To increase sustainability of micro-enterprises in India, Anup Nair has created local production and supply systems driven by micro-entrepreneurs that fosters a “local-to-local” economy. By creating networks of specialized entrepreneurs focused on management, marketing and distribution, this system leverages the collective strength of local micro-enterprises to compete with large corporations that are actively targeting local rural markets.
Micro-enterprises in India have an inherent advantage to cater to local consumption requirements, with significantly lower transportation costs and a finger on the pulse of local needs. However, micro-entrepreneurs lack the sophisticated processes and specialized manpower that benefit large corporations. Anup believes in catalyzing the ecosystem around micro-enterprises to increase their efficiency, quality, and market share. He identifies and organizes local entrepreneurs into “management teams” that provide multiple business services to micro-enterprises. They identify the demand for niche products in local markets where producers have an advantage and find existing micro-enterprises or facilitate the creation of new ones to meet the need and enroll them into the network. At the district level, these management teams institute effective strategies for groups of micro-enterprises. They understand common challenges, ascertain common needs, build raw-material supply channels, establish quality protocols, and brand their products together. Anup has also established a robust village level distribution network of women entrepreneurs called HomeShops who serve as the designated sellers of these products to communities.
While this support network draws on the collective strength of stakeholders, each functions as an individual entrepreneur. To ensure performance, every stakeholder (e.g. management team, micro-enterprises, and village level distributors) is required to invest in the stock and is dependent on margins of sales for revenue. Over the span of two years, the Local Economic Development Society (LEDS), an organization founded by Anup, has enrolled seventy-five micro-enterprises into the network covering all the districts in the state of Kerala. His vision is to grow this model of strong micro-enterprise networks in many other parts of the country. Anup sees this model as the best way to give rural citizens the opportunity to build, strengthen, and sustain local economies.
The paradigm of “the fortune at the bottom-of-the-pyramid” has brought large industries to focus on the rural population as customers. In 2008, India’s largest fast moving consumer goods, consumer durable and automobile companies counted 20 to 40 percent of their annual revenues from rural markets, and this trend is expected to dramatically increase. According to the Indian Institute for Financial Management and Research, by 2020 the number of rural Indian consumers earning a dollar a day would fall from 400 million to 250 million, consumers earning over US$5 a day will increase from 50 million to 150 million.
There has been enormous effort by the government and development organizations to spur entrepreneurship in rural areas. Numerous government schemes and microcredit institutions have been created to provide finance to micro-enterprises. As a result, India has witnessed a surge of micro-enterprises that have up to Rs. 2.5 million (US$49,000) in initial capital and produce 6,000 different products across the country.
However, little attention has been paid to helping micro-entrepreneurs develop skills to brand, manage, and market their products. Such enterprises typically bring together five to ten women, many lacking the background or experience to manage a business. While in some cases, citizen organizations (COs) and businesses fill this gap by providing training and strengthening the supply chain, successful examples of this type of work have been limited to linking local producers to urban markets, but not creating local-to-local economies.
Micro-entrepreneurs who receive basic training end up trying to perform a multitude of roles, including market analysis, procurement, production, branding, marketing, and distribution. This adversely affects their businesses and consequently, many micro-enterprises wind-down within a few years of commencing operations. According to a study carried out by the government of the state of Kerala, 45 percent of the micro-enterprises became defunct after five years. With large corporations increasingly vying for rural sector buy-in, this market is only set to become more competitive for micro-entrepreneurs as they struggle to create sustainable enterprises.
Anup does not believe it is realistic to expect rural women-entrepreneurs to perform all business roles single handedly. Unfortunately, the scale of each of these enterprises is too small to afford professional/specialized services. He sees the solution in developing an ecosystem that will leverage the collective strength of micro-enterprises, to create specialized roles and functions for each stakeholder, to enable micro-enterprises to compete effectively in the market. Anup has created two new layers in the micro-enterprise eco-system: A “management team” at the district level and “distributors” at the village level, to create efficient production and supply mechanisms. Besides building a stronger foothold in the local-to-local economy, this also makes a lot of economic sense by reducing the cost of operations.
Anup founded LEDS to support the system and engage approximately fourteen people with some business background in each district to play the role of managers for networks of micro-enterprises within the district. They start by identifying community demand for particular products with a focus on niche products that give local producers a competitive advantage over big producers. The products include various daily consumption, non-perishable food items such spice mixes, tea, grain powders, and sanitary products like detergents, dish wash, hair oil, and tooth powder. The managers then map existing micro-enterprises to offer them to come under the umbrella, or find new women’s groups willing to start an enterprise to produce the products. Where required, they facilitate the formation of women’s groups with a subsidy and/or a loan through the government schemes.
