Schneider Electric in Rural India:

Schneider Electric in Rural India: Integrating Social Responsibility with BOP Strategy 10/2012-5888 This case was written by Jasjit Singh, Associate Professor of Strategy, and Christiane Bode, PhD Candidate in Strategy, both at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright 2012 INSEAD TO ORDER COPIES OF INSEAD CASES, SEE DETAILS ON THE BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, REPRODUCED OR DISTRIBUTED IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER.

In early 2012, Schneider Electric s management team in India was assessing whether to give more priority to low-income rural markets going forward. If the decision was made to do so, they would have to decide how to build new capabilities, come up with new product offerings, and design new business models to tap the rural potential. Schneider Electric, a Fortune 500 company headquartered in France, was a leading player in energy management products and solutions. Its customers were primarily large enterprises based in major cities; historically it had not focused on end users. 1 Although the company had launched several rural initiatives as part of its corporate social responsibility (CSR) agenda, most were at least partly insulated from market forces. A view was emerging that there could be an independent profit-generating rural business, but it was too early to judge how these nascent efforts would turn out in the long run. Olivier Blum, Country President for Schneider Electric in India, believed in encouraging these rural experiments as a means of gaining valuable insight in the absence of established market research or proven business models for rural areas. Given that early-stage projects could not be expected to deliver big profit margins if profitable at all the challenge was to evaluate the effectiveness of the different models being experimented with. Opportunities and Challenges in Rural India Lack of sufficient access to electricity was a big issue for the rural population in emerging markets like India. While far behind cities in terms of average income levels, villages in India represented a significant latent demand for energy, and this was projected to grow rapidly in the coming decades. In 2011, 1.4 billion people globally (300 million households) had no access to electricity, and the majority of these earned less than 2 dollars per day. About 500 million lived in India, 220 million in sub-saharan Africa (including 70 million in Nigeria), 2 100 million in Indonesia, and 100 million in Bangladesh. As energy is a basic necessity, lowincome families around the world spend over $15 per month on average on energy (about 30% of their income). In India, the government had tried various plans and regulations (such as the 2003 Electricity Act) to provide access to electricity. 3 However, the power grid still did not reach 97,000 out of 600,000 Indian villages. Even where it did reach, it often functioned for only a few hours a day or not at all. Therefore solutions geared towards providing rural households with access to energy could not rely on this source. In the absence of grid power, energy needs were typically met by conventional means such as kerosene lamps for lighting homes. Although diesel generators were too expensive for most individual households, on rare occasions an individual would buy a generator to provide lighting to others at a cost. Products for backing up the mains supply, such as the power 1 For more background on Schneider Electric and its other efforts to grow its business in India, please refer to INSEAD case study 04/2012-5882 Schneider Electric in India: Power Backup Products by the same authors. 2 Access to Energy for Communities. Schneider Electric. 6 March 2012. <http://www.east-med.schneider Electric-electric.com>. 3 Electricity Act, 2003. Ministry of Power: Government of India. 6 March 2012. <http://www.powermin.nic.in/>. Copyright 2012 INSEAD 1 10/2012-5888

