What’s In A Place?

Isn’t there Anything ITC is Losing Out on by being Headquartered at Kolkata? 

These days, company transformations are no more a breaking news. Almost everybody is doing something to stay ahead in the race. But it used to be the talk of the corporate town in the early 70s when the 1910 born Imperial Tobacco Company changed its name to Indian Tobacco Company in order to shed its British image and establish the much-needed Indian connect; and when it changed it again to ITC to venture into the non-tobacco businesses. But, despite all these transformations, one thing remained the same. ITC has tenaciously remained headquartered at Kolkata (which is insanely popular for its rich cultural heritage, but perhaps not so much for its corporate activity) for the last 100 years!

No doubt, there is a big list of companies that were initially based out of Kolkata. In fact, companies like Brooke Bond, ICI, Lipton, et al, are some cases in point. But then, they all soon decided to shift base to either Delhi or the financial capital, Mumbai, even Chennai or Bangalore. The equation was, if you wish to get counted amongst India’s best, you need to be centered around the fastest growing regions. That done, analysts have bene flummoxed – and more so recently – on what exactly makes ITC stick to the City of ‘Joy’? Clearly, it must be losing out on much on the strategic front. We did our bit to work out the foxy conundrum.

“There are three important elements to marketing – location, location and location! In this time starved, digitally activated world, this is even more relevant. People are not just demanding convenience they are expecting it,” says Crispin Reed, MD, Brand House, UK. If you were to analyse ‘bricks & mortar’ retailing, success sometimes comes down to a matter of metres. The difference between profit & loss can come down to which side of a street a store is located on. Retailers have been aware of this for a long time and whilst software has long been available to track traffic flow to identify optimal locations, the best individual retailers are those that know intuitively where to establish their presence.

But then, ITC doesn’t necessarily face this issue because they are more into manufacturing than retailing. And for a manufacturing concern, the ecosystem need not necessarily be that big because the integral processes like manufacturing and warehousing can be done wherever you want.

Y. C. Deveshwar, Chairman & CEO, ITC Group shares with 4Ps B&M, “There is no disadvantage in being in Kolkata because we are a national company.” He believes that it is more important to understand what the consumer wants or doesn’t want and then deliver accordingly rather than to focus on the location of the headquarter.

Underlying Deveshwar’s premise is another strong logic. Considering the inflating cost of setting up offices in Mumbai, Delhi or Bangalore, and with technology coming up the better day by day, there is inherent cost wisdom to stay put in Kolkata – one reason why companies like Parry’s and TVS are still based out of Chennai. Atul Tandon, Director, JL Morison adds more to the point of view with an additional logistics angle, “It’s difficult for ITC to move out because it has agricultural linkages to that place. It started tea plantation in that area and the entire genesis of the business has happened there. It’s more to do with the passion of a business model it had created.”

Further, with regional offices across the country, perhaps ‘headquarters’ as a concept doesn’t have that much of the significance left anymore, unless one is an IT company, because then the Bangalore/Silicon Valley persona adds to the brand perception.

Certainly, it’s factually less about the company’s location and far more about how effective are its channels of distribution. And no doubt, ITC has used this ‘P’ of marketing very effectively to its advantage. With initiatives like e-Choupal it has not only created a strong direct marketing & distribution channel for its products, but has also been able to eliminate unnecessary intermediation and multiple handling, hence bringing the transaction costs down to almost negligible.

Since its inception in 2000, ITC has had 6500 e-Choupal installations in 40,000 villages across nine different states of the country, empowering four million farmers in the process. By 2012, ITC aims at 20,000 e-Choupal installations in 100,000 villages across the nation, covering 15 states altogether and thus empowering 10 million farmers. In fact, ITC’s e-Choupal is a perfect example of how an innovative and inclusive distribution strategy can work wonders for a company. It’s such strategic choices made over the years that has transformed ITC from a company with a gross income of Rs.51.88 billion and a market capitalisation of Rs.55.71 billion (in 1996) to a conglomerate that boasts of revenues to the tune of Rs.260 billion and a market capitalisation that today exceeds Rs.1.3 trillion (2010).

All this has been possible because of ITC’s strong supply chain model that comprises of a large number of small scale partners and its distribution philosophy that makes it use different sales force to cater to different channels like convenience outlets, grocers and supermarkets. Adding to the bonanza are ITC’s e-Choupals and storage hubs that has strategically been placed in across states, functioning as centres through which ITC can directly market its products. In fact, the company has, for years, used ‘paanwallas’ to strengthen the local network for its products. This makes for an approximate network of 4-5 million local retailers and distributors. Certainly, the company shouldn’t be having any qualms about a head office in Kolkata when the distribution is this efficient. And it all shows in their turnovers. ITC has noted a 13.5% increase in its gross turnover in the last one year and a 27% hike in the exports turnover in the same period. All this couldn’t have been possible without a strong distribution network.

And as mentioned earlier, with audio-visual communication combined with technology advancements building a stronger and cheaper geographic grip in the corporate world, concepts like video conferences, live streaming, email on the move, have facilitated many a thing that wasn’t possible earlier – even annual general meetings. All in all, if one were to revisit the protagonist question, why Kolkata, the answer could well be, “Why not?”