Building Wealth by the Penny
Tuesday, March 14, 2006
CHOLLERU, India -- With its open sewers and mud-walled homes, this impoverished farming village of 2,200 in southern India did not look like fertile territory for an entrepreneur. But Srilatha Kadem was undeterred. Oblivious to the midday heat, she marched briskly along the unpaved streets, her cloth bag filled with soaps and shampoos and her heart with vaulting ambition.
She stopped at a tile-roofed house, where a gray-haired woman in a green sari lounged in the shade of the small verandah. "You're charging the same as the shops," the woman said grumpily.
"There is a difference in quality," replied Kadem, a cheerful woman with silver toe rings and a fifth-grade education who works as a saleswoman for Hindustan Lever Ltd., the Indian subsidiary of the Dutch consumer products giant Unilever. "What you buy on the streets, it doesn't come from a good company. These products which I brought are from a good company."
Consumer culture, spurred by rapid economic growth, is spreading to the vast rural hinterlands where two-thirds of India's 1.1 billion people still live. The trend is creating new opportunities not just for big business, which has long focused on the urban middle class, but also for some of India's poorest citizens.
A 30-year-old mother of two, Kadem is part of a novel Hindustan Lever initiative that enlists about 20,000 poor and mostly illiterate women to peddle such products as Lifebuoy soap and Pepsodent toothpaste in villages once considered too small, too destitute and too far from normal distribution channels to warrant attention.
Started in late 2000, Project Shakti has extended Hindustan Lever's reach into 80,000 of India's 638,000 villages, on top of about 100,000 served by conventional distribution methods, according to Dalip Sehgal, the company's director of new ventures. The project accounts for nearly 15 percent of rural sales. The women typically earn between $16 and $22 per month, often doubling their household income, and tend to use the extra money to educate their children.
"At the end of the day, we're in business," Sehgal said in a telephone interview from company headquarters in Bombay. "But if by doing business we can do something positive, it's a great win-win model."
Hindustan Lever is not alone in recognizing the vast potential for profits in rural India. As urban markets become saturated, more businesses are retooling their marketing strategies, and in many cases their products, to target rural consumers with tiny incomes but rising aspirations fueled by the media and other forces, according to experts.
Companies are offering many products, from single-use shampoo packets that sell for less than a penny to $340 motor scooters available for monthly payments as low as $4.50. Banks are targeting first-time customers with $10-minimum-deposit savings accounts. Cellular phone companies are upgrading rural networks while offering monthly plans for as little as $3.40.
"In four to five years the rural market will be a major sector that is well beyond anyone's imagination," said Rajesh Shukla, principal economist for the National Council of Applied Economic Research in New Delhi. "Nobody was expecting this was going to happen."
Still, the economic boom reflected in India's 8 percent annual growth is primarily an urban phenomenon, driven by service industries such as outsourcing. It has largely bypassed rural India, where malnutrition rates are sharply higher than in sub-Saharan Africa and most people still earn their living from farming that depends on monsoon rains. Poor roads and inadequate electricity deter many businesses from seeking new customers and opportunities outside cities and larger towns.
But some are taking a fresh look at rural India, where spending power has risen modestly thanks to villagers who migrate to cities for work and send earnings home, according to V. Kasturi Rangan, a Harvard Business School professor who studies emerging markets.