inverters often used in Indian cities, were less common in villages given their high cost relative to income and insufficient grid power to charge their batteries. Several solar products, including many low-cost ones made in China, had become available in recent years. They were attractively priced but often of poor quality. Overall, there was still a need for good quality, affordable energy solutions for the rural market. Not only did rural customers have low incomes, they also faced severe liquidity and credit constraints. Even when the price seemed within reach, they were often unable to purchase items requiring upfront payment. Developments in the functionality of mobile phones had created a market potential, even among low-income populations, thanks to payment models such as prepaid phone cards in denominations as small as Rs. 5 (about $0.10). Using this template, energy companies had started experimenting with energy solutions that allowed payment in instalments and financing through institutions like rural banks. As one member of Schneider Electric s rural business unit observed: You can sell even expensive products as long as you have a business model through which the customer can pay in instalments. India s vast geographic spread, poor infrastructure and rural fragmentation made costeffective distribution difficult. The distribution and retail networks of large companies were mostly confined to tier 1 and 2 cities. Although they were expanding their reach into smaller cities and villages located close to these, there were few proven models that extended to the more remote villages that made up a significant fraction of the rural base. Even local players offering ad hoc energy solutions in small towns and villages had not been able to scale up. Schneider Electric s Initiatives in Rural India For several years, Schneider Electric had sought to address the energy needs of low-income rural customers in various ways. Vikas Jaywant, its Vice-President of Rural Business and CSR in India, explained: We are in the business of energy. When we wanted to do CSR, we therefore started with giving access to energy to the base of the pyramid. Schneider Electric funded an entity called the Schneider Electric Foundation, whose Indian affiliate helped provide access to energy to selected villages (Exhibit 1). Employees often contributed to the Foundation from their salaries and spent time as volunteers installing lighting solutions in villages. Rahul Gautam, Managing Trustee for the Schneider Foundation in India, noted that employee satisfaction from these hands-on efforts was immense and helped employees identify with the company. Management saw it as important for the personal development of employees and valuable for recruitment and retention. Shalini Sarin, Director of Human Resources in India, recalled: The programme has had a huge impact, even on lateral hiring. Every time I interview people, whether on campus or laterals, people are very inspired and very motivated, and want to be a part of the story. Copyright 2012 INSEAD 2 10/2012-5888

Furthering its commitment to help disadvantaged communities in countries in which it operated, Schneider Electric had created a global initiative called BipBop in 2008 with the explicit support of CEO Jean-Pascal Tricoire. Bip stood for Business, Innovation and People which constituted the company s three-pronged base-of-pyramid (BOP) strategy (Exhibit 2). The Business dimension of the BipBop initiative was a venture capital fund for companies working on access to energy challenges in rural areas. The Innovation dimension was meant to challenge Schneider Electric to develop appropriate products and solutions for the BOP, including models where entrepreneurs from the base of the pyramid were provided with help and resources to set up related electrical businesses. The People dimension was to impart electrical skills (often through partnerships with NGOs specializing in training) to young unemployed people at the base of the pyramid, so that they could find employment in the electricity domain. 4 The BipBop programme had emanated from the progressive evolution of Schneider Electric s social responsibility agenda, leading to a closer integration of its CSR activities with its core business. A report by Gilles Vermot Desroches, Sustainability Senior Vice-President, and Thomas André, PhD candidate at the Ecole Polytechnique, explained how the BipBop programme fit into Schneider Electric s strategy: First, it conducts as a solution provider when combining different products, financial support, and trainings to answer to low-income people needs. Second, it focuses on making energy safe, reliable, efficient, productive, and green. Third, sales are focusing on new economies and emerging countries. Finally, it strongly emphasizes the need for collaboration through external partnerships. 5 BipBop had become a comprehensive framework for aligning Schneider Electric s CSR agenda with its business in India. Management hoped that this would help give disadvantaged populations access to energy in a way that also had long-term business benefits for Schneider Electric. Olivier Blum reasoned: Even if the profit is minimal, driving this initiative as a business will allow it to be scaled up. We are talking about access to energy for millions of people. It was doubtful, however, whether Schneider Electric s urban business would benefit from its CSR activities in rural areas. For example, it was unclear whether the positive image created from rural initiatives would boost business from the large corporate customers that formed the bulk of its current customer base. Senior management had nevertheless decided to pursue BipBop as a platform for Schneider Electric to build rural capabilities for the future. Although BipBop was a global initiative, India was chosen as a site for the product and business model experimentation as a part of its Innovation pillar. A steering committee reported to Olivier Blum, and Abhimanyu Sahu, then a senior R&D manager based in Bangalore, was designated to head an initial market study. Sahu recalled: 4 Access to Energy for Communities, Schneider Electric. 6 March 2012. <http://www.east-med.schneider Electric-electric.com>. 5 The BipBop programme: Providing access to reliable, affordable and clean energy with a combined approach of investment, offers and training by G.V. Desroches and T. André. FACTS Reports. 2012. Copyright 2012 INSEAD 3 10/2012-5888

