19 Entrepreneurship Development in Rural Areas

Veena Panjwani

Abstract
The rural poverty report 2011 stressed the need to develop povertyreduction policies and programs with a primary emphasize on rural areas. This paper promotes rural entrepreneurship development as an effective strategy in alleviating rural poverty in developing countries and summarizes some policy options that would be helpful in implementing rural entrepreneurship. We focus on specifically on opportunity recognition, a key element in the entrepreneurial process, and introduce a model that emphasizes intellectual, human, environmental and socio-cultural resources and the mediating effect of national framework conditions. Since the concepts behind the model tend to be applicable across all settings. It is important to study this model at the general level and than draw implications for the other countries. By studying what influences recognizing opportunities in rural areas, it may be easier to offer assistance to developing countries. It also deals with the issues like Reasons why prompting entrepreneurship is a force of economic change that must take place if many rural communities are to survive; it deals with what policies are necessary to create an environment in rural areas conducive to entrepreneurship and at last it considers women and entrepreneurship. Key Words: Disguised employment, Rural Prosperity, Rural Youth, Optimum Utilization, Villgro Stores, Green Power.

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Introduction
Rural Development is more that ever before linked to entrepreneurship. Institutions and individuals promoting rural development now see entrepreneurship as a strategic development intervention that could accelerate the rural development process. Furthermore institutions and individuals seem to agree on the urgent need to promote rural enterprises: development agencies see rural entrepreneurship as an enormous employment potential; politicians see it as the key strategy to prevent rural unrest; farmers see it as an instrument for improving farm earnings; women see it as an employment possibility near their homes which provides autonomy, independence and a reduced need for social support. To all these groups, however, entrepreneurship stands as a vehicle to improve the quality of life for individuals, families and communities and to sustain a healthy economy and environment. The entrepreneurial orientation to rural development accepts entrepreneurship as the central force of economic growth and development, without it other factors of development will be wasted or frittered away. However, the acceptance of entrepreneurship as a central development force by itself will not lead to rural development and the advancements of rural enterprises. What is needed in addition is an environment enabling entrepreneurship in rural areas. The existence of such an environment largely depends on policies promoting rural entrepreneurship. The effectiveness of such policies in turn depends on a conceptual framework about entrepreneurship, ie about what it is and where it comes from. According to 2011 rural poverty report (RPV), the 2011 report highlights that inspite of improvements over the last ten years that have lifted over 350 million rural people out of extreme poverty , global poverty remains a predominantly rural phenomenon , with 70 % of the developing worlds 1.4 billion extremely poor people living in rural areas. Over the past decade, the overall rate of extreme poverty (ie people living on less than USD 1.25 a day) has dropped from 48 percent to 34 percent. Rural areas in developing countries are experiencing poverty and depopulation, are geographically more isolated, require infrastructure and subsidies, and have a lack of structural and institutional factors (IFAD Rural Poverty Report, 2001). Various social, economic, political and ecological problems in rural areas in developing countries create challenges in

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employment and cause increasing migration towards cities, decreasing agricultural production and increasing food shortage. A sustainable reduction in rural poverty necessitates the adaptation of further research and programs that help promote economic growth and development. Prior research indicates positive strong relationships among entrepreneurial activity, economic growth and poverty reduction (UN ICD Task Force, 2002). Entrepreneurship is a vital component of productivity and Growth. The Organization for economic cooperation and Development (OECD) defines entrepreneurs as essential agents of change who accelerate the generation, application and spread of innovative ideas and in doing so....... not only ensure efficient use of resources, but also expand the boundaries of economic activities. As women forming about half of the Indias population make a case for developing women entrepreneurship in the country, so is justified developing rural entrepreneurship by about three-fourth of the Indias population living in its vast rural areas . The rural urban dichotomy reveals wide disparities in various respects. The division of economic activities between rural and urban areas is one of them. Rural areas specialize more or less exclusively in agriculture, while industries are exclusively located in urban areas. Given the weak rural-urban or agriculture- industry linkages, such a situation suffers from two serious shortcomings. First, as agriculture by itself has a tendency to develop at a slower pace than industry, the division of economic activities leads to uneven development. Second, since industry generally leads to higher level of output per worker than agriculture, the gap in income levels between those engaged in the two sectors tends to widen. Further the relationship between traditional agriculture and modern industry generally has a dependency structure which puts the rural sector at a greater disadvantage in appropriating the gains of development and, in turn increases the disparities between rural and urban income levels. As such rural areas are ultimately marked by abject poverty and backwardness. In such situation, rural industrialization is viewed as an effective means of accelerating the process of rural development. Entrepreneurship precedes industrialization. Hence, the need for rural entrepreneurship. This paper is, therefore, devoted to deal with various aspects of rural entrepreneurship, such as, its meaning, need, present position, strategies for the future development of rural

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entrepreneurship in the country, and role of NGOs in developing rural entrepreneurship.

