublic oath taking ceremony* Once a suitable sanchala$ was selected% a 9" was then installed in his house and

he was given training on using it* This method worked out chea$er 'or the com$any as it did not have to invest in establishing Internet kiosks at di''erent $laces* The sanchala$ $aid the day,to,day o$erating costs like electricity and Internet connection charges* On an average% these costs varied between Rs* (>44 and Rs* @544 $er year de$ending on the usage* IT" covered 'ixed costs like the cost o' e/ui$ment% maintenance o' e/ui$ment and miscellaneous travel* Other than this% IT" s$ent an average o' Rs* 7A44 $er yearG$er unit on training and in'rastructure management 0addressing e/ui$ment and so'tware com$laints% maintaining a hel$desk and re$airing or re$lacing broken e/ui$ment1* The sanchala$s hel$ed the 'armers by guiding them in checking the $revailing $rices and other related in'ormation on the 9"* The sanchala$s were $aid 4*6C o' the $rocurement $rice 'or each ton o' soya $rocured by IT" 'rom their choupal* Be'ore im$lementing any new initiatives% IT" consulted its sanchala$s* Besides% regular +choupal meets- were held* This not only $rovided the com$any 'eedback 'rom 'armers% but also generated new ideas* IT" also began to gather all in'ormation re/uired by the 'armers like the daily mandi $rices% weather re$orts% global $rices% best 'arming $ractices and other services like water% soil and 9"R testing@* This in'ormation was $ut into a database* "urrent in'ormation like mandi $rices% weather re$orts and global $rices were downloaded via the Internet* Static in'ormation like best 'arming $ractices were made available on com$act discs 0"Ds1 or was installed in the 9" hard disk while setting u$ the choupals* "ontent that were relatively di''icult to understand 0like best 'arming $ractices1 was rewritten in sim$le words by some o' the 'armers themselves* !oreover% in'ormation was made available in the local language* The next im$ortant ste$ 'or the com$any was to deal with the commission agents at the mandis* These commission agents had a strong in'luence on the $rices and were there'ore considered to be very $ower'ul* But% the im$lementation o' e, choupal totally disru$ted their business and most o' these commission agents were u$set* IT" knew that 'or the smooth 'unctioning o' its $ro.ect% it could not a''ord to totally ignore these agents* There'ore% the com$any devised a new role 'or them and called them as samyo%a$s" 0coordinators1* ?ike sanchala$s% samyo%a$s also underwent training and took oath be'ore being a$$ointed to o''ice* =sing their network o' connections with both 'armers and village heads% these samyo%a$s hel$ed IT" identi'y suitable candidates 'or the role o' sanchala$s* They were res$onsible 'or documentation o' relevant in'ormation 'rom the mandi* The samyo%a$s were also res$onsible 'or collecting the $roduce 'rom villages that were located 'ar away 'rom the $rocessing centers and bring it to these centers* The samyo%a$ was $aid )C commission 'or each ton o' soyabean sold to IT"* 2lthough many o' these intermediaries were initially a$$rehensive about the $ro$osal% they gradually reali&ed that they were actually not going to lose anything by $artici$ating in the initiative* The calculations revealed that whatever money they lost in margins $er unit was covered u$ by the increase in the volumes they traded in* armers gathered at the e,choupal to check the $revailing $rices and could directly go to the collection centers to sell their $roduce and get their $ayment* In this model% 'armers could com$lete their transactions within a 'ew hours unlike many days taken $reviously* The results 'rom the $ilot $ro.ect were /uite im$ressive* IT"-s total cost o' $rocurement reduced by Rs* 644 $er ton 0down by Rs* (44 $er ton 1* The idea o' selling directly at the collection centers a$$ealed to the 'arming community and 'armers started coming to the centers in huge numbers* The 'armers could either bring the $roduce to the IT" warehouseG'actories and get reimbursed 'or the trans$ortation cost% or could hand it over at one o' the collection centers or the sanchala$* )"ercoming *roblems an& C(allenges Building and ex$anding the e,choupal initiative was not an easy task 'or IT"* The com$any 'aced several $roblems like intermediary unrest% wides$read illiteracy% outdated tele$hone exchanges and s$oradic electricity su$$ly* 3owever% IT" evolved innovative ways to overcome these $roblems* 2t $laces% where the

