Itc Project-gurjeet bhatia-indore


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Itc Project-gurjeet bhatia-indore

  1. 1.                         LOGISTICS AND SUPPLY CHAIN MANAGEMENT                                                                                           FINAL PROJECT   ON                                                       LOGISTICS AND SUPPLY CHAIN MANAGEMENT IN ITC                                                                                      SUBMITTED TO                                                                              PROF.DR.T.A.S.VIJAYARAGHAWAN JI                                                                              FACULTY­XLRI, JAMSHEDPUR  SUBMITTED BY:   GURJEET BHATIA­INDORE   STUDENT­XLRI [PGCLSCM­3]   XLRI INSTITUTE OF MANAGEMENT, JAMSHEDPUR                                                 [2008­09]  
  2. 2.                    ACKNOWLEDGEMENT                                        WITH GREAT PLEASURE, WE EXTEND OUR GRATITUDE                                        TOWARDS PROF. DR.T.A.S.VIJAYARAGHWAN JI, UNDER WHOSE                           VALUABLE GUIDANCE, CONSTANT INTEREST AND ENCOURAGEMENT WE                                      HAVE BEEN ABLE TO COMPLETE THE PROJECT SUCCESSFULLY.                               THIS CO­OPERATION IS NOT ONLY USEFUL FOR THIS PROJECT                                BUT WILL ALSO BE A CONSTANT SOURCE OF INSPIRATION FOR                                                                           US IN THE FUTURE.                               WE ARE ALSO THANKFUL TO ALL THOSE WHO HELPED US                             CONSTANTLY IN THE PREPARATION OF THIS PROJECT DIRECTLY                                                                             OR INDIRECTLY. 
  3. 3. GURJEEET BHATIA-INDORE Company Background ITC is one of India's foremost private sectors companies with a market capitalization of nearly US $ 15 billion and a turnover of over US $ 4.75 billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by Business World and among India's Most Valuable Companies by Business Today. ITC also ranks among India's top 10 `Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri- Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Greeting Cards, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards. As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond the market". In his own words: "ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part." ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and  acknowledged
  4. 4. service skills in hotelier. Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India. ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 2.8 billion in the last decade). The Company's 'e- Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach. ITC's wholly owned Information Technology subsidiary, ITC InfoTech India Limited, is aggressively pursuing emerging opportunities in providing end-to-end IT solutions, including e-enabled services and business process outsourcing. ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek a corporate governance rating. ITC employs over 21,000 people at more than 60 locations across India. The Company continuously endeavours to enhance its wealth generating capabilities in a globalizing environment to consistently reward more than 3, 95,000 shareholders, fulfil the aspirations of its stakeholders and meet societal expectations. This over-arching vision of the company is expressively captured in its corporate positioning statement: ITC was established on August 24, 1910 as the Imperial Tobacco Company of India Limited in Kolkata. Initially, the company was involved in the trading of imported cigarettes. In 1925, in a backward integration move, the company started a packaging and printing business. The name of the company was changed to India Tobacco Company Limited (I.T.C. Ltd.) in 1974. In 1975, I.T.C. Ltd., through ITC-Welcome group, tied up with the US-based Sheraton Corporation to enter the hospitality industry. It acquired its first hotel in Madras (later renamed Chennai) in Tamil Nadu and called it the Welcome group Chola Sheraton. I.T.C. Ltd established ITC Bhadrachalam Paperboards Ltd. (IBPL) in 1975. The company started production at its integrated pulp and paper/board manufacturing facility at Bhadrachalam, Andhra Pradesh, in 1979. In 1990, I.T.C. Ltd. set up an International Business Division (IBD) for export of agricommodities. I.T.C. started a greeting cards business under the brand name Expressions in the year 2000.
  5. 5. In the same year, I.T.C. also entered the fashion retailing business by extending its well known cigarette brand Wills. The retail outlets were called Wills Lifestyle and offered premium leisure wear for men and women under the Wills Sport brand. In September 2001, the company was renamed ITC Ltd (without full stops, and with no meaning attributed to the alphabets). In 2001, ITC made an entry into the foods business. In 2002, the company launched another clothing brand, John Players, which targeted the urban youth. In 2004, ITC was one of eight Indian companies to make it to the “Forbes ‘A’ List”8 which featured 400 of “the world’s best big companies”. In Oct 2005, ITC has launched an exclusive line of prestige fine fragrances and personal care products under the Essenza Di Wills brand. In late 2007, ITC launched Fiama Di Wills soaps and shampoos following the success of Essenza Di Wills. In Dec 2007 ITC launches ECF (Elemental Chlorine Free). ITC is the first and only Company in India using the ECF technology.                                                                                                   PRODUCTS  
  6. 6. CULTURE ITC's Vision • Sustain ITC's position as one of India's most valuable corporations through world-class performance. • Create growing value for the Indian economy and the Company's stakeholders. ITC's Mission • To enhance the wealth generating capability of the enterprise in a globalizing environment • Deliver superior and sustainable stakeholder value. ITC's Core Values The company’s Core Values are aimed at developing a performance-oriented organization that is highly customer focused and also creates value for those holding stake in it. It fully understands that it has a commitment to its stakeholders to act as a guardian of the company from stakeholder’s point of view and deliver results in a manner that actualizes stakeholder’s interest on a long-term basis. It also delivers on the commitment to its customers by consistently addressing their needs on product quality, value and overall satisfaction. It respects the values of people and also encourages individuals to pursue their dreams, values their differences and helps them to experiment in the pursuit of various opportunities. ITC firmly believes in the concept of Excellence with their mantra being, “we do what is right, do it well and win. We will strive for excellence in whatever we do”. It is constantly in the pursuit of better and newer products, processes, services and management practices. Apart from the interest of shareholders they also address their commitment to the nation to generate economic value, at the same time ensuring that in achieving these goals no compromises are made whatsoever in complying with rules and regulations as specified by law. ITC’s Philosophy   ITC believes in practicing ethical behaviour among the corporate citizen. The company follows an HR policy that is regulated by Teamwork, Trust, Collaboration, Mutuality, Meritocracy, Objectivity, Collaboration, Self-respect and Human-dignity. It is also deeply committed to make the company a gender friendly place for each individual while also ensuring enhancement of equal opportunities for men and women, preventing sexual harassment of any form and the adherence to good employment practices. It is ensured that the interest of the company is foremost and in this context acceptance of any kind of gifts or payments from suppliers or customers is viewed as a serious breach of company discipline. And such acts are also considered as damaging to the reputation of the company.
  7. 7. High standards of house keeping and hygiene are followed to ensure excellent physical working conditions. It is understood that all the directors, senior management and employees shall conduct themselves in an honest manner and avoid any conflict of interest. The top officials and employees of ITC believe that ITC provides them freedom at work and resources to experiment. Employees take pride in working for ITC for its work culture, environment, and the way people are treated. They are consulted before a new projectsystem is introduced and their concerns and suggestions addressed. ITC also gives a lot of input to develop their skill and career. They give utmost importance to equal opportunities, better work environment. Structure ITC has a three-tier management structure   At the top are Chairman and Board of Directors, who are responsible for the strategic supervision of ITC, its wholly owned subsidiaries and their wholly owned subsidiaries. The ITC board is a balanced board comprising Executive and Non-Executive Directors. The Board ensures that the Company has clear goals relating to shareholder value and its growth. It sets strategic goals and seeks accountability for their fulfilment. There are four board committees, namely, the Audit Committee, the Nominations Committee, the Compensation Committee and the Investor Services Committee. At the second level is the Corporate Management Committee, which is responsible for the strategic management of the company's businesses within Board-approved direction/framework. It comprises all the Executive Directors and three or four key senior members of management. Third level consists of divisional CEOs of each business assisted by their own divisional management committees. Corporate Functions of the Executive Management Team includes Planning and Treasury, Accounting, Legal, Secretarial, Human Resources, Communications, Internal Audit and Information Technology.
