Dharavi, the sprawling slum settlement in Mumbai, is home to one million people, predominantly migrants from other states of India. It is also a bustling business hub and hosts over 2,000 businesses and 15,000 single-room factories — many of which are export-oriented or cater to high-end apparel, accessory brands and stores in India. Leather products manufacturing workshops, waste-recycling units, pottery workshops and ‘zari’ (traditional Indian embroidery done with fine gold, silver or silk thread) embroidery units sit cheek by jowl and are connected by winding narrow lanes. Belying the small size of the workshops, slum businesses in Dharavi collectively earn an estimated annual turnover of US$650 million in exports and local sales.
These businesses have seen an upward swing in demand, and their products sell at prices several times over manufacturing cost in the market. With the prices of luxury goods and accessories rising along with the personal and household incomes of end buyers, these businesses have secure demand for their products. Theoretically then, they ought to be earning well and climbing out of poverty too. Yet, this has not been so in practice.
Who benefits from the demand?
Most of these small business owners and artisans are unable to deal directly with their high-end Indian and global customers, either because of language constraints or accessibility barriers. They are not yet Internet savvy even though many have their business cards up on a directory website dedicated to businesses in Dharavi. Their geographic location possibly deters many purchasers and merchandisers from approaching them directly, and they seldom venture out to meet these buyers in their offices. These business owners do not know how to advertise, except by word-of-mouth, and cannot be reached easily by the postal service since their postal address is unclear. This makes it difficult for them to not only secure new orders, but to also send and receive consignments.
This has given rise to middlemen and a few bigger businesses that source orders and outsource the work to these small businesses and artisans. Middlemen connect these businesses to the market, and for this not insignificant effort, they take away a higher proportion of the margin, said to be as high as 60%. Most of these small businesses and the people they support are unbanked and deal in large cash transactions, bringing up concerns over safety and fair play. While this migrant population is coping and making a living, the going could get tougher in the future.
Slum businesses in Dharavi thrive on the basis of their low-cost value proposition. Operating in Dharavi today is, however, becoming increasingly expensive. The poor living conditions notwithstanding, real estate in Dharavi does not come cheap: a single room costs between INR5,000 to INR10,000 (~US$89 to US$179) per month in rent, and a two-room house could sell for around INR40 lakh (~US$80,000). As demand and business grow, and Dharavi attracts more migrant labor willing to work at even lower costs, existing businesses could see a drop in the price they can command from middlemen. Hence, while these slum-dwellers are unlikely to see a dip in demand for their work, they will have to work much harder for incremental income. The situation therefore presents a complex challenge, but one possible solution from TNT Express and Vodafone draws on the benefits of ICT, the ubiquity of mobile phones in India and logistics expertise.
The Vodafone-TNT Express Pilot Project
Vodafone, a telecommunications services company, and TNT Express, a logistics company, came together to undertake a pilot study in early 2011 under the Technology Enablers Initiative (TEI) by the World Business Council for Sustainable Development (WBCSD). TEI seeks to bring together organizations from different sectors to jointly explore inclusive business opportunities powered by ICT.
TNT’s Global Program Manager, Sacha van Ginhoven, was on a project working with slum populations in Kibera, Nairobi, when some of the residents evinced an interest in doing some local reporting and journalism. They requested that van Ginhoven return home to Amsterdam and try sending them secondhand cameras to aid their efforts. To van Ginhoven’s dismay, the cameras could not be sent because there was no official postal address. Inspired by her experience, she approached TNT Express with the thought that “everybody should have an address,” which subsequently led them to WBCSD and a connection to Vodafone.
With this pilot study, TNT Express and Vodafone sought solutions to two key problems: how to ensure that small slum businesses get an address they could do business from, and how to optimize logistics services for slum businesses. The two organizations specifically examined how mobile phones could offer these small businesses a permanent address to send and receive goods, as well as a means to facilitate payments. The project combined two strong solution components – logistics and payments — that were woven together to offer slum businesses an address that could take them to scale.
In October 2011, van Ginhoven led a team from TNT to study logistics support in Dharavi and found that while these businesses had addresses, they were not easy to locate in the maze of busy and narrow lanes. Delivery people often had to go by landmarks or ask for directions. A fact that could alleviate the situation, however, is that even though most people engaged in export-related activities were unbanked and transacted in cash, they did have access to a mobile phone.
The TNT team developed a model where TNT’s logistics component leveraged mobile phones to identify the nearest location for delivery. With this information, TNT could help the sender or receiver drop-off or pick-up parcels at an accessible and convenient TNT depot. These depots would be local stores and shops within the slum: the receiver could retrieve his parcel from the designated depot once he saw a mobile text message confirming its arrival. The logistics piece was in place, but how would he make or receive payments? Here is where Vodafone’s M-Paisa, the proposed mobile payment solution, enables payments to be made and received in Vodafone’s mobile wallet. This made the transaction safe and convenient.