connectivity was $oor due to the lack o' $ro$er tele$hone lines% IT" u$graded the tele$hone lines using RFS kits 0R2H Fetwork Synchroni&ation1 A and in some cases% by using VS2Ts> to by,$ass the tele$hone lines com$letely* To deal with $roblems related to bandwidth)4% the com$any made use o' s$ecially devised technical solutions to manage data along with new imaging techni/ues* This way% downloads became 'aster% thereby o$timi&ing bandwidth use* The com$any also began ca$turing the static content locally* To overcome the $roblem o' s$oradic electricity at various kiosks% IT" made use o' backu$ batteries% which could be recharged with solar $anels* IT" also had to overcome a 'ew government regulatory $roblems* The 2gricultural 9roduce !arketing "ommittee 2ct)) 029!" 2ct1 $rohibited a com$any 'rom $urchasing certain s$eci'ied commodities 'rom any source other than government designated mandis* These items included soyabean% co''ee and wheat% all $roducts that IT" dealt with* IT" $ersuaded the state governments by telling $olitical and bureaucratic leaders about the bene'its o' the $ro.ect to the 'armers and others involved in it* IT" also made e''orts to ex$lain how the 2ct was im$eding the growth o' a 'ree market system% direct marketing and com$etition* 2s a result o' these e''orts% some state governments amended the 2ct while others allowed certain exem$tions 'or IT"* 3owever% the biggest challenge 'or IT" lay in 'amiliari&ing the 'armers in the remote areas with com$uters% the Internet and its usage* ?uckily% des$ite the initial hesitation on $art o' the 'armers% there was no direct resistance* 2nd contrary to the ex$ectations% IT" was able to train the very 'irst grou$ o' sanchala$s in .ust two hours rather than two days as it had initially $lanned 'or* IT" made use o' videos showing 'armers using the kiosks* The sanchala$s also hel$ed by retrieving necessary in'ormation 'or those who could not read* 2ccording to IT"-s calculations% the investment o' Rs* 4*) mn could be recou$ed within )A months 0three sowing seasons1* This looked like a viable $ro$osition and the com$any went ahead with the work o' covering the entire state o' !adhya 9radesh* By the end o' (44(% !adhya 9radesh had >@5 e,choupals s$read in @%444 villages% covering 4*5 million 'armers and trading soyabean worth Rs* )*5 bn* )n an E+,ansion !,ree 3aving succeeded in the ex$eriment with soyabean% IT" began to look 'or new avenues to ex$and its business* !oreover% to be able to sustainGincrease its revenues in the long,term% IT" needed to ex$and as soyabean was .ust a small $art o' the entire agribusiness $ort'olio* The com$any learned that although the nature o' agriculture was same all over the country% the value chains di''ered slightly 'rom one cro$ to another de$ending $rimarily on two 'actorsE 'irstly% on the dynamics o' the commodity the 'armers traded in and secondly% the socio, economic strata they belonged to* "ommenting on this% Sivakumar said% ;3aving succeeded with soya% we decided to extend the conce$t to cro$s grown in 'our states with di''erent socio,economic characteristics*; Thus% IT" s$read its initiatives to other states like :arnataka% 2ndhra 9radesh and =ttar 9radesh* In December (444% the com$any launched a website% +9lantersnet0www*$lantersnet*com1% to deal with the co''ee 'armers in :arnataka* IT" set u$ @6 kiosks to cover 5444 co''ee 'armers in )(6 villages* "o''ee is a $lantation)( cro$ and has a more so$histicated grower $ro'ile* 3ere traders needed to be well in'ormed about the com$lex risk trans'er mechanisms and have access to various cash management tools that can de,link $rice 'ixation with cash* In short% co''ee $lanters needed to be much more market savvy* In this scenario% an agent-s role was crucial with market $rices being volatile* 3ence% the $lanters $re'erred to trade with known counter$arts* !oreover% the value chain 'or co''ee +being /uite strong and e''icient- le't less sco$e 'or disintermediation* 3ence% IT" ado$ted the strategy o' $ositioning the website as one single source o'

