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The Last Mile Challenge - Need To Go Beyond The Village Level Entrepreneur Model


The ‘last mile’ of distribution poses a challenge for many businesses seeking to market to low-income consumers. Village Level Entrepreneur (VLE) is one solution being used by many businesses in India. Recent experience suggests that although it does work well in specific situations, it is not a universal solution.

Recent trends in India show a growing corporate penchant for micro-entrepreneurs or VLEs for the last-mile link. A VLE is an individual selected from within a village/area to act as a touch point between the business and the customer. It is usually based in the target geography and is often from within the target community. The role of a VLE is to sell products and services offered by the corporates, and for every sale they make, they earn a commission. Depending on the extent of investment required from the entrepreneur, three types of VLE models can be seen

1.     Pure play model – The VLE is responsible for all the capital expenditure and working capital expenses

2.     Cost sharing model - Costs are shared between the VLE and the implementing agency

3.     Quasi village entrepreneur model - Implementing agency makes all the capital investments in setting up the model and has operating control over the operations

 

An example of a ‘pure-play’ VLE is Project Shakti started by Hindustan Unilever (HUL). HUL sells consumer goods such as soaps, shampoos, etc. to the base of pyramid in rural areas through women VLEs known as Shakti Ammas. Project Shakti is designed to help women (Shakti Amma) setup a direct-to-consumer retail business. No asset investment is required from the VLE; however, the VLE is required to fund their own working capital for buying stocks of goods from HUL. The women VLEs travel from door-to-door in designated area selling fast-moving-consumer goods (FMCG) to households and small mom and pop stores.

The reason this model works are as below:

  • The products sold are basic-needs products and the purchasing decision is not very involved
  • Financial risk for HUL is low because they have cash-and-carry terms with the VLE.  The transfers the risk of sales/finance to the VLE
  • Promotion support in form of media and incentives from HUL boosts sales for the VLE.

But, what if the intended entrepreneurs do not have the enthusiasm or the capital to risk?   This presents a real obstacle, as the case of the Indian Government’s information kiosks known as Common Service Centre (CSC) shows.  

CSCs are supposed to provide Government-to-Consumer (G2C) services across all villages in India. Many private partners of the CSC program have designed VLE based models in which the VLEs are required to make substantial financial investments. There were very few takers for the initiative as the “target entrepreneurs” instead expect stable salaried jobs as operators of the kiosk. One of the other reasons for poor roll-out was non-availability of basic G2C services that the kiosk was expected to deliver.  Also the services on offer are intangible, and not part of daily basic needs.

In contrast, BASIX, a leading microfinance organization in India, decided to invest in the CSC and hired local youth on fixed salary and commission. Even with the poor G2C services, BASIX was able to generate enough business through financial services and other documentation services.

In other sectors too, there are models that use an element of VLE but do not put all the risk on the entrepreneur. For example, Indian Tobacco Company (ITC), an Indian conglomerate, established e-Choupal as a virtual market place where farmers can sell their farm produce, and purchase agricultural inputs and consumer goods in addition to obtaining free information services. The VLE, who is a lead farmer, acts as an interface between ITC and the farmers.  We call e-Choupal a quasi-village entrepreneur model, because much of the business risk actually rests with ITC, not with the entrepreneur.

 

Key features of e-Choupal are:

  • ITC has complete control over the operations of the e-Choupal
  • ITC has made capital investments in the initiative i.e. setup IT infrastructure at each Choupal
  • The VLE does not make any asset or working capital investment in setting up or operating the Choupal
  • The VLE continues to pursue farming as his primary business, e-Choupal is a secondary business

Based on the models we have seen, a pure-play VLE model is NOT likely succeed when:

  • The characteristics of products and services marketed are such that
o   Products and services are way down the priority list of households/businesses
o   The demand and/or awareness among consumers is low
o   Products and services directly affect the sustenance (livelihood/ agricultural yield) of the consumer i.e. high involvement products and services
o   The value offered by the product is intangible, and does not directly meet daily needs
o   Products involved have a high price point that requires financing support

  • Business requires VLE to take substantial financial risk
  • Corporates seeks low involvement in VLE operations, rather than back it up with marketing.

In conclusion, there is a need to go beyond pure-play VLE models and develop other hybrid models or salary-based models. There is a need to look at the characteristics of the products and services, the importance of the products and services for rural households, and the vision of the corporate before designing the last-mile outreach model.

 


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Tags: last mile distribution

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Comment by Mike Debelak on July 7, 2011 at 11:27

Sure Nisha. Will be happy to hear your thoughts and questions.