In a futuristic scenario, TNT envisioned that a delivery person could use his mobile phone as a locator to deliver parcels even when the recipient is not available at the parcel’s final destination. Instead, the delivery person could deliver the parcel at a bus stop to avoid delays, for example. This prevented multiple visits by the delivery person to a brick-and mortar-address if the recipient is unavailable.
This model, when applied to slum businesses in Dharavi, effectively creates a platform where users can connect directly with buyers from around the world, send and receive parcels of samples and finished products, and conduct safe and secure payment transactions. The platform, therefore, allows business owners to reduce the importance of middlemen and earn a better margin in return for hard work.
Potential for Scale
TNT’s Dharavi research shows promise in that it has solutions to enable slum businesses to: reap the benefits of growing demand and higher prices, reduce congestion, optimize logistics and ensure safe and secure payments. Yet, TNT and Vodafone plan to watch and wait before proceeding to develop this pilot study for several reasons.
Although the TNT team’s initial hypothesis was to offer geocode-enabled logistics support to slum businesses with the intent to offer them an address, they later felt that it was critical to first resolve the issue of middlemen. If business owners could gain knowledge about the market using the Internet, middlemen would become redundant, and business owners could see their margins rise since they would not need to pay them anymore. The team also found that the presence of inefficient logistics support tended to reduce the motivation of businesses to seek more optimized solutions. Also, it was essential that secure payments were made all along the chain from the time the parcel entered the TNT/Vodafone loop until it was delivered. For this to happen, the growth of the electronic payments market is crucial. India, with its 926 million strong mobile user base, still has a predominantly cash transaction culture.
Vodafone launched M-Pesa in Kenya in 2007 and today has 14.9 million customers. Mobile phone penetration in India is around 60% now and is expected to touch 90% by 2015. Of India’s total population of more than 1.2 billion people, only 240 million people have bank accounts. However, since a sizable number of the unbanked population has mobile phones, there is a clear opportunity for quick wins in India too. The country must first overcome a critical challenge before capitalizing on the mobile potential of electronic payments: Kenya has mature customers using additional mobile services, such as insurance and mobile wallets, whereas India does not. Therefore, it is important for a mobile provider like Vodafone to first build its customer base and then offer logistics support as one more aspect of the service package. Currently, Vodafone, through its subsidiary Mobile Commerce Solutions Limited, is pilot-testing M-Paisa in the state of Rajasthan in collaboration with private sector banks. Vodafone states, “This project has huge potential in terms of optimizing logistics, in efficiency and cost terms for our consumers engaged in export related businesses in Dharavi. It also makes the process more formal and secure.”
Conclusion
For slum businesses in Dharavi to reap the benefits of high global demand, they will need to become more visible and certainly more connected to their buyers. Middlemen perform an important function and perhaps can never be completely replaced. However, access to the market, owning an address and financial inclusion will change the dynamics of the slum business landscape and bring about more equitable profit-sharing. The TNT-Vodafone project will offer business owners exactly this, when it is scaled up.
For now, the project awaits some much-needed precursors, such as a robust m-commerce culture, to fall in place. While the number of mobile users in India continues to swell, mobile service companies are grappling with finding ways to monetize their value added services. Kenya’s mature mobile banking market, for instance, emerged in the absence of other options. In India, the existence of alternatives, albeit expensive and suboptimal, slows down this growth.
ICT has repeatedly proven to be a great leveler in bringing BoP producers closer to their markets and in improving market knowledge and the prices they can command for their product. The TNT-Vodafone project, notwithstanding delays in scale-up, stands out as an urban instance of leveraging ICT to recognize a business segment that tends to slip below the development radar and offer them a stab at a level playing field and a better quality of life.
Sources:
http://www.susanwyche.com/cscw.workshop/CSCW2012_workshop_proposal__Rangaswamy_NairMarginalUsers.pdf
http://businesstoday.intoday.in/story/dharavi-redevelopment-to-hit-small-industries/1/16113.html
http://dawn.com/2012/04/30/thriving-informal-business/
http://www.movingtheworld.org/blog/2011/11/09/outcome_weare_research
http://www.microfinancefocus.com/hdfc-vodafone-bring-m-paisa-india%E2%80%99s-unbanked
http://www.thinkdigit.com/Mobiles-and-PDAs/Indias-telephone-user-base-rises-to-92653_8641.html
http://news.bbc.co.uk/2/shared/spl/hi/world/06/dharavi_slum/html/dharavi_slum_intro.stm
June 20th, 2012 → 12:01 pm @ Usha Ganesh
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