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Rural Entrepreneurs Go the Last Mile in India’s Hinterland

Rural Entrepreneurs Go the Last Mile in India’s Hinterland

Jan 2, 2011

Rural India’s Last Mile Challenge

            Earlier this month, the 2010 Rural Marketing Congress India convened in Mumbai to discuss critical issues and innovative strategies for delivering products and services to the subcontinent’s hinterland.[1] About 70 percent of India’s population, or approximately 700 million people, live in the country’s more than 600,000 villages. If indeed there is a “fortune at the bottom of the pyramid” as management professor CK Prahalad preached,[2] then some economically sustainable method of reaching these potential customers is imperative. This sentiment is shared not just among entrepreneurs, but also among designers who create new products and technologies for rural users. Paul Polak, founder of International Development Enterprises and proponent of developing products for “the other 90 percent”, believes that “designing a branding and marketing strategy and a last mile supply chain that will put it in the hands of a million or more customers is three quarters of the design challenge.”[3]

            At the moment, a variety of firms are attempting to tap into the rural market: multinational corporations, small to medium-sized enterprises, and “social” enterprises. Their offerings are varied and include pharmaceuticals, financial instruments, agricultural products, and energy products. Regardless of the firm or the product, the obstacles to reaching India’s last mile are considerable: rural populations are scattered far from one another and from towns, where traditional durable goods retailers are located; the physical infrastructure between and within villages is poor; and traditional mass marketing techniques are not applicable. Word-of-mouth, live demonstrations, and the endorsement of trusted, local opinion leaders seem to work for branding and marketing, but these methods are slow, expensive, limited to a small geographical region, and do not address sales or distribution problems. The high marginal costs of working in an underdeveloped environment make long-term financial sustainability difficult to achieve.

 

Going Social: Using Rural Entrepreneurs

            It is easy to point out obstacles to working in rural India. The opportunities, however, are more difficult to identify. Understanding the customers and utilizing the close-knit social networks in which they live and work are keys to reaching them. This seems to be the belief underlying the strategies proposed by the World Resources Institute and the Institute for Financial Management and Research’s Centre for Development Finance. In their report entitled “Power for the People: investing in Clean Energy for the Base of the Pyramid in India,”[4] the research organizations suggest investment in “market development organizations” (MDOs). Per the authors’ definition, an MDO is a “nonprofit organization that promotes the use of a product within a targeted group.” Because of their strong local networks, these organizations can help generate demand for products and services among the rural poor, fill gaps in the value chain, and raise awareness of new products.

            During field research in southern India, I visited what could be considered market development organizations that address rural last mile branding, marketing, sales, and distribution problems. Most of these organizations had one common quality: the reliance on rural entrepreneurs to reach far-flung customers. Also known as village-level entrepreneurs, these men and women, who work out of a village or local area, increase penetration of a company’s products and services. The roles of these rural entrepreneurs range from participating in product selection to onsite product manufacturing.           

            Two organizations stood out to me as models for working with rural entrepreneurs: IFMR Rural Energy Network Enterprises Green Power Private Limited[5] and Villgro Stores. [6] I spent a day in the field with both companies. NE Green Power sells and distributes renewable and clean energy products like smokeless commercial stoves and solar lights in rural areas. In 2010, it began experimenting with a last mile distribution channel in villages around the city of Thanjavur in the state of Tamil Nadu. Villgro Stores (officially Villgro Innovation Marketing Private Limited), which sells agricultural products, has been operating since 2009 but has had experience with rural sales since 2007. Its pilot operations are in the town of Gobichettipalayam, which is near to the city of Erode in the state of Tamil Nadu. In this article, I compare and contrast how NE Green Power and Villgro Stores address three issues: discovering and training rural entrepreneurs, centralized vs. decentralized storage and distribution, and the role and management of rural entrepreneurs.

 

Coming Out of the Woodwork: Discovering and Training Rural Entrepreneurs

            The concept of using rural entrepreneurs sounds sensible, but are there enough qualified individuals to reach all potential customers? Some development experts believe that developing countries are “teeming with entrepreneurs,”[7] and microfinance has picked up on this apparent entrepreneurial energy.

Unfortunately, finding an effective rural entrepreneur to work with is more difficult than it sounds. During my visit with NE Green Power, the head of field operations and sales executive were fulfilling obligations that were meant to be the responsibilities of rural entrepreneurs, or “distributors.” In theory, distributors’ responsibilities include meeting new customers (usually small restaurant owners), running demonstrations, collecting payments, and installation, all within a 10 km radius catchment area. But in practice, I witnessed real obstacles. The first occurred when a distributor told his customer, who had already agreed to purchase the stove, that the stove could be test-run for two more days – this miscommunication postponed payment collection and created more doubts for the customer. Another problem occurred when a distributor failed to appear for a scheduled demonstration.

Perhaps these operational issues will be solved as the company grows, and perhaps more time will be needed for the distributors to become acclimated to their new jobs. However, these anecdotes highlight the difficulties of working with rural entrepreneurs as well as the money and time investments required for them to become effective.

An improved rural entrepreneur selection process may reduce the costs of working with them. Villgro Stores’ selection process is inherently social from the beginning, as entrepreneurs are identified from within existing social networks. Each of Villgro Stores’ Stock and Sales Organizers and Sales Assistants roam the villages around their stores and ask village leaders to identify potential “village level entrepreneurs” (VLEs). These candidates are evaluated on their interest in sales and investment capacity. IIIIn contrast, NE Green Power’s distributors are self-identified, having approached the company’s sales executive on their own. After being interviewed by the NE Green Power’s parent organization, they are given a variety of psychometric tests that are used to gauge their entrepreneurial skill and ability. Clearly, these different headhunting strategies can affect the quality of procured rural entrepreneurs.