knowledge% in'ormation% in$uts and out$uts related to the business and also to network the $artners in the business* Since the in'ormation involved was much more so$histicated 0such as details regarding raw to clean co''ee conversion rates and co''ee 'utures)B1% IT" had to rely on third,$arty sources such as 2BF 2mro% the world-s largest 'utures $layer% to $rovide u$dates on a regular basis* IT" $laced com$uters at various $laces% including the clubs and coo$eratives o' smaller $lanters and agents- kiosks* The com$any also develo$ed an e,trading $lat'orm with s$ecial 'eatures* "ommenting on this% the "o''ee Board "hairman% ?akshmi Venkatachalam% said% ;This website is a harbinger o' better ex$ort $ros$ects o' co''ee 'rom India and could serve as a virtual extension o' services 'or the cash,stra$$ed small grower who has no in'ormation on scienti'ic cro$$ing and market in'ormation* It could also hel$ build brands in international markets*; 2s a $art o' its ex$ansion $lan% the com$any launched +2/ua choupal0www*a/uachou$al*com1 in the state o' 2ndhra 9radesh in ebruary (44)* =nder this $rogram% IT" o$erated 66 kiosks covering )4%444 shrim$ 'armers in more than B44 villages* 2n a/ua 'arming)7 business involved higher costs than traditional 'arming business* !oreover% as the $roducts were highly $erishable% it involved high risk% but at the same time 'etched e/ually healthy returns* This high risk and high return nature o' a/ua 'arming attracted a very di''erent kind o' 'armer $ro'ile* The 'armers involved in this business were relatively well to do and thus much more demanding 0in terms o' $rices o''ered to them1 than the soya 'armers* In Fovember (44)% IT" started its e,choupal $rogram 0www*echou$al*com1 in =ttar 9radesh 0=91* The com$any was attracted by the si&e o' the wheat marketE in =9% )(4 million tons o' wheat was $roduced annuallyalmost )7 times more than the soyabean $roduction in !9* 2$$roximately )A4 kiosks were set u$ reaching more than B%@6%444 wheat 'armers in over )%644 villages* The execution o' the $rogram was similar to that 'or soyabeans in !9* IT"-s cigarette distributors $roved to be very use'ul while setting u$ the wheat choupals* Since cigarette volumes had reached a saturation $oint% distributors were willing to try new revenue streams% and agreed to become samyo%a$s* IT" was able to save u$to Rs* 66,56 $er ton o' wheat and u$to )4C o' the $rocurement cost through this $rogram* %eyon& Commo&ity Tra&ing Once the e,choupal initiatives began generating good results% IT" reali&ed it could 'urther leverage the business $otential o' the choupals* This led to the decision o' using the kiosks 'or +reverse trading%- that is% allowing other com$anies to sell their $roducts and services directly to the 'armers via the Internet* In early (44(% IT" brought in com$anies like !onsanto 0a =S giant dealing in seeds1% B2S India ?td*% and Fagar.una 'ertili&ers% 0'ertili&er com$anies in India1 and !adhya 9radesh State Seeds "or$oration 0!9SS"1* These com$anies could take orders as well as market their $roducts and services through the site* They dis$layed their $roducts on the site% o''ered s$ecial $rices and also trained the 'armers on $roduct usage* They also booked orders 'rom 'armers and delivered the goods to them through the sanchala$s* The com$anies had to $ay a nominal 'ee to IT"% which amounted to )4C o' the value o' the transaction* Each sanchala$ also got a commission o' 6C on sales 'or all $roducts sold at his kiosk* This initiative was greatly a$$reciated by $artnering com$anies* 2 !onsanto o''icial claimed that the model o''ered them an o$$ortunity to work closely with the 'armers and $romote their $roducts* !oreover% their cost o' trans$ortation and storage had reduced* The com$any also $ointed out that as a result o' its association with the model% its cor$orate re$utation and brand image had been enhanced greatly* IT" was also considering using this model to sell !"# 0 ast !oving "onsumer #oods1 $roducts* In late (44(% the com$any started by selling $ackaged vegetable oil called choupal" and gas lanterns manu'actured by third $arties* The com$any

was also $lanning to make a 'oray into the 'oods business to sell $roducts like salt% wheat 'lour and sugar and $lanned to make use o' the e,choupals as a distribution system* In another innovative move% IT" began selling li'e insurance $olicies through the e,choupal network* The com$any chalked out a revenue sharing model 'or the insurance com$anies% IT" and the sanchala$s% who did the actual +selling- .ob 'or the $olicies* IT" $lanned to sell li'e insurance $olicies 'rom ?i'e Insurance "or$oration 0?I"1% India-s largest li'e insurance com$any% as well as other $rivate $layers* "ommenting on this decision% a senior IT" o''icial stated% ;There is no reason banks $roviding microcredit)6 to 'armers% health services com$anies and educational services com$anies cannot leverage the $ower o' the metamarket*)5; The com$any launched a $ilot $ro.ect in !9 in Se$tember (44( in this regard% to be carried out till !arch,2$ril (44B* -ooking A(ea& By Ianuary (44B% the e,choupal network included )%(A5 kiosks covering nearly a million 'armers in around >444 villages* Satis'ied with the kind o' enthusiasm shown by the 'armers 'or the initiative% IT" was re$ortedly $lanning to scale u$ its activities 'urther* It $lanned to ex$and at a rate o' B,7 choupals a day and establish (4%444% choupals covering )%44%444 villages in )) more states 0a$$roximately one,sixth o' rural India1* The com$any had $lans to ex$and into other cro$s 0like s$ices1 besides the ones being covered till the beginning o' (44B* The com$any $lanned to target international ex$orts worth J744 mn by (446* The e,choupal venture attracted attention on a global scale* 2 3arvard Business School 9ro'essor% David =$ton com$limented the com$any-s business model and said% ;This is a su$$ly chain innovation that is local to India but has broad a$$lications to the world* <hat is interesting is the social good it brings in the wake to the small% marginal 'armer*; 3e said that one o' the main $roblems o' redesigning su$$ly chains was to make use o' di''erent tools and still make various $layers $lay their $art* =$ton added% ;3ere% the 'armer and the team are involved in $ainting the big $icture% so there is enthusiasm and a 'eeling o' ownershi$* urther% how do you avoid a channel con'lict by 'inding s$ace 'or the middlemenK;* In (44(% the Indian government accorded the +#olden Star Trading 3ousestatus)@ to IBD 'or maintaining an im$ressive track record in ex$orts o' agricultural and a/ua $roducts* IT" even got o''ers 'rom organi&ations like the <orld Bank to share its ex$ertise and re$licate the e,choupal model in 2'rica and other develo$ing countries* 3owever% the com$any was not keen on extending its services to other countries in the near 'uture* IT" "hairman Deveshwar said% ;<e are not ready with it as yet* <e want to stay 'ocused on ex$anding the network in India 'or the time being*; The e,choupals gave valuable lessons to IT" as well as other cor$orates in similar business* the gains 'rom the initiative were mani'old'or IT"% the 'armers% the intermediaries and other com$anies as well* Su$$orting this% Sivakumar said% ;It has im$roved the $roductivity o' 'armers and $rovided better $rices to them* or IT"% it has hel$ed in better sourcing o' $roducts and a vehicle 'or many !"# com$anies to market their $roducts*;

A%%itional &ea%ings an% &eferences &. 'optu #radeep( ITC's (e$ Mantra( Business Standard% )uly *+( *,,&.

