4 Case-Study 2: ITC e-Choupal
4.1 About ITC-IBD
ITC is one of India's foremost private sector companies with a market capitalization of over US
$14 billion and a turnover of US $3 billion. ITC has a diversi ed presence in Cigarettes, Hotels,
Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery,
Branded Ap- parel, Greeting Cards and other FMCG products. Its International Business Division
(ITC IBD) was created in 1990 as an agricultural trading company; it now generates US $150
million in revenues annually.
Initially, the agricultural commodity trading business was small compared to international
players. By 1996, the opening up of the Indian market had brought in international competition.
Large international companies had better margin-to-risk ratios because of wider options for risk
management and arbitrage. For an Indian company to replicate the operating model of such
multinational corporations would have required a massive horizontal and vertical expansion. In
1998, after competition forced ITC to explore the options of sale, merger, and closure of IBD,
ITC ultimately decided to retain the business. The ITC-IBD taken the challenges to use
information technology to change the rules of the game and create a competitive business that
did not need a large asset base. Today, IBD is a US $150 million company that trades in
commodities such as feed ingredients, food-grains, coffee, black pepper, edible nuts, marine
products, and processed fruits.
4.2 ITC e-Choupal and the Strategy
ITC followed a different media/communication strategy which is more elabo-rate and extensive
in rural marketing so far, which benefits both the farmers and the organization. The strategy is
use the Information Technology and bridge the information and service gap in rural INDIA
which gives an edge to market its products like seeds, fertilizers and pesticides and other
products like consumer goods. With this strategy it can also enhance its competetive- ness in
global market for agri exports.
A pure trading model does not require much capital investment. The e-Choupal model, in
contrast, has required that ITC make significant investments to create and maintain its own IT
network in rural India and to identify and train a local farmer to manage each e-Choupal.
The company has initiated an e-Choupal e ort that places computers with Internet access in
rural farming villages; the e-Choupals serve as both a social gathering place for exchange of
information (choupal means gathering place in Hindi) and an e-commerce hub. The computer,
typically housed in the farmers house, is linked to the Internet via phone lines or, increasingly,
by a VSAT connection, and serves an average of 600 farmers in 10 surrounding villages within
about a ve kilometer radius. Each e-Choupal costs between US $3,000 and US $6,000 to set up
and about US $100 per year to maintain. Using the system costs farmers nothing, but the host
farmer, called a sanchalak, incurs some operating costs and is obligated by a public oath to
serve the entire community; the sanchalak benefits from increased prestige and a commission
paid him for all e-Choupal transactions. The farmers can use the computer to access daily
closing prices on local mandis(government- mandated markets), as well as to track global price
trends or nd information about new farming techniqueseither directly or, because many
farmers are illiterate, via the sanchalak (the village farmer who runs the e-Choupal and acts as
ITCs representative in the village). In addition they can also know about weather forecast(local)
and best practices in the world from e-Choupal website. They also use the e-Choupal to order
seed, fertilizer, and other products such as consumer good from ITC or its partners, at prices
lower than those available from village traders; the sanchalak typically aggregates the village
demand for these products and transmits the order to an ITC representative. At harvest time,
ITC offers to buy the crop directly from any farmer at the previous days closing price; the
farmer then transports his crop to an ITC processing center, where the crop is weighed
electronically and assessed for quality. The farmer is then paid for the crop and a transport fee.
Launched in June 2000, 'e-Choupal', has already become the largest initiative among all
Internet-based interventions in rural India. 'e-Choupal' services today reach out to more than
3.5 million farmers growing a range ofcrops - soyabean, coffee, wheat, rice, pulses, shrimp - in
over 31,000 villages through 5200 kiosks across six states (Madhya Pradesh, Karnataka,
AndhraPradesh,Uttar Pradesh, Maharashtra and Rajasthan).
4.4 Vision and Planning Behind the e-Choupals
Implementing and managing e-Choupals is a significant departure from commodities trading.
Through its tobacco business, ITC has worked in Indian agriculture for decades, from research
to procurement to distribution. ITC translation of the tactical and strategic challenges it faced
and its social commitment into a business model demonstrates a deep understanding of both
agrarian systems and modern management. The principles followed in implementing the e-
Choupals are
Re-engineer, Not Reconstruct
Present Mandi system have some success factors in it. ITC decided
to build e-Choupal on existing system. Already ITC has trading
agents in local mandis for its tobacco business. It retained the
efficient providers and created roles for inecient people. It
recruits and engages members of landscape thereby making their
expertise available to [Link] this principle ITC can avoid the
reinventing the system in areas where it can add no value with its
presence i.e., in areas where efficient agents are there.
Address the Whole, Not Just One Part
The farmers various activities range from procuring inputs to selling
produce. Currently, the village trader services the spectrum of farmers
needs. He is a centralized provider of cash, seed, fertilizer, pesticides, and
also the only marketing channel. As a result, the trader enjoys two
competitive benefits. First, his intimate knowledge of the farmer and village
dynamics allow him to accurately assess and manage risk. Second, he
reduces overall transaction costs by aggregating services. The linked
transactions reduce the farmers overall cost in the short term,
But create a cycle of exploitative dependency in the long-term.
