Friday, August 20, 2010
Wintel
The end of Wintel
As Microsoft and Intel move apart, computing becomes multipolar
Jul 29th 2010
THEY were the Macbeths of information technology (IT): a wicked couple who seized power and abused it in bloody and avaricious ways. Or so critics of Microsoft and Intel used to say, citing the two firms’ supposed love of monopoly profits and dead rivals. But in recent years, the story has changed. Bill Gates, Microsoft’s founder, has retired to give away his billions. The “Wintel” couple (short for “Windows”, Microsoft’s flagship operating system, and “Intel”) are increasingly seen as yesterday’s tyrants. Rumours persist that a coup is brewing to oust Steve Ballmer, Microsoft’s current boss.
Yet there is life in the old technopolists. They still control the two most important standards in computing: Windows, the operating system for most personal computers, and “Intel Architecture”, the set of rules governing how software interacts with the processor it runs on. More than 80% of PCs still run on the “Wintel” standard. Demand for Windows and PC chips, which flagged during the global recession, has recovered. So have both firms’ results: to many people’s surprise, Microsoft announced a thumping quarterly profit of $4.5 billion in July; Intel earned an impressive $2.9 billion.
So now is a good time to take stock of IT’s most hated power couple. As The Economist went to press, Intel was on track to reach a settlement with America’s Federal Trade Commission (FTC), which would in effect end the antitrust woes that have plagued both firms. And Microsoft has recently strengthened its ties with ARM, Intel’s new archrival. This suggests that the Wintel marriage is crumbling.
Critics have often questioned both firms’ technological prowess. Yet Windows 7, the latest version of Microsoft’s operating system, is excellent, and customers have snapped it up. As for Intel, its manufacturing machine is peerless. Some of its transistors are so tiny that 2m would fit on the “.” at the end of this sentence.
Both firms have often co-operated, despite occasional crockery-throwing. Microsoft has been pushier: in the mid-1990s, for instance, Mr Gates leaned heavily on Andy Grove, Intel’s boss, to stop the development of software that trod on Windows’ turf. Intel backed down.
The Wintel marriage is now threatened, oddly enough, by technological progress. Processors grow ever smaller and more powerful; internet and wireless connections keep speeding up. This has created both centripetal and centrifugal forces, which are pushing computing into data centres (huge warehouses full of servers) and onto mobile devices—businesses that Microsoft and Intel do not dominate.
Other firms have leapt into the gap. Apple is now worth more than Microsoft, thanks to its hugely successful mobile devices, such as the iPod and the iPhone. Google may be best known for its search service, but the firm can also be seen as a global network of data centres—dozens of them—which allow it to offer free web-based services that compete with many of Microsoft’s pricey programmes.
The shift to mobile computing and data centres (also known as “cloud computing”) has speeded up the “verticalisation” of the IT industry. Imagine that the industry is a stack of pancakes, each representing a “layer” of technology: chips, hardware, operating systems, applications. Microsoft, Intel and other IT giants have long focused on one or two layers of the stack. But now firms are becoming more vertically integrated. For these new forms of computing to work well, the different layers must be closely intertwined.
Apple, whose products have always been more integrated, is building a huge data centre and also offering web-based services. Google has developed Android, an operating system for smart-phones. The heavyweights in corporate IT are invading each other’s territory, too. That is the only way to grow, they believe. Also, clients love a one-stop-shop. Cisco, the world’s largest maker of data-networking gear, has started to sell servers. That spurred HP, a vendor of these machines, to push into the networking business. Oracle, which sells business software, bought Sun Microsystems, a computer-maker, last year.
Intel also has to deal with new competitors. For most of its 42-year history its main rival was Advanced Micro Devices (AMD), which makes processors based on a Windows-compatible architecture. Now Intel has to slug it out with ARM, a British firm. ARM does not make its own chips, but its designs are the basis for most of those that go into most mobile handsets.
Trustbusters have made life for the Wintel couple more difficult, mostly by curbing the ways they can defend and expand their near-monopolies. Having lost its battle with the European Commission, for instance, Microsoft must now give Windows users in the European Union a choice of which web browser to install. The commission also went after Intel, fining it €1.06 billion in May 2009 ($1.44 billion at the time) for giving rebates to computer makers if they used fewer AMD chips. The rules governing how Intel can price its chips will finally be settled soon, when negotiations with the FTC conclude.
The Wintel of our discontent
In response to these threats, Microsoft has made big bets on cloud computing. It has already built a global network of data centres and developed an operating system in the cloud called Azure. The firm has put many of its own applications online, even Office, albeit with few features. What is more, Microsoft has made peace with the antitrust authorities and even largely embraced open standards.
In other areas, however, the firm is floundering. It is still losing money on its web services, despite having invested billions. And apart from Xbox Live, the online offering for its game console, its new web services attract few eyeballs. Bing, Microsoft’s search service, still answers only 13% of online queries in America. Worse, Microsoft’s mobile business is in disarray. It recently killed two new smart-phones after just 48 days on the market. A new operating system for smart-phones will only come later this year. And in tablet computers, Microsoft is behind, too. Should the firm fail to catch up fast, Mr Ballmer will surely be tossed through a window.
Paul Otellini, Intel’s boss, is more secure. When Intel started losing its edge against AMD, he quickly cut costs and revised the firm’s goals. (If regulators are right, however, Intel resorted to all kinds of unfair practices to buy time.) Mr Otellini predicts that Intel’s chips will eventually be in every intelligent device with an internet link—which could one day mean just about everything.
He is pinning his hopes on a new family of processors called Atom. Rather than making these chips ever more powerful, Intel is making them ever cheaper and less power-hungry. That way, manufacturers will find it economical to put chips not only in phones but also in television sets, sewing machines, robots and so on. Since such devices tend to need special programmes, Intel has also moved further into the software market. In June 2009 it bought Wind River, which sells operating systems for embedded processors.
Still, Intel faces some high hurdles. Although Atom now powers most netbooks (cheap laptops), its success is hardly guaranteed. ARM’s chips guzzle little power and cost much less than Intel’s, because its licensing fees are low and most customers use foundries (contract chipmakers) to make them. Intel may not be able to sell future generations of Atom at a competitive price without hurting its fat margins.
Intel executives are optimistic, however. Atom will be more attractive for device makers, the firm’s executives argue, because developers can rely on the Intel Architecture and will not have to learn new tricks. More importantly, Intel believes that it can keep making smaller transistors than anyone else and that Atom chips will continue to be as profitable as its other chips. Yet this suggests a long-term problem. Intel’s position seems safe as long as Moore’s Law holds (ie, as long as it can keep cramming twice as many transistors on a chip every 18 months or so). But some people think that will become physically difficult sooner rather than later.
