December 9, 2004

development of a new Value chain for Rural market

Just read the new issue of India today and am impressed by the e-choupal being developed by ITC industries.

This new Value chain being developed has the potential to give ITC a very strong competitive advantage in its existing business and at the same time also provide a new source of revenue. e-choupal has elements of e-bay (ability to get buyers and sellers together ) and charge a fee for the transaction (from the buyer in this case). Buyers are of course the rural farmers currently, but increasingly it could extend to any consumer in rural areas. The sellers currently are the fertilizer companies, tractor companies and any other company which wants to access the rural consumer (well who doesn’t )

So ITC is building a nice toll bridge to the rural consumer which could be self sustaining and charge for every transaction. As this network grows (the article says that ITC plans to reach 100000 villages), network economics would kick in. If and when network economics do kick in, the profits could shoot up (look at eBay)

But all of the above is in the future. What about the present. ITC seems to be using the e-choupal to procure agri products like wheat for its processed food business like atta. It is able to derive substantial cost savings by accessing the farmer directly and cutting out the middleman. So as the concept succeeds, ITC could develop a substantial competitive advantage in its current line of business.

The key variable is whether the above concept would succeed. It does seem to be doing very well. It seems to be an economic success and is also creating a social transformation by empowering the rural farmer by providing information, access to better products and eliminating the middleman

Does that mean the ITC stock is a must buy. Don’t know and I don’t own it. But I would be tracking this concept and the new value chain coming up in India

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