Building an Inclusive Rural Economy through Local Manufacturing

According to a recent article in The Hindu, India’s manufacturing sector will need to increase from 16% to 25% in the next 12 years to keep up with economic and social development. This presents a serious challenge to industrialists, multi-national companies sourcing products, and even impact investors. Most acutely, what are the implications for small towns and rural villages? Communities without employment opportunities are condemned to poverty and sending their young talent off to the big cities in search of a better life. The Asian Development Bank predicts “labor mobility will continue from agriculture to manufacturing to take advantage of higher productivity”. In practice this means that jobs in manufacturing must be created on a local level to achieve growth.

My name is Hanna Sarangan, and over the next few months I will be visiting rural businesses to meet the entrepreneurs and people that are transforming their communities by building small growing businesses and creating employment.  I want to explore the challenges facing the entrepreneurs and provide insights on how they are making business work for their communities.

To get started, I visited Akash Eco-Friendly Paper and Boards based in Tamil Nadu.

Akash’s founder, Mr. S. Arokiasamy, arrived in Katchur 30 years ago, when the population was engaged in bonded labour (modern-day slavery). He established a school to liberate the children from a life of being confined to unhealthy working conditions. Today, the school is the area’s leading educational institution in terms of quality and impact— female students are given academic and personal support, which encourages them to stay enrolled (female dropouts are common in public schools). Finishing high school is the paramount component in their eligibility for a broader range of academic and employment options. Then in 2008 the social entrepreneur launched Akash in response to the requests from parents to help with employment opportunities and the perennial difficulties in raising donations to run the school. His purpose was to create employment and a sustainable source of income for the school from the profits of the business.

Akash occupies a 4% share of the local paper market in Chennai. The company sells high quality grey boards that ultimately get manufactured into products such as calendars, notebooks, packing materials, and diaries. There are 18-20 people involved in running the factory at a given time.

Recycled Paper

India’s paper output makes up 1.6% of the world’s paper supply and the demand is growing from a rate of 6% increase to 10% increase per annum. Local paper board manufactures only meet 25% of the demand from local producers. Given that local demand outstrips supply, there is a lot of room for substantial growth in this market.

One reason there is such demand for recycled paper is the savings on cost of raw materials. A senior manager at ITC says, “production costs can be down by about 40% with recycled paper. Cutting down these processes also helps to reduce levels of pollution caused by paper mills.”

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Mr. Arokiasamy has the vision and drive to grow the business four-fold over the next 5 years. His objective is to create 100 jobs and from the profits provide a sustainable source of income to pay for the education of more than 500 children. This is an exciting vision, but tough to execute. So what are the specific challenges facing the social entrepreneur in upscaling the production capacity and growing the business? I identified four main barriers to growth:

  1. Access to affordable financing. High interest rates with short pay back periods prevent the business from moving forward.
  2. Shortage of production capacity to meet demand. His current production lines need renovating and an additional line to be added.
  3. Irregular power supply— the inefficiency caused by frequent power cuts and high cost of running a generator are prohibitive. Options for a renewable energy source rather than relying on the main grid should be explored.
  4. Governance, management and business development capacity. The social entrepreneur recognizes that to take the business further he requires professional support to help strengthen the business in key areas.

The founder of Shell Foundations says that social enterprises seeking to establish themselves do not have the benefit of much of the infrastructure that many other businesses enjoy. Akash is a good example of this. However, in spite of the hurdles,  Mr. Arokiasamy has proven his model works, and with the right kind of support he has the possibility to fulfill his social and financial impact objectives to benefit the community.

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Akash is not the kind of enterprise that will hit the headlines of the business news or appeal to venture capitalists, or socially minded investors looking for massive scale or attractive financial returns. However, Mr. Arokiasamy is in a business sector that is growing where demand outstrips supply. He operates his business for the benefit of his community and wants to create success that includes others, not just his own family.

Before my visit was over, I met a young woman called Sarla who is employed by Akash.  The short conversation highlighted the importance of supporting small growing businesses. She graduated from Mr. Arokiasamy’s school and has been working for Akash for five years. She says that without Akash, she would have been forced to leave her family home by going to Chennai to earn a living, or become a farm labourer.

I was impressed by how Akash was doing business. It is an environmentally friendly local initiative that understands the community at its core—a characteristic that will surely help to achieve long term sustainability and help to drive economic growth. Who better to lead the recovery of poverty stricken communities in rural India than local manufacturing business owners like Mr. Arokiasamy?

Akash is a project available for sponsorship through the Chilasa Angel Network.

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