Regardless of whether Microsoft and Intel prosper individually, they will drift apart as a couple. Since Microsoft has yet to deliver a competitive version of Windows for smart-phones and tablets, for instance, Intel has teamed up with Nokia, the world’s largest maker of handsets, to develop Meego, an open-source operating system for mobile devices. Microsoft, by cuddling up to ARM, will be able to build chips of its own.
As the Wintel pair splits, computing will start to look different. Instead of being dominated by two monopolists, the market will be fought over by eight or nine more or less vertically integrated giants. Oracle, Cisco and IBM will vie for corporate customers; Apple and Google will scramble for individuals (see table). IT, like the world, is becoming multipolar.
As Microsoft and Intel move apart, computing becomes multipolar
Jul 29th 2010
THEY were the Macbeths of information technology (IT): a wicked couple who seized power and abused it in bloody and avaricious ways. Or so critics of Microsoft and Intel used to say, citing the two firms’ supposed love of monopoly profits and dead rivals. But in recent years, the story has changed. Bill Gates, Microsoft’s founder, has retired to give away his billions. The “Wintel” couple (short for “Windows”, Microsoft’s flagship operating system, and “Intel”) are increasingly seen as yesterday’s tyrants. Rumours persist that a coup is brewing to oust Steve Ballmer, Microsoft’s current boss.
Yet there is life in the old technopolists. They still control the two most important standards in computing: Windows, the operating system for most personal computers, and “Intel Architecture”, the set of rules governing how software interacts with the processor it runs on. More than 80% of PCs still run on the “Wintel” standard. Demand for Windows and PC chips, which flagged during the global recession, has recovered. So have both firms’ results: to many people’s surprise, Microsoft announced a thumping quarterly profit of $4.5 billion in July; Intel earned an impressive $2.9 billion.
So now is a good time to take stock of IT’s most hated power couple. As The Economist went to press, Intel was on track to reach a settlement with America’s Federal Trade Commission (FTC), which would in effect end the antitrust woes that have plagued both firms. And Microsoft has recently strengthened its ties with ARM, Intel’s new archrival. This suggests that the Wintel marriage is crumbling.
Critics have often questioned both firms’ technological prowess. Yet Windows 7, the latest version of Microsoft’s operating system, is excellent, and customers have snapped it up. As for Intel, its manufacturing machine is peerless. Some of its transistors are so tiny that 2m would fit on the “.” at the end of this sentence.
Both firms have often co-operated, despite occasional crockery-throwing. Microsoft has been pushier: in the mid-1990s, for instance, Mr Gates leaned heavily on Andy Grove, Intel’s boss, to stop the development of software that trod on Windows’ turf. Intel backed down.
The Wintel marriage is now threatened, oddly enough, by technological progress. Processors grow ever smaller and more powerful; internet and wireless connections keep speeding up. This has created both centripetal and centrifugal forces, which are pushing computing into data centres (huge warehouses full of servers) and onto mobile devices—businesses that Microsoft and Intel do not dominate.
Other firms have leapt into the gap. Apple is now worth more than Microsoft, thanks to its hugely successful mobile devices, such as the iPod and the iPhone. Google may be best known for its search service, but the firm can also be seen as a global network of data centres—dozens of them—which allow it to offer free web-based services that compete with many of Microsoft’s pricey programmes.
The shift to mobile computing and data centres (also known as “cloud computing”) has speeded up the “verticalisation” of the IT industry. Imagine that the industry is a stack of pancakes, each representing a “layer” of technology: chips, hardware, operating systems, applications. Microsoft, Intel and other IT giants have long focused on one or two layers of the stack. But now firms are becoming more vertically integrated. For these new forms of computing to work well, the different layers must be closely intertwined.
Apple, whose products have always been more integrated, is building a huge data centre and also offering web-based services. Google has developed Android, an operating system for smart-phones. The heavyweights in corporate IT are invading each other’s territory, too. That is the only way to grow, they believe. Also, clients love a one-stop-shop. Cisco, the world’s largest maker of data-networking gear, has started to sell servers. That spurred HP, a vendor of these machines, to push into the networking business. Oracle, which sells business software, bought Sun Microsystems, a computer-maker, last year.
Intel also has to deal with new competitors. For most of its 42-year history its main rival was Advanced Micro Devices (AMD), which makes processors based on a Windows-compatible architecture. Now Intel has to slug it out with ARM, a British firm. ARM does not make its own chips, but its designs are the basis for most of those that go into most mobile handsets.
Trustbusters have made life for the Wintel couple more difficult, mostly by curbing the ways they can defend and expand their near-monopolies. Having lost its battle with the European Commission, for instance, Microsoft must now give Windows users in the European Union a choice of which web browser to install. The commission also went after Intel, fining it €1.06 billion in May 2009 ($1.44 billion at the time) for giving rebates to computer makers if they used fewer AMD chips. The rules governing how Intel can price its chips will finally be settled soon, when negotiations with the FTC conclude.
The Wintel of our discontent
In response to these threats, Microsoft has made big bets on cloud computing. It has already built a global network of data centres and developed an operating system in the cloud called Azure. The firm has put many of its own applications online, even Office, albeit with few features. What is more, Microsoft has made peace with the antitrust authorities and even largely embraced open standards.
In other areas, however, the firm is floundering. It is still losing money on its web services, despite having invested billions. And apart from Xbox Live, the online offering for its game console, its new web services attract few eyeballs. Bing, Microsoft’s search service, still answers only 13% of online queries in America. Worse, Microsoft’s mobile business is in disarray. It recently killed two new smart-phones after just 48 days on the market. A new operating system for smart-phones will only come later this year. And in tablet computers, Microsoft is behind, too. Should the firm fail to catch up fast, Mr Ballmer will surely be tossed through a window.
Paul Otellini, Intel’s boss, is more secure. When Intel started losing its edge against AMD, he quickly cut costs and revised the firm’s goals. (If regulators are right, however, Intel resorted to all kinds of unfair practices to buy time.) Mr Otellini predicts that Intel’s chips will eventually be in every intelligent device with an internet link—which could one day mean just about everything.
He is pinning his hopes on a new family of processors called Atom. Rather than making these chips ever more powerful, Intel is making them ever cheaper and less power-hungry. That way, manufacturers will find it economical to put chips not only in phones but also in television sets, sewing machines, robots and so on. Since such devices tend to need special programmes, Intel has also moved further into the software market. In June 2009 it bought Wind River, which sells operating systems for embedded processors.
Still, Intel faces some high hurdles. Although Atom now powers most netbooks (cheap laptops), its success is hardly guaranteed. ARM’s chips guzzle little power and cost much less than Intel’s, because its licensing fees are low and most customers use foundries (contract chipmakers) to make them. Intel may not be able to sell future generations of Atom at a competitive price without hurting its fat margins.