Rural Entrepreneurship - Defined

Like entrepreneurship, rural entrepreneurship also conjures different meanings to different people. Without going into semantics, rural entrepreneurship can simply be defined as entrepreneurship emerging in rural areas is rural entrepreneurship. In other words, establishing industrial units in the rural areas refers to rural entrepreneurship. Or say, rural entrepreneurship implies rural industrialization. Rural industries are generally associated with agriculture. According to the khadi and Village Industries commission (KVIC). Village industry or rural industry means any industry located in rural area, population of which does not exceed 10,000 or such other figure which produces any goods or renders any services with or without use of power and in which the fixed capital investment per head of an artisian or a worker does not exceed a thousand rupees. The definition of village industry has been recently modified by the government so as to enlarge its scope. Accordingly, any industry located in rural area, Village or town with a population of 20,000 and below and an investment of Rs. 3 crores in plant and machinery is classified as a village industry. As a result of widening of the scope of village industries, 41 classified as a village industry. As a result of widening of the scope of village Industries have been added making a total of 101 as against 70 industries earlier. As the village industries have been grouped into seven major categories as follows: 1. 2. 1. 2. 3. 4. 5. Mineral based Industry, Forest - based Industry, Agro - based Industry, Polymer and chemical based Industry, Engineering and non conventional industry, Textile Industry (including Khadi), and Service Industry

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Having understood the meanings of rural entrepreneurship and rural industry, let us move on to appreciate the need for significance of rural entrepreneurship in India.

Rural Entrepreneurship - Need

The need for rural entrepreneurship for developing industries in the rural areas imbued with the multiplicity of justifications as listed below: 1. Rural industries being labour intensive have high potential in employment generation. Thus, they serve as an antedote to the wider spread problems of disguised unemployment or under-employment stalking the rural territory. By providing employment, these industries have also high potential for income generation in the rural areas. These, thus help in reducing disparities in income between rural and urban areas. These industries encourage dispersal of economic activities in the rural areas and, thus, promote balanced regional development. Development of industries in the rural areas also helps build up village republics. Rural industrialization fosters economic development in rural areas. This curbs rural urban migration, on the one hand, and also lessens the disproportionate growth in the cities, reduces growth of slums, social tensions, and atmospheric pollution, on the other. Last but no means the least, rural industries being environment friendly lead to development without destruction i.e., the most desideratum of the time.

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Rural Industrialization In Retrospect

Prior to Independence, small industry occupied almost insignificant place in the national economy. Then, the commonly used term was cottage industry/ handicrafts, which were located in rural areas. The government sincerely took interest in the development of rural/ village industries since Independence.

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The important role which rural industries can play in ameliorating the socio-economic conditions of the rural areas has received emphasis in most of the major policy pronouncements on development in India. The Industrial policy Resolution of 1948 emphasized the Utilization of local resources and the achievement of local selfsufficiency in respect of certain essential consumer goods as the most suitable characteristics of cottage and small industries. The approach was followed in the first Five-Year Plan. But, the development of rural industries was conceived largely in isolation of the rest of the economy. The First-Five year plan stressed the development of agriculture, industry, infrastructure, and social services, but all this in a manner that maximum feasible additional employment opportunities were created to raise the standard of living of the people. The Industrial policy resolution of 1956 while emphasizing the creation of employment, equitable distribution of Incomes and an effective mobilization of capital and skills, pointed out that the characteristics of cottage, village and small- scale industries are favorable to the achievement of these objectives. Accordingly second five-year plan looked upon rural industries as an integral component of the national economy to some extent forming the basis of a pyramidal industrial structure. With the formulation of 26 pilot Industrial projects, which were intended to be an exercise in area development, a spatial dimension was added to the programme of rural and small industry. This approach was followed up in the Third Five-Year Plan (1961-62- 1965-66). Rural Industries Projects in 49 selected areas were taken up during the Third Plan. This Plan envisaged the development of village and small industries sector to provide employment and to increase the consumer goods and some producer goods. The Programme aimed at promoting village and small scale industries, including ancillary units of large scale units, in order to achieve a balanced regional development. This process of rural industrialization was continued during the Annual Plans (196669) and the fourth five year plan (1969-70 to 1973-74), when a Backward Area Development Programme was adopted, which included industrial development as well. For this, agro industries

