The Tata group has asked its companies to collaborate with each other in an effort to serve India’s vast rural markets more effectively, in a so-called “routes-to-market” strategy that is among the first of several major initiatives being rolled out by Cyrus Mistry, chairman of Tata Sons Ltd. All Tata companies that are “consumer facing” will try to share their networks in rural areas, four officials at the conglomerate said. None of the four wished to be identified.
The officials added that the plan is still at an early stage, but said Tata Strategic Management Group, the in-house management consulting arm of the group, is working closely with the companies and will launch a pilot project in the next few months.
A Tata Sons spokesperson said the group had no information to share.
Since taking over as chairman in late 2012, Mistry, 45, has kept a low profile even as he has gone about building his team, which now includes former BSE chief executive officer Madhu Kannan, who is in charge of business development; Mukund Rajan, in charge of ethics, communication, and corporate social responsibility; Harish Bhat, the former CEO of Tata Global Beverages who is a marketing expert; and N.S. Rajan who was hired from audit and consulting firm EY to head human resources at the group level.
At the $100 billion dollar by revenue group, companies such as Tata Chemicals Ltd, Tata Global Beverages Ltd, Tata Teleservices Ltd, Titan Co. Ltd and Tata Motors Ltd already serve the rural markets, but independently, said one of the four executives cited above. The idea of the “routes-to-market” strategy is to make sure the companies draw from each other’s strengths and serve the markets better, and at lower cost, he added.
Some Tata group companies, such as Rallis India Ltd that makes seeds, pesticides and fertilizers, were among the earliest to build a strong presence and brand image in rural India, notes Raveendra Chittoor, assistant professor of strategy at the Indian School of Business in Hyderabad. “The last few years have seen consumption in rural markets growing faster than overall growth, leading to a renewed focus on them. Compared to the urban markets in India that witness bitter competition today, rural markets constitute a blue ocean with relatively fewer companies competing,” Chittoor said.
For perhaps the first time ever, the average rural household spent more on products and services other than food in 2011-12, according to data from the National Sample Survey Office.
The share of spending on products such as furniture and electronic devices and entertainment nearly doubled to 6.1% in 2011-12 from 3.4% in 2004-05. Rural spending on clothes, footwear, consumer services , and conveyance has also seen a sharp jump over the same period.
According to Dharmakirti Joshi, chief economist at Crisil Research, “A sharp increase of 7%-8% in rural wages in the recent past has spurred demand for consumer durables, automobiles, etc.”
Joshi warned, however, that if the overall economy doesn’t expand in the near future, “it’s unlikely that rural India will continue to grow as it is not isolated”.
Despite their obvious attractions, rural markets pose their own set of challenges, mostly related to distribution and logistics.
The initial cost involved in building a presence in rural markets is very high and not many companies can make those investments, explained Chittoor.
He added that a large business group such as the Tata group, with several consumer companies, has an edge because it can share the costs as well as the benefits across companies.
According to a second Tata group executive, the collaboration between companies could be a prelude to a broader and unified rural markets strategy. There is no umbrella strategy for now, he added, but some companies could develop a common supply chain and marketing network.
Initially, companies with an existing focus on such markets such as Rallis India, Tata Chemicals (salt, pulses, water purification) and Tata Global Beverages (tea, coffee, water) could co-operate, this person explained.
At a later stage, other businesses, Tata Capital Ltd, even Tata Housing Development Co. Ltd and Tata Steel Ltd can make use of the network, he and a third Tata group executive said.This is not the first time the Tata group is experimenting with the idea of a group-wide plan for rural markets. A similar effort was initiated six years ago but it didn’t take off, as the companies failed to find a common strategy across product categories. This time around, the intent is stronger. “With the rural markets having seen significant growth over the last five years, it is imperative that we do it now while learning from best practices of companies such as Hindustan Unilever Ltd and Hero MotoCorp Ltd that have shown the way,” a fourth executive said.
A 2012 presentation made by Siddhartha Roy, chief economist at the group, estimated that the number of rural households in India would rise to 178 million by 2015-16 and boast a total income of $1.07 trillion. In 2009-10, there were 169 million rural households in the country with a total income of $572 billion, the presentation said. The estimate may have been dented by the economic slowdown over the past few years.
It isn’t easy to get group companies to work together, said an expert. S. Manikutty, a professor at the Indian Institute of Management, Ahmedabad, said that while efforts to generate “synergies” sound fine in principle, they need careful implementation.There is an inherent conflict between holding each unit accountable for its own performance and ensuring that different units coordinate with one another, he said.
Manikutty suggested that usually one of the units has to be given the overall responsibility for the operation—in this case, the entire rural strategy—for it to succeed.
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