*. -ha$raborty Indranil( ITC )irms up *lans for Corporate e-+olution, inancial Ex$ress% .ugust *( *,,&. /. ITC ,opes to Strike -ol% in Marketing, #istribution .i/( Economic Times% .ugust 0( *,,&. 0. ITC &ea%0 to 1ffer #istribution .ackbone to Thir% *arties, inancial Ex$ress% .ugust 0( *,,&. 1. -ha$raborty Indranil( ITC Infotech, 2ipro in 3oint .i% .engal *lans C0berkiosks for )armers, inancial Ex$ress% .ugust *1( *,,&. 2. ITC to e-connect States to .oost -rains *rocurement, 3industan Times% 3eptember 0( *,,&. 4. ITC e-Choupal, Businessworld% February ,0( *,,*. +. The Choupal as a Meta Market, Business Standard% 5arch ,1( *,,*. 6. Reddy #rashanth( ,ot business for ITC coffee 2eb, Business ?ine% .pril *1( *,,*. &,. 5ahala$shmi 7 8( ITC to )ocus on Inputs for ,orticulture Exports ( inancial Ex$ress% )une ,&( *,,*. &&. #admanabhan 5ohan( ITC's e-#rive for &ural )arm -ro$th -ets -oo% &esponse( Business ?ine% )uly ,*( *,,*. &*. )MC- to be ITC -ro$th Engine in the )uture, The Telegra$h% )uly *4( *,,*. &/. 3arma 9as 3uman( ITC Ma0 )err0 4IC to &ural In%ia( The Economic Times% )uly *6( *,,*. &0. Reddy #rashant( ITC's International .usiness 5nit Strikes the &ight (ote( Business ?ine%

.ugust ,4( *,,*. &1. 5allic$ )ayanta( ITC to 4a0 More *ro%ucts on e-Choupal ( Business ?ine% :ovember ,4( *,,*. &2. ITC to 4ink 6 4akh +illages 2ith e-Choupals, Invest &s! 6, Times o' India% 9ecember ,0( *,,*. &4. More a%mirers for e-choupal( The Telegra$h% 9ecember ,0( *,,*. &+. .ssissi -harles( 'upta Indra%it( ITC's &ural S0mphon0( Business<orld% )anuary *,( *,,/. &6. 3harma -hetan( Transforming the Agribusiness the e-$a0 in In%ia7( www.datamationindia.com. *,. .ack$ar% Integration as a )or$ar%-4ooking Strateg0 for In%ia's &ural Markets( www.digitaldividend.org. L I" 2I "enter 'or !anagement Research 0I"!R1* 2ll Rights Reserved* or accessing and $rocuring the case study log on to www*ecch*cran'ield*ac*uk* -houpal is a word in 3indi meaning +a gathering $lace*- It is a $lace in a village where all villagers converge and discuss their 'arming and daily li'e ex$eriences*
) (

cr( The

In ebruary (44B% Rs* 7A e/ualled =SJ)*

The agribusiness value chain involves the 'armer% the distributor% 0small traders% large traders and commission agents1 $rocessor% retailer and 'inally the consumer*
B

The +click and mortar model- re'ers to a traditional business model that has been ex$anded to take advantage o' electronic business technologies* 3ere +click- re'ers to the click o' a com$uter mouse* The traditional business model is re'erred to as the +brick and mortar model-% wherein a businessman uses a traditional 0$hysical1 store where customers go 'or $urchasing* In e,choupal% businessman made use o' the Internet to carry out transactions while the trans$ortation o' goods takes $lace $hysically*
7

Established in the mid,)>>4s% these collection centers were closed as they su''ered losses in o$eration* They were reo$ened by IT" 'or use in the e,choupal $ro.ect*
6

In a ty$ical Indian village% a big 'armer was re'erred to as one who owned more than three acres o' cultivable land and a small 'armer was anyone who owned less than three acres*
5

The $olymerase chain reaction testing commonly known as 9"R testing is used 'or detecting any genetic modi'ications in agricultural commodities and labelling them accordingly* 9"R testing is a costly $rocedure and takes several days to com$lete*
@