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and dispersal of these in backward areas were accepted as instruments. The Fifth Year Plan emphasized the need to ensure industrial development in undeveloped areas. The Industrial policy statement of 1980 promised to generate economic viability in the villages dependent on a strategy based on an industry cum area development approach. This was aimed at injecting integration of the programme. The District Industries Centre (DICs) were set up during this period to provide the required services under one roof. Rural Industrialization continued to receive the main focus of development efforts in the rural areas during the subsequent sixthfive year plan also. In order to strengthen the process of rural industrialization, the sixth Plan redefined Small Scale Industry (SSI) so as to include those manufacturing and repairing units as having investment in plant and machinery up to Rs. 20 Lakhs and in the case of the ancillary units Rs. 25 Lakhs. The Ninth Five Year Plan includes the following development strategies for the village and Small Scale Industries (VSI) sector. 1. The small scale and village Industries will be provided incentives and support to facilitate their growth and employment. It will be ensured that foreign investment does not displace such industries. Credit facilities to small-scale industries will be increased. For this, the financial institutions will be motivated to offer factoring services to the SSIs in addition to the present system of discounting bills. The investment limit for the SSI sector will be revised to Rs.3crore to take account of Inflation and also to enable this sector the achievement of minimum economics of scale and up gradation of technology so as to withstand emerging competition. Technology development and up gradation in the VSI sector , especially in the case of small-scale industries, handlooms, power looms, coir-handicrafts , wool, etc., will receive special attention. Special attention will be paid to sericulture to improve the quality of raw silk by introducing better silk worm breeding practices.

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What could be a better option than entrepreneurship?

Entrepreneurship could take off the excess of labor from the farms that causes disguised employment. Disguised Employment means that there might be groups of people working on the farmland and calling themselves employed. However, when these people are taken off that farm and employed elsewhere, the production of the farm does not go down. Hence, such people though employed do not add to the production of the farm. We have also seen in recent past that despite enough food stocks with government warehouses, people are dying of starvation. This indicates problem with the public distribution system. The question is, do we have to depend on government public distribution system? The response is, people taking up entrepreneurship themselves in the form of Trading and Cooperatives. The basic entrepreneurial principles should be applied to rural development. This would result in a) Better distribution of farm produce resulting in the rural prosperity. b) Entrepreneurial occupation rural for youth resulting in reduction of disguised and alternative occupations for rural Youth. c) Formations of big cooperatives like Amul for optimum utilization of farm produce. d) Optimum utilization of local resource in entrepreneurial venture by rural youth.

Profile of a Rural Entrepreneur

a) He should not be an individualist. He should have a group orientation. He should consider the rural society not as his market but as his own large family. b) He should practice a management style where the concern for people is the highest. c) He should have a strong commitment for rural development. d) He wont be interested in usual perks and entertainment allowance. Social gain will be his perk and the smiles on the faces of impoverished rural population his only allowance.

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Need for Sowing the Dream in the Minds of Rural Youth

Youths in the rural areas have little options, this is what they are given to believe. This is the reason that many of them either work at farm or migrate to urban land. The need is to plant other options in the minds of rural youth. Entrepreneurship could be the best option. If planted and nurtured in the minds of rural women and youth, it could result in revolutionizing the Indian economy. It should be emphasized that the projects undertaken by these entrepreneurs should not be constrained by its location in rural area. It should enjoy all the advantages of the location. Following are the advantages of rural industrial projects: a) Tax holidays and other tax advantages given to rural projects. b) Abundance of cheap labor. c) Advantage of local and regional resources in case the unit uses them as a raw material. Live example for local youth for taking up entrepreneurial project Support and motivation from local people

d) Prestige and respect among the local community e) f)

g) Competitive advantage over the big business due to the proximity to the raw material and labor. h) Employment generation for local people.

The Role and Management of Rural Entrepreneurs

The roles and responsibilities attributed to rural entrepreneurs vary from organization to organization. The definition of a rural entrepreneur is fuzzy, as it depends on the sector, the product, and the community in which he or she works. From what I have seen, rural entrepreneurs are more effective when they act like traditional entrepreneurs and shoulder the financial risks. For example, on one hand, Villgro Stores village level entrepreneurs accept a great amount of risk because they purchase products from Villgro Stores, store them in their homes, and are personally responsible for customer payments. They may even extend forms of informal credit to their agricultural-based customers. Villgro Stores utilizes a profitsharing model in which 35 percent of the profits go to their VLEs.