  8. 8. Formal 3-tiered governance structure     The company’s organizational structure and governance processes are designed to support effective management of multiple businesses while retaining focus on each of them." This three-tier governance structure ensures that: For and on behalf of the shareholders the company believes in incorporating strategic governance in its work culture so as to ensure that despite being free from involvement in the task of strategic management of the Company, it can be conducted by the Board with objectivity, thereby sharpening and ensuring accountability of management;
  9. 9. With mundane tasks of everyday executive management being delegated the management remains focused on issues of immediate importance; The Executive management of the individual businesses that are free of handling strategic management responsibilities of ITC as a whole is then able to channelize their energies and time in enhancing the effectiveness and overall growth of their individual units. Corporate Governance as defined by ITC is a systemic process by which companies are directed and controlled to enhance their wealth-generating capacity. A company employs vast sums of societal resources during this process of wealth generation. ITC is of the firm belief that the governance process being followed should ensure that these resources are used optimally to meet the aspirations of its stakeholders and society. This is further reflected in the deep commitment of the company to contribute to the ‘Triple Bottom Line’, which is the development of the nation’s economic, ecological and social resources. The company believes in empowering the executive management. But corporate governance ensures a system of checks and balances to ensure that these powers that are bestowed upon the executive management are used in a responsible manner so as to meet shareholder and societal expectations. The core strengths of ITC's governance philosophy are trusteeship, transparency, empowerment and accountability, control and ethical corporate citizenship. The practice of each of these creates the right corporate culture that fulfils the true purpose of Corporate Governance. Overall, the structure of ITC has high complexity because of horizontal differentiation within the organization. The most visible evidence is that of specialization and departmentation. Complexity also increases because of spatial differentiation. The ITC Code of Conduct, as adopted by the Board of Directors, is applicable to all Directors, senior management and employees of the Company. This Code is derived from three interlinked fundamental principles, viz. good corporate governance, good corporate citizenship and exemplary personal conduct. The Code covers ITC's commitment to sustainable development, concern for occupational health, safety and environment, a gender friendly workplace, transparency and audit ability, legal compliance, and the philosophy of leading by personal example. Since non-adherence to the code is brought to the attention of the immediate reporting authority, formalization is also there in ITC.                        Decision-making is decentralized, as the company believes in giving executive freedom to the management to drive the enterprise forward without undue restraints but this freedom of management should be exercised within a framework of effective accountability.                                                   
  10. 10.                                            DESIGN   Looking at the structure and culture of ITC, we can say that its design is based more or less on the Divisional Structure. ITC has a diversified presence in different industries and each of its businesses act as an autonomous unit which are coordinated by the top level, i.e. the board and corporate management committee. The divisional managers are responsible for performance and hold complete strategic and operating decision-making authority. The top management provides support services to the divisions. It acts as an external overseer, evaluating and controlling performance. Hence the top management is free from being concerned with the day-to-day operating details so they can pay attention to the long term. Big picture, strategic decision making is done at the top level.                                                                                                                                  Areas of Diversification ITC has transformed itself from a leading cigarette manufacturer to an umbrella group that offers a diversified product mix to enhance its brand image and reduce dependency on tobacco related products. It has forayed into the hospitality service industry and has become a major player in the hotels segment. Its position in the FMCG (fast moving consumer goods) business is also on a growth curve; especially its confectionery and biscuits which are slated to achieve the top ranks among its peers. It has made heavy investments to strengthen its IT (information technology) segment and to compete with the big players like Infosys and Wipro. Although the ITC group is marketing its image as an ideal corporate citizen and a company that takes its social responsibility seriously, it still earns 80% of revenues from selling cigarettes and other tobacco related products. The major areas in which ITC has diversified are: FMCG • Cigarettes • Food • Lifestyle Retailing • Greetings and stationery • Safety Matches • Incense sticks Hotels Paperboards and Packaging • Paperboards and specialty papers • packaging Agri-Business • Agri- exports • E-choupal Information Technology
  11. 11. BCG MATRIX Restructuring and Rationalising STRATEGIC FOCUS  
  12. 12.                                                    ITC in FMCG Sector • Cigarettes ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, it has a leadership position in every segment of the market. It's highly popular portfolio of brands includes Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake. The Company has been able to build on its leadership position because of its single minded focus on value creation for the consumer through significant investments in product design, innovation, manufacturing technology, quality, marketing and distribution. All initiatives are therefore worked upon with the intent to fortify market standing in the long term. This in turns aids in designing products which are contemporary and relevant to the changing attitudes and evolving socio economic profile of the country. This strategic focus on the consumer has paid ITC handsome dividends. ITC's pursuit of international competitiveness is reflected in its initiatives in the overseas markets. In the extremely competitive US market, ITC offers high-quality, value-priced cigarettes and Roll-your- own solutions. In West Asia, ITC has become a key player in the GCC markets through growing volumes of its brands. ITC's cigarettes are produced in its state-of-the-art factories at Bengaluru, Munger, Saharanpur and Kolkata. These factories are known for their high levels of quality, contemporary technology and work environment. CigarettesBusiness  
  13. 13. • Foods ITC made its entry into the branded & packaged Foods business in August 2001 with the launch of the Kitchens of India brand. A more broad-based entry has been made since June 2002 with brand launches in the Confectionery, Staples and Snack Foods segments. For ITC, the packaged foods is an ideal business to utilize ITC's proven strengths in the areas of hospitality, branded cuisine, contemporary packaging and sourcing of agricultural commodities. ITC's world famous restaurants like the Bukhara and the Dum Pukht, nurtured by the Company's Hotels business, demonstrate that ITC has a deep understanding of the Indian taste and the expertise required to translate this knowledge into delightful dining experiences for the consumers. ITC has stood for quality products for over 98 years to the Indian consumer and several of its brands are today internationally benchmarked for quality. All products of ITC's Foods business available in the market today have been crafted based on consumer insights developed through extensive market research. Apart from the current portfolio of products, several new and innovative products are under development in ITC's state-of-the-art Product Development facility located at Bengaluru. ITC has over the last 98 years established a very close business relationship with the farming community in India and is currently in the process of enhancing the Indian farmer's ability to link to global markets, through the e-Choupal initiative, and produce the quality demanded by its customers. This long-standing relationship is being utilized in sourcing best quality agricultural produce for ITC's Foods business. The Foods business is today represented in 4 categories in the market. These are: 1. Ready To Eat Foods 2. Staples 3. Confectionery 4. Snack Foods In order to assure consumers of the highest standards of food safety and hygiene, ITC is engaged in assisting outsourced manufacturers in implementing world-class hygiene standards through HACCP certification. The unwavering commitment to internationally benchmarked quality standards enabled ITC to rapidly gain market standing in all its 6 brands: 1. Kitchens of India 2. Aashirvaad 3. Sunfeast 4. mint-o 5. Candyman 6. Bingo! Recently, on Aug 1, 2008, ITC Foods has drawn up plans to extend its Kitchen of India brand to frozen foods. ITC’s Branded Packaged Foods business continues to expand with sales growing by 23% over the previous year. Apart from the development costs of new products, the business has had to contend with the recent economic slowdown and severe cost increases in input commodities including wheat, vegetable oil, maize and skimmed milk powder, in addition to the soaring fuel prices.
  14. 14. Having acquired reasonable scale in a relatively short span of time, the business is progressively focusing on consolidating the portfolio in certain categories, improving market servicing and driving supply chain efficiencies. Market and Competition Indian Foods market is a monopolistic market. There are many competitors in all the categories and although they all have similar products available at similar prices, they are trying to prove themselves different through their marketing strategies. However, entry to this business is easy and ITC has utilized this fact very efficiently to their benefit as they entered into the several categories among this Foods business. READY TO EAT ITC entered into the branded and packaged foods business in with the launch of Kitchens of India brand. In 2004, the company launched KoI brand fruits and spice conserves and cooking pastes. The fruits and spice conserves, were developed jointly with Karen Anand, a food expert. Priced at Rs. 70, these were targeted at the premium segment. The KoI cooking pastes, which were priced at Rs.30 for a 100g pack, also targeted the high-end market. Multi-purpose cooking pastes were also launched under the Aashirvaad brand and these were priced at Rs. 10 for 80g pack. The manufacturing of these products was outsourced to contract manufacturers for saving the operating cost. ITC entered the branded spices market in 2005 and the Instant Mix segment in 2006, both under the Aashirvaad Brand. As on April 2006, the total turnover in the Indian ready-to-eat and ready-to-cook segments was only around Rs. 700 million, but it continued to post an annual growth of 20%. By early 2006, though ITC had captured a 35% market share in the ready-to-eat segment, MTR was the clear market leader with close to 60% in market share. ITC exported 40-50% of KoI brand products (in terms of volumes) to the US, Canada, the UK, Switzerland, and Australia. In May 2006, ITC planned to introduce ten more varieties under the KoI brand within a price range of Rs. 35 to Rs. 98. In 2007, some new products have been launched under Ready To Eat category like chutneys, curries, conserves, biryanis (Noor Mahal, Bhori Biryani and some new range of products under Gharana (Paneer Malai, Keema Mutter). After launching all these products ITC FOODS is looking to share 50 to 60% of market by 2008-2009.Following are the major competitors ITC is competing with in Ready to Eat category: Brands Description Gits produces the selected range of popular ready to cook and instant Gits foods that cover a range of ethnic Indian cuisine-and where the recipes have "Global pallete acceptance".
