SELCO India

SELCO India Pvt. Ltd.

Homaam KhalilUllah1st February 2013Table of Contents

Social Mission3Special Qualities of the Founder3Legal status and Governance Structure4Legal Status4Governance Structure4Business Strategy8Growth Strategy8Business Model9How is Profit Seen and Treated in SELCO India?13Key Challenges14SELCO INDIA Technology Products at a Glance15

Social Mission

SELCO INDIA has the mission to work toward improvement of the life quality of underserved households (and businesses) all around the world by providing them goods, services and financial products. (SELCO Business Plan 2006-2010 6)

To analyze the above mission statement, it is too big for such a unique kind of startup with few available financial and physical and human resources. Because; firstly, they have targeted a very big market which is poor population and businesses all around the world, and secondly they want to offer vast array of products and services like all types of goods, all types of services and finally all types of financial services which can benefit the poor even that could be related to health, childcare, education

Though they are progressing steadily, SELCO INDIA must perform more aggressively to behold to its mission statement they have identified for their business. During last 15 years (1995 to 2010) it could only serve 100000 customer in three major states of India which are Karnataka, Kerala and Gujarat (Corporate Brochure 2) with population of 61130704, 33387677 and 60383628 each (Biswas,R. updateox.com). If we compare these statistics with the achievement they have, they have plenty of room for improvement.

Special Qualities of the Founder

Mr. Harish Hande is highly technical professional of his business field. Mr. Harish Hande did his bachelor of technology in energy engineering from IIT in 1990. Then he moved to USA for doing his MS degree in the same field from University of Massachusetts in 1997. In 2000 he graduated from PHD with specialization in solar energy for developing countries from university of Massachusetts, USA. Beside his formal education he has chosen this single area for this entire researches, and long term trainings. Therefore he is competent enough to design or develop energy services which can really benefit the target market.

He is persistent in what he is doing. He has no any other job experience except this one which he is pursuing for last 17 years (1995-2012). He has also clearly expressed this will be his first and last job he will ever be doing. (Mitra,S. sramanamitra.com)

He got his own entrepreneurial talent. He has designed enormous amount of products to work for poor people, and has created numerous linkages among different players to benefit the poor. For example his company is offering various kinds of solar energy products like solar lighting (Indoor home lighting, Outdoor home lighting, Solar Headlamp), Solar Thermal (Water heaters for both Domestic use and Institutional use), and Solar inverters which can be used with systems related appliances such as computers, ceiling fans, televisions, music systems, and sewing machines. (SELCO, selco-india.com)

More importantly he has the passion and humility to work in real life with poor people and enjoy the work he is doing. He has a PhD degree in energy sources and could probably get a good job in one of reputed corporations, but he chose to work by his own and do a business which could benefit the poor.

Legal status and Governance Structure

Legal Status

SELCO is operating as private limited company registered in March of 1995 in Bangalore under the Indian Companies Act, 1956. The private limited company in India has many similarities to other private limited companies in Europe and US. Some of the prominent points have been listed below (GoI, Private Limited Company):

1. It is considered a separate legal entity, responsible for its own actions.2. It has less formalities to perform then the public limited company like Pvt. Ltd.:a. Does not need to hold Annual General Meetings.b. Have no restrictions on selections of directors as applied on public limited company.3. Limited members liability.4. Private Limited Company can exist for unlimited time.

Mr. Harish Hande has chosen this legal status to get all advantages of the business while still has control over the operations of the business he started.

