NexThought Monday: Strategies for Doing Business in Emerging, Diverse Rural India
India’s fast-paced growth has been a topic of much debate and discussion in the last few years. As a result of booming sectors such as IT, there is a growing sense that the country is emerging as a global leader. As a result, India is often touted as the mecca of ‘Jugaad’ innovations – a term used to describe the process of finding innovative solutions to problems with limited resources.
However, as only 12 percent of India’s population lives in cities, the remaining 88 percent of people are not reaping many of the economic benefits from the country’s evolving leadership status and associate growth. Rural poverty remains rampant; as a result, innovative thinking is required to meet the needs of India’s majority.
As Ennovent works to accelerate innovations for sustainability in low-income markets, we spoke with Pradeep Kashyap, the CEO and Founder of MART – one of India’s leading emerging markets consulting firm, about the opportunities and challenges of creating innovations for rural Indian markets:
Perzen Patel: The term ’India Shining’ has been given to India’s progress in recent years; does opportunity exist for entrepreneurs in rural Indian markets?
Pradeep Kashyap: Yes, significant opportunity exists in rural India. ‘India Shining’ was a term coined by the government to showcase the economic development of largely urban India. However, in more recent years rural growth has outstripped that of urban. For example, in recent years fast moving consumer good (FMCG) growth in rural India has been around 17 – 18 percent as compared to only around 11 – 12 percent in urban India. This is also reflected in industries such as durables and automobiles.
Rural India is now a one trillion dollar economy – equal to the economy of Canada or South Korea. If you add towns with populations below one million then the rural and small towns economy accounts for 75 percent of India’s GDP while the 50 top cities representing urban India contribute only 25 percent to the country’s GDP.
PP: What are the factors driving consumption in rural India?
PK: Approximately 800 million people live in rural India of which at least half earn less than USD 1 per day. The other half earn between USD 1 to 5 per day. There are only 50 million ‘rich’ people in rural India – meaning those that earn more than 5 dollars per day.
The consumption story in rural India is being driven by different factors in varying income segments. The rural employment guarantee scheme has added significantly to the purchasing power of the poor through the 6 billion dollars paid as wages annually. Simultaneously, the wage rate for private work in rural India has also gone up because of the higher wages paid under the Employment Guarantee Scheme; the poor are getting more days of work at higher daily rates.
Similarly, the middle-income segment has benefitted from better road connectivity. Youth living in these areas have bought motorcycles and taken up more lucrative jobs in nearby towns. The rapid urbanization has also benefitted the rich farmers who have sold their land at exorbitant rates to real estate developers particularly around the metros.
PP: Doing business in rural India is often termed as challenging. Could you give your thoughts on how entrepreneurs can cope with distribution and other related challenges?
PK: Rural India is diverse, heterogeneous and spread over half a million villages – this is a daunting task for any marketer. However, there are only 100,000 villages with populations of over 200 people. These villages not only account for 50 percent of the total rural population but also account for 60 percent of rural wealth. If companies begin by focusing on these 100,000 locations first the distribution nightmare can be effectively tackled.
Additionally, rural India can be categorized into three development segments with the most developed states being Punjab, Haryana, Maharashtra, Gujarat and Kerala – with all the remaining states are being in the developing category. Due to the higher per capita income, it is recommended that companies begin by focus on rural areas in the developed states first and then move across the country.
PP: What are the lessons entrepreneurs can learn from large brands such as Ghari or Thums Up that have successfully penetrated these markets?
PK: Most multi-national companies make the mistake of bringing international brands and tweaking them slightly for rural consumers – however the rural eco system is significantly different. For example, running water is not available and high voltage fluctuations and power outages render traditional products such as washing machines and televisions unattractive.
Regional brands, on the other hand, offer customized solutions. Jolly TV has captured the market in Uttar Pradesh by offering a battery backup and voltage stabilizer system. The battery gets charged when electricity is available and the television runs on battery when the family wants to watch programs during power cuts. Ghari detergent customized its offering by studying the water map of India to add softener and whitener according to the quality of water.
Entrepreneurs have to realize that each state in India is the size of a country in Europe and therefore it is important to develop product and marketing strategies state-wise. Engaging regularly at the grassroots level with consumers also gives entrepreneurs’ deep insights and feedback on how customers perceive the value of the product, which is otherwise not easily available.
PP: For international entrepreneurs working in low-income markets looking to establish their footprint in India what is your advice to localize their business model?
PK: The most important point is that international entrepreneurs must co-create products in partnership with local communities to understand and incorporate on-ground realities. As a result, hiring local talent that understands the culture and consumer behavior of these markets is key. I would also recommend that since India is a large country, entrepreneurs should first pick one state to begin operations and then consider expansion.
Rural India is developing quickly. To succeed in such remote communities, small and large enterprises alike must be localized, offering innovative product and services based on a strong regional background. Early-stage enterprises also require a strong support network from innovation accelerators such as Ennovent and consulting firms such as MART. It is through the provision of a range of financial and non-financial support services that the best innovations for sustainability can succeed in low-income rural markets.
Join the Ennovent Network now to connect with like-minded individuals that work together to discover, startup, finance and scale innovations for sustainability in low-income markets.
Perzen Patel is the communications manager for Ennovent.