Ranting the rural mantra

All of us have heard about the herd mentality but if you want to see a live demo you have to look at the Indian businesses.

A few years ago someone said ‘Retail’ and lo and behold ! Before you could blink an eyelid every company worth the name was trying to sell something or the other.Expatriates were summoned,consultants hired,large number of so called retail professionals were roped in and  larger number of stores were rolled out.

Just 3 years down the line  -you ask any CEO or manager who was till now going to chart a blazing path and they will tell you that they are cooling their heels by consolidating.The wait is for the ever elusive customer and the watch is strictly on the costs which are bleeding the other profitable group ventures.With every second retail “chain” going astray retail has suddenly become an abused four letter word.

I can hardly stop myself from getting amused when people talk about their business models,revenue streams and unique positioning.Feel like saying”oh yeah! I wonder why no other ass… ever thought about it.The problem is that the ideas are so great that they are beyond the customer .The poor guy who is just looking for some fresh veggies fails to register the traceability and sustainability aspects of the innovative supply chains.

This is how most of these SCM models are working :   Image132

Farm> Farmer>agent>wholesaler>Retailer

You may ask whats the big deal.I would say its a million dollar question.The only perceivable difference is that you would earlier have seen all Subzi wallahs in the Monda market now you can find a few managers too.

Anyways , coming back to the herd mentality.The buzz word as of the moment is rural.Anybody who is anybody has a rural strategy and a expansion plan in place.The tier 2 and tier 3 towns which were considered god forsaken lands have suddenly transformed into fiefdoms of milk and honey.The poor farmer who was hanging himself for not being able to pay his debts is no less than the Sultan of Brunei today! Let alone steal the wallet every manager worth his salt is ready to plunder the riches flowing in the hinterland through government schemes such as NREGA.After all the payment being made is in dollars yaar !

Hey what are you doing these days ?

Oh I am looking at the rural space.We are targeting Sec C and Sec D in Tier 4 towns.

Man ! you have gone really deep.

You bet.Our plans are even bigger.In the next wave we will cover the cattle too.

From Wall street to Wadala the rant is becoming louder – we will ,we will rob you…we will we will rob you….we will we will rob you.

Let us see how many come back beaten and bruised from this misadventure.

एक शेर नज़र है :

अभी कमसिन हैं ,नाज़ुक हैं अदाएं इनकी

उस पे मचले हैं कि हम खून ए ज़िगर देखेंगे

तो देखो भैया पर याद रख्नना कि ” बहुत कठिन है डगर पनघट की…..”

The height of sourcing…

Retailers can be the marketeers for products made in cottage and small scale units reaching out to a new set of customers who could not have been serviced otherwise.These customers are in smaller towns and villages and the existingmarketing channels are unable to effectively bridge the supply demand gap.

Here’s a picture tour of a small town called Pilukhwa near Ghaziabad.The pictures will give a new dimension to your understanding of manufacturing processes,logistics,Over the counter display and sales.It’s quite interesting.

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Pilukhwa junction is where we enter the town

image024 And those are bed sheets drying in a environment friendly process.They are lying on top of cow dung cakes so they do not get ‘dirty’ and the person who gathers the ‘cakes’ once dried up can also fold the bed sheets and take them along.Saving costs and energy.

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It’s motor able so far ….

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That’s Vivek , my colleague.We walk down from here   .Yes that’s a tonga which is causing a traffic jam !

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The shop/factory Owner is off for a meeting.We wait.

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Finally we get to see the product and we just love it !!!

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What will you call this? Shipped or whipped  !!!

I know you are dying to know the price of those.

2 $ for a single bed sheet

4 $ for a double bed sheet

The color fastness and shrinkage are guarenteed.I mean they will not fade or shrink.

So what do you think? Want to come along with us on our next expedition.

Fortune at the bottom of the pyramid?

Waiver of small and marginal farmers’ loans amounting to Rs 60,000 has been termed path breaking  by the government.The budget, however, offers little to address the larger problem of agricultural recession, the main reason behind severe indebtedness of farmers .