I still remember the breakfast meeting with Olivier in 2009. He said I'm putting together a rural team and would like you to lead it. I asked What am I supposed to do? He said, I am not sure. It was experimentation, and I took this on in addition to my everyday responsibilities. Sahu s team studied rural initiatives by government ministries, electrification corporations, state government electricity boards, banks, private firms and NGOs. They also conducted face-to-face meetings with electricians, contractors and potential customers in villages across India. He recalled the message the team had communicated to management: Are we prepared to enter a completely new business that offers BOP solutions based on new business models? We have very few of the concrete offerings needed, so they will need to be created. And to deliver these in a financially viable fashion, we will also need to identify and train local entrepreneurs, provide them with support and financing, and design complete solutions they can sell. This means we will also need to have tie-ups with partners like financing companies and training facilities. Blum had given the green light to set up a new R&D venture to come up with the first BOP offer and take it from there. Sahu had become the leader of this independent group, reporting directly to the corporate-level Strategy and Innovation function rather than being confined within any existing R&D department or business unit. Although it had a worldwide mandate, the initial focus was to be India as the country with the largest BOP customer base. It was hoped that the resulting products and business models could be adapted to African countries as well as Asian markets like Indonesia, Vietnam and the Philippines. Incubating a new rural R&D venture inside a large global company like Schneider Electric had both advantages and disadvantages, as one individual argued: Of course being a global company, the costs are higher. This also does slow things down sometimes. But, at the same time, it is a cushion for us as well. If we were trying to do the same thing as a start-up, we wouldn t have been able to do it. A small Indian company does not have the financial might and the brand name. When we go to the distributor level and tell them that we are from Schneider Electric and that we are seriously looking at the rural market, they believe us. By 2011, the rural R&D team had grown to a dozen people located in Bangalore, supported by individuals based in France with global roles related to business development and sustainability. Sahu had also been assigned an additional responsibility as Programme Director for BipBop in India. In the meantime, Blum had recruited Vikas Jaywant from his business development role in South-East Asia to become the Vice-President of a new Indian Rural Business and CSR team located in Mumbai. This team was to develop sustainable commercial models for rural markets in collaboration with the rural R&D team. Copyright 2012 INSEAD 4 10/2012-5888

