Employment and e-gov

Rural Businesses: doing good, doing it profitably 

 

Being a rural dweller is not easy.

 

The state of roads and transport makes it difficult to reach rural areas. And once you are there, the unreliable state of electricity, water supply, communications and limited opportunities within and outside of farming does not give a feeling that you have arrived.  And it does not get any better.

 

“Going rural” is viewed as a punishment posting in the public sector, a far from prized posting within the corporate, and barely registers as a career option for millions of educated youths entering the job market each year.  Juxtaposed with the image conjured of rural areas as backward and poverty-afflicted, lacking good education and health facilities, it makes it difficult to attract talent, investment and opportunities. It should come as no surprise that three-fourths of the 1.2 billion people who live on less than what a dollar a day can buy live in rural areas. 

 

For too long, rural areas remained artificially closed as they were under the exclusive purview of the government. Participation of other actors, apart from handful of government-approved industries and agro-processing units, was not encouraged, indeed dismissed. This model clearly did not work. It failed to transform the rural areas and its denizens. And it did nothing to modernise farming or diversify the rural economy. 

 

The private sector had eyes only for urban markets and densely populated cities in emerging economies. Where it did enter rural areas, it was for extractive industries like mining, logging and building hydro-electric dams that were directed to using rural resources to satisfy urban demands and potential, rather than capturing and transforming rural markets. The rural entry points for private companies continued to be shaped by urban markets and trends.

 

Then, increased competition in urban areas and saturation of demand in big cities forced companies to look for customers elsewhere. Rural areas in proximity to cities seemed a natural extension for their products and services. In tandem with the notion of “bottom billions” which sees rural people as potentially profitable customers, rural markets started to make more sense and there was a strategic shift to tap them. More number of companies started to look at rural areas as potential markets in their own right, independent of urban demands and trends.

 

Some companies simply extended the distribution chains of their existing products, while others added new features to their product lines to better serve rural markets. For instance, Nokia launched a basic mobile phone with a torch, and followed it up with Nokia Life Tools to provide farmers with sms- based agriculture and weather related information. The customer retention improved and Nokia expanded this model from India to Indonesia, Nigeria and China.

 

The opening up of the rural sector timed perfectly with the rapid rise and ubiquity of cheap information and communications and mobile technologies (ICTs) and their improved availability in rural areas. It started the trend towards “white collarisation” of this sector and let loose a new breed of rural entrepreneurs and innovations. Suddenly it does not seem odd to find a management graduate or a multinational company working on rural enterprises. 

 

A growing number of investors and angel financers have also entered the bottom-of-the-pyramid businesses, of which by far the most popular one is microfinance - providing small loans to people ignored as too poor by the traditional banking system. Microfinance has spread like wildfire across the globe, including in India, and is making horizontal linkages with agriculture, healthcare, housing, education and other aspects of the rural economy, and in turn opening expanding rural markets for products and services in each of these categories.

 

There is a lot to be said for the changes happening in rural areas, but it is important not to get carried away.  There is still a steep learning curve ahead for most companies: businesses thrive when societies prosper. Rural areas, with their extreme poverty, have their own development needs, and it is in the interest of the private sector to look for solutions which can bring prosperity and broaden their markets. Even farmers need roads to drive cars. And you need electricity before you can sell a washing machine to a rural housewife. 

 

It is necessary for businesses to adopt a long term vision for rural areas, to make investment in hardware (infrastructure and technology) and software (research and development, education and skills). Emphasis should be on coupling innovations and business models with local needs to create scalable solutions instead of immediate and excessive profits. A case can be made for the fair-trade model, where companies (like Starbucks) invest in agriculture supply chains to ensure farmers are fairly remunerated.

 

Equally, companies must adhere to global standards when they enter rural markets. This means following nationally and internationally accepted norms on environmental standards, human rights, minimum wages, and child labour.

 

The private sector itself has to be flexible and innovative, and explore different kinds of arrangements to enter, serve, and maintain a long-term presence in rural markets. This could take shape of public-private partnerships- the government is still a major player in the rural sector and should be engaged. It could mean setting up rural franchises to promote local ownership and generate local employment opportunities, which in turn will increase rural incomes.  It could even mean innovative home-grown models such as that of the Anand Milk Union Limited, better known as “Amul”, a profitable cooperative which brought together rural milk producers and spurred ‘White Revolution’ in India making it the largest producer of milk and milk products in the world.

 

Doing business in rural areas provides us with a wonderful opportunity to serve the people, and to do so in a profitable way.  And that may make the lives of rural dwellers a little bit easier!