  15. 15. Offers packaged Bhel puri chats such as Sev Puri, Chana Masala, Haldirams Samosa, Pakoras, Alu Tikki, Pao Bhaji, Gol Gappa, Dhokla among others Offers packaged sweets,syrups,namkeens, cookies, pickles, aloo Ethnic Kitchens Masala, Bhujia, Bhelpuri, Chana Dal, Kajui Ladoo and many more items. MTR foods currently comprise twenty-two delicious and completely MTR authentic Indian curries, gravies and rice. Priya has a range of popular traditional recipes starting from Dal Makhani, Navaratan Kurma to Palak Paneer, Paneer Butter Masala, Priyafoods Punjabi Chhole and Rajma Masala along with true southern delicacies like Andhra Veg Pulav, Mango Dal, Gongura Dal.   Market Share - Ready To Eat 9% ITC Ltd. 8% MTR 48% Kohinoor 35% Others(Gits, Priya Foods etc.)     CONFECTIONERY Confectionary market in India is about Rs.2500 crore. It is loosely divided into seven categories: 1. Hard boiled candies 2. Toffies 3. Eclairs 4. Chewing gum 5. Bubble gum 6. Mints 7. lozenges ITC has currently in market with its two brands “Mint-o” and “Candyman”. ITC’s Mint-O fresh secured a 17% share of Indian cough lozenges market ahead of former leader Perfetti which only
  16. 16. achieved 14.3% with chloromint. The Indian giant marked the confectionary sector in 2002 and has only two brands “mint-o fresh” and “Candyman”. But in overall confectionary market they are lagging behind having just 3% market share as compared to market leader Perfetti with more than 37% market and providing larger number of brands. Perfetti van melle ITC Ltd. Nestle Cadbury Alpenliebe Candyman . Kit Kat Bubbaloo . Kit Kat Lite Alpenliebe Minto . Milky Bar Dairymilk Creamfills . Munch Eclairs Alpenliebe Lollipop . Milk Chocolate . Fun Bar % Star Big Babol . Polo Gems . Polo Power mint Center Fresh . Munch Pop Choc Perk Center Fruit . Éclairs Halls Center Shock Chatar Patar Chlor-mint Chocotella Cofitos Fruittella Happydent White Protex Happydent Marbels Mentos Chocoliebe  
  17. 17. Market Share - Confectionery ITC Ltd. 3% Perfetti Van Melle 42% 37% Cadbury Nestle 7% 11% Others(Parle, Joyco, HUL etc.)   STAPLES ITC entered the staples market in 2002 with wheat flour under the Aashirvaad brand. In 2003, ITC extended the Aashirvaad brand to edible salt. By early 2006, ITC had a 40% market share in the Rs. 6 billion packaged flour business. Its closest competitor HLL’s Annapurna brand was trailing behind with a market share of 18%. The market was growing at 12%. Under its Aashirvad brand ITC FOODS also launched salt, mixers, ready to cook pastes. In the Rs. 4 billion organized salt market (as of 2006), Tata Salt was the market leader with a 28% market share. ITC had only a 5% share of the market. Other players in this business are HLL (Knorr Annapurna), Nirma (Shudh), Marico Industries (Saffola), etc. Market Share - Staples ITC Ltd. 24% HLL 42% Pillsbury 13% Others(Sri Lal 21% Mahal, Local Brands etc.) BISCUITS: Indian biscuit market is estimated to be around 5000 crore. Biscuit industry in India in the organized sector produces around 60% of the total production, the balance 40% being contributed by the unorganized bakeries. ITC with its premium product, SUNFEAST, is acquiring a big share of market. Within few years, they are able to get 12% share of the market.
  18. 18. Britannia ITC Ltd (Sunfeast) Parle Priyagold Tiger Marie Parle-g Butter Bite Nutrichoice Junior Dream cream Krack-Jack Classic Cream Good Day, Milky Magic Monaco Butter Lite 50 50, Fit kit Kreams Big Boss Treat Choco Nut Hide and Seek Marie Lite Pure Magic, Butter Nut Milk Shakti Magic Gold Milk Bikis Good Morning. Market Share - Biscuits ITC Ltd. 8% 12% Priyagold 10% 32% Britannia Parle 38% Others(Bonn, Anmol etc.)   SNACKS: Snacks industry overview Snacks industry in India is worth 1800 Crores of Rs. and growing at 10% is one of the largest markets in the world, out of which potato chips holds the major market share of around 85%. Product Price Product Price Product Price (ITC Ltd) (Frito Lay) (Haldiram)
  19. 19. Bingo Lays Namkeen Rs. 5 Rs. 5 Rs. 5 Rs. 10 Rs. 10 Rs. 10 Rs. 20 Rs. 20 Rs. 20 Lehar Namkeen Rs. 5 Rs. 20 Kurkure Rs. 5 Rs. 10 Rs. 20 Market Sahre - Snacks 12% 16% ITC Ltd. FritoLay India 27% Haldiram's Others 45%   FINANCIAL DATA  ITC Ltd. started their food division in the year 2001. Since then the growth has been fantabulous. Their investment has increased year by year considering the scope of food market. However, they could not sustain the constantly increasing profit margins, mainly because of their valuable investment in market research, surveys, R&D, costly advertisements and expansion plan. Moreover they entered in a whole new market of food, but for this market they already had strong distribution market, which they are using for their tobacco product. So considering all these factors and short span of time period, surprisingly they did good job, particularly in snacks, biscuits, Ready to Eat and staples market.
  20. 20. Annual Results (ITC)  ‐  In Rs. Crores  Mar ' 08  Mar ' 07  Mar ' 06  Mar ' 05  Mar ' 04  Sales  13,947.53  12,369.30  9,790.53  7,639.45  6,470.44  Operating profit  4,403.94  3,956.41  3,327.38  2,792.56  2,360.59  Interest  4.61  3.28  11.93  42.43  24.79  Gross profit  5,010.23  4,289.62  3,601.53  2,985.94  2,560.68  EPS (Rs)  8.28  7.18  5.95  8.79  6.43    Annual results in details    Mar ' 08  Mar ' 07  Mar ' 06  Mar ' 05  Mar ' 04  Other income  610.90  336.49  286.08  235.81  224.88              Raw material  4,639.35  5,644.34  4,124.90  2,837.40  2,572.78              Employee expenses  733.32  630.15  541.40  467.26  416.48                                                  Other expenses  4,176.61  2,397.88  1,938.52  1,610.08  1,310.04  Provisions made  ‐  ‐  ‐  ‐  ‐  Depreciation  438.46  362.92  332.34  312.87  241.62  Taxation  1,451.67  1,226.73  988.82  836.00  726.21  Net profit / loss  3,120.10  2,699.97  2,235.35  2,191.40  1,592.85             
  21. 21.             Net  Operating  employee  Rate of Increase  Sales        profit  raw material  interest  profit  cost  / loss   ACTORS AFFECTING NET PROFIT  2005  18.07     18.30     37.58  10.29%  12.19%  71.16%  2006  28.16     19.15     2.01  45.38%  15.87%  ‐71.88%  2007  26.34     18.90     20.79  36.84%  16.39%  ‐72.51%  2008  12.76     11.31     15.56  ‐17.81%  16.37%  40.55%  Projection for 2009  21.33     16.92     18.98  18.67%  15.21%  ‐8.17%  The selling of 13544 crores, with net turnover at 3900 crores registered a growth of 18.4% driven by the non-cigarette business, which grew by 29% due to new investments in FMCG market. Overall projection for the year 2009, for sales is projected to be at growth rate of 21.33%. SALES OF FOOD SECTOR AND ITS PROJECTION:   2006  2007  2008  2009(projected)  Sales (crores)  1230.54  1698.53  2526.60  3410  The foods business is expanding rapidly with sales growth of 35% in the year 2007. This range of product includes more than 150 different products. The growth of this sector in terms of product categorization is as follows. Sales in biscuits category grew by 55%. Sales in staples category grew by 52% Sales in confectionary grew by 51%. Sales in RTE grew by 35% ITC Food is looking to expand its RTE category to maximize its profit. ITC’S NEW CHALLENGES: This food industry is the industry with very less profit margins. So low operation cost is the key. Also, Indian middle class is price sensitive. In this area international, national and also regional competition is very tough. With that wheat, petrol and labor cost is increasing day by day. Different types of restrictions imposed by the government are also playing a vital role in reducing profit margins. For example, exporting non-vegetarian foods out of India is restricted. To cover this up, ITC is trying to reduce cost of its biscuits by acquiring mass production of wheat directly from farmers through its e-chaupal initiatives. Also in this way ITC is able to reduce the price of its staples. As far as Confectionary market is concerned, ITC is looking to launch its brand of chocolate in collaboration with an American company. After analyzing the food sector, one can say that it is one of the toughest market to compete in as all the market giants are already there.
