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, Indias 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 shouldnt be
deterred by these challenges research reveals that making real profits in Indias 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. Ecommerce 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
customers 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.

Other businesses

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Foods: ITC's major food brands include Kitchens of India; Aashirvaad, Minto, 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 eChoupals; 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. Snapdeals 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 isnt 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. Flipkarts
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 eretailing 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 eretailers. 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 ecommerce 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 ecommerce.

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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-inindia.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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