Intel executives are optimistic, however. Atom will be more attractive for device makers, the firm’s executives argue, because developers can rely on the Intel Architecture and will not have to learn new tricks. More importantly, Intel believes that it can keep making smaller transistors than anyone else and that Atom chips will continue to be as profitable as its other chips. Yet this suggests a long-term problem. Intel’s position seems safe as long as Moore’s Law holds (ie, as long as it can keep cramming twice as many transistors on a chip every 18 months or so). But some people think that will become physically difficult sooner rather than later.
Regardless of whether Microsoft and Intel prosper individually, they will drift apart as a couple. Since Microsoft has yet to deliver a competitive version of Windows for smart-phones and tablets, for instance, Intel has teamed up with Nokia, the world’s largest maker of handsets, to develop Meego, an open-source operating system for mobile devices. Microsoft, by cuddling up to ARM, will be able to build chips of its own.
As the Wintel pair splits, computing will start to look different. Instead of being dominated by two monopolists, the market will be fought over by eight or nine more or less vertically integrated giants. Oracle, Cisco and IBM will vie for corporate customers; Apple and Google will scramble for individuals (see table). IT, like the world, is becoming multipolar.
Sunday, August 8, 2010
Chinese Railways versus Indian Railways!
http://streamlinesupplychain.wordpress.com/2008/12/14/chinese-railways-versus-indian-railways/#comment-409
All of us have repeatedly heard about the “success” of the Indian Railways under the stewardship of the current railway administration. So much so that the “success” of the Indian Railways has become a fashionable case study in Harvard Business School and the subject of lectures in IIM, Ahmedabad , INSEAD and Harvard Business School.
No doubt the Indian Railways has made progress. But the progress is relative- compared to other government agencies and departments in India– which is not to say much!
But how does the progress of the Indian Railways compare on a absolute scale?
To take an objective look at the “success” of the Indian Railways, let us compare the Chinese Railways and Indian Railways. After all, everyone and everyone’s analysts are comparing China and India.
Let us start at the beginning…..
The first Chinese Railway train was operated in 1876, from Shanghai to Woosung (15 miles) nearly a quarter of a century after the first train in India was run in April 1853 between Bori Bunder and Thane (21miles)
In 1945, China had 27,000 km of rail, of track. In 1947, when India got independence, India had 53596 Route kms of track- thanks to the British! Net, net China had just about ½ the route kilometres of India in the mid- 1940s. And that too for a much larger area.
How do they compare today? Chinese Railways today has 78,000 route kilometres, overtaking India sometime in the mid 1990s making only the rail networks in the USA and Russia larger in size. The total track length is 154,600km. By contrast Indian Railways has stagnated at 63,327 route kilometres of network.
The Indian Railways has suffered from the same neglect and apathy towards creating a solid foundation of infrastructure, as our roads, power, irrigation, airports.
As of 2007, Chinese Railway owned about 578,000 freight wagons, 44,000 coaches and 18,300 locomotives. India had 225000 freight wagons, 45000 passenger coaches and 8300 locomotives.
This vast difference in the number of freight wagons and locomotives explains why Indian railways carries less than a quarter, ~22%, of the freight carried by the Chinese Railways.
In 1950 Indian Railways carried 44 billion freight tonne km, against 39 billion in the case of Chinese Railways.
Last year, India moved 750 Million MT of freight last year while China moved 4. 5 times that i.e 3300 Million MT of freight.
On a global basis, China’s rail transport volume is one of the world’s largest, having six percent of the world’s operating railways, and carrying 25 percent of the world’s total railway workload.
China regularly runs heavy-haul freight transportation speed limit to 120 km/h. The highest speed notched up for a freight train, on the Indian Railways is 100 km/h (62 mph) for a 4,700 metric tonne load.
The Chinese Railways plans to spend US$ 292 billion ~ 15 lakh crore [ 1lakh = 0.1million = 100000, 1crore = 10million = 10000000] over 10 years. This translates to Rs 1.5lakh crore per year spent on the Chinese Railways for Capital Expenditure. In contrast the Indian Railways spends just a quarter (1/4) of what the Chinese Railways spends. The proposed investment for the 2008-2009 fiscal year is Rs. 37,500 cr, which in itself 21% more than for the previous fiscal year.
And passengers? Indian railways moved 6.2 billion passengers while China moved 1.4 billion passengers. What is to be noted is that out of the 6.2 billion passengers that Indian railways carried, 1.1 billion are Mumbai suburban passengers which are short lead passengers and can be considered a different subsidiary.
However the quality of passenger travel in the Chinese Railway is far superior. Chinese has express trains with speeds of 300kms/hr. Maximum speed of a passenger train in India is about half of the Chinese Railways at 160kms/ hr. The pictures of the Chinese High-Speed Railway (CHR) will give you an idea of the qualitative difference in passenger rail travel between China and India.
The Chinese Railways depended on steam locomotives till the 21st century while India phased out their steam locomotives ahead of the Chinese in 1990s. In December 2005, the world’s last regular revenue mainline steam train finished its journey on the Jitong Railway marking the end of steam era. Nevertheless, there are still some steam locomotives used in the industrial railways in China.
The Chinese Railways are organized in a more modern and business-like manner. Five major railway corporations — one each for rolling stock, railway construction, goods and materials, civil engineering, signalling and telecommunications — have been separated from transport enterprises and made autonomous, although state-owned. A number of passenger and freight transport companies have been created to operate on a competitive basis. These enterprises will finally be regrouped into three to five larger, separate companies.
The government has encouraged local authorities to build and operate their own railways up to 2,000 km. By the end of 1999, there were approximately 75 local railways with a total route-length of 4,800 km. About 20 more such projects, totalling 1,800 km, are under construction. To attract foreign capital, Chinese rail enterprises are encouraged to issue stocks on overseas stock markets. In 2001, their ministry of railways (MoR) also approved foreign participation in rail freight transport.
In contrast, as with most things in this country- education system, justice system, government (IAS, IPS …), we have just taken what the British have given us and using them without Indianizing and modifying it to the changing needs and requirements. We have the Railway Board, under the Ministry of Railways – the same structure that the British setup more than 100 years ago!!
Employees Chinese Railways employs 3.18million people while the Indian Railways has employs 1.6millionemployees. This translates to a productivity of 1308 MT/ employee on the Chinese Railways, double that of the 652MT / employee on the Indian Railways.
The Chinese Railways has already linked itself to the Europe and runs regular container trains. This is an alternative to the sea-route to Europe. This is part of the Pan-Asia rail network plan.