RFS technology is used to su$$ort Internet connectivity at high s$eeds* 2n RFS card is used to synchroni&e R2H 0Rural 2utomatic exchange1 to the network% thus establishing 'aster connectivity* 2n RFS kit-s ability to work reliably in harsh non,
A

air conditioned areas makes it use'ul 'or rural regions* VS2T is an earthbound station used in satellite communication o' data% voice and video signals* It consists a transceiver that is $laced outdoors in direct line o' sight to the satellite and a device that is $laced indoors to inter'ace the transceiver with the end user-s communications device% such as a 9"* The transceiver receives or sends a signal to a satellite trans$onder in the sky and the satellite sends and receives signals 'rom a ground station com$uter that acts as a hub 'or the system* or one end user to communicate with another% each transmission has to 'irst go to the hub station% which retransmits it via the satellite to the other end user-s VS2T*
>

Bandwidth re'ers to the amount o' in'ormation that can be carried over a wired or wireless communication device in a given time $eriod% usually a second* 2 low bandwidth means very slow data trans'er s$eeds% consuming a lot o' time and resources*
)4

The 29!" 2ct o' )>55 0generally known as the 2gricultural 9roduce !arkets 2ct1 was 'ormed with the ob.ective o' +removing various mal$ractices widely $revalent in the markets% 'or settling o' dis$utes between sellers and buyers and 'or $romoting orderly marketing o' 'arm $roduce in general*- Several state governments have made considerable $rogress in this 'ield by bringing in the necessary legislation* The 2ct enables states to regulate the markets% $rovide 'or the noti'ication o' market areas and the commodities to be covered*
))

2 $lantation re'ers to a large agricultural business wherein 'armers $roduce a cash cro$ 0such as tea% cotton% rubber and co''ee1 'or sale* These cro$s are usually cultivated in an ordered con'iguration such as e/ually s$aced rows*
)(

2 'utures contract is an agreement to buy or sell a s$eci'ic amount o' a commodity or 'inancial instrument at a $articular $rice on a sti$ulated 'uture date* "ommodity 'utures contracts are 'uture contracts that are tied to the $rice movements o' commodities such as tea% wheat% soyabean% corn% and even gold% silver% energy and crude oil* Di''erent commodity 'utures are traded in s$eciali&ed 'uture markets% known as commodity exchanges 0'or instance% co''ee 'utures are traded in co''ee 'uture exchanges1* These 'utures are traded by members o' the exchange 'or their own accounts as well as 'or the accounts o' retail customers*
)B

2/ua 'arming can be de'ined as +The 'arming o' a/uatic organisms% including 'ish% molluscs% crustaceans and a/uatic $lants* arming im$lies some 'orm o' intervention in the rearing $rocess to enhance $roduction% such as regular stocking% 'eeding and $rotection 'rom $redators* arming also im$lies individual or cor$orate ownershi$ o' the stock being cultivated*)7

!icrocredit is an extension o' small loans given to those $eo$le 0es$ecially 'armers1 who are too $oor to /uali'y 'or conventional bank loans*
)6

2 metamarket can be de'ined as a market $lace that +'acilitates all activities that are involved in obtaining an item 'or use or consum$tion*- E, choupals are a good exam$le o' a metamarket where a 'armer can obtain in'ormation about the $roducts% their $rices and then get the best deal* Edmunds*com is another good exam$le o' an online metamarket where one can get in'ormation about all cars% search 'or the best dealer 'or the car% arrange 'or a loan and also buy insurance*
)5

The government o' India recogni&es established ex$orters as Ex$ort 3ouse% Trading 3ouse% Star Trading 3ouses and Su$er Star Trading 3ouses with an ob.ective to build marketing in'rastructure and ex$ertise re/uired 'or ex$ort $romotion* Such houses o$erate as highly $ro'essional and dynamic institutions in order to $romote ex$orts* Thus any com$any that has been awarded the Ex$ort 3ouse% Trading 3ouse% Star Trading 3ouses and Su$er Star Trading 3ouses status 'or three years or more and continues to ex$ort is awarded the #olden Star Trading 3ouse status*
)@

