Innovation in India could be a lesson for Indonesia<\/p>\n
David O'Brien, Jakarta<\/p>\n
India (if you believe the hype) is developing its economy to
\nbe the \"next China\". Rather than being the factory of the world
\nit is portraying itself farther up the value chain. It sees
\nitself as supporting the factory in software design and support
\nservices. This is the vision and promotion; so what is the
\nreality and are there parallels with Indonesia?<\/p>\n
The recent election and subsequent loss by the BJP was seen as
\nan indictment of this \"India Shining\" policy. The Congress Party
\nreturned to power on the back of support from rural supporters.<\/p>\n
The facts hit home about the inequality between the shiny,
\nhigh technology jobs in the larger cities and the hand to mouth
\nexistence of the predominately (72 percent) rural population.
\nThe fact remains that a small proportion of the urban population
\nis enjoying the fruits of the high technology revolution.<\/p>\n
I recently came across a story as to how a private sector
\ninitiative is seeking to address the gap. An Indian company is
\nseeking to bring together the best of the information technology
\nexpertise of the urban areas to the rural sector. In May,
\nImperial Tobacco Company (ITC) won the inaugural \"World Business
\nAward\" given to companies assisting development in poorer
\ncountries.<\/p>\n
The business model developed brings the Internet to rural
\nvillages. It allows farmers to check the prices for their
\noutput, order fertilizer and other inputs, check weather details
\nand request information from specialists to solve problems and
\nimprove crop yields. Once the Internet is established on this
\nbasis, other village members can obtain network benefits.<\/p>\n
ITC is the largest tobacco company in India. Although owned
\n30 percent by multinational giant BAT Industries, it has an
\nIndian CEO, Yogesh Deveshwar. When Yogesh was appointed BAT made
\nclear it wanted to concentrate on the core business of
\ncigarettes. Deveshwar however holds a different view of core
\nbusiness as applied to developing countries.<\/p>\n
He believes that in a developing country such a concept is
\nless applicable due to the developing nature of its economy. A
\nsuccessful company with strong returns should be in a position to
\ntake further strong positions in other industries.<\/p>\n
Thus ITC is now involved in other consumer goods, paper and
\npackaging and agribusiness. The agribusiness was the kernel for
\nthe village e-business network. To date some 5,000 villages have
\nbeen connected and it is planned to reach 100,000 with a decade.<\/p>\n
The agribusiness can secure its product, enhance efficiency of
\nthe supply chain, reduce price volatility and help ensure quality
\nstandards to maintain its branding. The other side of the
\nagribusiness is the provision of inputs such as fertilizer. The
\nfarmers overcome issues associated with their small land holdings
\nby aggregating together and saving on inputs. Market information
\nallows them to be more informed in selling produce.<\/p>\n
The problems associated with the lack of infrastructure at the
\nvillage level are solved via VSAT satellite and solar power.
\nDevelopment at each village site is in the region of US$3,000 --
\n$6,000 including training. To address the lack of education of a
\nmajority of farmers, the computer is located with a more educated
\nrepresentative of the community. He fulfills an education role
\nand earns a commission on orders placed.<\/p>\n
All of this led me to thinking about the potential
\napplicability to Indonesia. Indonesia's population remains
\npredominately rural as does India's. Infrastructure in terms of
\ntelephone lines and electricity to regions remains limited also.
\nThe network of rent seeking middle men in Indonesia is another
\nshared complaint that transparency of pricing can help overcome.<\/p>\n
In Indonesia there are also very strong tobacco businesses
\nthat have been seeking to broaden their business interests. For
\nexample clove cigarette maker PT Sampoerna Tbk is now involved in
\npackaging, property, retail, transport and distribution.<\/p>\n
The distribution networks developed by all the major tobacco
\nfirms would, prima facie, seem to provide them a capability that
\ncan be built upon. There is a strong agribusiness capability
\ngained from sourcing their product. Such expertise would seem to
\nlend itself to leveraging these capabilities similarly to ITC in
\nIndia.<\/p>\n
Another business that would seem well suited to such a
\ndevelopment would be PT Unilever Indonesia Tbk. It also has a
\nwell developed a distribution network stretching all the way down
\nto village level. They have also begun to work closely with
\nfarmers to source black soy beans required for their kecap
\nbusiness. In the face of growing demand and limited supplies
\nUnilever is developing new supplies in conjunction with farmers.<\/p>\n
Yet one other business that came to mind is a new business
\nrecently developed in conjunction with KADIN, the Indonesian
\nChamber of Commerce. PT Usaha Kita Makmur is being headed by Eva
\nRiyani Hutapea, most recently President Director of Indofood.
\nHutapea is an individual with a very strong knowledge of consumer
\nmarketing from her time at Indofood.<\/p>\n
This experience is to be put in to practice as the new entity
\nseeks to improve the marketing of handicrafts by the small and
\nmedium sized business segment. These are businesses that are
\nagain concentrated in remote areas. Education on marketing,
\nproduction techniques, finance; in addition to feed back on
\nsales, latest design trends etc. would all boost the capacity of
\nthe sector.<\/p>\n
It has the potential to assist these businesses in being able
\nto adapt to the rapidly changing world of fashion tastes. The
\nmost successful fashion companies are now those such as Zara of
\nSpain which utilizes technology in constantly adapting products
\nto meet consumer preferences.<\/p>\n
Based on the Indian example it seems a commercial business
\ncase can be made for development upon a single business, i.e.
\nagribusiness. This is potentially a drop in the ocean.<\/p>\n
Beyond the farmers is everyone else in the village that can
\nbenefit. The shopkeeper that can improve his ordering and
\ninventory management, craft based industries, credit providers
\nand local government services can all leverage the network. The
\npublic relations aspect of being involved in such development
\ncannot be overlooked in any commercial assessment.<\/p>\n
The writer is a Technical Advisor at CSA Strategic Advisory.
\nCSA helps businesses through a combination of \"soft\" behavioral
\nand \"hard\" financial advice.<\/p>",
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