Businesses accelerate expansion into rural markets

Study conducted by Accenture says high costs, limited talent main hurdles in expansion process

More than two thirds of companies doing business in India plan to rapidly accelerate the expansion of their businesses in rural markets, a new research by Accenture, a management consulting, technology services and outsourcing company said.

A report titled “Profitably Selling to India’s Rural Customers: Hidden Lessons From the Masters” revealed that cost, channel and talent challenges are limiting profitable growth.
 
Since 2000, GDP has grown faster in rural India than in its urban areas: 6.2% CAGR versus 4.7%. The report also highlights that between 2010 and 2012, spending in rural India during these two years was $69 billion, significantly higher than $55 billion spent by urban populations.

 

The Accenture study identified a number of hurdles to profitably serving customers in rural markets. More than half (53%) of respondents cited the high cost to serve rural customer as a key factor that limits profitability; 43% identified recruiting and selecting channel partners and 38% identified sales force competency as key limiting factors.

Accenture interviewed 40 C-level executives across 9 industries in India–automotive, banking and insurance, cement, chemicals, consumer durables, fast-moving consumer goods, industrial equipment, pharmaceuticals and telecommunication. The businesses surveyed had annual revenues above $200 million.

In addition, to further explore selling and distribution models, Accenture conducted a quantitative survey of 70 companies across the same sectors. Each company had an established rural presence. The businesses surveyed had annual revenues above $100 million. Finally, Accenture also interviewed more than 20 industry experts and academicians with significant experience in the field of rural markets.

 
The survey classifies the challenges faced by companies for doing business in India into three major categories – reaching, acquiring and retaining the rural customers. The report also provides a classification of companies based on rural maturity, framework for success in Rural S&D and features case studies of 5 master companies—Tata, Novartis, Dabur, FINO & Idea Cellular on their rural business implementation.

“Rural markets lack adequate physical and social infrastructure and therefore distribution of goods and services across these markets is very costly and challenging,” said Sanjay Dawar, senior managing director for Accenture’s business consulting practice in India.

“Companies expanding in rural markets should therefore focus their geographic reach and more effectively invest in understanding the segment-specific nuances in those areas.  They should then prioritise their channel partnership strategy to strengthen the capabilities and reliability needed to reach customers in the last mile.”