Governance Structure

SELCO has also a very reasonable and technical organizational structure or the governance structure. It operates through a network of Energy Services Centers (ECS) in its three markets; Karnataka has the largest number of energy services centers which are 23, while Gujarat and Kerala each has only one energy service centers. Each ECS has one manager, one sale executive, two customer support executives, and one accountant or office administrator. (Mukherji, S. 17) Five to ten ESCs report to Regional Branch Office (RBO), which in turn report to main office in Bangalore. Following image chart shows this linkage:

Chart 1: Linkage between Energy Service Centers (called Solar Service Centers - SSC), RBO, and Headquarter:

Following diagram shows that the actual work is done by ECSs in the fields, RBOs are connecting the ECS to headquarter and report back the commands, while headquarter holds the overall management responsibility of business (SELCO Case study, Yale.edu)

In 2011 SELCO India had 150 employees holding different formal positions mentioned in following table:

Table 1: Number and position of SELCO staff:PositionNumber of Staff

Regional Sales Managers4

Senior Managers8

Branch Managers21

Sales Executives,32

Customer Support Executives40

Office administrators / accountants18

Projects, Innovation and Finances27

Total 150

Chart 2:Governance Structure of SELCO India (SELCO people, selco-india.com):

The following salary table shows they employees are considerable paid equal to the local market rate.

Table 2: Salary Range of SELCO employees (INR per month)Employee Type Salary Range

Technicians 3,500 8,000

Sales Executives 5,000 12,000

Branch Managers 10,000 20,000

Senior Mangers 15,000 30,000

Regional Managers 25,000 40,000

The following table shows the power dynamics based on the percentage of share held by different partners. The founder is not in a good position, but only has official power assigned by equity holders.Table 3: Share holders of SELCO IndiaShare Holders% of ShareholdingNo. of Equity Shares (Face Value Re.1)Paid up Share Capital in INR Millions

Solar Electric Light Company, Usa7%4,140,4484.14

E+Co., Usa16%9,774,2439.77

Lemelson Foundation, Usa23%14,000,00014

Good Energies Foundation, Switzerland55%34,000,00034

Mr. Harish Hande, Managing Director0.41%253,8590.25

Mr. K.M. Udupa, Director0.03%20,0000.02

Total100%62,188,55062.19

Business Strategy

Business strategy is based on the idea of disproving three myths by a for profit social enterprise. These three myths are:

1. Poor people cannot afford sustainable technologies.2. Poor people cannot maintain sustainable technologies.3. Social ventures cannot be run as commercial entities.

SELCO India has following six items in its core strategy:

1. Mission: providing products for underserved people throughout the world.2. Sustainability: All the processes and products of the company are commercial and made for profit, but the ultimate goal is to generate income for the poor. 3. Empowerment: It will produce and offer all those services which are empowering the needy households. This leads to strong partnership between all sects of society.4. Innovation: Company strives to bring innovation in any area of its operation, taken from linking technology to poor, financial resources, to marketing techniques and others. 5. Scalability: The entire business operations should be technically scalable and replicable to other areas where poor or underserved people live.6. Transparency: Since the company is dealing with poor people, therefore all activities should be transparent and accurate enough to minimize any negative effect. Beside of transparency in financial transactions, this also include a very thorough and good design of products, good accounting practices, reports to share holders and proper quality assurance of services.

Growth Strategy

The founder of SELCO and management is convinced that considering 17 years of experience in this business, they will fail if they scale up the business. The best strategy for them is to keep it small and replicate the model to other areas where the company should operate locally and perform based on the local market needs.

Therefore the business is not very eager to expand to other areas and serve the poor; instead the founder of SELCO is looking for same kind of entrepreneurs to start their own SELCOs in their own areas inspired by the original SELCO of Mr. Harish Hande. The original SELCO will invest in other SELCOs and will provide all technical and managerial expertise required for that, but they should be able to operate independently and totally by their own.

They above growth strategy have certainly impeded the expansion of the SELCO business into other areas of the India though they have tremendous opportunities to seek.

Business Model

Keeping the above business strategy in mind, SELCO operates on following main items for running the business (SELCO Business Plan 2006-2010, 13):

1. SELCO connects existing supply chains to provide various energy services to the target market. Though it is not a unique concept in business, still its application to the context of poverty make this item special.

