High-tech sector eyes India's rural
market By Indrajit Basu
KOLKATA - The roads are dusty and
unpaved; electricity is erratic and its quality
inferior; the residents seldom finish school and to most
the use of hi-technology starts with a television
and ends with a mobile phone - just for talking. Yet
ask the heads of dozens of technology companies in
India and they will tell you that foremost on
their list of strategic moves is to head into
rural India.
From
multinational high-tech consumer durable companies to Chinese
mobile-phone makers; from global information
technology giants such
as Microsoft to back-office service providers; global
telecom and biotechnology companies, and even
India's IT-sector lobbyist, the National
Association of Software Services Companies
(NASSCOM), are stepping out of the cities and
moving into the villages and towns of rural India.
Each has different imperatives and objectives,
but all say that the growing influence of
rural India on the country's society and economy
is too big to ignore. Over 740 million people
- about 65% of India's population - live in some
600,000 villages and small towns, and according
to a recent survey by Indian Revenue Service,
more than half of the 145 million rural
households in India earn between US$300 and $1,400 a
year.
And although only estimates of the
present size of the rural markets are available,
according to a survey by the global advisory firm
Mckinsey & Co, carried out in April last year,
India's rural markets have the potential to reach
$500 billion by 2020.
But that's old news.
After all, the realization that rural India holds
huge potential dawned on people about two decades
back, when fast-moving consumer product companies
- makers of toothpaste, soap, detergent, soft
drinks, etc - moved in, first just to sell their
products. But what's different in the "Rural
Strategy Version 2" is the new range of interests
and their approach in tapping this largely
unexplored market. The latest rural aspirants
include a wide range of companies, ranging from
retail products to drug and industrial products
companies, as well as many technology companies.
Their strategy, too, is different. Few are
looking at selling their products or services
immediately; in fact, many are willing to wait for
years. In addition, almost all are targeting the
entire rural population rather than just the
affluent elite.
Take Yahoo for example,
the latest firm to announce that it is moving into
rural India. This Internet company has finally
decided to take the plunge after watching the
markets for several months, primarily because
competition from rival portals is getting tougher.
According to Pranesh Anthapur, chief operations
officer of Yahoo India, "The importance of rural
India can't be underestimated any more." The
company plans - for the time being - to just
promote brand awareness by providing basic
e-commerce support against the backdrop of growing
personal computer ownership and Internet
penetration in rural India.
Yahoo's
obvious competition in the rural markets is
Google, which announced its foray about two weeks
back and does not have profits in mind either - at
least not just yet. This search-engine technology
innovator's "challenge" is to make the search
engine less complicated, as well as to develop
content for rural users - such as weather updates,
crop patterns, ebb and tide schedules, etc.
Similarly, DataWind Net Access
Corp, a Canada-based provider of wireless
web access products and services, has tied up with
the Indian IT lobbyist NASSCOM to run Internet
training programs in the villages and small towns
in the Indian states of Orissa, Andhra Pradesh,
West Bengal and Maharashtra. The objective looks
more social than commercial in the sense that the
aim is to improve the reach and user base of the
Internet in villages and small towns so that state
and district administration services can be
enhanced and made more transparent.
Rural India also drives volumes But if the rural markets are not revenue
generators yet for Yahoo!, Google or even
Microsoft - which is implementing the "IT Saksham"
project primarily to evangelize the benefits of
using IT in rural communities - most telecom
companies (and even mobile handset makers) are
moving out of larger cities and plugging into the
rural sector, purely to ramp up volumes.
Although urban markets are still lucrative
and will continue to be the focus for the telecom
sector, the untapped potential of the rural
markets is now seen as the next volume driver.
"India has the target of reaching 500 phone
subscribers - from the present 200 million (fixed
plus mobile) - by 2010, and that kind of growth
can only come from the rural segment," said TV
Ramachandran, director general, Cellular Operators
Association of India (COAI).
In fact, a
strange thing happened in India two weeks ago. To
create and run networks in remote areas, the
government announced the auction of 81 rural
regions, the laying-out cost of which was supposed
to have been subsidized by the Universal Service
Obligation Fund (USOF) created by the Department
of Telecom (DoT) in 2003. The resources for
implementation of this objective are raised
through a 5% universal service levy on gross
revenue of all telecom companies (except the pure
value-added service providers like the Internet,
voicemail, e-mail service providers) and grants
and loans from the federal government.
However, in 38 of the 81 regions, telecom
companies did not bid - meaning that subsidies was
not sought at all - and in about 15 regions,
Bharti Airtel, Reliance Communications and Aircel
(three of India's large telecom companies)
submitted negative bids - which means that they
preferred to pay into the USOF instead of
accepting its support.
"Most of the rural
pockets, which were unviable even a few years
back, have now become viable and profitable.
Therefore, operators preferred to pay to the USOF
rather than to take its support and be bound by a
few restrictive DoT conditions," said a COAI
spokesperson.
Small wonder then that with
the DoT stranded with unutilized USOF funds of
about $2 billion as of March, many telecom experts
have started questioning the utility of creating
such a fund in the country.
Indeed, to
some extent, thanks to an abysmally low
teledensity (number of telephone connections per
100 people) of 4% (versus 15% in urban areas) in
rural India, that segment of the market is
scorching. According to the vision plan drawn up
by the DoT, 200 million rural telephone
connections are envisaged by the end of 2012,
taking the rural teledensity figure to 25%.
New source for human resources India's 700 million-plus rural population is a
cheap talent pool as well. That's what the
flourishing IT-enabled services or the business
process outsourcing (BPO) sector has realized
lately. Stymied in their growth by an acute
shortage of human resources in the cities (where
the attrition rate can go up to 60%) local BPO
companies have now started moving into to the
rural sector for launching their services. The
other reason why the rural sector has emerged as
attractive is cost. The industry says that the
infrastructure cost is 20% cheaper compared to
urban set-ups.
Pioneers that have set
up such centers include Lason Inc (a
US-based outsourcing firm), GramIT (a rural venture
associated with local IT giant the Satyam Group),
and Datamation (a Delhi-based group). These are
now the key players in the Indian rural BPO scene,
who say that besides reducing costs for their
customers, their rural strategy has also been a
key contributor toward bridging the digital
divide and creating jobs.
Indrajit
Basu is a Kolkata-based journalist.
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