Innovation in India could be a lesson for Indonesia

David O'Brien, Jakarta

India (if you believe the hype) is developing its economy to be the "next China". Rather than being the factory of the world it is portraying itself farther up the value chain. It sees itself as supporting the factory in software design and support services. This is the vision and promotion; so what is the reality and are there parallels with Indonesia?

The recent election and subsequent loss by the BJP was seen as an indictment of this "India Shining" policy. The Congress Party returned to power on the back of support from rural supporters.

The facts hit home about the inequality between the shiny, high technology jobs in the larger cities and the hand to mouth existence of the predominately (72 percent) rural population. The fact remains that a small proportion of the urban population is enjoying the fruits of the high technology revolution.

I recently came across a story as to how a private sector initiative is seeking to address the gap. An Indian company is seeking to bring together the best of the information technology expertise of the urban areas to the rural sector. In May, Imperial Tobacco Company (ITC) won the inaugural "World Business Award" given to companies assisting development in poorer countries.

The business model developed brings the Internet to rural villages. It allows farmers to check the prices for their output, order fertilizer and other inputs, check weather details and request information from specialists to solve problems and improve crop yields. Once the Internet is established on this basis, other village members can obtain network benefits.

ITC is the largest tobacco company in India. Although owned 30 percent by multinational giant BAT Industries, it has an Indian CEO, Yogesh Deveshwar. When Yogesh was appointed BAT made clear it wanted to concentrate on the core business of cigarettes. Deveshwar however holds a different view of core business as applied to developing countries.

He believes that in a developing country such a concept is less applicable due to the developing nature of its economy. A successful company with strong returns should be in a position to take further strong positions in other industries.

Thus ITC is now involved in other consumer goods, paper and packaging and agribusiness. The agribusiness was the kernel for the village e-business network. To date some 5,000 villages have been connected and it is planned to reach 100,000 with a decade.

The agribusiness can secure its product, enhance efficiency of the supply chain, reduce price volatility and help ensure quality standards to maintain its branding. The other side of the agribusiness is the provision of inputs such as fertilizer. The farmers overcome issues associated with their small land holdings by aggregating together and saving on inputs. Market information allows them to be more informed in selling produce.

The problems associated with the lack of infrastructure at the village level are solved via VSAT satellite and solar power. Development at each village site is in the region of US$3,000 -- $6,000 including training. To address the lack of education of a majority of farmers, the computer is located with a more educated representative of the community. He fulfills an education role and earns a commission on orders placed.

All of this led me to thinking about the potential applicability to Indonesia. Indonesia's population remains predominately rural as does India's. Infrastructure in terms of telephone lines and electricity to regions remains limited also. The network of rent seeking middle men in Indonesia is another shared complaint that transparency of pricing can help overcome.

In Indonesia there are also very strong tobacco businesses that have been seeking to broaden their business interests. For example clove cigarette maker PT Sampoerna Tbk is now involved in packaging, property, retail, transport and distribution.

The distribution networks developed by all the major tobacco firms would, prima facie, seem to provide them a capability that can be built upon. There is a strong agribusiness capability gained from sourcing their product. Such expertise would seem to lend itself to leveraging these capabilities similarly to ITC in India.

Another business that would seem well suited to such a development would be PT Unilever Indonesia Tbk. It also has a well developed a distribution network stretching all the way down to village level. They have also begun to work closely with farmers to source black soy beans required for their kecap business. In the face of growing demand and limited supplies Unilever is developing new supplies in conjunction with farmers.

Yet one other business that came to mind is a new business recently developed in conjunction with KADIN, the Indonesian Chamber of Commerce. PT Usaha Kita Makmur is being headed by Eva Riyani Hutapea, most recently President Director of Indofood. Hutapea is an individual with a very strong knowledge of consumer marketing from her time at Indofood.

This experience is to be put in to practice as the new entity seeks to improve the marketing of handicrafts by the small and medium sized business segment. These are businesses that are again concentrated in remote areas. Education on marketing, production techniques, finance; in addition to feed back on sales, latest design trends etc. would all boost the capacity of the sector.

It has the potential to assist these businesses in being able to adapt to the rapidly changing world of fashion tastes. The most successful fashion companies are now those such as Zara of Spain which utilizes technology in constantly adapting products to meet consumer preferences.

Based on the Indian example it seems a commercial business case can be made for development upon a single business, i.e. agribusiness. This is potentially a drop in the ocean.

Beyond the farmers is everyone else in the village that can benefit. The shopkeeper that can improve his ordering and inventory management, craft based industries, credit providers and local government services can all leverage the network. The public relations aspect of being involved in such development cannot be overlooked in any commercial assessment.

The writer is a Technical Advisor at CSA Strategic Advisory. CSA helps businesses through a combination of "soft" behavioral and "hard" financial advice.