Company has partnered with numerous financial institutions and manufacturing companies to meet the demand of poor people for energy services. A list of the partners financial institutions is as following:

a) Commercial Banks: 4 commercial banks , like Canara and Syndicate Banks,b) Regional Rural Banks (or known as Grameen Banks), like Malaprabha Grameen Bank and Vardha Grameen Bank in Karnataka, and 9 other similiar banksc) Rural Farmers Cooperatives, work with numerous rural cooperatives like rubber cooperative, vanilla cooperative etc.d) Micro-Finance Institutions, works with SEWA BANK in Gujarat to cater to its 300,000 women client base

Chart No. 3: Linkages of existing supply chains for energy services:

2. Create appropriate channels for making the product affordable to poor. Therefore SELCO has divided its clients into three major categories and has developed separate financial plans for each one of them. It also has the flexibility to deal with clients on base to case basis. a) 65% 75 % of SELCO clients are small farmers, small businesses, individual households, and home based workers. This category of people usually earn from $2 $ 4 per day or from $1200 $1500 per year.b) 10% to 15 % of the company clients belong to middle level famers and individual households who earn from $250 to $400 per month or from $2500 to $5000 per year.c) There is also third category of SELCO clients which are institutions who request SELCO to design or provide them appropriate solar energy. This category is insignificant and therefore SELCO is not actively marketing for them.

Following diagram shows the categorization of SELCO India clients in different levels:

3. Create appropriate financing products that would meet the specific users personal cash flow. SELCO has presented 4 following cases to explain this concept further:

1) This is the simplest case in which the costumers purchase the product from his/her present income. People purchase solar energy product for convenience purpose or for health issues. 2) In this case people will pay from the new savings they make due to use of solar energy services. For instance improved cook-stoves will reduce the cost of woods for consumer and thus they will save money to afford the product.

Exhibition No. 1: Case No. 2

3) In third case, people pay for the energy services from the extra earnings that come to them because of the energy service they purchased. For example, in the case of solar powered sewing machine they are able to earn more money and thus they are able to generate enough extra cash to pay the loan for the solar powered machine.

Exhibition No. 2: Case No. 3

4) In 4th case customer will pay from a combination of savings and earnings. For example, a street vendor will pay money from savings which has come due to purchase of lesser kerosene while he will be able to work long hours to earn more money.

Exhibition No. 3, case No.4

4. To create rural entrepreneurs (third parties) and linking them to appropriate financial programs. Here the users do not own the solar energy product instead they rent it from a third party vendor only for the time they need it. On one hand this also creates a new business for people in rural areas and on the other hand the users are not required to enter into long term loan contract with SELCO.

Chart No. 4: Creation of new entrepreneurship opportunity and his/ her linkage.

How is Profit Seen and Treated in SELCO India?

If we analyze the business strategy of the company, it has two dimensions: first profit and second running enterprise for social goals. Therefore without any complexity all the products and services offered by SELCO is profit oriented. The company treats the profit as a survival mechanism and tries very hard to operate and design all products in a commercially centered approach. This continued profit will enable the company to extend coverage and enlarge the product portfolio. Following table shows that SELCO is not very profitable or profit oriented, the social aspect of the business is strong enough to keep the founders motivated and encouraged.Mr. Harish Hande had no good experience of NGO operations in rural India, because he believed NGOs got funds and they used it first on their own survival like paying salaries and operational cost etc, secondly for development activities if anything has been left. Therefore he emphasizes on social business in the form of company which will try to be self sustained and even if it makes loss still the people will understand where the loss is made and how to improve the operations to reduce the loss. Table 4: SELCO Income simple income statement (Profit and Loss statement) in INR in Million

FY 04 - 05FY 05 - 06FY 06 - 07FY 07-08FY 07-08FY 08 - 09

Revenue13066637878120

Materia Cost No.864342535377

SG and A844558

General Admin Costs322936282832

Financing Cost234220.5

Profit and Loss3.15-12.3-23.13-8.39-8.391.36

Key Challenges

There are two types of challenges faced by SELCO during its 17 years of operation; first those challenges which are overcame by them, secondly those challenges or barriers that still exist.

