Business Outlook

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Business Outlook, Coverage on Fab India on handicraft companies September 5, 2009

William Bissell, FabindiaThe Mission: To solve a sourcing problem by consolidating artisans into 17 companies. The Benefits: Sourcing has become easy. Artisans are shareholders and get dividend. Back in 2007, William Bissell, Managing Diretor of Fabindia, was wrestling with a complex problem. The company sourced products for its 105 stores from thousands of artisans across the country and this was proving a logistical nightmare. Bissell, son of Fabindia founder John Bissell, wanted a solution. So he did something unconventional—he organised the artisans into 17 community-owned companies, based on their geographic locations. With that stroke of genius, he resolved the issue—Fabindia now sources all its products only from these companies. The artisans—there are 30,000 of them today—became shareholders in their respective companies. They bought their shares at Rs 100 a piece and together got to own 26% in the entity. Fabindia controls 49% of each company through its investment arm, Artisans Micro Finance (AMFPL). Fabindia employees own 10% while external investors hold the remaining 15%. “Over a period of time, we would like to reduce our shareholding to 26%, while increasing artisans’ ownership to 49%,” says Smita Mankad, Managing Director of AMFPL. “Having artisans own the companies helps us to tap new craft forms,” adds Mankad, who manages Fabindia’s sourcing operations. The company recorded revenue in excess of Rs 300 crore in FY09. It is profitable but does not reveal numbers. It wasn’t easy for Fabindia to get the artisans to buy into the idea. “Setting up these community-owned firms is extremely challenging,” says Bissell. “In the beginning, it creates a tremendous drag on the company.” The artisans, spread across the country, had little or no knowledge of corporate structures. Organising them to participate in the proposed commercial entities consumed a lot of time and energy. But the effort has slowly begun to pay off. To date, about 16,000 artisans—more than half of Fabindia’s supplier base— have bought shares in their community companies. Becoming equity partners in the company that sells their products has given them a sense of ownership. Nevertheless, it’s one thing to have artisans as shareholders and quite another to determine the value of their shares. But Bissell and his team have that tricky area covered. Every six months, after the accounts of the 17 companies are audited, Fabindia opens a two-month window for trading. People interested in buying or selling shares have to express their willingness. The matching, in terms of price and quantity, is done by Fabindia. As a result, some artisans have sold shares at Rs 500 (a profit of 400%), based on their company’s performance and demand for shares.

Though returns from social entrepreneurship business models are comparable, Bissell says the community-owned firms would take at least a decade to pay off because it takes time to build business volumes. Still, Fabindia’s initiative could prove to be an excellent model for other companies to follow.

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