Tag: business sense

Khamir Rouge

I spent most of the last weekend at a workshop organized by this not-for-profit called Khamir somewhere near Bhuj in Kutch. It was a rather small-scale festival they had organized called the Desert Art and Music Festival (though the fees were anything but small scale, setting each participant back by seven and a half kilorupees). The art on display were crafts local to the Kutch region, and we were given hands-on training in various crafts by artisans that worked with Khamir. The music, sadly, wasn’t Kutchi, as two rather large bands had been imported from Rajasthan (from Bikaner and Jaisalmer) and local musicians only played the opening acts.

I’m not entirely convinced by Khamir’s business model. Ok that may not be an accurate statement since strictly speaking Khamir isn’t a business, but to put it in another way, I’m not convinced that Khamir’s contribution to the ecosystem of handicraft artisans in Kutch is entirely positive. It may not be possible to make a convincing economic argument right now, but my sense is that they are distorting the market for handicrafts.

Actually it may not even be their fault. In a rare conversation on economics with one of the artisans, I found that it is actually easier to start a not-for-profit than a for-profit. This artisan wanted to train youth in his village and surrounding areas, and had found that there was considerable demand abroad for what he made. When I asked him why he didn’t set up a for-profit company instead, the answer was that it was next to impossible for him to get a bank loan for one such venture. But he had found some means by which he had tied up a rather large no-questions-asked donation from the Government of Gujarat.

Coming back to Khamir, they are in the business (ok it’s impossible for me to think in a non-business sense) of promoting the crafts of Kutch. They have a number of “studios” where local artisans, who have been given raw material, work and they sell the products in their own local shop and also in the US and Canada. Apart from this, they procure stuff from other local artisans and sell it on. In that sense, they are just like any other middlemen – except that they are not for profit.

If you ask why this is a problem, I point you to the Indian airline industry. When one player in the market doesn’t have a strict profit motive (like Air India), they can work on wafer thin (or even negative) margins, a level at which their for-profit competitors cannot really compete. Sooner or later, the for-profit competitors get driven out of business (like Kingfisher Airlines, for example), and soon the market itself has disappeared!

While Khamir itself might be too small (their campus suggests they are rather well funded, but their scale of operations doesn’t seem commensurate), the fact that it is easier to get funding for not-for-profit than to start a for-profit business in this space (as the artisan alluded) raises the sceptre that there could soon be more such not-for-profit middlemen in this business, which might make a real dent in the business of Kutchi crafts.

The story of intermediation in this market is also interesting and deserves to be sold. Both the artisans we spoke to said they don’t prefer to do business with large for-profit middlemen such as FabIndia or Mother Earth since the latter demand a high degree of standardization, which is tough to achieve in a hand-craft environment. Rather than face high rejection rates at such middlemen, the artisans instead find it more profitable to peddle their wares at sundry craft exhibitions all over India, where they are more likely to sell their stuff, though with a higher risk in terms of profits and considerable hardship in terms of travel and sales.

The thing with handicrafts is that the market is rather fragmented and it is only really large-scale players such as FabIndia or Mother Earth who have cracked the model in terms of effective intermediation (the large scale is necessary given the fragmentation of the market). The “illiquidity” in the market means that inventory costs can get rather high, and thus a considerable retail margin needs to be allowed for to enable effective intermediation. In the face of this, organizations such as Khamir who “work to give as much money as possible to artisans” can get rather distortionary.

Two minutes was watching a weaver work at the Khamir facility drove me nuts (it was such a laborious process I wasn’t able to take it any longer). So there is this wooden piece that has to be tossed from one side of the loom to the other each time a thread is passed (and the thread has to be practically hammered in to the rest of the cloth) so even a full day of work by a skilled artisan can only produce a few meters of cloth. Watching the hand loom weavers work even made me wonder if promotion of such arts only serves to keep people poor.

So the problem is that handloom weaving is a rather laborious process, and extremely inefficient economically. The same kind of cloth when produced by a machine results in significantly lower cost, and by that logic, handloom weaving being an ineffective process should probably go extinct. While premium branding for handloom in certain circles has ensured higher prices that could possibly compensate the weavers, it is not unfathomable that machines will be soon able to make (if not already) cloth in a texture similar to what is produced by hand looms.