  22. 22. GROWTH AND INVESTMENT PLANS:   This food sector is the most promising field and has already overtaken IT and PHARMACEUTICALS Sector of India. Even Indian Government is looking to develop this sector. That’s the reason central Government has already passed several projects for food parks. In this way FDI in this sector is possible. Also government in its 2006 budget has reduced custom duty from 16% to 8% on packaged food and also excises duty on instant food mixes. This will help ITC to be competitive in the market. Recently ITC has started exporting packaged food from its Bangalore plant. It is also planning to open one more new plant in Calcutta for Indian market. They are looking to add several products in their RTE list which will be exported as well. Also in late 2007 ITC has acquired one Australian Plant and seed technology industry. Through this they will provide highly valuable seeds and other solutions to farmers in India, which ultimately will increase the productivity and cost effectiveness for their staples and biscuits business. Its turnover in the foods business was around Rs. 8 billion in 2005-06 which further increased to Rs. 10.2 billion in year 2006-2007. ITC has decided to make an investment of 300 crores over a period of 5 years. ITC Foods has also decided not to make heavy investments in manufacturing unless volumes pick up. As of today ITC has invested 20 crores in R & D and planning to invest further 15 crores to produce new products in different categories. Thus looking at all the strategy of ITC future investment and planning. The future investment plan is as follows Rate of Increase Sales Operating Profits Net Profit/loss 2005 18.07 18.30 37.58 2006 28.16 19.15 2.01 2007 26.34 18.90 20.79 2008 12.76 11.31 15.56 2009(Projected) 21.33 16.92 18.98
  23. 23. Rate of Increase of Sales w ith Projection for 2009 30.00 28.16 26.34 25.00 percent increase 21.33 20.00 18.07 15.00 12.76 10.00 5.00 0.00 2005 2006 2007 2008 Projection for 2009 years   Rate of Increase of O perating Profit w ith Projection for 2009 25.00 Percent Increase 20.00 19.15 18.90 18.30 16.92 15.00 11.31 10.00 5.00 0.00 2005 2006 2007 2008 Projection for 2009 Years   Rate of Increase of Net Profit/Loss with Projection for 2009 40.00 37.58 35.00 Percent Increase 30.00 25.00 20.00 20.79 18.98 15.00 15.56 10.00 5.00 2.01 0.00 2005 2006 2007 2008 Projection for 2009 years  
  24. 24. Major Strategies Adopted by ITC Foods Entering the foods business was itself a strategic decision for ITC. While ITC’s core business, tobacco, was under pressure owing to several factors like government bans on advertising and on smoking in public places, hikes in the excise duty for cigarettes, and anti tobacco campaigns, ITC planned to deploy its surplus in the packaged food business where it saw huge business potential. Following are some of the strategies that ITC adopted to make its food business a success: • Entering into less competitive or unexplored markets (Ready to eat, Staples, Wafers): When ITC entered into the foods business in 2001, it focused on unleashing the areas where the competition is very less or there is no competition. It started with packaged ready to eat food and later extended that to Aashirvaad brand of edible salt and Atta. Recently ITC has announced its desire to forge in the frozen foods category in the domestic market. Players in this category are limited and ITC hope to exploit this fact. Also, in Bingo, although the competition is tough but there is only one player with whom ITC has to compete i.e. Frito Lay. This strategy has helped ITC to quickly establish itself in the above mentioned businesses. • Distribution Network: ITC already had a huge distribution network due to its tobacco business. ITC used this network to distribute their biscuits and wafers. This not only provided a good launch to their products but also helped in boosting sales. Today, ITC’s Bingo and Sunfeast are available at nearly 1.8 million outlets whereas Parle is available at only 1.5 million outlets. • Market differentiation (Ready to eat, Biscuits): ITC started packaged foods business with the KoI brand of ready-to cook products. They were positioned as premium products with target groups including tourists, NRIs, etc. In Biscuits also, ITC launched differentiated products in each and every segment. For e.g. it introduced an Orange Marie, a butterscotch cream biscuit, chilli flakes in a biscuit and even honey flavor under the Sunfeast brand. In March 2005, ITC Foods launched Sunfeast Pasta, a whole wheat based product targeted at children. It was expected to compete with products like Nestle’s Maggie noodles. With this strategy ITC built for itself new markets. • Cost control strategy (all products): When ITC started the foods division, its main challenge was to compete with the players who were already there. To overcome this challenge, ITC realized that they have to offer products at a price which is either equal or less than what the competitors are offering. To do this, they planned to capitalize by leveraging the strength of the group’s other businesses. ITC’s printing and packaging business provided high-quality, cost-effective, and innovative packaging. ITC also enjoyed cost advantages over its competitors owing to its electronic procurement system called e-Choupal. This helped ITC to compete with the best.
  25. 25. • Diversification of products (Biscuits, Wafers, and Ready to Eat): One of the ITC’s successful strategies has been the method of diversifications among its various products. If we talk just about Bingo, ITC has come up with 16 flavors in comparison to its competitor ‘Lays’ of ‘Frito Lay’ which has only 4 major flavors. Same is the case with Ready to Eat food category and Biscuits. This strategy has helped ITC to attract a wide range of market. • Extensive advertising (Biscuit, confectionary, wafers): Just like a Bollywood movie needs good publicity to be a super hit, every new product launched in the market needs to be known to the consumers before it is launched. Advertising is where ITC made the difference in comparison to its competitors. They hired the best professionals and the best ambassadors in the country to make their products famous. This is evident form the award winning marketing campaign for Bingo and Minto Fresh. The tagline "Jab Laila ko karna tha impress to majnu ne khayi mint o fresh" has stood the test of times and is still widely known and remembered. Hiring the best people from the film industry and sports (Sharukh Khan and Sachin Tendulkar for Biscuits, Rakhi Sawant for Minto Fresh) showed ITC’s urge to be the best. On television, the company booked 10 to 15 spots per channel per day on youth channels such as MTV and Star World, mass Hindi channels like Zee and Star TV, and news channels. It also had around 20 spots on a variety of radio channels and advertised in most leading national dailies. In the top-30 cities, over 1,000 outdoor hoardings advertised the product. According to industry estimates, ITC spent close to Rs 100 crore on marketing.This kind of promotion of products helped ITC to make its products known to everyone and now it was not difficult to attract consumers. • Regular introduction of new products (all products): Having acquired reasonable scale in a relatively short span of time, ITC realized that, to remain in the competition it had to introduce new products regularly. ITC has been expanding its distribution network aggressively and also their product range. In biscuits and wafers range, it is launching new products or flavours week after week. Same is the case with Ready to Eat and Kitchen of India. • Innovation (all products): When the need to introduce new products arrived, ITC shifted its focus on to the innovation. Also, ITC was innovative in identifying the market or niche for all its products. • Maintenance of freshness and hygiene (all products): ITC positioned its wheat flour on the health & hygiene and value for money terms. Success in the staples business, especially in the branded and packaged wheat flour business, depended on two factors – an effective distribution network and the quality of the product. Therefore, ITC attempted to ensure that the supply chain was responsive, and laid emphasis on making accurate sales forecasts using inputs from distributors, sales personnel and a well-managed MIS system. To maintain
  26. 26. freshness of the product, the company strove to minimize the transit time by regulating the shippers to maintain company-specific transit norms. The physical aspects of the supply chain like warehouses and trucks were closely monitored to maintain cleanliness. • From Analyzers to Prospectors (Biscuits): When ITC entered the biscuits market with Sunfeast in 2003, with three varieties of biscuits - glucose, marie, and cream, they did what any new player in the market does, imitating and emulating the leader that was Britannia. Their strategy was to manufacture those products which are already a success in the market. But, as ITC got hold of the market, it started to manufacture flavors which were never heard of. This was the result of ITC’s desire to exploit new product and market opportunities. All the above strategies and with the help of launch of Bingo in 2007, ITC finally tasted success in its food business in 2008 when it became a profitable business for the first time since its launch in 2001 Effectiveness Organizational    Effectiveness criteria Rating Remarks Entered into food business because of the various constraints in cigarette industry. 1  Flexibility 9 Launch of various new products in diverse categories in accordance to the demand of the consumer market. Outsourcing manufacturing of confectionary items, acquisition of an Australian firm for new improved seeds, set 2  Acquisition of resources 8 up new plant in Haridwar, where there is no tax for first 5 years. Expanding size of work force by expanding target market Goals are clear and well understood as they are clear about 3  Planning 7 the markets they want to enter in and the markets they do not want to enter.(they didn’t enter into chocolates, milk products) Combining various facilities to improve efficiency (manufacturing along with printing and packaging) Prices of almost all the products are at par with the 4  Productivity and efficiency 8 competitors. Also their selling has increased considerably at an average rate of 20-25% in last 6 yrs. In 2007, At their Haridwar plant they are able to get the more production with the limited technology and machine utility which they had in 2006.