The railway to Tibet makes Chinese logistics and supply lines so accessible in case of a conflict with India. While India is just now built a part of the railway line in Kashmir and is just now planning a railway to Sikkim. A railway to Arunachal Pradesh is nowhere close to planning.
So to summarize, here is a table.
Indian Railways
Chinese Railways
Route kms (1945/1947)
Route kms (current)
53396
63327
27000
78000
Freight Carried (Billion MT per year)
750
3300
Passengers carried (billions/year)
6.2 billion
1.4 billion
Investment per year (Rs Cr)
37500
150000
Number of
Locos
Freight Wagons
Passenger Coaches
8300
225000
45000
18300
578000
44000
Employees
1.7
3.18
Maximum Speed (kms/hr)
Freight Trains
Passenger Trains
100
160
120
300
Reminds you of the Hare and the Tortoise story! Except that here, the Hare is way ahead of the Tortoise. And the Hare is moving ever faster all the time while the Tortoise is falling behind!!
All of us have repeatedly heard about the “success” of the Indian Railways under the stewardship of the current railway administration. So much so that the “success” of the Indian Railways has become a fashionable case study in Harvard Business School and the subject of lectures in IIM, Ahmedabad , INSEAD and Harvard Business School.
No doubt the Indian Railways has made progress. But the progress is relative- compared to other government agencies and departments in India– which is not to say much!
But how does the progress of the Indian Railways compare on a absolute scale?
To take an objective look at the “success” of the Indian Railways, let us compare the Chinese Railways and Indian Railways. After all, everyone and everyone’s analysts are comparing China and India.
Let us start at the beginning…..
The first Chinese Railway train was operated in 1876, from Shanghai to Woosung (15 miles) nearly a quarter of a century after the first train in India was run in April 1853 between Bori Bunder and Thane (21miles)
In 1945, China had 27,000 km of rail, of track. In 1947, when India got independence, India had 53596 Route kms of track- thanks to the British! Net, net China had just about ½ the route kilometres of India in the mid- 1940s. And that too for a much larger area.
How do they compare today? Chinese Railways today has 78,000 route kilometres, overtaking India sometime in the mid 1990s making only the rail networks in the USA and Russia larger in size. The total track length is 154,600km. By contrast Indian Railways has stagnated at 63,327 route kilometres of network.
The Indian Railways has suffered from the same neglect and apathy towards creating a solid foundation of infrastructure, as our roads, power, irrigation, airports.
As of 2007, Chinese Railway owned about 578,000 freight wagons, 44,000 coaches and 18,300 locomotives. India had 225000 freight wagons, 45000 passenger coaches and 8300 locomotives.
This vast difference in the number of freight wagons and locomotives explains why Indian railways carries less than a quarter, ~22%, of the freight carried by the Chinese Railways.
In 1950 Indian Railways carried 44 billion freight tonne km, against 39 billion in the case of Chinese Railways.
Last year, India moved 750 Million MT of freight last year while China moved 4. 5 times that i.e 3300 Million MT of freight.
On a global basis, China’s rail transport volume is one of the world’s largest, having six percent of the world’s operating railways, and carrying 25 percent of the world’s total railway workload.
China regularly runs heavy-haul freight transportation speed limit to 120 km/h. The highest speed notched up for a freight train, on the Indian Railways is 100 km/h (62 mph) for a 4,700 metric tonne load.
The Chinese Railways plans to spend US$ 292 billion ~ 15 lakh crore [ 1lakh = 0.1million = 100000, 1crore = 10million = 10000000] over 10 years. This translates to Rs 1.5lakh crore per year spent on the Chinese Railways for Capital Expenditure. In contrast the Indian Railways spends just a quarter (1/4) of what the Chinese Railways spends. The proposed investment for the 2008-2009 fiscal year is Rs. 37,500 cr, which in itself 21% more than for the previous fiscal year.
And passengers? Indian railways moved 6.2 billion passengers while China moved 1.4 billion passengers. What is to be noted is that out of the 6.2 billion passengers that Indian railways carried, 1.1 billion are Mumbai suburban passengers which are short lead passengers and can be considered a different subsidiary.
However the quality of passenger travel in the Chinese Railway is far superior. Chinese has express trains with speeds of 300kms/hr. Maximum speed of a passenger train in India is about half of the Chinese Railways at 160kms/ hr. The pictures of the Chinese High-Speed Railway (CHR) will give you an idea of the qualitative difference in passenger rail travel between China and India.
The Chinese Railways depended on steam locomotives till the 21st century while India phased out their steam locomotives ahead of the Chinese in 1990s. In December 2005, the world’s last regular revenue mainline steam train finished its journey on the Jitong Railway marking the end of steam era. Nevertheless, there are still some steam locomotives used in the industrial railways in China.
The Chinese Railways are organized in a more modern and business-like manner. Five major railway corporations — one each for rolling stock, railway construction, goods and materials, civil engineering, signalling and telecommunications — have been separated from transport enterprises and made autonomous, although state-owned. A number of passenger and freight transport companies have been created to operate on a competitive basis. These enterprises will finally be regrouped into three to five larger, separate companies.
The government has encouraged local authorities to build and operate their own railways up to 2,000 km. By the end of 1999, there were approximately 75 local railways with a total route-length of 4,800 km. About 20 more such projects, totalling 1,800 km, are under construction. To attract foreign capital, Chinese rail enterprises are encouraged to issue stocks on overseas stock markets. In 2001, their ministry of railways (MoR) also approved foreign participation in rail freight transport.
In contrast, as with most things in this country- education system, justice system, government (IAS, IPS …), we have just taken what the British have given us and using them without Indianizing and modifying it to the changing needs and requirements. We have the Railway Board, under the Ministry of Railways – the same structure that the British setup more than 100 years ago!!
Employees Chinese Railways employs 3.18million people while the Indian Railways has employs 1.6millionemployees. This translates to a productivity of 1308 MT/ employee on the Chinese Railways, double that of the 652MT / employee on the Indian Railways.
The Chinese Railways has already linked itself to the Europe and runs regular container trains. This is an alternative to the sea-route to Europe. This is part of the Pan-Asia rail network plan.
The railway to Tibet makes Chinese logistics and supply lines so accessible in case of a conflict with India. While India is just now built a part of the railway line in Kashmir and is just now planning a railway to Sikkim. A railway to Arunachal Pradesh is nowhere close to planning.
So to summarize, here is a table.
Indian Railways
Chinese Railways
Route kms (1945/1947)
Route kms (current)
53396
63327
27000
78000
Freight Carried (Billion MT per year)
750
3300
Passengers carried (billions/year)
6.2 billion
1.4 billion
Investment per year (Rs Cr)
37500
150000
Number of
Locos
Freight Wagons
Passenger Coaches
8300
225000
45000
18300
578000
44000
Employees
1.7
3.18
Maximum Speed (kms/hr)
Freight Trains
Passenger Trains
100
160
120
300
Reminds you of the Hare and the Tortoise story! Except that here, the Hare is way ahead of the Tortoise. And the Hare is moving ever faster all the time while the Tortoise is falling behind!!