Official data shows that areas with the maximum concentration of small and marginal farmers will not benefit from the waiver. The Economic Survey that preceded the budget had suggested: “A second Green Revolution, particularly in the areas which are rainfed, may be necessary to improve the income of the persons dependent on the agriculture sector.” . It clearly suggests that farming has become almost an unviable option owing to increase in input costs and lower realization from produce which has unleashed a viscious cycle of indebtness amongst the farming community.

Unsustainable
Small, marginal farmers make loss
Source: National Sample Survey Organization, Situation Assessment Survey of Farmers, 2003

As per Mohan Guruswamy, chairperson of the Delhi-based Centre for Policy Alternative “Seventy per cent of farmers who own less than one hectare do not opt for commercial credit. So the waiver bypasses them,”

Finance Minister P Chidambaram waived all ‘overdue’ loans due till December 31, 2007, of farmers with landholdings of up to two hectares (ha). For other farmers, the government has offered a one-time settlement: a rebate of 25 per cent if a farmer pays 75 per cent of the loan overdue. The waiver does not cover loans farmers are regularly paying—only 20 per cent farmer households are paying loans regularly. Only those who borrowed from government institutions will be covered so those who borrowed from moneylenders and other informal sources will not get any relief. And this is where a big portion of debt lies.Being illeterate farmers do not approach the banks due to lengthy procedures and paperwork – apart from all the paperwork a farmer has to get a letter from all banks operating in his area that he does not owe them any money before a loan for him can be considered.
The government claims the proposal will benefit 40 million farmers.Every second Indian farmer household is indebted. Of the 89.33 million farmer households estimated in 2003, 43.42 million were indebted. The average debt per farmer household was at Rs 12,595, and per indebted farmer household at Rs 25,902. Of late, farmers with more than two hectares of land are increasingly availing agricultural credit. The outstanding loan amount too has grown faster in case of farmers having more than 2.5 ha as compared to marginal (holding less than 1 ha) and small (less than 2 ha) farmers. On the other hand, the share of marginal farmers in formal credit distribution has come down from 28 per cent in 1981-82 to 25 per cent in 2003-04. The share of large farmers (with landholding above 2 ha) has remained at around 51 per cent since 1981-82. These figures demonstrate that farmers with large as well as small land holdings take credit but are not able to repay them due to adverse economics of the agricultural sector.

The current proposal will cover less than 50 per cent of the total debt of farmers in India. In 2003, the government estimated the total debt of farmers at Rs 1.13 lakh crore. Farmers owed Rs 65,000 crore to formal institutions and Rs 48,000 crore to non-institutional agencies. The debt has gone up since then.

Smaller the landholding, more the farmer depends on non-institutional credit
Out of relief net
Source: National Sample Survey Organization, Situation Assessment Survey of Farmers, 2003

The bigger picture
According to the Economic Survey, the growth rate of food grain production is 1.2 per cent, lower than the annual population growth rate of 1.9 per cent. Creation of additional irrigation potential has come down from 3 per cent annually in the 1990s to 1.8 per cent in 2007. Agricultural growth is expected to be around 2.6 per cent against 3.8 per cent in 2006.In such a scenario it will take a long time before we can see disposable incomes which will boost consumption for discretionary items on a farmers shopping list such as apparel,footwear,toiletries etc.

Fortune at the bottom of the  Pyramid ?

While a romantic idea,with the above in view I fail to recognize how the Indian farmer can be described as :

The world’s most exciting, fastest-growing new market? and fortune where you least expect it: at the bottom of the pyramid. Collectively, the world’s billions of poor people have immense entrepreneurial capabilities and buying power(??).

The book talks about Co creation and  challenges readers to re-evaluate their pre-conceived notions about the commercial opportunities in serving the relatively poor markets of the world.Somehow I cannot understand how someone who is already not able to repay his debts will transform into a profitable customer to serve and how those who are not even able to distribute the largesse effectively will make it possible.

The website further describes the book as :

“The Bottom of the Pyramid belongs at the top of the reading list for business people, academics, and experts pursuing the elusive goal of sustainable growth in the developing world”

I sincerely feel that that’s exactly where it will remain for a long long time to come at least in the context of India,if things do not change at the grassroot level.

Management Jargon Demysitified

If you cannot explain it to your 6 year old daughter,you have probably not understood it yourself ~ Albert Einstein

Ram charan,who has been named as “The most influential consultant alive” by Fortune magazine believes that the basics of doing business are not complicated at all and are just common sense. He says :

Business acumen is not an arcane or complicated skill.Every successful business person has business acumen,including unschooled vendors who sell their wares in third world open air markets.