For someone with a short attention span and ADHD and for someone who is a computer programmer, it was unfathomable that people do a rather laborious task repeatedly through the course of the day, and over several days, to earn their living. We asked an artisan why he continued to make cloth by hand, and he replied that the handloom tag helped him earn a better margin. When I suggested to him that greater volumes would make up for the lesser margins that powered looms would offer, he talked about certain intricate designs that according to him only hand loom could create. I could only think of one thing at that moment – the CNC Lathe.

I find the entire ecosystem disturbing. That it is easier to find funding for a not-for-profit venture than for for-profit. That these funds are being used to keep alive trades that have no business to do business (given their inefficiencies). That these efforts put the artisans into a false lull that there actually exists demand for their produce, and at a level that can compensate for their inefficient processes. Which prevents creative destruction, and holds back innovation. And leads to the not-for-profits painting a rather romanticized picture of poverty and traditional rural crafts to get more funding. The cycle continues.

Given that the festival did not have sponsors, I would assume that a significant portion of the fee I paid would have gone into paying the musicians. For that level of fee, I expected a rather small and intimate concert. Instead what I got was two public concerts (where the general public got to watch for free) where there were more speeches than there was music, and one of which started so late into the night that I drifted off.

In the world of not-for-profits, I suspect that “value for money” is perhaps a dirty phrase.

Branding and traditional retail

Last night, the wife sent me to the grocer with a rather long shopping list. The grocer in question is Bhuvaneshwari Traders, a rather efficient “traditional retail” store close to home. There are lots of shop-boys there to service your requests, billing happens in a jiffy (yes, you get a printed bill) and they usually tend to stock most items that you are likely to  need. Of course, being a small kirana, they’re not able to stock a particularly wide variety of SKUs (and I don’t think that makes business sense, as well), but they seem to do quite awesome business by serving most of the customers’ needs, and very quickly.

It is in this kind of a context, I realize, that branding plays a major impact. Twice in my “shopping process”, I had to decide on the brand of a good quickly, and both times, I went for a brand that was on top of my mind – a brand that had “pull marketed” well enough for me to remember them. So, the shopping process consisted of my reading out from my long prepared list, and the shop boys producing those items at a phenomenal speed. The speed at which those guys worked made me believe that it was an insult to myself, and to them, if the speed at which I ordered was to be much slower. This was like Vyaasa dicatating the Mahabharata to his scribe Ganesha. Since Ganesha was so fast in writing, Vyaasa was compelled to dictate at the same rate.

So, when I asked for “1 kg salt”, the shopkeeper responded with “which brand?”. Given that I had to respond quickly, I had about a split second to decide what brand of salt I wanted. Captain Cook came to mind, with its ads of the “free flowing” salt. But then, I remembered having been told that the brand stopped production some ten years ago. The next thing that came to mind was Tata Salt, and I immediately remembered that my mother used to use the same. I also remembered their recent ad on Kannada TV “deshada uppu” (the country’s salt). I didn’t need to think further.

A few items down the list, when I asked for Garam Masala, two shop boys popped up with two different brands. Now, I don’t recall having bought too much Garam Masala earlier in life, and  I didn’t recall any ads either. But then, one of the packets produced was “MTR Garam Masala” and the other had a name that I had never heard. Here, the general branding of the two manufacturers in question played its part, and I instinctively went for MTR.

The purchase process for “traditional retail” is significantly different from that of “modern retail” (the supermarkets and the likes), and I hope, and think, that Indian marketers understand this difference in order to market their goods appropriately. While it is true that in the traditional retail context, “sales” plays a large part – give higher margins to the shopkeeper, and he will “push” (since some customers take his recommendation) your product rather than a competitor’s – there is also the “pull” factor. It is very rarely in these contexts that a customer sees a number of competing products side by side and has time to make a rational decision – most shopkeepers don’t afford them that luxury. The key to this is efficient branding, which leads to the customer demanding a particular brand of products, so that the shopkeeper has no opportunity to push the one that gives him better margins (some shopkeepers do try this – offering a competing brand claiming it is superior, but I’m not sure customers buy this).

And I think a lot of Indian marketers understand this.