Saturday, August 7, 2010
MNCs in Rural India: At a Turning Point
India Knowledge@Wharton
A "symbiotic relationship" is how Sanjeev Chadha, chairman and CEO of PepsiCo India, describes the work that the food and beverage multinational undertakes with thousands of farmers across India. "We help them with progressive farming techniques and they are of huge benefit to us in securing a reliable supply chain," he says. Some observers would call what Pepsi is doing corporate social responsibility (CSR); others more cynically might say it's simply another example of multinational corporations (MNCs) trying to figure out how to make inroads in India's challenging, but potentially lucrative rural market.
Whatever the words used by executives like Chadha for such initiatives, it is impossible to discuss multinational strategies in rural India without mentioning CSR. In its various forms, it is a critical part of their rural growth plans, often out of sheer necessity. Filling the gaps left by government, MNCs have built roads in rural India that help them deliver their goods, provided education and health care for communities whose workforces they rely upon, and implemented environmental programs to protect precious natural resources needed to keep supply chains running smoothly.
"In some cases, I am sure CSR activities are mostly rhetoric," says Harbir Singh, Wharton management professor and co-author of a new book titled, The India Way: How India's Top Business Leaders Are Revolutionizing Management. "But CSR is more legitimate in India than in the U.S., where infrastructure has been built and government is seen as addressing societal development agendas."
AFP/Getty Images
File photo of a villager drinking a soda in Madhuranthagam village, some 75 kms south of Madras, April 23, 2004. AFP/Getty Images
Yet now there's a shift in how MNCs look at their entire rural India investments beyond CSR. With growth drying up in developed markets and their center of gravity shifting to emerging markets, MNC businesses in India are under pressure to prove that their rural strategies aren't just about doing well from a CSR perspective. They also need to show head office that these strategies are doing well from a business perspective. In short, the strategies must start delivering top- and bottom-line results.
After years of false starts, missed opportunities and flawed strategies, a number of MNCs' India businesses are getting close. Others already are there and are ramping up their rural investments. None can take that fine balance between doing good and doing business for granted, as Nokia, Coca-Cola and Max New York Life -- among the companies profiled in this special report -- show. And it's for that reason that at PepsiCo India, "our rural agenda has been driven by purpose and now is moving into performance," says Chadha.
Spending Power
For many MNCs, there's a lot more riding on their rural India performance than there once was as India's growth story spreads to the heartland. Two-thirds of the country's one billion consumers live in rural India, where almost half of the national income is generated. A report by Technopak Consultants and the Confederation of Indian Industries, a trade body, estimates that the country's rural consumer market generated US$425 billion of revenue, up from US$266 billion the previous year.
The big reason for the growth is that India's rural consumers are steadily gaining more spending power. The number of rural households earning less than US$760 a year is down from 65% to 24% since 1993, while those with an income of US$1,525 have more than doubled from 22% to 46%. Combine these factors with improved roads and other infrastructure in rural India to help products reach their markets, and it's easy to see rural India's attraction.
Special Report
The Wall Street Journal and India Knowledge@Wharton present a special report on Multinational Corporations and Rural India. This reader resource combines specially-commissioned material with recent articles and more from our archives. Click here to read all.
"We are finally beginning to see that rural India has cash and is able to spend at the same time," says Vijay Govindarajan, professor of international business at Tuck School of Business at Dartmouth College in New Hampshire, who is also the chief innovation consultant for General Electric. "This is a remarkable combination for companies."
But any company coming to India for the first time that thinks it will be easy to take advantage of that combination is mistaken. Rural India is hugely complex, not least because of its diverse pace of development. As a recent study from IMRB International, a research company in Mumbai, notes, some markets are big but not as affluent as other markets (Uttar, Bihar Pradesh) while some are affluent but not very large (Himachal Pradesh, Goa). Experts also say that strategies need to take into account the vast number of languages and cultural differences across India's hinterland, while keeping strategies highly flexible and adaptable.
It can mean developing products and services tailored specifically to the rural market. When LG entered India in the mid-1990s, numerous brands were vying for shelf space with hardly anything to distinguish them from competitors. The South Korean company developed two color television sets for the rural market, Sampoorna (which means "complete" in Hindi) and Cine Plus. At US$65 and US$107 respectively, the sets were priced slightly higher than the black-and-white televisions that other manufacturers were selling in rural markets and that had become obsolete in urban homes. LG was also the first to offer gaming with its cut-price TVs and menus in English and Hindi. Now LG has refrigerators, washing machines and microwave ovens targeted at price-sensitive consumers sold from hundreds of retail and distributor outlets across the hinterland, with rural markets contributing 40% of its revenue.
Much also depends on the sector and products sold. In fast-moving consumer goods, for example, MNC products are capturing a sizable portion of rural consumer spending in a number of areas, with year-on-year increases in rural spending in 2009 on MNC shampoos (70%), washing powder (60%) and toothpaste (112%), say researchers at IMRB. What's more, they say, the average spending on these products is growing faster in rural than in urban markets.
Soap Operas
In the course of ramping up the performance of their rural strategies, MNCs are applying the lessons already learned. One of those lessons is that the benefits of a first-mover advantage are tough to hang on to as rural Indian consumers' tastes change rapidly, with questionable brand loyalty.
That applies even to a groundbreaker like Hindustan Unilever Ltd. (HUL), the country's largest consumer-products company owned by Anglo-Dutch Unilever. It made waves in the hinterland in 2001 when its Shakti Project enlisted self-help groups to develop a network of women -- largely from very low-income households -- into entrepreneurs, selling baskets of HUL products door to door. Today, 42,000 women earn a living by selling HUL products in more than 100,000 villages in 15 states. "India's rural narrative has been defined by HUL," notes Pradeep Lokhande, founder of Rural Relations, a Pune-based consumer-relationship management organization.
In the meantime, HUL has embraced other novel distribution strategies, such as selling products like its Sunsilk and Clinic shampoos in small, inexpensive packets for low-income Indians in the hinterland with little spare cash. Thanks to those efforts, the company has one of the most extensive distribution networks in the country, with 6.3 million retail outlets, including one million that it services directly. Rural India currently accounts for nearly half of HUL's revenue.
