Industree Crafts Foundation, A Case Study 1

In December 1994, Neelam and Gita, an industrial designer and a crafts activitist by
profession, gave birth to Industree Crafts Private (ICP), a craft enterprise in Bangalore
India. Their initial business plan was to outsource crafts collected from small
producers located in India’s remote rural areas. After a difficult start, these
two ingenious ladies worked on a new business idea and targeted a craft
market which had been unexploited so far, natural fibre crafts. Ten years
down the line, ICP’s turnover has grown from nil in the first year to 45 million
Ruppes in 2006. ICP now supports the livelihood of more than 5000 women.

The setting
The Republic of India, commonly known as India, is a sovereign country in South Asia. It
is the second most populous country and the most populous liberal democracy in the
world. With the world's twelfth largest economy by exchange rates and the fourth largest
in purchasing power, India has made rapid economic progress in the last decade.
Although the country's standard of living is projected to rise sharply in the next half-
century, it currently battles high levels of poverty, illiteracy, persistent malnutrition, and
environmental degradation.

The setting of the case study is set in Bangalore City which is the capital of the State of
Karnataka in Southern India. Following India’s independence in 1947, Bangalore
evolved into a manufacturing hub for public sector heavy industries—particularly
aerospace, telecommunications, machine tools, heavy equipment, space and defence.
Bangalore has an estimated metropolitan population of 6.5 million (65 lakh), making it
the fifth-largest metropolitan area in India. It is said to be the fastest growing city in Asia.

The Birth of Industree Crafts

Gita assigned Neelam, an industrial designer, on behalf of India’s “Crafts
Council” to undertake a study on the stone crafting industry as it was seen as a high
potential sector. This mission exposed them to numerous design projects put in place by
India’s Governmen t agencies. Through out their study, they realized that these
abundant design related projects operated in a vacuum. Acquiring new skills is always a
beneficial experience but for the latter to be put into practice requires a demand from the
market.

With this is in mind, Neelam and Gita took the decision to open a crafts shop in
Bangalore which was to serve as a market place and outsource crafts emanating from
small groups of producers located in remote rural areas. This project gave birth to ICP in
December 1994. At the beginning, both ladies had not imagined that this project was
going to be such a challenge. While the first three years were difficult and rather
unsuccessful, this time period enabled them to learn some valuable lessons. Firstly, they
learnt that they needed to target the domestic and the international markets if they
wanted to be succesful. This could only be undertaken following a well-designed export
strategy. Moreover, they realised that they needed to specialize in a product that nobody

1
This case study has been prepared for the Market Analysis Section, International Trade Centre, by Bastiaan Bijl, under
the supervision of Roberto Cordón, and is based on two sets of interviews held with Neelam Chhiber in 2006 and 2007.
The ITC gratefully acknowledges Ms. Neelam Chhiber’s to have taken some time to review this case study.

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else was exporting. After some field research, attending crafts trade fairs and observing
what other producers were exporting, Neelam and Gita identified their niche market,
natural fibre crafts.

Moving into Natural Fibres

Moving into the natural fibre sector made a lot of sense for five major reasons. Firstly,
raw materials were available in abundance. Secondly, the group of producers they were
working with had already exceptional skills in fibre weaving and more producers could be trained
easily. Thirdly, Neelam and Gita identified by ways of interactions at trade fairs that consumer’s
preferences were moving towards hand -made and natural fibres. Fourthly, their experience in
design enabled them to add significant value by making use of natural fibre products. Finally, the
natural fibre sector had a huge potential for product differentiation. That is to say, if one product
was not well received by consumers, production could easily be switched to other goods
e.g. floor mats, place mats, hand bags and baskets.

Right from the start though, they were careful not to go into the clothing and fashion
sector. Through their experience, they knew that this is a very tricky sector which is
highly volatile and they felt that their group of producers would not have the capabilities
to adapt quickly enough.

ICP’s products are differentiated according to three factors: the type of fibre used, the
manufacturing process and the product’s value added.
In terms of the type of fibre used, ICP has one leading material: river grass. This material
can be weaved tightly, has an excellent
texture and absorbs natural dyes very
well. ICP also makes use of another
material, banana fibre, which is peeled
from the bark of banana trees. It gives
an excellent rustic look when weaved
with thin white threads.
Further differentiation then occurs when
the basic weave is converted into mats,
baskets, handbags, gift boxes,
Venetian blinds etc.