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On the other hand, NE Green Powers distributors work on commission and thus carry minimal individual risk. They act more as salespeople than as entrepreneurs. Because their own finances are not at stake, sales are not as highly incentivized as with Villgro Stores VLEs.

Improving the Rural Entrepreneur Solution

In addition to the aforementioned strategies highlighted by Villgro Stores and NE Green Power, I believe there are certain tactics that can be taken by sales and distribution-oriented market development organizations to improve the effectiveness of rural entrepreneurs: 1. Skills training: This basically involves teaching rural entrepreneurs how to organize their business and some tricks of the trade to enhance their sales skills. Motivation or spirit instillation: This means convincing rural entrepreneurs to care more about their jobs. There are generally two incentives for a rural entrepreneur to increase sales: increasing economic benefits and increasing social benefits. The first motivation is easy to understand and learn but, as evidenced in experience, does not necessarily motivate all rural entrepreneurs. Instilling social motivation requires more investment by the organization. This type of education can be a) the problem that a particular product is attempting to address, b) how the product works to address the problem, c) the benefits that customers will receive from using the product, and d) personal reasons for why a rural entrepreneur would want to contribute to the betterment of social welfare. Training for mindset creation: This means training rural entrepreneurs to shape the mindsets of potential customers so that sales become easier. Often, rural entrepreneurs are pushing a mission-motivated product into the rural market (for example, a cook stove that has the primary benefit of reducing indoor air pollution). There is an inclination for rural entrepreneurs to be more focused on sales than on the mission. As a result, potential customers do not understand why the product is necessary because they do not share the same values as the organization distributing the product, making sales difficult. Village

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level entrepreneurs should try to convince potential customers not just to buy the project but should also help them understand the reasons for buying the product. One would think that most organizations are already doing this, but many marketing gimmicks fail to emphasize the products mission. These suggestions may improve the effectiveness of rural entrepreneurs while changing the overall environment in which rural entrepreneurs, nonprofit organizations, enterprises, and government entities operate to improve rural livelihoods through selling and distributing new products.

Going Social: Using Rural Entrepreneurs

It is easy to point out obstacles to working in rural India. The opportunities, however, are more difficult to identify. Understanding the customers and utilizing the close-knit social networks in which they live and work are keys to reaching them. This seems to be the belief underlying the strategies proposed by the World Resources Institute and the Institute for Financial Management and Researchs Centre for Development Finance. In their report entitled Power for the People: investing in Clean Energy for the Base of the Pyramid in India, the research organizations suggest investment in market development organizations (MDOs). Per the authors definition, an MDO is a nonprofit organization that promotes the use of a product within a targeted group. Because of their strong local networks, these organizations can help generate demand for products and services among the rural poor, fill gaps in the value chain, and raise awareness of new products. Most of these organizations had one common quality: the reliance on rural entrepreneurs to reach far-flung customers. Also known as village-level entrepreneurs, these men and women, who work out of a village or local area, increase penetration of a companys products and services. The roles of these rural entrepreneurs range from participating in product selection to onsite product manufacturing. Two organizations stood out to me as models for working with rural entrepreneurs: IFMR Rural Energy Network Enterprises Green Power Private Limited and Villgro Stores. I spent a day in the field

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with both companies. NE Green Power sells and distributes renewable and clean energy products like smokeless commercial stoves and solar lights in rural areas. In 2010, it began experimenting with a last mile distribution channel in villages around the city of Thanjavur in the state of Tamil Nadu. Villgro Stores (officially Villgro Innovation Marketing Private Limited), which sells agricultural products, has been operating since 2009 but has had experience with rural sales since 2007. Its pilot operations are in the town of Gobichettipalayam, which is near to the city of Erode in the state of Tamil Nadu. In this article, I compare and contrast how NE Green Power and Villgro Stores address three issues: discovering and training rural entrepreneurs, centralized vs. decentralized storage and distribution, and the role and management of rural entrepreneurs.