If you think about those business fundamentals in their simplest terms,the way a street vendor selling fuit and vegetables might think about them,I believe that the concepts are easy enough for anyone interested in business to understand.

He adds :

Revenue is the amount of money that comes into a company from the sale of its products or services.For a street vendor it is the money he collects for selling his fruits and vegetables.

Profit is the money left after deducting the cost of those goods.

Profit margin, is the money you get to keep as a percentage of total revenues.                          mumbai-street-vendor2

Sales – $150

Cost  – $135

Profit – $15

Margin – 10 % ( $150-$135 = $15 , $15/$150 = 10 %)

Any business is started with an intention to make money which can be expressed as the Profit Margin Target.

The street vendor makes many decisions during the day to achieve his profit margin goal,beginning early in the morning when he decides how much fruit to buy and what to pay for it.This is his sourcing strategy.

Should he buy one variety or several ?This is the “Product Mix”.

He sets up his cart and decides how to price the fruit as it will affect his margin.This is his Pricing Strategy.

I will chip in:

The way he arranges them on the cart is his Visual Merchandising Planogram.

Back to Shri Ram Charan

During the day he takes some tough trade off decisions about what price cuts he should make to unload his inventory so he ends the day with enough cash to buy merchandise tomorrow.These are Mark downs.

He learns to make these decisions through trial and error therefore the clearer his view of his customers,the better his decisions will be.We call it Consumer behaviour.

Just as street vendors need cash,so do companies.A dwindling flow of cash from operations can get them into trouble even if the financial statements show a handsome profit.

The next fundamental that concerns your business is Velocity,what some people call asset turns.

Assets often include buildings,equipment,computers,receivables and inventory.

Velocity is how much annual revenue the company generates for each $ it has invested in assets.

Annual sales  – $ 1 billion ,Assets – $ 100 milion,  Therefore Velocity – 10

For a retailer If :

Revenue $700 million, Average Inventory – $100 million, Velocity is – 7

Velocity 7 is quite good in retailing.

Margin and velocity can be combined into one measure that most investors use to assess a business,its called Return on Investment(ROI).

ROI – Margin X Velocity.

Retailing ( we are talking about a street vendor selling F & V) is a low margin,high velocity business.a retailer may have a 3 % margin but a velocity of 7 will yield a respectable return of 21 %.If you put the same money in bank the max that you can get is 9 %.

That’s why you are doing the business.

Lets look at growth.A growth that sacrifices margin for revenue is not desirable.A real growth is the one in which the revenue as well as the margins grow.

Finally we will talk about the most important entity – the customers.A growing market share shows that customers are choosing your product over your competitors in increasing numbers every day.

So if you are growing your share of the market, in a market, that is by itself growing then it is a great position to be in.If cellphone market is growing by 30 % and your share has doubled from 10 % to 20 % from last year it is exciting and you are doing something right for your customers.

But if your market share is growing in a market that is on a free fall For example CD’s then it simply means that your competition has moved to greener pastures and you are left to tow away the burden.

Bear in mind that business acumen is not a matter of being able to calculate numbers to the 9th decimal place but about being customer centric, focussed and intelligent.

End quote.

Further I want you to consider this :

Trial and error are called insights from Consumer behaviour in a board meeting and mapping the pschycographic mindscape of purchase decisions executed in a competitive environment by measuring the dynamics of inter relationship between product and price by consultants from Bogus Consulting Group.

All three basically mean that you have messed up with your customers last year and are going to grapple with it in the coming year too.meeting-mock

PBA -Paralysis by analysis is a favorite game played by bored corporate citizens.If you have 2 two rupee coins and you keep counting them till the clock strikes 6 PM and  they will still add up to 4 rupees only.You can  make them 5 rupees by doing something about it – I will suggest that you go to the nearest signal and beg for it if there is no other strategic or tactical move that you can plan within the limited time constraints.

Will leave you with a powerful thought by Ralph Waldon Emerson :

Common sense is genius in a work man’s clothing.

Does an MBA degree make sense ?