Some products produced by independent micro-enterprises are co-branded and quality control protocols are put in place. For example, if there are three separate micro-enterprises in one district manufacturing detergent powder, each one will be required to follow specified processes and will be linked to the same most economical raw materials supplier. To ensure the transparency of the system, the manager makes a connection between the supplier and the producer, but is not involved in the transaction. The producers will also be provided the same packaging and the product will be advertised under one brand.
In case of complaints regarding the quality of products, the managers identify and bring in a professional to help the producers identify the issue in the process and address it effectively. The management team is also responsible for building the distribution network and arranging the transportation of products to HomeShops.
This system gives micro-enterprises advantages such as a stable supply of raw materials, consistent quality, strong branding, and outsourced distribution. The micro-enterprise receives regular orders for the product from the management team, which is collected at their doorstep and transported to the village level distributors. Moreover, the enterprises benefit from economies of scale while still maintaining their individual identities. While micro-enterprises receive a 15 percent margin from their produce, each manager makes his own investment into operational costs and purchases the products from micro-enterprises to sell to HomeShops at a fixed 5 percent margin.
Anup has created a distribution network of village level women entrepreneurs or HomeShops to deliver the products to the consumer’s doorstep. Each HomeShop covers a minimum of 120 households within the village during the week, or twenty households a day. Over time each woman establishes a strong connection with her customers and becomes their regular supplier of daily items to the household. She places orders with the management team and receives her stock regularly. Even though many of these products are already accessible in local shops, customers are keen to purchase locally produced items when the quality is higher at the same price, and is delivered to their door. She also becomes a connector for the community as she spends time at people’s houses and shares the latest news. The HomeShop acts as an important link between the consumers and the managers and producers. They gather feedback from the customers on the quality of products and the new products customers would like to purchase through this channel. The management team generates the feedback and takes action accordingly, working on quality protocols and promoting micro-enterprises to introduce new products. The HomeShop has to invest in her stock and gets an 18 percent margin from product.
LEDS has built a network of 75 micro-enterprises, 1,350 HomeShops and 14 management teams to date. This network has spread quickly over the last two years because it is built on the financial investment of every participant and the performance-based incentive provided to each stakeholder. The stakeholders are interdependent on each other’s performance and have a personal interest in performing better. Anup plans to expand this model over the next five years to other states in India where this model would be economically viable.
Anup grew up in the family of academics in Kerala. Coming from Kerala, a relatively prosperous state, Anup first encountered the realities of extreme poverty when he went to Vidarbha, one of the poorest regions in the state of Maharashtra, for his undergraduate studies in Dairy Technology Engineering.
After pursuing a master’s degree in rural management at the Institute of Rural Management Anand (IRMA), Anup wanted to understand and learn ways to address the social and economic problems he saw. There were two very distinct education tracks at IRMA: One was focused on social development with a charitable approach, where he got to interact and learn from a lot of COs, and the other focused on rural businesses. Anup found himself more inclined to market-based solutions to address poverty, as they seemed to have more scaling and sustainability potential over time.
After graduation Anup worked for four years with Amul, a milk farmer’s cooperative that has become one of India’s largest food producing companies. Amul was able to compete and win the market from huge international players, like Nestle and Britannia. This experience gave him powerful and inspiring insights on how a properly managed cooperative could succeed. But he also discovered Amul’s weaknesses compared to big corporates: Amul’s processes lacked dynamism and innovation. Anup realized through innovative and aggressive strategies, corporations were taking over the markets. This insight encouraged him to learn how companies functioned and he joined the corporate sector with a focus on rural markets. Anup worked for Gillette and Procter & Gamble for seven years in the rural marketing and distribution division. During this time, he observed how companies created a highly transparent and demanding environment for employees. Employees were continually encouraged to come up with innovative ideas and implement them and the companies were constantly developing new leaders at all levels.
While working with Proctor & Gamble, Anup learned about Kudumbashree, a poverty eradication program run by the government of Kerala to support women through thrift and credit organizations and women-led entrepreneurship. The project has become well-known for the powerful positive impact it created within the state. After carrying out independent research and visiting the enterprises established by Kudumbashree, Anup saw that these micro-enterprises lacked professional services and support, and how many were failing for that reason. Anup joined Kudumbashree as a marketing director and for more than a year he tried to transform how the programs were managed by incorporating business strategies to help women enterprises gain sustainability. In 2009 Anup launched LEDS as an independent entity to leverage the resources and infrastructure provided by the government and establish local entrepreneurial production and distribution networks.