E+(ibit I: Agribusiness Initiati"es Taken ., by !ome In&ian Com,anies In (444% some o' India-s well,known com$anies like !ahindra 8 !ahindra% Tata "hemicals% EID 9arry% Rallis 0a seed manu'acturing com$any1 and Fagar.una ertili&ers took u$ agribusiness ventures by setting u$ their own business models* 3owever% most o' them had to 'ace $roblems due to lack o' growth* Tata "hemicals% !ahindra 8 !ahindra and Rallis used the conce$t o' a one,sto$,sho$ 'or agri$roducts like seeds% 'ertili&ers and extension services 'or 'armers* The 3hubh ;abh" venture started by !ahindras had set u$ B5 centers in )4 states by the end o' (44(* 3owever% the com$any $osted huge losses in (44),4(* Rallis was re$ortedly s$ending more than its earnings* Tata :isan :endra 0T::1 launched by Tata "hemicals had also re$ortedly 'aced $roblems getting the re/uired revenue streams to sustain the investment* Even% ikisan*com 0Fagar.una ertili&ers1 and Indiagriline*com and 9arry-s "orner 0EID 9arry1% which tried to create an e,market$lace% could not scale u$* !any reasons were given 'or these $roblems* irstly% there existed a lack o' trust in the 'armer as these models de$ended on intermediaries% who in,turn were not trusted by the 'armer* This slowed the $rocess o' building u$ volumes* Secondly% most o' these models had high 'ixed costsE the 'ixed cost o' Ralli-s :isan :endra was Rs* 4*6,4*5 mn% whereas the variable cost came u$ to Rs* ) mn 0including cost o' a 9"% tele$hone% 'urniture% (,B motorcycles 'or 'ield sta''% rentals and salaries1* !oreover% the scale at which Rallis was o$erating did not allow easy cost recovery* In !9 alone% Rallis covered (4%444 acres% but still it could not scale u$* "ommenting on this% an industry observer stated% ;The com$any needs to hire more $eo$le% as one agri,extension worker cannot cover more than (64,B44 'armers* Every center has 5,A em$loyees* So i' it has )4 centers% it would need 54 $eo$le* Taking an average salary o' Rs* 4*)6 mn that would mean an out'low o' Rs* )44 mnGmonth in salaries itsel'* Besides there are additional overheads* So unless volumes go u$% o$erating costs would remain high*; Thirdly% the issue o' channel con'lict had to be tackled* Tata "hemicals tried to run the T:: model in $arallel to 'ertili&er sales* But it encountered $roblems as the wholesalers undercut the T:: 'ranchisees* Though this could be avoided by re$lacing the traditional in$ut and out$ut channels% there was the issue o' credit* The 'armers need credit% but com$anies were not willing to take the credit risk* 2 $ossible solution was to route the credit through big com$anies like Rallis and !ahindra as in$uts and get the receivables through marketing com$anies like 3?? and "argill* 3owever% it was still a di''icult $ro$osition% as com$anies could not bind 'armers to sell its $roduce to the com$any by contracting to buy their $roduce* !ost o' the 'armers went to co,o$erative banks as they needed immediate cash 0and they almost always de'aulted on re$ayment1* !oreover it was re$ortedly much di''icult 'or a com$any to recover money 'rom 'armers* ourthly% many com$anies did not have enough knowledge in $rocurement* 2 sourcing ex$ert stated that% ;"or$orates need the organi&ational knowledge o' handling sam$les* The market does not reward you 'or scaling% but 'or taking $ositions* Mou have to understand the 'undamentals o' commodity trading*; Thus all these models had a long way to go be'ore they could be success'ul in their initiatives* .dapted from a 7usinessworld( )anuary *,( *,,/ .rticle

CA!E A'A-/!I!

A 0in-1in *ro,osition - 8usum Aila$a%i T(e Reali2e& %enefits of E-choupal3E-,rocurement 2s an e''icient e,$rocurement system% the e,choupal delivering on its $romise o' signi'icant gains both 'or rom soya and wheat to the more challenging co''ee com$any-s $aced ex$ansion o' the conce$t seems to initiative is already IT" and the 'armers* and shrim$% the be $aying o''*

9rocurement has a natural and maybe even obvious 'it with e,commerce* I' I had to $ick one business area in which the Internet has had the most im$ortant and sustained im$act% this would be it* Smartly interweaving the $hysical value chain with the in'ormation value chain has allowed businesses all over the world to vastly im$rove their su$$ly chains* 2nd% i' one considers which dotcoms are thriving in the wake o' the technology bust% it would be only those ones that truly made use o' the in'ormation value chain as a central tenet o' their business models* That said% IT"-s initiative to e,connect with 'armers in rural India is much riskier and there'ore much more im$ressive than any e,$rocurement ventures in the develo$ed markets* It has had to contend with huge in'rastructural challenges% 'rom the lack o' $hone lines and de$endable $ower sources to the illiteracy o' 'armers% while also managing all the organi&ational issues o' channel con'lict that disintermediation entails* <hy has it succeeded so 'arK irst% there were real and big ine''iciencies at multi$le levels in the soyabean su$$ly chain% where IT" began% so the o$$ortunity 'or savings was clear* Second% IT" did a care'ul .ob o' determining which stages o' the $hysical su$$ly chain should be re$laced by in'ormation and which ones should continue to exist because they added real value* Third% they $aid close attention to the $otential con'lict and dissatis'action that disintermediation could create in some channel members% and took ste$s to co,o$t them by giving them both res$onsibility and margin* ourth% they $aced their growth so as not to s$read their resources too thin too 'ast* They connected a 'ew villages at a time% solving in'rastructural $roblems with a$$ro$riate e/ui$ment and training be'ore adding new locations* 2nd% they started with cro$s like soyabean where the learning curve 'or disintermediation was less stee$ and the bene'its were greater% moving on% only when they were ready% to more +di''icult- cro$s like co''ee and shrim$ that re/uired more third $arty ex$ertise or better logistics* i'th% the diversi'ied $ort'olio o' the com$any o''ered them some bene'its that would not have been $ossible i' it were $urely in agribusiness* or instance% IT" in'otech-s ca$abilities could be utili&ed in setting u$ the e,choupals% and IT" tobacco-s cigarette distributors were instrumental in the success o' the wheat choupals* T(e *romise of E-choupal $istribution 2s a distribution su$erhighway 'or marketing a variety o' $roducts and services to the otherwise hard and costly to reach rural customer in India% the initiative has great $romise* In my conversations with executives 'rom a variety o' !"# 'irms% two challenges in marketing to the rural customer in emerging markets invariably come u$ , the cost o' $hysical distribution to 'ar,'lung villages and the limited buying $ower o' individual consumers* 2t least theoretically% this initiative is the ideal combination o' shared access by marketers at one end and shared use by customers at the other end% as discussed by ": 9rahalad and 2llen 3ammond% in their (44( <arvard 7usiness Review article on serving the $oor $ro'itably* The shared access s$reads cost% risk% and res$onsibility across multi$le 'irms who can all bene'it 'rom ta$$ing the rural market whereas 'ew% i' any% o' them can do so as cost,e''ectively i' they +go it alone-* The shared use can allow rural consumers access to goods and services that may otherwise not be available to them% along with in'ormation to wisely choose which ones to buy and how to use them* Their aggregated demand makes it worthwhile 'or com$anies to sell to them% and% at the same time% it allows them to get more choices and better $rices 'rom those