  27. 27. Employees are always consulted before a new project/system 5  Availability of information 8 is introduced. Timely operations are carried out to maintain freshness of the 6  Stability 9 inputs (Transporters are fined in case of delay) ITC leverage human capital for competitiveness by nurturing knowledge, entrepreneurship and creativity 7  Skilled work force 9 It has a no. of training programs which helps the employees gain exposure to the latest technologies and developments. Competing Values Framework   Environment  Culture Design  Structure  Leadership  Leader’s role  Uncertainty  Intensity              Developmental  Adhocracy  Idealistic  Prime mover  High  High        Rational  Market‐oriented  Rational  Expert  Current Framework  Favorable Framework  Environment in which ITC foods division is operating is highly uncertain because of the immense competition that they are facing in each category and due to the launch of new products and flavors in each category every other day. It is also highly intense as the organization’s main strategy to achieve their goals is through extensive marketing and for that they need to know how their products are received in the market. To do this, they are conducting various surveys and also they are launching their products only after a brief research of the market and trials. ITC Foods’ aggressive effort to capture market share and heavy investments in manufacturing and infrastructure suggests that they are focusing mainly on both of their short and mid term goals. Thus, the current design of their organization is rational but as the environment is highly uncertain and intense, they need to move towards a ‘Developmental’ design. The structure of the ITC Foods’
  28. 28. division is ‘market oriented’ because of the same reason that they are focusing into the market deeply; but again as the environment is highly uncertain and intense, they need high flexibility within the organization and hence should move towards an adhocratic structure. Leadership in ITC foods division is rational as the leader is functioning logically in accordance to the market forces. Branded Packaged Foods  
  29. 29. ITC in Hotel Industry ITC Limited entered the hotels business in 1975 with the acquisition of a hotel in Chennai, which was rechristened Hotel Chola. Since then the ITC-Welcomgroup brand has become synonymous with Indian hospitality. Today amongst India's finest and fastest growing hotel chains, it consists of over 70 hotels across as many destinations in India. These include super deluxe and five star hotels, heritage palaces, havelis and resorts and full service budget hotels. The 440-room ITC Maurya at New Delhi is not only amongst the leading business hotel in the country, but is in a class by itself. Complete with the 'ITC One', the hotel has played host to a galaxy of world dignitaries, including Bill Clinton and Bill Gates. In fact, even as he was leaving the White House, the former US President nostalgically recalled the memories of a fabulous Indian meal he and his family had at the Bukhara restaurant in the hotel. Bukhara has been declared the Best Indian Restaurant in the world, by 'The Restaurant Magazine', UK The 386-room ITC Maratha, opened in February 2001, is perceived as amongst the leading and the finest properties in Mumbai, designed in a grandiose classic style, the hotel pays tribute to Mumbai's colonial roots and the spirit of the Great Marathas. In keeping with its plan to have a presence in every major business destination in India, ITC- Welcomgroup unveiled one of Asia's finest business resort, the 238-room ITC Sonar in Kolkata on December 31, 2002. Another landmark hotel - the ITC Grand Central in Parel, Mumbai was formally inaugurated in January 2005. This five star deluxe property with 242 suites and rooms offers international standards of service, state of the art amenities and culinary excellence. ITC Mughal at Agra, a proud recipient of Asia's first Aga Khan Award for Architecture, is an outstanding resort hotel, lavishly spreading across 35 acres of beautifully landscaped Mughal gardens. ITC-Welcomgroup also pioneered a holistic concept of "branded accommodation" in the hospitality industry. It was the first to launch the powerful idea of a 'Hotel within a Hotel' by segmenting and branding the hotel services. It created the exclusive 'ITC One', 'The Towers' and the 'Executive Club' each catering to the needs of the global business traveller with unmatched quality and a range of services. In 2007, ITC-Welcomgroup entered a new phase in its collaboration with Starwood Hotels & Resorts. ITC-Welcomgroup now has an exclusive tie-up with Starwood in bringing its premium brand, the ‘Luxury Collection’, to India. The seven hotels which are part of this collection are: ITC Maurya in Delhi, ITC Maratha in Mumbai, ITC Sonar in Kolkata, ITC Grand Central in Mumbai, ITC Windsor in Bengaluru, ITC Kakatiya in Hyderabad and ITC Mughal in Agra. The agreement also includes the rebranding of WelcomHotel New Delhi as a Sheraton, while the Chola and the Park in Chennai, and the Rajputana in Jaipur retain their Sheraton connections. The Welcome Heritage brand brings together a chain of palaces, forts, havelies and resorts that offer a unique experience. Welcom Heritage endeavours to preserve ancient royal homes and the historical Indian grandeur, opulence of romance, valour and adventure for the future Indian generations. Welcom Heritage Hotels, provide a
  30. 30. fine range of hotel services inside these architectural legacies present in Rajasthan, Punjab, Himachal Pradesh, Madhya Pradesh, Uttaranchal, Jammu & Kashmir, West Bengal, Tamil Nadu, Haryana and Karnataka. ITC-Welcomgroup was also the first to brand its cuisine. The Bukhara, the Dakshin and the Dum Pukht are today powerful cuisine brands, which delight connoisseurs in restaurants in several ITC Welcomgroup hotels. Others included Dublin, West View and the Pan Asian. Fortune hotels are a part of the well thought-out growth strategy that brings out the mid-level business and leisure traveler under the ITC-Welcomgroup umbrella, offering full service properties without compromising on quality. With a strong presence at Ahmedabad, Thiruvananthapuram, Calicut, Darjeeling, Jamshedpur, Vapi, Hyderabad, Gurgaon, Indore, Ootacamund, Madurai, Jodhpur, Tirupati and Port Blair, it will be shortly commissioning several more hotels across India. Hotel Business  
  31. 31. ITC in Agricultural Industry ITC's International Business Division (IBD) is the country's second largest exporter of agriproducts with exports of over Rs. 1000 Crores (Rs. 10 billion). Its domestic sales of agriproducts are in excess of Rs. 1500 Crores (Rs. 15 billion). It currently focuses on exports of : • Feed Ingredients – Soyameal • Foodgrains - Rice (Basmati & Non Basmati), Wheat, Pulses • Edible Nuts - Sesame Seeds, HPS Groundnuts, Castor oil • Marine Products - Shrimps and Prawns • Processed Fruits - Fruit Purees/Concentrates, IQF/Frozen Fruits, Organic Fruit Products, Fresh Fruits • Coffee & Spices - Coffee, Black Pepper, Chilly, Turmeric, Ginger, Celery and other Seed Spices Although one of the relatively younger business divisions of ITC, it has, in a short span established itself as a first-choice supply chain partner of several leading international customers. Its major customers include Cargill, Marubeni, Toepfer, among others, who source agriculture commodities and food products from India. Its customer relationship management has enabled it to achieve a very high reputation for quality, reliability and value added services. ITC's unique strength in this business is the extensive backward linkages it has established with the farmers. This networking with the farming community has enabled ITC to build a highly cost effective procurement system. ITC has made significant investments in webenabling the Indian farmer. Christened 'e-Choupal', ITC's web plan for the farmer centres around providing Internet kiosks in villages. Farmers use this technology