The potential beneficial effects of e-governance are being effectively tapped not only by the government and individual citizens but also by businesses. FMCG firms in India are looking closely at the possible benefits of various e-governance models. ITC is one company that, for instance, is using e-governance to enable a remarkable reduction in the cost of distributing its consumer goods across the country, even in remote areas. So how can the FMCG sector really capitalize on the e-governance opportunity to deliver growth in the rural markets?
A big business opportunity
There are 638,000 villages in India, totaling to 67% consumers in the country. This translates into a huge opportunity for FMCGs to leverage e-governance technology. Increasingly, therefore, companies are exploring new possibilities in e-governance that could benefit them.
How it works
A few large FMCG firms such as ITC, Reckitt-Benckiser (India) are working on ways to leverage the existing e-governance infrastructure, built by firms that are in non-FMCG sectors under the Union Government’s e-governance initiative.
In the existing set-up, a firm with a robust distribution network is leveraged by other firms in villages through the Gram Panchayats. The firm having the network acts as the point of taking the orders and delivering the goods to the consumers in the village. What’s really significant about this model is that the time limit for such delivery is generally just one day – an ambitious achievement given the social and economic infrastructure in rural India.
Most FMCG players use this model to cut down on the cost of distribution as well as to reach additional consumers. Existing logistics infrastructure is used by the FMCGs to ensure distribution of goods on time.
Is this model profitable?
Given the logistics over-crowding in the current Indian scenario, this model appears to be quite viable, since it involves no additional cost for the FMCG. Profits under such arrangement are shared among the partners based on agreeable norms. What adds to the profitability is that the existing distribution networks are not putting any limits on the quantity of goods to be distributed, which means there’s no obligation for the FMCG on the minimal size of an order.
So this model works quite well for the FMCG companies, who have their own networks of sub-distributors, apart from the network of wholesale distributors. Having their own sub-distributors helps them diversify the profit source – not the whole volume of profit coming from any single distributor network.
This model of e-governance in rural areas is quite effective for moderately priced goods because of the consumers’ poor propensity to spend. The key advantage of this model is that it entails little investment. Further, the FMCG firms interested in the rural sector can spend their efforts and money in focusing on the quality of goods to earn consumers’ trust. Rather than invest in building their own distribution network, they can attend to other important issues such as innovation, better ways of promoting the products, etc.