com$anies* t(e *otential *itfalls But along with this $romise come a host o' im$lementation issues that have to be antici$ated and controlled i' this initiative is to be success'ully scaled u$ and sustained* 9rimary among them is the challenge o' accountability and res$onsibility in shared access* In the best case scenario% several com$anies would 'ind it attractive to use e,choupal"s distribution network to market their $roducts* But% someone needs to take the res$onsibility 'or monitoring in'ormation /uality and business transactions% weeding out 'raud% assuring delivery% and assuring /uality o' delivered $roducts% to name .ust a 'ew activities* The broader the assortment o' com$anies that $artici$ate in the shared access% the more challenging this task becomes* IT" will have to decide whether it has the core com$etencies re/uired to take on this role or wants to develo$ them* "an it% and does it want to% develo$ in, house all the ca$abilities o' an 2ma&on*com or eBay% on to$ o' the already 'ormidable challenge o' setting u$ the e/ui$ment% so'tware% in'rastructure% training etc* Someone also has to be res$onsible 'or ongoing training o' sanchala$s and other agents% maintenance o' hardware% so'tware% $ower su$$ly% $hone connections etc* 2gain% is that a com$etency that IT" wants to develo$K It is one thing to $er'orm all these 'unctions 'or a 'ew hundred ex$erimental sites% but it is /uite another to scale them u$ 'or covering hundreds o' thousands o' villages* The sites have to become sel',sustaining very /uickly and that is a challenge es$ecially with the low literacy rates and $oor in'rastructure in villages* 2ccording to the =FD9 Evaluation o''ice% many in'ormation technology based initiatives do not succeed in the long,term because they are individual% uncoordinated $ro.ects that du$licate e''ort% do not ex$loit synergies% and do not generate enough volume to make the initial investments $ay o''E the technology they use is not well,suited to the environs in which they must o$erateE the in'ormation $rovided is not relevant to the local community or cannot be acted u$on% and ongoing 'inancial su$$ort is needed because end,users are not willing to $ay 'or in'ormation* E,choupal certainly beats the odds on some o' these counts* The clear bene'its to both 'armers and IT" 'rom e,$rocurement and the $artici$ation o' 'or,$ro'it com$anies 'rom $ackaged goods to 'inancial services in e,distribution im$roves the chances o' sustainability% but it will be im$ortant to bring in F#Os and other organi&ations that can $rovide education% locally use'ul in'ormation etc*% to hel$ build the community* It would also be worthwhile 'or the com$any to coordinate its e''orts with !F"s like 3ewlett 9ackard who are investing signi'icantly in initiatives like e,Inclusion% and domestic develo$ers o' innovative low,cost technology like wireless local loo$% "orDect etc* In sum% the e,choupal e,$rocurement system really seems to be a win,win $ro$osition 'or both the $arties% largely due to the com$any-s $aced and care'ul im$lementation* Shared e,distribution% i' done right% is the ideal way to ta$ the true $otential o' India-s huge rural market* But% this is a very di''erent business 'rom e,$rocurement* #oing 'rom e,$rocurement o' soya to co''ee was challenging but still an incremental ste$* #oing to e,distribution o' a wide variety o' $roducts and services is a huge ste$% one that will need long,term investment and a 'undamentally di''erent business model* IT" is much more likely to succeed i' it coordinates its e''orts with $artners* I' it does succeed%

the $otential is immense% not .ust in India but in all o' the world-s $oor and emerging markets* The author is associate professor at Indian Institute of Foreign Trade =iift>( :ew 9elhi. L I" 2I 9ress* 2ll Rights Reserved*

CA!E A'A-/!I! A !te,-by-ste, A,,roac( 9 1 * 2ali uite a lot o' com$anies have 'ailed miserably in their attem$ts to im$lement in'ormation technology 0IT1 initiatives success'ully des$ite having a sound in'rastructure and a rece$tive% knowledgeable customer base* IT"% on the other hand% has demonstrated how a technological breakthrough can be e''ectively leveraged even in +unthinkable domains- like the villages o' India with virtually no existing in'rastructure% and a hostile% illiterate customer base*
N