Consider the following facts :

1.The biggest and best business men do not have an MBA degree Rockfeller,,Sam Walton,Warren Buffet,Ingmar Kamprag(IKEA),Richard Branson and closer home Dhirubhai Ambani,GM Rao,Kishore Biyani …..the list is just endless.The point is that while you may find a lot of mediocre managers and small business men having a degree in Business Management most of the big guys would not have bothered to spend time on such a wasteful academic pursuit.

We did a small test in the office too while most could recollect names of business men who were not MBA’s we had to really struggle to get a few names of those who were.We were also not sure whether they really did an MBA or they got an honorary degree.These names came up during the discussion.

2.Take the recent example of Indian railways.I am sure that the analysts from fancy consulting firms would have filled reports after reports weeping about what is wrong with this century old largest employer in the world.They would have wasted hours of power points suggesting every damn trick in the book quoting from all possible gurus and case studies.But what was the result ? Zero as usual.

Enter Mr Lalu Prasad Yadav and the railways is turned around in 4 qtrs ( as the management guys would say).Nothing great just plain common sense and a will to act.Now the same institutes are falling over each other to learn management from the  Bihari whom they mocked at every opportunity.How rediculous ?They are not even ashamed of the fact that it is slap on their face.

3.Till last year the most coveted job on the campus were the i banks till the greedy pigs of wall street brought the whole world’s economy on the verge of collapse parking their bums on Ferrari’s in the process.What they could have figured out was that their own brethren will be out of jobs and it will make the investment(the word feels laughable)banks  extinct from campuses for a long time to come.

4.As per a survey conducted in the US quoted in one of the popular GMAT preparation guides 70 out of the 100 top MNC’s in the US do not have MBA’s as their CEO’s,only 10 of them from ivy league.Does it ring a bell?May be you are better qualified for the Chief executive’s position if you are immune to the MBA virus.

5.Obama’s Election campaign is being touted as the most successful marketing event in the history of mankind generating $650 million against a plan of $ 150 million.Not only the Americans but the entire world got swept by the sales pitch conjoured by the Lawyer turned politician.Once again the marketing Gurus are asking their pupils to learn from Mr. Obama – How to sell a dream ?

There are a hundred and one ways that I can demonstrate the futility of this uncalled for piece de education but the best quote I have is one Mr.Kishore Biyani.He says” Business is simple,people make it look complex to retain their jobs”.It pretty much sums up the mood of my argument.

Sam Walton ,the Sultan of common sense as people remember him was never convinced about having MBA’s work for Wal Mart.He believed that they cost much and do little.And therefore Wal Mart never really hired MBA’s untill his death in 1991.In fact almost all the top management till date comprises people who have learnt the business by doing it the Wal Mart way, as they proudly call it.

So What’s the Bottom line ? (sorry for the cliche but I can’t put the MBA in me to sleep)

Any education is as good as the one who receives it.It is true for the management degree too.There is no magic mantra that they can teach and the degree at best helps build an orientation towards thinking in terms of money. The hype is a big farce and nothing justifies the huge pay packets that the fresh MBA’s demand by creating an artificial supply situation.The best management institutes are more of marketing successes than creators of thought leaders who can change the course of history as positioned by themselves.You can wear the degree when you come out of college as a trophy you won in the kindergarten sack race but the ultimate test will be the market place.Very shortly you will realize that the organizations are interested in knowing what you can do and not what you have done?There is no difference between not being able to sell and having lower inventory turns – that by which you cal a rose would smell as sweet by any other.

The last word on rankings in business magazines.This was beautifully put forward by a manager in corporate HR in one of the training sessions I attended( this MBA thing never dies you see).He asked us to consider this –  people get interviewed by magazines,magazines rate institutes,people form opinions,magazines interview people and so the cycle goes on and on without anyone pausing to have a look at the actual value added by an institution to the society.

And why this post ? Well I am shaken up by the loot that some of the so called ‘world class’ institutes in India are indulging in by telling innocent young men and women that this ticket to heaven costs a fortune.Not true.The MBA too calls for the same cost benefit analysis that any business plan needs to consider.

Going by todays numbers the ROI on my degree would be 1000 % as I did my sarkari MBA from the University of Lucknow when life was simpler.

http://www.veritasprep.com/