To communicate the information

relating to those three product-
differentiating factors, ICP’s
merchandisers place orders
in the field directly to the source. They
carry the responsibility of making sure
that the order makes its way to the
factory on time and meets any
requirements. Neelam explained that her merchandisers are crucial players in the
production chain and that she has spent years honing their skills.

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Domestic sales are well positioned

Product positioning
Neelam and Gita have managed to position their products very well on the domestic
and international market by diversifying their production into a range of related products
and by adding value to basic materials. For example, they no longer make simple
traditional mats. They make a whole range of beautifully coloured mats with attractive
linings on the edge. They also process plane weaving material into beautifully designed
baskets, place mats, desk file holders, gift boxes, hats etc.

Neelam gave examples of how value was being added to her products. In ICP’s’ early
days, mats were bought for 400 rupees from suppliers and were sold for 800 rupees in
their shop. ICP has always implemented the golden rule of the 100% mark-up – see the
Price section for more information. Following this strategy, they only managed to sell 1
mat per month. Now, the cost of their mats – which includes additional linings, finishings,
colours and designs – has declined to 120 rupees. This impressive decline in production
cost originates from the introduction of simple mechanisation and the spread of
economies of scale. Now, they sell 1000 per month at 350 rupees. Neelam though
emphasises that her product’s added features such as upgraded quality, improved
product finishing, nice linings and use of fashionable colours have played a crucial role
in ICP’s’ increasing success and that without them, mats would only sell for 70 rupees.

Managing the product’s positioning

includes taking decisions on the
product line and controlling
product differentiation. Neelam
knows that one of her company’s
strength lies in the “natural” and
“hand-made” features embedded
within her products. These
features are already part of the
product positioning and are also
important determinants of ICP’s
success. One should note though
that product differentiation entails
different packagings which usually
include a mixture of materials such
as plastic and leather additions. Such a process leads to a move away from ICP’s
natural/ hand-made image/ branding and Neelam insists that she always avoids the
temptation, especially when big orders come in. The “natural” and “hand-made“ features
make up ICP’s identity. This sense of natural and hand-made is nicely put forward by the
company’s well-designed logo which represents a hand and a tree and which is printed
on every product.

Place of Sale
Neelam explained that selling goods is an expensive venture. In order to be successful,
one needs to have at least ten points of sale, but maintaining ten shops is very
expensive as you have to pay for the sales person’s wages, the shop’s rent, taxes etc...
As a result, ICP has chosen to go for a mix between its own shops and having retail

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points. Currently, it sells its products in four of its own shops called “Industree” and has
established a partnership with an additional 50 retail points across India. The number of
retail points stood at 30 in 2004.

In 2004, ICP had tried a different strategy.

For a couple of years, ICP owned two shops
in partnership with a furniture company.
These two shops, one in Bangalore and one
in Chennai, were called “The Design Store”.
The Design Store was a 50:50 partnership
with a company that sold contemporary
furniture. Literally, when one entered one of
the two Design Stores, all the furniture on
sale was on the left and all the crafts were
on the right. ICP undertook this joint sale
approach because it wanted to break away
from the stigma associated with craft shops
in India which have the reputation of being government-funded with products collecting
dust on shelves and being sold for giveaway prices. By attracting contemporary furniture
shoppers, Neelam and Gita felt that they would catch clients in a different frame of
mind and this selling strategy proved to be very successful.

In 2006, ICP moved away from this partnership agreement with the furniture company
and decided to open four of its own shops. Two in Bangalor, one in Delhi and one in
Calcuta. I was very surprised when Neelam told me that she had changed her strategy
and I was very interested to find out why. Neelam clearly pointed out that having a
partnership agreement with another brand was not a long-term solution. By having
“Industree” shops, the brand can be effectively marketed and recognised. Neelam did
not see a joint partnership as a long-term solution. Even though the opening of the
“Industree” shops have brought ICP’s revenues down, it was the only way to go forward
according to Neelam. The opening of these shops have also brought a diversification
element to ICP. As the sale of craft on their own could not sustain the opening of
Industree’s independent shops, ICP has introduced furniture in its goods basket, which
are even more revenue generating than crafts.