infrastructure to access on-line information from ITC's farmer friendly website. Data accessed by the farmers relate to the weather, crop conditions, best practices in farming, ruling international prices and a host of other relevant information. Currently, the 'e-Choupal' website - - provides information to farmers across the nine States of Madhya Pradesh, Haryana, Uttaranchal, Uttar Pradesh, Rajasthan, Karnataka, Maharashtra, Andhra Pradesh and Kerala. ITC plans to extend the 'e-Choupal' to cover 10 million farmers across 100,000 villages covering 15 Indian states. Following the impressive success of e- Choupal, the Company unveiled the first 'Choupal Saagar' near Sehore in Madhya Pradesh in August 2004. Eighteen more 'Choupal Saagars' have commenced operations in the states of Madhya Pradesh, Maharashtra and Uttar Pradesh. The 'Choupal Saagar' is a rural hypermarket which provides multiple services under one roof. It creates a platform for farmers to sell their produce. Farmers can also buy quality products for their farm and household consumption from 'Choupal Saagar'. These rural malls also provide farmers the invaluable additional services of soil testing, banking, insurance, medical facilities and restaurant. Such mall, in synergistic combination with the e-choupal network, serves as the core infrastructure to support ITC's rural distribution strategy. Over the next 7-10 years ITC plans to open over 700 such hypermarkets. The business is progressing a pilot project for retailing fresh fruits and vegetables. Three Choupal Fresh Cash & Carry Stores are
  32. 32. currently operational at Hyderabad, Pune & Chandigarh. The Company has set up a complete warehousing and cold chain infrastructure for ensuring the availability of fresh products in the market, besides direct linkages with the farmers for sourcing farm fresh produce. In Processed Fruits category, ITC exports from HACCP Certified plants to Western Europe, North Africa, Mid-East, Japan and North America, a wide range of Processed Fruits products made from Mango (Alphonso, Kesar & Totapuri), Guava, Papaya, & Pomegranate for Industrial and Consumer use. ITC is the leading Indian exporter of Organic Fruit Products Certified to European (EC 2092/91) & US (NOP) Standards. Fresh Table Grapes & Pomegranates are sourced from ITC's EUREPGAP Certified Farmer groups & retailed through prominent supermarkets like Sainsbury's & Albert Heijn in Europe , Daiei in Japan. ITC's countrywide network of procurement teams, handling agents and contemporary warehousing facilities enable it to source quality merchandise even at short notice. ITC's processors are handpicked reliable outfits which ensure hygienic processing and modern packaging. Strictest quality control is exercised at each stage to preserve the natural flavour, taste and aroma of the various agri- products. ITC has been a significant exporter of seafoods from India since 1971. It exports frozen as well as cooked shrimps and other seafood products to Japan, USA and Europe. Its well-known brands include Gold Ribbon, Blue Ribbon, Aqua Kings, Aqua Bay, Aqua Feast and Peninsular. ITC's International Business Division continues to use innovation as its core strategy to retain its position as the one-stop shop for sourcing agri-commodities from India. Other businesses  
  33. 33. ITC’s e- choupal ITC’s International Business Division, one of India’s largest exporters of agricultural commodities, has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterised by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others. The Value Chain - Farm to Factory Gate:   ‘e-Choupal’ also unshackles the potential of Indian farmer who has been trapped in a vicious cycle of low risk taking ability > low investment > low productivity > weak market orientation > low value addition > low margin > low risk taking ability. This made him and Indian agribusiness sector globally uncompetitive, despite rich & abundant natural resources. Such a market-led business model can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer risk management, larger investments and higher quality and productivity. Further, a growth in rural incomes will also unleash the latent demand for industrial goods so necessary for the continued growth of the Indian economy. This will create another virtuous cycle propelling the economy into a higher growth trajectory Choupal: A Time-Honored Tradition The village of Dahod appeared to be an unlikely setting for a technological revolution. Located 25 kilometers south of Bhopal in India’s central state of Madhya Pradesh, Dahod was dominated by soybean farmers who made their living as their ancestors did, harvesting their crop and selling it in the local market yard. In Hindi, the word for this meeting place was choupal. The choupal constituted an informal assembly, a forum that villagers could call their own, a place where
  34. 34. knowledge could be shared and captured.
  35. 35. In 1998, International Business Division (IBD) had grossed Rs. 450 crore ($100 million) in agricultural commodities sales, a marginal addition to the total Rs. 7701 crore ($2 billion) in sales generated by ITC’s other divisions, which included tobacco, paperboard, retail, hospitality, and foods, among others. The soybean and its derivatives comprised two-thirds of ITC’s agricultural export business. ITC sourced soybeans from farmers located throughout rural Madhya Pradesh. Madhya Pradesh (MP) had been dubbed India’s “soyabowl,” as its farmers contributed 4 million of India’s 5 million tons of soybean crop. ITC had had a 100-year relationship with farmers (based originally on the tobacco industry) that gave it an integrated presence along the entire value chain, from procuring soybeans from farmers and processing the beans in exclusively hired processing plants, to exporting the processed soymeal via vessel loads and container shipments. When soybeans were processed, about 80% of the crushed bean was turned into soymeal, a high-protein extract that was added to poultry and cattle feed. ITC exported soymeal to countries such as China, Pakistan, Bangladesh, and the United Arab Emirates, as well as other parts of Southeast Asia. The remaining 20% of the soybean material became edible oil, highly valued for its nutritional content and a very popular cooking medium in the domestic market. ITC had been successful in selling soybean oil domestically and processed soymeal internationally, but both the input and output sides of the agricultural supply chain in India were still far from efficient. The limited technological resources in India had constrained the dissemination of know-how in rural farming communities. Farmers did not have access to quality inputs, such as sowing seeds, herbicides, and pesticides, or information, such as accurate weather reports, that would help them improve their crop quality as well as the process of bringing it to market. They did not reap financial benefits from any profits made off the valuable soybean-derived materials. In fact, farmers were losing 60-70% of the potential value of their crop, with agricultural yields only a third to a quarter of global standards. Similarly, on the output side, middlemen clogged the supply chain, reducing profit margins for both farmers and buyers such as ITC. Unfair practices affected the way the farmers were paid, the weighing of the produce, and the amount of time taken by the process. This drastically increased transaction costs, slashing potential profits for the farmer. Both farmers and soybean processors were locked in an unproductive cycle. Farmers had limited capacity for risk and therefore tended to minimize their investment in crops, lest inclement weather or pests destroy their investment. This, however, meant a lower-value crop, which translated into slim margins for both the processor and the farmer. With such risk aversion, farmers were also loath to experiment with new farming methods. Since this meant that few new sources of value were found, the cycle continued unabated.
