CASE ANALYSIS: ITC IN RURAL INDIA
* GROUP K2
India is a secular state, majority being Hindus. A large chunk of the Indian population still continues to live in the rural areas, their major occupation being agriculture. After independence, Indian economic strategy favoured production of capital goods which lead to development of industrial base. Private sector had to obtain manufacturing licenses for other industries
With changing times and conditions, various economic reforms were introduced. Tracing back to 1973, Government asked all the multinationals to dilute foreign equity to 40% except under special circumstances. Many multinationals left the country, yet a ...view middle of the document...
88% of rural population lived on less than $2 a day.
* While agriculture continues to dominate the job market, it no more is the major contributor to national income. Agricultural production is largely private.
* Indian government has tried to ease the process for entry of foreign companies (In 2006, 51% FDI was allowed in single brand retailing and also in wholesale cash and carry segment).
* The quality of rural life has increased and hence people can afford more FMCG goods. In 2005, rural market s accounted for 56% of demand for FMCG. FMCG also accounts for 80% of all Indian consumers spending.
* The share of the ‘Organized’ sector in retail India is projected to reach 16 to 18% by 2016 from the 2006 level of 3%.
The companies which operate in the FMCG sector (FMCG accounts for 80% of all Indian consumers spending) have moved on to tap the opportunities presented in the rural market.
OPPERTUNITIES & CHALLENGES PRESENTED BY INDIA’S RURAL MARKET:
* Infrastructure limitations
* Less accessibility: poor road, rail and telecommunication links
* Most lived in abject poverty (88% of rural population live on <2$ per day) thus leading to less purchasing power.
* The informal sector dominates the retail business in rural India.
* Less awareness among the locals when it comes to quality products and their correspondingly higher prices
* Gaining the villagers’ trust when it comes to new products and brands.
* The seasonal sales pattern in rural India
* Provide significant market for durable as well as consumable products (eg: tea, cooking oil, bulbs, footwear, bicycles and radios). The rural demand for some of these products significantly outweighs the urban demand. Hence tapping into this market would give ITC a very strong head start.
* Rural markets account for a significant percent of demand for FMCG products (about 56% in 2005)
* ITC has a greater rural penetration compared to other companies reaching up to 139,000 villages so far, ITC already have a vast potential consumer base.
* The rural job guarantee program was introduced by Indian Govt. to lift 60 million people out of poverty, thereby providing the rural population with better quality of life and increased purchasing power.
* Retail market in India is worth $250 billion out of which only 3% is the organized sector. Out of this the majority of demand for retail products is in the rural market.
COMPARISSON OF ITC’S STRATEGY WITH HUL’S STRATEGY:
HUL | ITC |
They believe that Rural customers (women) will not go to malls and big retail stores, so as to sell their products they are providing that directly to home through women entrepreneurs as women can make a big network with other women in the villages and HUL products are soaps , detergent and personal products like toothpaste , cosmetics generally used by women, so they were trying to make a strong base of women consumers in...