But HUL's lead regularly comes under threat. In December, for example, rival MNC Procter & Gamble launched Tide Naturals, which is a 30% cheaper version of its Tide detergent targeted at rural consumers -- a global first for the Cincinnati-based MNC. The launch was part of the parent company's "purpose-inspired growth strategy" to "touch and improve more consumers' lives in more parts of the world." Within weeks of its launch, Tide Naturals shook up India's US$8 billion detergent market by clinching a 0.6% share of the market, according to AC Nielsen.
HUL's response has been to turn to a local court to contest P&G's use of the word "naturals" to promote its new product. With neither side backing down, the case continues.
While other MNCs aren't necessarily going to be airing their competitive grievances in court, they can expect fast, nimble competitors to take them by surprise and grab market share if they don't stay close to their customers -- which is no small feat in a country like India, which has 642,000 villages, some with populations as low as 500.
'Uncharted Water'
Nowhere is that more evident than in mobile telephony. Mobile phone penetration in India jumped from 1.4 units per 100 people in 1995 to 51 units currently. In the 12 months to September 2009, the number of mobile subscribers increased 55% to 142 million, according to the Telecommunications Regulatory Authority of India.
Taking a lead in that growth has been Nokia, the US$55 billion Finnish mobile handset maker, which is one of the companies profiled in this special report. As part of a global emerging market focus since 2006, rural India now accounts for 40% of Nokia India's US$5 billion annual revenue. But it's a crowded business to be in. Along with Samsung, LG, Sony Ericsson and Motorola, there are a number of handset makers not only from China selling cut-price handsets, but also from India's home-grown companies that are chipping away at Nokia's market share lead with hand sets that are cheaper, more practical or both.
Now Nokia, like other handset makers, is branching out and forging alliances with various partners to offer mobile banking and other services along with its handsets. "It's uncharted water" -- as Gerald Faulhaber, a business and public policy professor at Wharton, puts it -- one in which "customers are pushing the companies and taking them out of the comfort zone."
Doing so successfully requires one thing: "listen to people," states Karishma Kiri, a Seattle-based strategy and product management consultant at The K2 Group, who was a director of Microsoft's Unlimited Potential initiative which provides computers, software and IT training in emerging markets. "A lot of companies tend not to listen to [what] rural consumers say they need."
That's not as clear-cut as MNCs might think. The jury is still out on the mobile services launched by news agency Reuters last year and other service providers to deliver agriculture information to farmers' mobile phone. According to Rural Relations' Lokhande, the demand hasn't been strong. "There's a perception mismatch between the farmers and the service provider," he notes. While the companies assert that the service is useful, affordable and personalized, many farmers figure they can get daily rates from their state agriculture marketing boards for two cents, or half the price.
In rural areas, finding the magic price points that don't eat into margins yet boost volume is an ongoing battle, with a lot hinging on distribution. "We have to build, and are building much deeper 'go-to-market' systems in rural India. They have to be extremely cost-efficient, much more so than they are in the urban areas," says PepsiCo's Chadha.
The US$43.2 billion MNC has been in India for more than 20 years and now claims to have overtaken Nestle as the top food and beverage company in the country. Overall, India has indeed been treating the company well, even during the downturn. India revenue at its drinks business grew 40% last year, while volume jumped 32%, well outpacing most other countries in PepsiCo's portfolio.
But it's not resting easy. Last year, it invested US$200 million -- the most ever in any single year -- as part of a US$500 million plan to expand its distribution infrastructure, while increasing R&D and adding four new plants to the 45 it already has in the country.
To make those investments pay off, rural India -- which currently accounts for 20% of PepsiCo India's business -- is taking center stage. "Over the next 10 years, I see rural India forming 40% to 50% of our national business, and in the future, growth will be powered by the rural areas," says Chadha.
Is that a long time to wait? "If any company wants [quick] financial results from the rural initiative, it is seriously mistaken," says Tuck's Govindarajan. "You have to look at the next decade and not the next quarter."
K2 Group's Kiri agrees. "The rural incubation work of multinationals is part of their business," she says. "But they need to be less focused on [year-on-year] success and spend more energy on building innovative solutions and business models for this segment. It's a long haul."
A "symbiotic relationship" is how Sanjeev Chadha, chairman and CEO of PepsiCo India, describes the work that the food and beverage multinational undertakes with thousands of farmers across India. "We help them with progressive farming techniques and they are of huge benefit to us in securing a reliable supply chain," he says. Some observers would call what Pepsi is doing corporate social responsibility (CSR); others more cynically might say it's simply another example of multinational corporations (MNCs) trying to figure out how to make inroads in India's challenging, but potentially lucrative rural market.
Whatever the words used by executives like Chadha for such initiatives, it is impossible to discuss multinational strategies in rural India without mentioning CSR. In its various forms, it is a critical part of their rural growth plans, often out of sheer necessity. Filling the gaps left by government, MNCs have built roads in rural India that help them deliver their goods, provided education and health care for communities whose workforces they rely upon, and implemented environmental programs to protect precious natural resources needed to keep supply chains running smoothly.
"In some cases, I am sure CSR activities are mostly rhetoric," says Harbir Singh, Wharton management professor and co-author of a new book titled, The India Way: How India's Top Business Leaders Are Revolutionizing Management. "But CSR is more legitimate in India than in the U.S., where infrastructure has been built and government is seen as addressing societal development agendas."
AFP/Getty Images
File photo of a villager drinking a soda in Madhuranthagam village, some 75 kms south of Madras, April 23, 2004. AFP/Getty Images
Yet now there's a shift in how MNCs look at their entire rural India investments beyond CSR. With growth drying up in developed markets and their center of gravity shifting to emerging markets, MNC businesses in India are under pressure to prove that their rural strategies aren't just about doing well from a CSR perspective. They also need to show head office that these strategies are doing well from a business perspective. In short, the strategies must start delivering top- and bottom-line results.
After years of false starts, missed opportunities and flawed strategies, a number of MNCs' India businesses are getting close. Others already are there and are ramping up their rural investments. None can take that fine balance between doing good and doing business for granted, as Nokia, Coca-Cola and Max New York Life -- among the companies profiled in this special report -- show. And it's for that reason that at PepsiCo India, "our rural agenda has been driven by purpose and now is moving into performance," says Chadha.
Spending Power
For many MNCs, there's a lot more riding on their rural India performance than there once was as India's growth story spreads to the heartland. Two-thirds of the country's one billion consumers live in rural India, where almost half of the national income is generated. A report by Technopak Consultants and the Confederation of Indian Industries, a trade body, estimates that the country's rural consumer market generated US$425 billion of revenue, up from US$266 billion the previous year.
The big reason for the growth is that India's rural consumers are steadily gaining more spending power. The number of rural households earning less than US$760 a year is down from 65% to 24% since 1993, while those with an income of US$1,525 have more than doubled from 22% to 46%. Combine these factors with improved roads and other infrastructure in rural India to help products reach their markets, and it's easy to see rural India's attraction.