Price
ICP had two pricing policies which hand to merge into one under an MRP.The first pricing policy
put in place in ICP’s “Industree” shops follows a rule of thumb: “mark-up a price by 100% on top of
its production cost” -- e.g. if a handbag’s produ ction cost is 100 Rupees, put it for sale for 200 Rupees.
For the second pricing strategy which is implemented in retail stores, the retailer takes 40% of the
sale, but is encouraged to push the price up to a maximum amount. For example, still using the
same example as above, the retailer is encouraged to sell the bag at 300 Rupees even though its
production cost was 100 Rupees. Once the retailer collects his 40% share on the sale of the bag,
ICP gets 180 and therefore made 80 Rupees profit on each handbag. Therefore ICP is forced to to fix
MRP at 3 times the landed cost even its own stores, as the product must be at the same price
everywhere While retailers push prices up as much as possible, retailers undergo a careful selection
process. This course of action is undertaken because ICP does not want its products too be seen
as upmarket as this would create a negative image, classifying them in the “unaffordable” bracket.

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Promotion and Market Research
ICP’s domestic promotion is undertaken through three channels: exhibiting at trade fairs,
advertisement through various business magazines and product catalogues together
with the promotion linked to the visibility of their brand shown on ICP’s and retialers’
shops. In terms of international promotion, ICP relies mainly on its well designed web
site: www.industreecrafts.com , exhibiting at trade fairs, and through a network of export agents in India.

Though ICP benefits from the promotion provided by its own four shops, the impact is
fairly limited as ICP has only four shops located in three different locations. On the other
hand ICP also has 50 retailers located all over the country which are high potential
promotion points. Prior to 2006, ICP’s brand was not shown on the retailer’s
advertisements and hence ICP was loosing some visibility. Now, Neelam has
implemented the “freedom to promote” and she realised that those retailers who were
promoting the brand have continued distributing ICP’s products and those who did not
have stopeed. Indeed as Neelam has noted, there are two types of retailers, those who
do it to promote then own brand and those who chose to retail known brands.

In terms of market research, ICP has a broad knowledge of its domestic market. Careful
testing is done by designers at trade fairs and in various outlets to identify which design
sells best. The company’s merchandisers then feed these findings back into production.
Up until now, Neelam has focused mainly on the domestic market as she knows the
market, she gets immediate response on the product she sells, there is no lag in fashion
etc… and more importantly, India’s domestic market is currently booming.

On the international front though, Neelam admits that market research is very much lacking. This is
an issue which she wants to address as soon as possible. So far, ICP’s reliance on meeting prospective
clients at the few international trade fairs they attend every year is too risky. She recognizes that
there is an urgent need to carry out extensive research to understand much better prospective
international markets and buyers. Such an undertaking could eventually lead to an
international strategic partnership resulting in long term sustainable orders. The journey has
started with ICP - starting to supply to IKEA - the world's largest home retailer.

Exports – A tough learning process

Exports started only in the fourthyear of their business & now they represent one third of ICP’s business.
So far, ICP has processed approximately 150 export orders for 15 countries. Neelam does not see
the benefit in going 100% global as the domestic market is booming and going global would take away
their freedom. International firms often request products which cannot be produced due to ICP’s
supply side constraints. Indeed Neelam notes a huge gap between the volume of the domestic market
and that of the international. Recently, IKEA, the huge scale design store, has asked ICP to produce
one of their products in bulk. It did not take long for Neelam to reject the offer as she decentralised
and not want her small business to turn into a large scale factory in Bangalore city. This was not the
philosophy behind the startup of the business. The business started to promote rural livelihood.

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That being said though, one third of ICP’s business still emanates from the international
market. Going global is not an easy undertaking and ICP had to learn to export through
trial and error.

For instance, Neelam sited examples of the many orders where there has no reordering
occuring because they failed to meet the committed requirements. On many occasions, even the
management team who was supposed to be on top of all issues related to exports was
surpassed by all the details which had to taken into account when fulfilling an
international order.

In the early stages, when ICP was going global, very few orders were being renewed.
This was primarily due to ICP’s international marketing strategy. Indeed, their
international business depends solely on chance meetings at trade fairs. Many of their
clients will be “chance-meeters” themselves, i.e. looking for that single order to place,
rather than a long term strategic partnership. It is only recently that international clients
have started renewing orders and this is somewhat linked to a lucky encounter. During a
trade fair held in Hong Kong, ICP met a South African buyer of Venetian blinds. The
South African liked ICP’s banana fibre blinds and made an order under one strict
condition, the order had to be followed by an inspection agent. This condition which was
at first a burden turned into a gold mine very soon as the inspection agent gave them
excellent advice on crucial measures which had to be followed when exporting abroad.
This encounter made them realize why they had had so few repeat orders in the
past.