First category challenges which are overcome by SELCO are; that each product must be customized to the need of each user, the product installation must be done in away to completely suffice the need, nothing more and less. Secondly the financing modes must also be customized enough for each individual so they can afford the technology.

Second category of the challenges which are still threatening the company and shall be addressed, include the following (SELCO business plan 19):

Specific Financing Program: Currently the company operates more often on the personal favors of branch managers of partner banks, because the banks have no specific scheme for poor people to finance the solar products. Therefore the SELCO India needs a self reliant and more specific financing scheme which could be comparatively more reliable and sustainable in the long run.

Proper Governance Structure: While the company has successful operation in three areas of the country, but still the limited availability of managerial and technical staff to join the cause is main barrier for its further expansion.

Public Awareness: Majority of the poor population is biased toward solar power; they think the solar system doesnt work. Therefore they are skeptical to inter into long term loan with financial institutions. The company needs to create more public awareness that solar systems are equal or even more reliable source of energy.

Loans and Backend Financing: The Company has acquired different loans which is expensive for this type of social business. Therefore the company must look for other financial resources to be fair enough and flexible with market fluctuation.

Fund for Innovation: SELCO is hardly finding sufficient fund for its operation and expansion activities, moreover the fund for innovation is extremely hard for them to rise. They have difficulty in convincing the donors or other investors to award fund for innovation in solar systems for poor, because the return on these products are very small, furthermore it does not give immediate return to investors.

SELCO INDIA Technology Products at a Glance

Wireless Local Loop For Small Businesses:

Water Pumping & Micro-Drip Irrigation

12V DC RefrigeratorSolar Light System

Water Thermal ProductSolar Powered Sewing Machine

Webliography:

SELCO BUSINESS PLAN 2006-2010, SELCO The Rural Energy Service Company URL : www.yale.edu Corporate Brochure, SELCO INDIA, URL: http://www.selco-india.com/pdfs/corporate_brochure_selco.pdf Biswas Rabin, State wise Population of India as per 2011 Census, URL: http://updateox.com/india/state-wise-population-of-india-as-per-2011-census/ Mitra Sramana Interview with Harish Hande, one million by one million blog, Social Entrepreneur: Harish Hande (Part1) , URL: http://www.sramanamitra.com/2007/05/10/social-entrepreneur-harish-hande-part-1/ SELCO India Company Website, URL: http://www.selco-india.com/technology.html GoI, Private Limited Company , Business Knowledge Resource, URL: http://business.gov.in/starting_business/org_private_ltd.php Mukherji Sourav, UNDP Case Study, SELCO: Solar Lighting for the Poor 2011. URL : http://www.growinginclusivemarkets.org/media/cases/India_SELCO_2011.pdfSELCO Case Study, Yale school of management, Design and social enterprise case series,SELCO, URL: http://nexus.som.yale.edu/design-selco/?q=node/148 SELCO people, SELCO India, URL, http://www.selco-india.com/selco_people.htmlSELCO BUSINESS PLAN 2006-2010, SELCO, the rural energy service company, URL: http://www.yale.edu/ SELCO Business Plan 2006-2010, URL: http://www.yale.edu/

Other Works Consulted:

1. Yale School of Management, Design and Social Enterprise case series, SELCO. http://nexus.som.yale.edu/design-selco/?q=node/942. The National Solar Mission, January 2012 : http://www.selco-india.com/pdfs/nsm_practitioner's_perspective.pdf3. Case study: the potential for off-grid solar in Bihar, http://www.selco-india.com/pdfs/bihar_case%20study_aug%202012.pdf4. 1 Billion Reasons to Deliver Solar Energy Access for the Poor, Hande, harish. http://www.selco-india.com/pdfs/op_ed_by_carl_pope.pdf5. Quarterly News Letter, June 12, issue 2, http://www.selco-india.com/pdfs/selconnect_sept12.pdf

Disclaimer:This is document is not checked for compliance with plagiarism, grammatical accuracy or any type of academic integrity. Use it with your own risk; author is not responsible for any kind of liability whatsoever. Category: Poverty Reduction, Case Studies

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