Special Report
The Wall Street Journal and India Knowledge@Wharton present a special report on Multinational Corporations and Rural India. This reader resource combines specially-commissioned material with recent articles and more from our archives. Click here to read all.
"We are finally beginning to see that rural India has cash and is able to spend at the same time," says Vijay Govindarajan, professor of international business at Tuck School of Business at Dartmouth College in New Hampshire, who is also the chief innovation consultant for General Electric. "This is a remarkable combination for companies."
But any company coming to India for the first time that thinks it will be easy to take advantage of that combination is mistaken. Rural India is hugely complex, not least because of its diverse pace of development. As a recent study from IMRB International, a research company in Mumbai, notes, some markets are big but not as affluent as other markets (Uttar, Bihar Pradesh) while some are affluent but not very large (Himachal Pradesh, Goa). Experts also say that strategies need to take into account the vast number of languages and cultural differences across India's hinterland, while keeping strategies highly flexible and adaptable.
It can mean developing products and services tailored specifically to the rural market. When LG entered India in the mid-1990s, numerous brands were vying for shelf space with hardly anything to distinguish them from competitors. The South Korean company developed two color television sets for the rural market, Sampoorna (which means "complete" in Hindi) and Cine Plus. At US$65 and US$107 respectively, the sets were priced slightly higher than the black-and-white televisions that other manufacturers were selling in rural markets and that had become obsolete in urban homes. LG was also the first to offer gaming with its cut-price TVs and menus in English and Hindi. Now LG has refrigerators, washing machines and microwave ovens targeted at price-sensitive consumers sold from hundreds of retail and distributor outlets across the hinterland, with rural markets contributing 40% of its revenue.
Much also depends on the sector and products sold. In fast-moving consumer goods, for example, MNC products are capturing a sizable portion of rural consumer spending in a number of areas, with year-on-year increases in rural spending in 2009 on MNC shampoos (70%), washing powder (60%) and toothpaste (112%), say researchers at IMRB. What's more, they say, the average spending on these products is growing faster in rural than in urban markets.
Soap Operas
In the course of ramping up the performance of their rural strategies, MNCs are applying the lessons already learned. One of those lessons is that the benefits of a first-mover advantage are tough to hang on to as rural Indian consumers' tastes change rapidly, with questionable brand loyalty.
That applies even to a groundbreaker like Hindustan Unilever Ltd. (HUL), the country's largest consumer-products company owned by Anglo-Dutch Unilever. It made waves in the hinterland in 2001 when its Shakti Project enlisted self-help groups to develop a network of women -- largely from very low-income households -- into entrepreneurs, selling baskets of HUL products door to door. Today, 42,000 women earn a living by selling HUL products in more than 100,000 villages in 15 states. "India's rural narrative has been defined by HUL," notes Pradeep Lokhande, founder of Rural Relations, a Pune-based consumer-relationship management organization.
In the meantime, HUL has embraced other novel distribution strategies, such as selling products like its Sunsilk and Clinic shampoos in small, inexpensive packets for low-income Indians in the hinterland with little spare cash. Thanks to those efforts, the company has one of the most extensive distribution networks in the country, with 6.3 million retail outlets, including one million that it services directly. Rural India currently accounts for nearly half of HUL's revenue.
But HUL's lead regularly comes under threat. In December, for example, rival MNC Procter & Gamble launched Tide Naturals, which is a 30% cheaper version of its Tide detergent targeted at rural consumers -- a global first for the Cincinnati-based MNC. The launch was part of the parent company's "purpose-inspired growth strategy" to "touch and improve more consumers' lives in more parts of the world." Within weeks of its launch, Tide Naturals shook up India's US$8 billion detergent market by clinching a 0.6% share of the market, according to AC Nielsen.
HUL's response has been to turn to a local court to contest P&G's use of the word "naturals" to promote its new product. With neither side backing down, the case continues.
While other MNCs aren't necessarily going to be airing their competitive grievances in court, they can expect fast, nimble competitors to take them by surprise and grab market share if they don't stay close to their customers -- which is no small feat in a country like India, which has 642,000 villages, some with populations as low as 500.
'Uncharted Water'
Nowhere is that more evident than in mobile telephony. Mobile phone penetration in India jumped from 1.4 units per 100 people in 1995 to 51 units currently. In the 12 months to September 2009, the number of mobile subscribers increased 55% to 142 million, according to the Telecommunications Regulatory Authority of India.
Taking a lead in that growth has been Nokia, the US$55 billion Finnish mobile handset maker, which is one of the companies profiled in this special report. As part of a global emerging market focus since 2006, rural India now accounts for 40% of Nokia India's US$5 billion annual revenue. But it's a crowded business to be in. Along with Samsung, LG, Sony Ericsson and Motorola, there are a number of handset makers not only from China selling cut-price handsets, but also from India's home-grown companies that are chipping away at Nokia's market share lead with hand sets that are cheaper, more practical or both.
Now Nokia, like other handset makers, is branching out and forging alliances with various partners to offer mobile banking and other services along with its handsets. "It's uncharted water" -- as Gerald Faulhaber, a business and public policy professor at Wharton, puts it -- one in which "customers are pushing the companies and taking them out of the comfort zone."
Doing so successfully requires one thing: "listen to people," states Karishma Kiri, a Seattle-based strategy and product management consultant at The K2 Group, who was a director of Microsoft's Unlimited Potential initiative which provides computers, software and IT training in emerging markets. "A lot of companies tend not to listen to [what] rural consumers say they need."
That's not as clear-cut as MNCs might think. The jury is still out on the mobile services launched by news agency Reuters last year and other service providers to deliver agriculture information to farmers' mobile phone. According to Rural Relations' Lokhande, the demand hasn't been strong. "There's a perception mismatch between the farmers and the service provider," he notes. While the companies assert that the service is useful, affordable and personalized, many farmers figure they can get daily rates from their state agriculture marketing boards for two cents, or half the price.
In rural areas, finding the magic price points that don't eat into margins yet boost volume is an ongoing battle, with a lot hinging on distribution. "We have to build, and are building much deeper 'go-to-market' systems in rural India. They have to be extremely cost-efficient, much more so than they are in the urban areas," says PepsiCo's Chadha.
The US$43.2 billion MNC has been in India for more than 20 years and now claims to have overtaken Nestle as the top food and beverage company in the country. Overall, India has indeed been treating the company well, even during the downturn. India revenue at its drinks business grew 40% last year, while volume jumped 32%, well outpacing most other countries in PepsiCo's portfolio.
But it's not resting easy. Last year, it invested US$200 million -- the most ever in any single year -- as part of a US$500 million plan to expand its distribution infrastructure, while increasing R&D and adding four new plants to the 45 it already has in the country.