International Positioning
Though knowledge about international markets is not Neelam’s best playing card, she
shines when it comes to identifying the competitive strengths and weaknesses of her
competitors around the world. Looking at TradeMap tables, she can quickly explain why
unit values diverge on the table of world exporters of natural fibre plaited floor mats.

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 Figure 1: List of exporters
for 460120 Mats, matting and screens of vegetable plaiting materials

Figure 2: List of products at tariff line level exported by China in 2005

for 46012090 Mats, matting and screens of vegetable materials

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 Figure 3: List of products at tariff line level exported by Indonesia in 2005
for 460120900 Mats, matting and screens of vegetable materials

Figure 4: List of products at tariff line level exported by India in 2004

for 46012090 Mats, matting and screens of vegetable materials

With such knowledge on board, Neelam does not fear her competitors. She is well
aware of the market segmentation and knows that she is the strongest in her own
segment. She knows that the Chinese’s producers’ strength resides in their mechanized
process which enables them to produce large volumes at low cost with significant
economies of scale. There unit value (1.71/unit) is lower than Indonesia’s (3.55/unit) and
India’s (2.48/unit). However, the Chinese do not dye their weaved fibre and hence offer
lower quality products. Keep in mind that Trade Map’s lower unit values can not only be
a good indicator of price but also of the quality of the good and the value which has been
added to it. The Chinese cannot match India’s dying strength and hence do not pose a
threat to ICP. The Philippines, Thailand and Indonesia are even stronger than India in
terms of fibre colouring. They have a long history in dyeing natural fibres and have
perfected the dyeing process through very strict discipline together with the help of dyes
provided by their international buyers. Neelam does not currently see these countries as
a threat because they are at a much higher price segment. So, internationally, ICP is
well positioned vis -a-vis its competitors based on its dyeing strength and lower prices
which compensate somewhat for its lower quality compared to that of the Philipines or
Indonesia. In addition, ICP’s “natural” and “hand-made” good’s characteristics reinforce
their strength on the market place.

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10 years down the line!
After a difficult start lasting for three years, ICP took the decision to specialise in natural
fibres. Its products took off and their performance on the domestic market has increased
ever since on a yearly basis. This was not solely due to the excellent selection of the
initial crafts segment but also to decisions relating to how to position the products, how
to price them, where to sell them, how to promote them, and how to brand them.

ICP’s turnover in the first year was non-existent. ICP’s labour was made up of unpaid
volunteer workers. In the second year, ICP started making money with a 3 million
Rupees turnover. Ten years after its implementation, ICP was making a 32,5 million
Rupees turnover in 2004. In 2006, that turnover had increased to 45 million (over $1.1
million). Lately, the turnover has been growing at 15% per annum and profit margins
have also been on the increase on a yearly basis. It is hard to believe that ten years ago,
Neelam was struggling with a shop which had constant excess stocks. Neelam and
Gita started working with around 30 groups of producers which include 50 women
each. For the last few year, ICP supports the livelihood of 110 groups of producers (over
5000 women).

They have managed to achieve this phenomenal expansion through identifying the right
product, positioning it well and adding value through good design and quality. They have
learnt how to secure repeated export orders through increased attention to detail,
making sure that product faults never occur and delivery target times are respected.

The Trust
In 2000, ICP further committed it self towards enhancing and expanding the presence of
Indian made natural fibre products in the national and international market by establish
the Industree Crafts Foundation (ICF) . Towards this end, ICF has been registered as a
Trust and can be seen as the not-for-profit wing of the company. The Trust is set-up to
help build and expand the producer groups’ design and production capacity. ICF’s
designers offer their services to various government funded training projects that aim to
assist artisans in design, production, micro-credit, management of production units etc.
A co-dependency relationship exists between the company and the trust as the company
benefits from improved capacity of the producer groups to meet order requirements and
the trust benefits from the financial support from the company. Neelam and Gita are
very well aware of this co-dependency and will continue to support both the company
and the Trust.

What is ICP’s plan for the future?

Neelam explained that ICP’s’ expansion through the domestic market wound continue
that the company could only majorly expand through exports. It is through exports
that they are able to think & plan large volumes. But as was the case with IKEA recent proposal,
export orders will lead to significant supply side changes. Groups of producers will need
to enhance their skills and be able to cope with the tough requirements linked to large-
scale export orders. Neelam believes that such a change could only take place through
the establishment of a donor funded project. The Trust established by ICP is currently in
the process of making proposals to various donors.

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