 

Centralized vs. Decentralized Storage and Distribution

            Whether storage and distribution are centralized or decentralized affects the responsibilities and management of rural entrepreneurs. On one hand, take the centralized model of NE Green Power. Distributors work directly with the company’s personnel in field operations, who do a considerable amount of handholding. Products are stored at a single warehouse that all employees must access, regardless of their sales locations. The process of selling a fuel-efficient commercial stove is somewhat burdensome and requires the customer to interact with the distributor, the sales manager, and other members of the NE Green Power team.

On the other hand, Villgro Stores’ model is decentralized. As of August 2010, there existed 10 Villgro Stores, each of which was 10 to 15 kilometers around the Gobichettipalayam field office. There were 40 VLEs, each of whom had 60 to 100 customers and were selling about 40,000 Indian rupees of products per month. Each Villgro Store is aiming to be associated with five to six village-level entrepreneurs, who work directly with the store’s Stock and Sales Organizer and Sales Assistant by purchasing products for resale, accompanying on village visits and demonstrations, and testing new products. Customers work directly with the VLEs, who take care of sales and distribution.

            The differences between NE Green Power and Villgro Stores are evident. NE Green Power’s centralized distribution model may become too difficult to manage as the company grows. The Villgro Stores decentralized distributional model has potential to replicate and, therefore, scale to reach more customers. In fact, Villgro Stores is gunning to expand to different cities, establishing about 10 stores in each location.

 

The Role and Management of Rural Entrepreneurs

            The roles and responsibilities attributed to rural entrepreneurs vary from organization to organization. The definition of a rural entrepreneur is fuzzy, as it depends on the sector, the product, and the community in which he or she works. From what I have seen, rural entrepreneurs are more effective when they act like traditional entrepreneurs and shoulder the financial risks. For example, on one hand, Villgro Stores’ village level entrepreneurs accept a great amount of risk because they purchase products from Villgro Stores, store them in their homes, and are personally responsible for customer payments. They may even extend forms of informal credit to their agricultural-based customers. Villgro Stores utilizes a profit-sharing model in which 35 percent of the profits go to their VLEs.

On the other hand, NE Green Power’s distributors work on commission and thus carry minimal individual risk. They act more as salespeople than as entrepreneurs. Because their own finances are not at stake, sales are not as highly incentivized as with Villgro Stores’ VLEs.

 

Improving the Rural Entrepreneur Solution

In addition to the aforementioned strategies highlighted by Villgro Stores and NE Green Power, I believe there are certain tactics that can be taken by sales and distribution-oriented market development organizations to improve the effectiveness of rural entrepreneurs:

 

1.     Skills training. This basically involves teaching rural entrepreneurs how to organize their business and some “tricks of the trade” to enhance their sales skills.

2.     Motivation or spirit instillation. This means convincing rural entrepreneurs to care more about their jobs. There are generally two incentives for a rural entrepreneur to increase sales: increasing economic benefits and increasing social benefits. The first motivation is easy to understand and learn but, as evidenced in experience, does not necessarily motivate all rural entrepreneurs. Instilling social motivation requires more investment by the organization. This type of education can be a) the problem that a particular product is attempting to address, b) how the product works to address the problem, c) the benefits that customers will receive from using the product, and d) personal reasons for why a rural entrepreneur would want to contribute to the betterment of social welfare.

3.     Training for mindset creation. This means training rural entrepreneurs to shape the mindsets of potential customers so that sales become easier. Often, rural entrepreneurs are pushing a mission-motivated product into the rural market (for example, a cookstove that has the primary benefit of reducing indoor air pollution). There is an inclination for rural entrepreneurs to be more focused on sales than on the mission. As a result, potential customers do not understand why the product is necessary because they do not share the same values as the organization distributing the product, making sales difficult. Village level entrepreneurs should try to convince potential customers not just to buy the project but should also help them understand the reasons for buying the product. One would think that most organizations are already doing this, but many marketing gimmicks fail to emphasize the product’s mission.

These suggestions may improve the effectiveness of rural entrepreneurs while changing the overall environment in which rural entrepreneurs, nonprofit organizations, enterprises, and government entities operate to improve rural livelihoods through selling and distributing new products.

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[1] Rural Marketing Congress India 2010. http://www.ruralmarketingcongress.com/.

[2] Prahalad, CK. 2005. The Fortune at the Bottom of the Pyramid. Upper Saddle River  NJ: Wharton School Pub.

[3] Polak, Paul. 2010. Death of Appropriate Technology II: How to Design for the Market. September 17. http://blog.paulpolak.com/?p=392.

[4] Bairiganjan, Sreyamsa, Ray Cheung, Ella Aglipay Delio, David Fuente, Saurabh Lall, and Santosh Singh. 2010. Power to the People: Investing in Clean Energy for the Base of the Pyramid. World Resources Institute, Institute for Financial Management and Research, Centre for Development Finance, September.

[5] IFMR Trust – IFMR Ventures. http://www.ifmrtrust.co.in/ventures/ifmrventures.php.

[6] Villgro Stores. http://www.villgro.org/index.php?option=com_content&view=article&id=25&Itemid=34.

[7] Chang, Ha-Joon. n.d. UNU-WIDER : Poverty, Entrepreneurship, and Development. http://www.wider.unu.edu/publications/newsletter/articles-2010/en_GB/10-2010-Chang/.

 

 

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