  36. 36. Stunted Growth: From Field to Factory Farmers in Madhya Pradesh made their living in much the same style as their predecessors 50 years earlier. The process of getting crops to market began with farmers harvesting the soybeans and loading them onto tractors and bullock carts. Farms varied in size from under five acres for a small farmer to greater than 12 acres for a large farmer. An average farmer, with about nine acres of farmland, could expect an annual net income of approximately Rs. 20,000 ($443) from soybeans and wheat together. After the harvest, farmers hauled their loads of produce 30-50 kilometers to the closest mandi and then waited for the crop to be auctioned. The auction began when a government- appointed bidder valued the produce and set the initial bid. From here, government-licensed buyers called commission agents (CAs) bid upwards until the crop was sold. ITC contracted with a specific CA in each mandi to bid on behalf of the company. Prices were authorized by ITC’s office in Bhopal, MP. Here ITC employed a team of traders who followed the global market. Although the CA knew what price ITC would pay, nothing prevented him from buying from the farmer at a much lower price, selling to ITC at market price, and pocketing the difference. Once a CA won an auction, the farmer brought his tractor to that CA’s shop in the mandi and waited for the produce to be weighed on a manually operated balance scale that accommodated only small increments of the lot. The actual weight of the crop was often manipulated at this point because of the inaccuracy of the crude beam scales. For example, if the farmer brought 20 quintals of loose soybeans to the mandi, he could expect to lose about 10 kilograms total during the transactions, or 0.5% of his original lot. This translated to a loss of about 100 Rs. ($2.22) per lot. After the weighing process, the product was bagged and the farmer was paid. According to the law, CAs were supposed to pay the farmer immediately, but, in smaller mandis, farmers were often paid after an unofficial credit period. The CA would simply tell the farmer to return after a few days for the money. On any given day, at least 1,000 farmers could be found trying to file into the market to sell their produce. Some had to wait for two or three days just to get into the crowded marketplace. Once inside the mandi, the farmer was faced with further challenges of the chaos and pressure that characterized the market yard. The Bhopal mandi, hosting an average of 1,700 farmers a day and the sole destination for farmers in Dahod, was a dusty yard with a perimeter of booths belonging to the various CAs. It teemed with adolescent boys who ran through the crowd, kicking up dust and eating beans off the farmers’ carts. Laughing, joking men loitered and watched the auctioneers. Farmers suffered as a result of the time it took to sell produce in the mandi, for they were dependent on timely cash flow for subsistence. Thus, when harvest time arrived, they all descended upon the mandi at once. The crop had to go to market immediately, and, more importantly, it had to be sold. Farmers were stuck in the position of not being able to turn down a CA’s offer; in many cases it had taken him all day to reach the mandi from his village, and to return with a full cart of unsold produce would be a waste of time and money. Farmers rarely had access to adequate storage facilities in
  37. 37. which to hold the crop if it was not sold. If a farmer were able to store the soybeans, and sell before or after harvest, without the time pressures associated with a perishable product, he would have more leverage over their value. This was impossible, however, under the prevailing system, where the farmer did not have other options. Once a transaction had taken place, the CA brought the produce to an ITC processing facility. There, ITC paid him for the cost of the soybeans. This was effectively a reimbursement, since the CA had paid the farmer in the mandi from his own resources at the time of the sale. The farmers’ isolation from one another and lack of telecommunications meant they had no way of knowing ahead of time what price would be offered the day they arrived at the mandi other than word of mouth. As a result, price discovery occurred only at the end of their growing and selling process. Knowledge shared and captured in the traditional choupal could be extraordinarily useful to farmers, but it had traditionally been limited to verbal communication. In the absence of telecommunications, and even electricity in some places, news from the closest city could take days to reach an outlying farming village. The uncertainty surrounding cash flow prevented the farmers from creating a sound financial base; instead, they had become locked into subsistence living. Prices of Indian soybeans generally followed the agriculture futures market on the Chicago Board of Trade and the Kuala Lumpur Commodity Exchange. Given the volatility of the spot market, and the fact that the value of agricultural commodities was based on largely uncontrollable factors such as weather, disease, and pest infestation, farmers needed to be aware of market activity. They needed to understand their product in its global context, so that they could plan their activities with more confidence. The e-Choupal The e-Choupal was based on the knowledge sharing found in the traditional choupal model, but took the concept one step further. ITC supplied a computer kit to each village with the following components: 1. A PC with a Windows/Intel platform, multimedia kit, and connectivity interface    2. Connection lines, either telephone (with bit rate between 28.8 and 36 Kbps) or, more commonly, VSAT (in 75% of e‐Choupals; average 2003 usage 64 Kbps inbound, 1 Mbps outbound)  3. A power supply consisting of UPS and solar‐powered battery backup  4. A dot‐matrix printer  The total setup cost to ITC was Rs. 170,000 ($3,762) per choupal. Another Rs. 100,000 ($2,213) was spent on people, travel, communication, software, and training. With the arrival of these components, nightly choupals at the home of Kamal Chand Jain were no longer limited to stories and gossip of the village. Farmers were instead accessing the World Wide Web through a site dedicated specifically to them, ITC’s <>. This Web site was updated by the ITC Bhopal office. The data
  38. 38. uplink, however, took place in Bangalore, home of ITC Infotech India Ltd., ITC’s own information technology subsidiary responsible for developing the software. The site contained much useful information that was previously unavailable to farmers in Madhya Pradesh. The site opened up by welcoming farmers into the “community” of the e-Choupal. There were eight links to the areas of key information that comprised the e-Choupal: weather, best practices, crop information, market information, FAQs, news, feedback, and information about ITC. The feature set had been developed progressively with full involvement of the farmers using the system. Weather page : India had no private weather service; the government was the only provider of weather information. Before the e-Choupal, weather forecasts were rarely communicated to the remote villages of the rural farmers. When they did reach the villages, they were too generalized and did not accurately cover the 30.75 million hectares of Madhya Pradesh. Farmers needed to know their regional weather in order to accurately expect the rains. ITC negotiated with the Indian Meteorological Department, the national weather service, to get localized forecasts for district pockets of 70-80 square kilometers within MP. The result was that, on the soyachoupal weather page, a farmer could click on his home district to see his localized forecast. This knowledge made a lot of difference in the timing of various farm operations such as the application of herbicides and fertilizers. Furthermore, the difference between harvesting before or after a big rainfall drastically affected the quality of the crop. Ill-timed rains reduced the value of a soybean crop irrespective of the amount of money that was put into it at sowing time. “Farmer A,” for example, might spend 8,000 Rs. ($177)/hectare on inputs in the hopes of getting 15,000 Rs. ($332) in return. Similarly, “Farmer B” could put in 5,000 Rs. ($110)/hectare and get about 10,000 Rs. ($221) in return. Poor rains, however, would reduce the value of both A’s and B’s crops to a 6,000 Rs. ($133) return. Without reasonable knowledge of weather trends, there was reduced incentive for a farmer to spend additional money to produce a higher-quality crop from higher-quality seed. Without an accurate weather forecast, farmers tended to err on the side of frugality. The ability to predict rain patterns would therefore make a difference to the quality of soybeans sown by the farmers. The <> site served to reduce farmers’ weather-based risks and took the guesswork out of determining the best time to harvest. Best practices page :Here a farmer could find out what other farmers of similar land area and crop volume were actually doing and compare these “actual” practices to the “ideal” practices described on the page. This was done in the simple local Hindi vernacular, not in obscure academic lingo. This way, the farmer could immediately identify the gaps between what he was doing and what he should have been doing. Such practices included how to prepare the soil before sowing and how to space the seeds as they were sown. For example, 18-inch spacing was considered “best practice”; many farmers, however, had been spacing their seed rows nine inches apart, which meant that their crops did not receive proper ventilation or light. Such conditions led to an undernourished crop.
  39. 39. Crop information page :This section contained instructional material such as “How to take a good soil sample” and information as to why soil testing was required. It also provided suggestions for further actions to be taken based on soil-test results. Market information: Four links on this page gave the farmer the options of exploring world demand, world production, mandi trading volume, and mandi price lists. This way the farmer became involved in the context of his livelihood. He was given knowledge about the mandi: the prices (lows and highs), as well as the number of bags that had arrived at the mandi to date, and the estimated daily arrivals (usually about 40,000 tons/day in the peak season). The farmer could thus assess the demand for his produce at a particular mandi. This information used to be available only from research institutions or corporations. Now it was being provided directly to the farmer. The site also contained a link to the Chicago Board of Trade, where farmers could find a seven-to-10-day market outlook and track global soybean price trends. One of ITC’s strengths was its ability to communicate with the global markets daily. News page: This contained excerpts of relevant news items, such as the government’s decisions on subsidies or minimum support prices (MSPs), and innovations in other countries’ farming systems. If a farmer did something that was particularly successful or innovative, that was posted to the news section as well. This recognition provided incentive for the farmers, who would otherwise not have the chance to be heard, to try new things. Lastly, <> had a place for suggestions. One of the advantages of the system was that the <> site could be continually tailored to the needs of the farmers. ITC had relied on farmers’ input since the start of the project, and, in an effort to keep the site’s content dynamic and relevant, it was important that the farmers could continue to be involved in its improvement. The e-Choupal served different purposes over the changing seasons. At harvest time, for example, farmers were more concerned about prices, at sowing time they were more concerned about weather forecasts. The e-Choupal initiative was based on the belief that the farmer needed an alternative to the mandi system. By participating in the e-Choupal network, farmers were offered new channels through which they could sell directly to ITC, thus eliminating the cost inflation and cheating that occurred through the middlemen. ITC selected a lead farmer in the village to become the caretaker of this equipment and a liaison between ITC and the farmers. The Sanchalak had to be someone whom people felt comfortable visiting and someone who, in turn, welcomed such gatherings in his or her home.