The $rocurement as$ect o' agriculture is a highly com$licated one due to reasons such as $erishability o' the $roduce% $oor in'rastructure% channel dominance% the unorgani&ed traditional set u$% societal inhibitions and illiteracy* The success o' IT"-s e,choupal% which uses IT to enhance the relationshi$ between sellers and buyers in the com$any-s soya su$$ly chain% has thus attracted a lot o' attention not only in the country but abroad as well* The success o' any business model de$ends essentially on its value $ro$ositions% a robust business $rocess 'ramework to su$$ort it% and its sustainability* These three 'actors are essential to convey to any target audience the value enhancement that the modelGinitiative can bring 'or them* In case o' the e,choupal initiative% the value $ro$osition com$rises con'idence% convenience and li/uidity* The middle man in the conventional $rocurement model deals with each 'armer individually and more o'ten than not% 'armers did not trust him* The trans$arency $erceived by the 'armers in the e,choupal system creates trust* !ore im$ortantly% it creates con'idence in the 'armers through the reali&ation that they are taking better decisions in a grou$ environment* This reduces dissonance which is a common syndrome among 'armers selling $roduce to the middle men* The model changes the transaction work'low and sim$li'ies the $rocesses involved* This is backed by /uick recovery o' $ayments that hel$s li/uidity* The case teaches a 'ew basic% but im$ortant issues* irst% understanding o' individual and grou$ $syche is im$ortant to generate acce$tance towards a radically modi'ied $rocess* I' one looks at the models launched by other $layers like !ahindra 8 !ahindra% Tata% Rallis etc*% it is /uite clear that they o$erated on the +sell- side o' the su$$ly chain* The channel loyalty 0either $urchasing or selling1 is much stronger in rural areas as com$ared to the urban areas* The loyalty o' 'armers is rather high towards the retailer* The reason being that the retailer is ty$ically a local% known $erson% whereas the $rocurer is mostly an outsider* It is there'ore% less di''icult to enter the business 'rom the $rocurement side rather than the seller-s side* IT" understood this 'act and acted accordingly* One must also a$$reciate the way the roles o' sanchala$s and samyo%a$s were de'ined and their selection was made* This ensured that grou$ con'licts% /uite $revalent in the villages% were

avoided* So 'ar% most o' the research regarding a$$lication o' IT in businesses suggests that one should $roceed in increments and not make /uick% huge lea$s* IT" has been care'ul to 'ollow this maxim and has ex$anded the e,choupal initiative only a'ter $ro$erly identi'ying the $otential o' adding new commodities* De$ending on the re/uirements o' each commodity and the state 0geogra$hical region1 in which the choupals were set u$% the model was customi&ed* This was an extremely wise move since a model that works $er'ectly right in one state could 'ail in the other O the coo$erative unions and 'ederations are a good exam$le 'or this* Though IT" seems to be having a good run with this initiative% using IT e''ectively in business still remains a ma.or challenge 'or com$anies* The "EO o' a leading !F" in the !"# business had commented a 'ew years back that the com$any wanted IT to $lay such a role in its su$$ly chain that any sale at the retailer level triggers alerts in real time across the su$$ly chain O till the level o' the 'armerP 2 grand strategy indeed O but sadly% not backed by execution* So 'ar% the com$any has managed to link only its dealers and some su$er stores* Thinking o' linking the 'armers seems an extremely di''icult 'eat right now* "onsidering the above instance and com$aring it to IT"-s initiatives% one can assume 'or the time being that its model seems to be sustainable in the long run* This is $rimarily because it will not be very easy 'or any com$etitor to re$licate the e,choupal model that easily* 3owever% what would ha$$en in case a com$etitor does 'loat an auction,based $rocurement modelK 2ny com$eting model with an auction set u$ can change the $ers$ective $rovided% the com$etitors do other things right* This is because the 'armer-s $ro'it reali&ation would be higher in such a model* This could change the value $ro$ositions dramatically* 9re,em$ting any such moves and modi'ying and u$dating its systems on a constant basis should now be o' $rime im$ortance to IT" to make the e,choupal initiative a long,term% success'ul $ro.ect* <hether the com$any should club the retail initiatives in the existing set u$ or not de$ends on what will be the exact 'ormat ado$ted* The $urchase behavior o' 'armers through this medium is un$redictable and given the negative ex$eriences o' others who tried the retail route% it seems that more research and trials should be conducted be'ore any ma.or decisions are taken* The author is associate professor at Indian Institute of Foreign Trade =iift>( :ew 9elhi. Re'erence Q )7,4B,4@,4) L I" 2I 9ress* 2ll Rights Reserved*

The author is Faculty .ssociate( I-F.I -enter for 5anagement Research. L I" 2I "enter 'or !anagement Research 0I"!R1* 2ll Rights Reserved* or accessing and $rocuring the case study log on to www*ecch*cran'ield*ac*uk*