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Suman Layak and E. Kumar Sharma     November 25, 2010
Ajay Adiseshann faced a moment of truth while visiting his native village Ganapathi Agraharam in Thanjavur district of Tamil Nadu during the recent festive season. The Founder and Managing Director of PayMate, a domestic money transfer service that caters to the people at the base of the economic pyramid, knew that the bank branch nearest his village was 40 kilometres away. However, there was a Tata Indicom PCO in the hamlet and PayMate had a tie-up with the telecom provider for its money transfer service. The residents of Ganapathi Agraharam are yet to benefit from PayMate because it is not operational there yet, but the service provides the dabbawalas of Mumbai and the taxi drivers of Mumbai and Delhi a facility to send money home cheaply and quickly.

Paths to bottom of the pyramid

  • Pay-Per-Use approach allows consumers to pay lower costs for each use of a group-owned facility, product, or service
  • No-frills service meets the basic needs of the poor at ultra-low prices and still generates profi ts through high volume and asset utilisation
  • Paraskilling combines No-frills with a re-engineering of complex processes into simpler tasks for workers without specialised qualifi cation
  • Shared Channels allows distribution networks to reach into remote markets through existing customer supply chains
  • Contract Production directly involves small-scale farmers or producers in rural supply chains
  • Deep Procurement set-ups bypass traditional middlemen to reach the base of the economic pyramid, enabling direct purchases from lowincome producers
  • Demand-led Training where enterprises pay a third-party to identify, train, and place employees for job openings in the formal and informal sectors
"The process has to be simple. That was our first lesson. That is why our money transfer model works with any basic mobile phone," says Adiseshann. His company already has services running in Uttar Pradesh, Bihar, Maharashtra and big cities such as Mumbai, Delhi and Bangalore. It will expand its operations to Tamil Nadu soon. The model PayMate has developed is a no-frills service that works on available platforms. Money transfer can be done through SMS and phone calls by using a personal identification number, or PIN, allotted by PayMate. The person who wishes to transfer funds deposits the cash with the nearest PayMate retail centre or agent, which can even be a Tata Indicom PCO. The PIN is used to authorise the transfer and then again to authorise the village agent to hand over the cash to the receiver. The popularity of the service has helped PayMate scale up operations quickly in India's hinterland. The no-frills model is just one of the several different business models being adopted by entrepreneurs and companies to tap the market at the bottom of the pyramid. A study by the Monitor Group, "Emerging Markets, Emerging Models", identifies some of the basic models that have worked (See Paths to Bottom of the Pyramid). Many of these concepts and models were developed much before C.K. Prahalad came up with his seminal work The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits in 2004. However, the popularity of the book has led to a lot of these business models being further studied and developed.

Consider "paraskilling", another successful model discussed by the Monitor report. Here a service or a process is re-engineered so that it can be performed by even low-skilled workers. Jain Irrigation Systems, a listed company with a turnover of over Rs 3,400 crore in 2009-10, which started with drip irrigation and then moved into contract farming, has adopted this model now. Says Anil Jain, Managing Director, Jain Irrigation: "We are now hiring local villagers who will be designated gram sewaks and will work for us at the local level. We will continue to hire agriculture engineers, but the gram sewaks will make our presence felt at the local, village level."

While Jain may have adopted this model today, it is something that ITC had first tried a long time ago with its e-choupal model, which employs a "sanchalak" at the local level. The e-choupals are Internet-based information kiosks giving villagers information about, among other things, weather and crop prices. ITC also uses the network to buy produce for its business.

Indian companies and entrepreneurs are making inroads into this emerging market at the "base of the pyramid". In October, the International Financial Corporation or IFC, the World Bank outfit that invests in the private sector, recognised 12 companies among its borrowers that were leaders in developing "inclusive" business models. Three Indian companies made the cut: Jain Irrigation, Apollo Hospitals Enterprise and Financial Information Network & Operations (FINO).

"Under our Apollo Reach Hospitals programme, we today provide health care at 35 per cent of the cost of the treatment in the bigger cities. Today we are present in 10 locations and plan to get to 50 in the next 24 months," says Preetha Reddy, Managing Director of Apollo Hospitals. The biggest challenge, however, she feels, would be talent availability. "Right now we are confident of staff for our 50 hospitals but I cannot be sure when it gets to 250."

Nevertheless, it is apparent that players, both big and small, are now seeing the virtues of taking an ultra-low cost, innovative healthcare model to smaller towns and villages. There are other companies in this space. Consider Vaatsalya Healthcare, which also follows a model of affordable healthcare in the smaller towns, or Healthcare Global, which takes cancer care closer to patients in remote locations with a hub-andspoke model.

FINO uses technology to allow financial institutions to serve underbanked populations in India through mobile point-of-transaction terminals and smart cards. (See Shining Models Elsewhere). So far, FINO has enrolled over 20 million people in 21 states and provided them access to remittances, deposits, credit, insurance and other financial services.

Shining models elsewhere

The nine other companies honoured by the IFC.

  • Anhanguera Educacional Participações S.A of Brazil is a leading private for-profi t professional education company for lower-income working adults
  • Companhia Energetica do Maranhão (CEMAR) is a Brazilian power distribution company and the implementing agency for the government programme "Light For All"
  • Coca-Cola Sabco, one of Coca-Cola Company's largest bottlers in Africa, uses micro distribution centres to reach small retailers in eastern Africa
  • Dialog Telekom PLC is extending telecommunications coverage in underserved, remote regions of Sri Lanka and reducing prices by leveraging synergies across multiple products
  • ECOM, a leading commodity trader, works with 125,000 coffee growers in central America
  • Manila Water Company partners with local government units and community-based organisations in the design and maintenance of water supply systems in Manila
  • Tribanco is the financial intermediary for Grupo Martins, the largest wholesaler and distributor in Latin America. It services small retailers in Brazil
  • Uniminuto is a non-profit university in Bogotá, Colombia, with many sites across the country. It targets lower-income students with courses emphasising employability

Preetha Reddy, Managing Director, Apollo Hospitals
Preetha Reddy
It recently tied up with Obopay, YES Bank and Nokia to develop a mobile payments platform that people can use to deposit money into a mobile account and transfer it or use it for payments. A popular application in villages near Pune is that people load one mobile phone account with cash at an urban Nokia outlet and then use it to recharge other mobile phones in the region. The business model here piggybacks on Nokia's large network of handset retailers.

While many models target consumers at the bottom of the pyramid, there are others which work differently. Take Rangsutra, a public limited company part-owned by over 1,000 textile artisans, mostly from the remote regions of Rajasthan. "The main purpose is to ensure that traditional rural artisans find employment and to address the need to transform their skills to meet the requirements for modern products," says Sumita Ghosh, Founder and Managing Director.

The artisans collectively own 26 percent of the company's shares and receive dividends. Rural venture funds such as Aavishkaar have also invested in the company. It secures orders from large retailers and production is then based on an assured demand. Rangsutra is not only growing but has also become viable. The four-year-old company has increased its sales from just around Rs 26 lakh in the first year to around Rs 5.5 crore now.

Says Jain: "Addressing the bottom of the pyramid is not about selling shampoo in smaller sachets. It is about providing services that empower the category and allow them to first earn and save more."

A lot of companies such as Tata Chemicals and Mahindra & Mahindra have started outreach programmes for farmers and are trying to go beyond their traditional products like fertilisers and tractors to offer contract farming, agriculture information and knowledge services. Sometimes these projects started as corporate social responsibility programmes and later turned into revenue generators for the companies.

It is important, then, that all the models should make business sense for the targeted segments at the base of the pyramid.

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