  40. 40. The Sanchalak In the evening, 15-20 people at a time showed up at the Sanchalak’s home for the usual choupal gathering. The ITC computer system that had been put in place offered new impetus to the discussions. In addition to the regular chatter, the Sanchalak would use his assigned user name and password to access <> and share with his neighbors the interactive features of the site. The Sanchalak had received some basic IT training from ITC, as well as instruction in effective methods of communication. This qualified him to open the site to other farmers, who could then navigate the site themselves. The log-in feature was designed with the idea of offering customized content based on the log-in location; in the future, if the content were to evolve into a more personalized form, individual farmers would log in themselves. Until then, however, the Sanchalak, distinguished for his literacy and communication skills, served as the liaison between ITC and the farmers. Weather forecasts and mandi transactions were printed out and posted on a notice board in the Sanchalak’s house. This way, the Sanchalak did not need to open the Web site with the arrival of every visitor. Farmers could stop in and read the printed information at any time throughout the day. If a farmer was unable to read, he only had to ask the Sanchalak’s advice. It was in the Sanchalak’s best interest to advise the farmer correctly, for better-quality produce from each farmer would fetch a higher price from ITC, and this meant a greater commission for the Sanchalak, as well as supporting his reputation as an honest broker. Farmers brought samples of their soybean crop to the Sanchalak’s home, where he was equipped by ITC with moisture meters and other tools used to assess the quality of the beans. The company provided “control samples” with which the Sanchalak could perform a quality comparison. Each Sanchalak was trained (as part of orientation) in quality assessment of his particular crop, so he would be qualified to judge the material based on damage or foreign matter. The soyachoupal Web site provided the “best material price” for “best-quality” beans, so when farmers brought their crop sample to the Sanchalak, he priced the material based on its degree of variance from that “best- quality” example. The Sanchalak then determined whether or not each farmer’s sample matched what he had learned to identify as the best material. Using the samples, he could physically show the farmers: If you grow it like this, you will get a better price. Reorganizing the Supply Chain   The physical setup of the e-Choupal kiosks facilitated a new kind of supply chain, of which technology was at the crux. Trading outside the mandi, for example, was very difficult before the e-Choupal. First, the mandi provided the only means for price discovery, and farmers reasonably assumed they would fare best in open auction. Second, transactions outside the mandi were officially prohibited by
  41. 41. the Agricultural Produce Marketing Act. The government had confined agricultural transactions to the mandis to protect the farmers from exploitation by unscrupulous buyers. Open auctions were considered the best safeguard against this. At the conception of the e-Choupal, however, ITC was able to convince the government of the potential benefits to the farmers and the economy, and the government amended the act to legalize purchases of beans (and other agricultural commodities) outside the mandi. The transparency of the e-Choupal - the fact that the Web site was accessible to anyone, including the government, to cross-check ITC’s prices at any time -facilitated the government’s acceptance of the initiative. The Web technology brought price discovery to the village level. This changed the way farmers did business. First, empowered with the knowledge of what price he would get at an ITC hub, as well as the reports on prices at nearby mandis, the farmer was able to make an informed decision about where to go to sell his beans. This knowledge was important, given the costs associated with traveling to the mandi with the beans. By learning about prices in the village itself, the farmer could determine how his revenue would compare to the cost of transportation. If he felt he could get a better deal at the mandi through the open auction process, he could choose to go there. But given the uncertainty of the mandi versus the set published prices offered by ITC’s hubs, in addition to the perk of being reimbursed for transport cost, farmers began regularly defecting from the mandis and choosing ITC. Second, by following the real-time prices on the Web site, the farmers could decide when to sell. Knowing the price in advance meant that the farmer could go to an ITC hub (assuming he was happy with ITC’s price) on his own schedule, even if there were no other reasonable bids on the beans at the mandi. A third feature distinguishing the eChoupal was its transparency. It is arguable that prices could be communicated to farmers by other means, such as telephone or radio broadcast. These methods, however, still relied upon spoken word. The ability to actually see prices being offered, in writing, on the computer screen (in spite of the illiteracy of some of the farmers), was instrumental in establishing the trustworthiness that made the e-Choupal effective. The Web model was also more scalable, since one kiosk could be used by hundreds of farmers. Without price discovery via the Web portal in the villages, selling to ITC hubs directly might be little different than going to the mandi. In fact, the mandi might be more attractive because the farmers would have the opportunity to sell in an open auction. But with the e-Choupal, the farmer was able to make his own informed choice. ITC worked to make its hubs attractive destinations for farmers. In addition to competitive pricing, the hubs contained multiple amenities that were not available to farmers in the mandis.
  42. 42. The ITC Hubs ITC had five processing units in Madhya Pradesh and 39 warehouses, making a total of 44 points to which a farmer could bring his soybeans. This compared to 51 large soybean-based mandis in the state. The farmers traveled an average of 20 kilometers to reach a hub, the range being five to 30 kilometers. ITC had 1,695 e-Choupals in MP, covering 8,400 villages and reaching 80% of soybean- and wheat-growing areas in the state. The physical architecture of the e-Choupal model called for a Web kiosk within walking distance (less than five kilometers) and a hub within driving distance (less than 30 kilometers) of every targeted farmer. To make sure this was fulfilled, ITC added three processing hubs and 36 warehouses in MP after the e-Choupal project got under way. The distance between farms and hubs was about the same as what a farmer would travel to get to a mandi. Once the farmer arrived at one of ITC’s hubs, his beans were weighed on a computerized weighbridge, and the weight was multiplied by ITC’s published price. The farmer then received cash on delivery. ITC maintained enough cash in a secure kiosk at the processing plant so that the farmer was fairly and immediately paid. In addition, the farmer was reimbursed for the cost incurred transporting his material to the factory. Depending on how far the farmer had traveled, ITC repaid him based on fixed freight-cost parameters, and that sum was added to the payment for the produce. Simple amenities at the ITC processing plant made the experience considerably more pleasant than at the mandi alternative. After the soybeans had been weighed, a tented seating area provided the farmer with a shaded spot for him to sit and await payment. Restroom facilities were available. None of these existed at the traditional mandi. In addition, there were 15-liter jugs of soybean oil available for purchase. ITC made a point of saying, “This is your oil; this was made from your beans.” When the farmer bought soybean oil directly from ITC, he skipped four or five people in that supply chain, keeping his own purchasing costs to a minimum. The oil was pure and unadulterated because it came directly from the ITC factory. As an added convenience, the processing facility included a soil-testing lab on the premises, where scientists offered recommendations for fertilizers or additives based on the chemical composition of the farmer’s sample. This took three days, while the alternative - going to a government lab - would take longer. Scientists employed by ITC made recommendations on the nutrient dosages that the soil needed based on its properties. They did not recommend any specific brand of fertilizer; they just gave the farmer the soil properties, and then the farmer could choose his own brand of fertilizer based on his soil composition. Freedom of choice was an important principle of the e-Choupal concept. For his involvement in the ITC procurement process, ITC paid the Sanchalak a 0.5 % commission on the sale of soybeans. He was, after all, effectively doing ITC’s buying - buying that would otherwise have taken place at the mandi. The e-Choupal system effectively turned the Sanchalak into an entrepreneur, for he also had the opportunity to earn a 2%-3% commission on orders placed for input items, such as herbicides, sowing seeds, and fertilizers, provided through ITC. Instant-glow gas
  43. 43. lanterns and edible oil were also popular sells. With the help of commission from edible soybean oil sales, Dahod Sanchalak Jain earned about Rs. 35,000 ($775) over the three to four months of the 2002 soybean season. Samyojak ITC benefited because of the increase in turnover resulting from Sanchalaks organizing and mobilizing farmers to sell to the company. The farmers were happy to have a better-defined channel through which to sell. But what of the middlemen, the commission agents of mandi life ? All of ITC’s CAs were kept, albeit with a new title: Samyojak. In this role, former CAs were given additional money-making opportunities within the e-Choupal system. ITC mandated that its CAs become Samyojaks if an e-Choupal was being set up in their geographic area. In most cases the transformation was achieved by convincing CAs of the potential revenue to be gained through the transactions in the e-Choupal. The Samyojak role comprised three major areas of responsibility: 1) setting up the e-Choupals; 2) facilitating ITC’s purchasing transactions; and 3) helping with ITC’s selling transactions. In the establishment of new e-Choupals, the Samyojak assisted ITC teams in village surveys to lay the groundwork. This meant assisting in the selection of the Sanchalak, acting as a liaison between villagers and ITC, and helping villagers understand the potential for the new system to be more efficient and profitable for all parties. Samyojaks also managed warehousing hubs attached to the processing facilities that stored bought soybeans. They assisted in the logistics of the cash disbursements to farmers arriving at the processing facility. They also helped facilitate transportation links for farmers who could not reach the ITC processing facility themselves. ITC’s selling transactions comprised the “one-stop-shop” feature of the e-Choupal. Farmers could buy herbicides, sowing seeds, gas lanterns, fertilizers, and soybean oil among other sundries directly from the company. While the Sanchalak had the responsibility of aggregating the orders in his village, the Samyojak would assist in actually moving the goods from ITC’s manufacturing units to the e- Choupals and/or warehousing hubs. Three systems enabled ITC to sell and deliver goods to farmers through the e-Choupal. The first was at the village level, where the Sanchalak aggregated demand for products through orders placed by his fellow farmers. This was done during the traditional choupal time. The Sanchalak then e-mailed the order to ITC, and the items were either a) picked up by the Sanchalak at the ITC warehousing hub, or b) delivered by the Samyojak to the villages. In either case the Sanchalak collected cash payments from his neighbors and remitted them to ITC. Seeds and fertilizers were sold in this way.