The Importance of Online News

Reading Deepak Shenoy’s excellent article on insurance this afternoon the first thing I wondered was about why I had never read anything like it before. It was so intuitive and insightful, and so obvious, yet I didn’t recall reading anything like it elsewhere in the “mainstream media” (quotes because that implicitly implies Yahoo! is not mainstream). And then I started thinking about Ajay Shah’s brilliant blog post about the undersupply of criticism.

Ajay mentions in his article that most articles on China (which need cooperation from sources in the Chinese government for information) tend to be favourable to the country, since no one wants to risk cutting off the supply of information (or worse) by antagonizing the Chinese government. A similar relationship, either implicitly or explicitly, is enjoyed between media and advertisers.

A quick glance through any business newspaper, or even a mainstream broadsheet, would tell you that financial institutions (this includes banks, asset management companies, insurers and brokerages) are heavy advertisers in these media. Given the amount of money papers make from these sources, it doesn’t make much business sense for them to publish opinion pieces that are critical of these heavy advertisers. There are papers (especially some broadsheets) that claim to enforce neutrality and fairness in their reporting, but even there it is hard to come across articles that are highly critical advertisers. The potential loss in revenue is too big a risk to take.

The biggest advantage of new media is that it provides alternate channels which depend on alternate sources of revenue. Think about the number of times you’ve seen banks or insurance companies advertising in the Yahoo! sidebar, and then compare that against the number of times you’ve seen such advertisements in newsprint. Similarly, there will be companies who are heavy advertisers online, but not so in broadsheets so you will find the latter to be more willing to be critical of them.

From the reader’s perspective it is important to get news and opinion not only from several sources, but also from several kinds of sources in order to get a balanced view.

Urban living and restaurants and liquidity

Last night I had dinner at Alfanoose, a small Mediterranean joint off Broadway. I had hummus and salad with pita bread, and had also brought along a falafel sandwich which is now sitting in my fridge and is likely to get consumed today for breakfast. Excellent stuff. Absolutely brilliant. And not expensive at all – ten bucks for the hummus and salad, and six for the sandwich. Considering that USD = 10 INR according to the Idli index, this is extremely reasonable, insane value for money.

I have been intending to write this post for ages, about how one of the best positive externalities of urban living is restaurants. When you are living in a desolate area, with not too many people around, there is no option but to cook your own food. Even if you live in a village ora small town, the number of people who are willing to eat out will be small, which means it makes little business sense for someone to open a restaurant there. You are likely to find a handful of them, but the lack of competition will mean that you can’t really trust quality.

There is a network effect in restaurants. Some people don’t eat anywhere but at home, and some don’t cook at home at all. However, there is the large middle ground of people whose consumption of restaurant food varies directly with quality and liquidity. And these two concepts are inter-related – the bigger the town is, the greater the required supply of restaurants which means more competition and thus higher quality. And higher quality leads to higher demand (more fence-sitters converted) and the virtuous cycle goes on (of course, population and the fact that some people don’t like to eat out limits the boundaries of the cycle).

Another thing is that the larger a town gets, the greater the liquidity of the food market in there, there is more variety. If you remember Bangalore in the 1980s, when I was growing up, there was one standard type of restaurant. Where you would get cheap idli and dosa and a few other standard snacks, and a few “north indian” items at meal times, and every time you wanted to eat out you had to go with one of these. And you would have noticed how with the growth in the restaurant market in the 90s you got more variety.

What makes cities such as London and New York such foodie havens is their size, and also that culturally people here are more inclined towards eating out than in other places such as India. This leads to insane liquidity in the market, and as I explained above that leads to more variety, and so you get more niche food. And when you have cities as large as New York or London, what you get is full-fledged liquid markets in cuisines that are everywhere else considered niche!

So because of liquidity in otherwise niche markets, in each cuisine you will find various kinds of restaurants. Like yesterday I had awesome hummus at this self-service place! While in a place like Bangalore to get any kind of hummus you’ll have to go to a fine dining place and spend a bomb.

Another thing I realized is that when liquidity is thin it usually occupies the top end – like how in Bangalore you get non-Indian stuff only in high end fine dining places. But I suppose I’ll write about that in detail some other day