To make those investments pay off, rural India -- which currently accounts for 20% of PepsiCo India's business -- is taking center stage. "Over the next 10 years, I see rural India forming 40% to 50% of our national business, and in the future, growth will be powered by the rural areas," says Chadha.
Is that a long time to wait? "If any company wants [quick] financial results from the rural initiative, it is seriously mistaken," says Tuck's Govindarajan. "You have to look at the next decade and not the next quarter."
K2 Group's Kiri agrees. "The rural incubation work of multinationals is part of their business," she says. "But they need to be less focused on [year-on-year] success and spend more energy on building innovative solutions and business models for this segment. It's a long haul."
Indian companies innovating for consumers
http://economictimes.indiatimes.com/quickiearticleshow/6146364.cms
What is common among Minute Maid Nimbu Fresh, Gillette Vector Plus, Ford Figo and Tata Swach Purifier ? It’s not hard to guess. All these products have been developed keeping the Indian consumers at the centre of the process.
For decades, we have been talking about concepts such as customer-centricity and market orientation, but these concepts existed in the books. But in the last few years, we have had many examples of companies developing products keeping in mind the specific needs of the Indian consumers.
What is common among Minute Maid Nimbu Fresh, Gillette Vector Plus, Ford Figo and Tata Swach Purifier ? It’s not hard to guess. All these products have been developed keeping the Indian consumers at the centre of the process.
For decades, we have been talking about concepts such as customer-centricity and market orientation, but these concepts existed in the books. But in the last few years, we have had many examples of companies developing products keeping in mind the specific needs of the Indian consumers.
Chief Mentor: The Farmer Opportunity in India
By Sandeep Singhal
In the last three years, Nexus has invested in two agriculture-focused companies. Suminter India Organics contracts with small and medium-sized farmers to grow organic produce that it then processes and exports. Sohanlal Commodity Management provides warehousing and logistics services to farmers, commodity exchanges and agriculture processors.
Based on my experience while sitting on these boards, there are a number of opportunities for entrepreneurs and companies that want to build business models aimed at farmers.
Here are some of the encouraging trends I see:
–Corporations want to deal directly with farmers.
Associated Press
There are a number of opportunities to build business models aimed at the farmer
Companies like PepsiCo, ITC and Godrej have been creating integrated supply chains for the last decade but have typically focused on specific products (e.g. Pepsi with potatoes and tomatoes, ITC with wheat.) In recent times, organized retail chains like Reliance Fresh and Food Bazaar have set up integrated procurement systems that directly reach the farmer instead of working through intermediaries. They also have increased the range of products they procure. Global trading companies like Cargill and Glencore have increased their procurement in the Indian market and have set up some presence in mandis, or local markets.
–Farmers are getting more information.
This information ranges from the most current procurement prices at regional mandis to marketing committee locations (provided by the National Spot Exchange and others) to weather reports and forecasts from mobile operators and specialist providers like Weather Risk Management Services. ITC has been providing this information at its eChoupals (kiosks that provide price information) for some time. Others have similar offerings.
–Recent policies aim to increase efficiency. For example, the “Warehouse and Distribution Act” calls for accreditation of warehouses, which will improve post-harvest management and reduce spoilage. It will also reduce the cost of intermediaries in the procurement process by facilitating warehouse receipt financing and by providing subsidies to build warehouses.
The new nutrient-based subsidy policy also helps optimize the use of fertilizers and improve soil quality. The earlier subsidy policy only covered a few products but the new policy gives a subsidy based on the nutrients in the fertilizer. This lowers the price of complex fertilizers and allows the farmer to choose the right fertilizer for their crop and soil type.
Agriculture is a large and disorganized market. So, there are many inefficiencies which require smart solutions. Farmers are increasingly more open to cooperating with private players as long as they are convinced of increased revenue, lower costs, and/or sustainability. The farming community is driven by word-of-mouth marketing and that can help an entrepreneur scale a business over time.
–Sandeep Singhal is co-founder Nexus Venture Partners, a venture firm with $320 million under management. Nexus has an active portfolio of over 20 companies across several Indian industries including technology, consumer services, media, outsourced services, the Internet and mobile, alternate energy and agribusiness.
In the last three years, Nexus has invested in two agriculture-focused companies. Suminter India Organics contracts with small and medium-sized farmers to grow organic produce that it then processes and exports. Sohanlal Commodity Management provides warehousing and logistics services to farmers, commodity exchanges and agriculture processors.
Based on my experience while sitting on these boards, there are a number of opportunities for entrepreneurs and companies that want to build business models aimed at farmers.
Here are some of the encouraging trends I see:
–Corporations want to deal directly with farmers.
Associated Press
There are a number of opportunities to build business models aimed at the farmer
Companies like PepsiCo, ITC and Godrej have been creating integrated supply chains for the last decade but have typically focused on specific products (e.g. Pepsi with potatoes and tomatoes, ITC with wheat.) In recent times, organized retail chains like Reliance Fresh and Food Bazaar have set up integrated procurement systems that directly reach the farmer instead of working through intermediaries. They also have increased the range of products they procure. Global trading companies like Cargill and Glencore have increased their procurement in the Indian market and have set up some presence in mandis, or local markets.
–Farmers are getting more information.
This information ranges from the most current procurement prices at regional mandis to marketing committee locations (provided by the National Spot Exchange and others) to weather reports and forecasts from mobile operators and specialist providers like Weather Risk Management Services. ITC has been providing this information at its eChoupals (kiosks that provide price information) for some time. Others have similar offerings.
–Recent policies aim to increase efficiency. For example, the “Warehouse and Distribution Act” calls for accreditation of warehouses, which will improve post-harvest management and reduce spoilage. It will also reduce the cost of intermediaries in the procurement process by facilitating warehouse receipt financing and by providing subsidies to build warehouses.
The new nutrient-based subsidy policy also helps optimize the use of fertilizers and improve soil quality. The earlier subsidy policy only covered a few products but the new policy gives a subsidy based on the nutrients in the fertilizer. This lowers the price of complex fertilizers and allows the farmer to choose the right fertilizer for their crop and soil type.
Agriculture is a large and disorganized market. So, there are many inefficiencies which require smart solutions. Farmers are increasingly more open to cooperating with private players as long as they are convinced of increased revenue, lower costs, and/or sustainability. The farming community is driven by word-of-mouth marketing and that can help an entrepreneur scale a business over time.
–Sandeep Singhal is co-founder Nexus Venture Partners, a venture firm with $320 million under management. Nexus has an active portfolio of over 20 companies across several Indian industries including technology, consumer services, media, outsourced services, the Internet and mobile, alternate energy and agribusiness.
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