Coming Out of the Woodwork: Discovering and Training Rural Entrepreneur

The concept of using rural entrepreneurs sounds sensible, but are there enough qualified individuals to reach all potential customers? Some development experts believe that developing countries are teeming with entrepreneurs, and microfinance has picked up on this apparent entrepreneurial energy. Unfortunately, finding an effective rural entrepreneur to work with is more difficult than it sounds. During my visit with NE Green Power, the head of field operations and sales executive were fulfilling obligations that were meant to be the responsibilities of rural entrepreneurs, or distributors. In theory, distributors responsibilities include meeting new customers (usually small restaurant owners), running demonstrations, collecting payments, and installation, all within a 10 km radius catchment area. But in practice, I witnessed real obstacles. The first occurred when a distributor told his customer, who had already agreed to purchase the stove, that the stove could be test-run for two more days this miscommunication postponed payment collection and created more doubts for the customer. Another problem occurred when a distributor failed to appear for a scheduled demonstration. Perhaps these operational issues will be solved as the company grows, and perhaps more time will be needed for the distributors to become acclimated to their new jobs. However, these anecdotes

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highlight the difficulties of working with rural entrepreneurs as well as the money and time investments required for them to become effective. An improved rural entrepreneur selection process may reduce the costs of working with them. Villgro Stores selection process is inherently social from the beginning, as entrepreneurs are identified from within existing social networks. Each of Villgro Stores Stock and Sales Organizers and Sales Assistants roam the villages around their stores and ask village leaders to identify potential village level entrepreneurs (VLEs). These candidates are evaluated on their interest in sales and investment capacity. In contrast, NE Green Powers distributors are self-identified, having approached the companys sales executive on their own. After being interviewed by the NE Green Powers parent organization, they are given a variety of psychometric tests that are used to gauge their entrepreneurial skill and ability. Clearly, these different headhunting strategies can affect the quality of procured rural entrepreneurs.

Centralized vs. Decentralized Storage and Distribution

Whether storage and distribution are centralized or decentralized affects the responsibilities and management of rural entrepreneurs. On one hand, take the centralized model of NE Green Power. Distributors work directly with the companys personnel in field operations, who do a considerable amount of handholding. Products are stored at a single warehouse that all employees must access, regardless of their sales locations. The process of selling a fuel-efficient commercial stove is somewhat burdensome and requires the customer to interact with the distributor, the sales manager, and other members of the NE Green Power team. On the other hand, Villgro Stores model is decentralized. As of August 2010, there existed 10 Villgro Stores, each of which was 10 to 15 kilometers around the Gobichettipalayam field office. There were 40 VLEs, each of whom had 60 to 100 customers and were selling about 40,000 Indian rupees of products per month. Each Villgro Store is aiming to be associated with five to six village-level entrepreneurs, who work directly with the stores Stock and Sales Organizer and Sales Assistant by purchasing products for resale, accompanying on village visits and demonstrations, and testing new products. Customers work directly with the VLEs, who take care of sales and distribution.

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The differences between NE Green Power and Villgro Stores are evident. NE Green Powers centralized distribution model may become too difficult to manage as the company grows. The Villgro Stores decentralized distributional model has potential to replicate and, therefore, scale to reach more customers. In fact, Villgro Stores is gunning to expand to different cities, establishing about 10 stores in each location.

Rural Indias Last Mile Challenge

Earlier this month, the 2010 Rural Marketing Congress India convened in Mumbai to discuss critical issues and innovative strategies for delivering products and services to the subcontinents hinterland. About 70 percent of Indias population, or approximately 700 million people, live in the countrys more than 600,000 villages. If indeed there is a fortune at the bottom of the pyramid as management professor CK Prahalad preached, then some economically sustainable method of reaching these potential customers is imperative. This sentiment is shared not just among entrepreneurs, but also among designers who create new products and technologies for rural users. Paul Polak, founder of International Development Enterprises and proponent of developing products for the other 90 percent, believes that designing a branding and marketing strategy and a last mile supply chain that will put it in the hands of a million or more customers is three quarters of the design challenge. At the moment, a variety of firms are attempting to tap into the rural market: multinational corporations, small to medium-sized enterprises, and social enterprises. Their offerings are varied and include pharmaceuticals, financial instruments, agricultural products, and energy products. Regardless of the firm or the product, the obstacles to reaching Indias last mile are considerable: rural populations are scattered far from one another and from towns, where traditional durable goods retailers are located; the physical infrastructure between and within villages is poor; and traditional mass marketing techniques are not applicable. Word-of-mouth, live demonstrations, and the endorsement of trusted, local opinion leaders seem to work for branding and marketing, but these methods are slow, expensive, limited to a small geographical region, and do not address sales or distribution problems. The high marginal costs

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of working in an underdeveloped environment make long-term financial sustainability difficult to achieve.

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