Mike

Comment by Nisha Dutt on July 7, 2011 at 10:42
Mike- Thanks for the link. You have identified all the issues that we we come across while developing effective distribution channels. I have downloaded your full research paper; will come back to you with questions.
Comment by Mike Debelak on July 2, 2011 at 15:21

Hi Nisha,

Interested in hearing some of your thoughts on last mile distribution. I have recently completed a fairly comprehensive research paper focussing on distribution to the base of the pyramid called the "Bumpy Road to the BoP". The link to the summary is: http://api.ning.com/files/oazAfPOzN9BPUGG*o*FrjPaVmIDicHFKnoK3TBhj7...

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The full research paper can be found on my profile page in case you are interested. Might offer another perspective.

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Best regards,

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Mike

Comment by Caroline Ashley, Editor on June 12, 2011 at 21:29

Mohad, it is good to hear of Katalyst experience with VLEs, and the extra support services. I'd like to know (1) have you found situations where the VLE model just doesn't work (and if so why)?   And (2), I'm sure you are right that a range of support services are needed for VLEs. But then if we add in the cost of developing all these support services, is the model still commercially viable?  Who bears this cost?

I've been struck amidst the growing publicity on the growth of CocaCola's micro distribution centres, it is also becoming more evident just how much support they needed from Coke. Your reply indicates the same, and I'm sure other experience with micro entrepreneurs is similar.   So is it a commercial option for a company to develop if they don't have specific resources for reaching social objectives, and if so, over what time frame? 

I'm part of the BIF international team, and keen that we draw out lessons from our work and also pool insights with others. So as you say, sharing our knowledge makes sense. 

Comment by Mohd.Fahad Ifaz on June 12, 2011 at 17:01

The VLE model can only work if the risk of business is equally shared.Now I am not saying this will happen overnight as we have to understand the context of the VLE`s ,these people are risk averse they will not go into this business in the first place risking  the little but all they have. SO you have to make him/her understand the model and think build confidence in him.For example In Bangladesh at Katalyst we try to develop this VLE`s and while doing so ..intially we share a large amount of risk say 80% VLE shares the 20% ..while doing so we also try nd build up his capacity ( management training , Linking them with financial institutions and stuffs like these) ..then maybe next year we reduce our risk sharing part ..maybe we go 60-40 this time...in the meantime he is more equipped with knowledge and information on what and how he will conduct his business.

Now just  developing this VLE`s is not enough  we have to develop support services for them ,for example Dedicated Credit line through Banks ( as we have done in Maize sector, for developing village level Contractors for maize contract farming). One should understand that this is not a one of activity ,rather these are chain of activities in different part of the value chain and then you can make the markets work for these VLE`s.

I would like to hear more about your models of VLE`s and we can share some of our knowledge and maybe help each other out .

Comment by Shahida Saleem on June 6, 2011 at 15:51

Raghavendra, I am referring here to more of the quasi VLE, and the need to assist with other key "good business" practises, including robust SOP's and some type of control mechanism, although not complete control. This type of a blended model is easily seen in commercial franchises, i.e Mcdonalds, where main systems are retained and supported but offerings are customized based on customer preferences (i.e vegetarian burgers in India), often by the entrepreuner. These type of blended models can offer scalibility without compromising on the focus. The implementer here in my opinion should be a "social entrepreuner" . Getting the model right (on the ground and through actual implementation), proving its finacial sustainability, and building a strong systems foundation I feel are the critical elements in getting VLE's to not only succeed , but to create widespread impact in terms of both economic and development returns, as they can work with both pure commerce (Shakti), as well as health, literacy and other key developmental areas.

Comment by Raghavendra Badaskar on June 6, 2011 at 15:14

Thanks for the comment.I am a part of the team that worked with Nisha and we feel that a VLE model is essentially a franchise model, where the entrepreneur is responsible for capital expenditure, working capital, management and operations and franchiser is responsible for training and  marketing support (this is support continuous). For instance, HUL's Project Shakti is franchise model albeit without brick-and-mortar operations. We agree that franchise models have great potential to scale but caution that such models may not work for certain category of products especially in the rural markets. Keen to hear your thoughts.    

Comment by Shahida Saleem on June 6, 2011 at 14:00
Nisha, Have you explored franchise based models? Key challenges in addition the financial risk, include, entrepreuner capacity and skill levels. Training for most models is at best 2-3 months, but my experience has been that we need to support entrepreuners for at least 1-2 years to create real impact. In addition, real systems need to built that can than be deployed across mutiple locations for areas such as quality, fiancial management etc. while these types of models are inherently more complex, I feel they hold tremendosu potential in terms of both outreach and sustainability.
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