A Home Lighting System for Rural Markets? Schneider Electric s rural R&D team found that although segments differed in their exact needs, most rural markets shared a common minimum product requirement: they all required energy solutions that did not critically depend on grid power. Relying only on power back-up products charged from the mains supply (such as power inverters) would not suffice, even in rural areas that had access to the grid, as they rarely had power available for sufficient hours in a day. Therefore, tapping an alternative source of energy such as solar power was critical for serving rural markets. The R&D team started analysing ways in which rural customers would benefit from access to energy. Although cooking was a critical energy-consuming activity, villagers seemed reasonably satisfied with existing stoves that relied on biomass. The team realized they could create more unique value by targeting the second-largest energy need for rural customers lighting for which the existing option (kerosene lamps) left much to be desired. According to the Economic Times: About 39% of households in rural India still use kerosene to meet their lighting requirements. Kerosene lamps generally provide poor quality light, produce greenhouse gas emissions and have significant health and safety hazards associated with them. Thus the need for an alternative solution for rural lighting arises. Around 62 million rural households depend upon kerosene to meet their day-to-day lighting needs. 6 The idea that Schneider Electric should develop a home lighting system that did not rely on the grid was a challenge since it had not even tried providing a grid-based lighting solution before. The company s engineers nevertheless felt that they could leverage their existing R&D and manufacturing capabilities to create an appropriate high-quality lighting product. The biggest issue was getting to a cost low enough for it to be viable in the BOP setting. If the company got it right, a successful home lighting system could be followed by similar products meeting other rural needs like charging mobile phones and powering televisions and fans. The In-Diya Home Lighting System The product to emerge from R&D efforts to design an affordable, good-quality home lighting system was called In-Diya (Exhibit 3). It could be operated using grid power when available, even at low voltages. In the absence of grid power it relied on a battery that could be charged using solar panels. The lamp provided enough light to illuminate a room of 12ft x 12ft for normal household activities, and the accompanying battery could operate for eight hours at a time. Even though the offering was meant for low-income customers, In-Diya was a quality product in line with Schneider Electric s global standards, and went on to win several awards such as the citizenship innovation award of the French Innovation Observatory. In recent years, compact fluorescent lamps (CFLs) had replaced conventional light bulbs due to their energy efficiency. 7 Despite the fact that a CFL was priced at about Rs. 200 ($4), ten times the cost of a fluorescent bulb, an 18W CFL could generate as much light as a 100W 6 The Economic Times, September 14, 2011 7 How many light bulbs does it take to change the world? by C. Fishman. Fast Company. September 2006. Copyright 2012 INSEAD 5 10/2012-5888

bulb enough electricity saving to make up for the higher price. Rather than going with CFLs, however, the In-Diya solution chose to go with an even newer technology based on LEDs (light emitting diodes). This decision was made primarily because LEDs were more energy-efficient even relative to CFLs: the In-Diya LED lamp emitted as much light as an 11W CFL but consumed only half the power. The latter was a particularly critical factor because it helped keep the necessary power capacity (and hence cost) of solar panels and batteries under control, which was vital in the absence of grid power. Another benefit of LED technology was the cost over the lifetime of a light. Despite the high upfront cost, LEDs had a much longer lifespan. An In-Diya LED lamp selling at Rs. 900 ($20) was over five times the cost of a CFL, but it typically lasted 10 years, while a CFL had a lifetime of just one year. The cost of a complete In-Diya solution that included not just the LED-based lamp but also the associated solar panel and rechargeable battery was about Rs. 4,000 ($90). Schneider Electric did not manufacture the solar panel or battery in-house, so it had to source them externally. Most parts of India got plenty of sunshine throughout the year, and the technology was expected to become even more attractive as solar panels continued to fall in price and increase in efficiency. 8 Some industry observers projected that solar power was likely to within a few years achieve grid parity, i.e., the same cost per unit as the grid. 9 Mrinal Arora, a senior manager working in rural business, recalled: Five years ago solar panels were twice the price today. Within the last year alone, the price has reduced drastically, and it is still going to reduce more. There is also another variable: efficiency. The solar panel five years ago used to have a conversion ratio (fraction of solar energy converted to electricity) of 5%, while today this is 20%. Schneider Electric hoped that the In-Diya platform could in the future be extended beyond lighting to other applications like fans and televisions re-designed to run on DC (direct current) power, the current that a solar-based solution generated. Vikas Jaywant argued: In-Diya can be integrated into any future solution. This is not a stop-gap until the grid reaches the villages. In our view, there are at least a certain number of villages for which, even in the long run, solar makes more sense than any other solution. Even in an overly optimistic future scenario, where all villages would have reliable access to grid power, he felt that the resources and capabilities Schneider Electric was currently building through the In-Diya experience were still highly relevant: As rural areas develop, the products which are sold in the city will also start to have a demand in the villages, and we will already have the distribution networks which nobody else will have... Today, we are creating a network there and using it to give them specific products they can use. Tomorrow, if grid power becomes available, the network can be used to sell the products we sell in the cities. Some early In-Diya sales resulted from tie-ups with entities that had existing rural 8 A sunny land s ambitious push for solar power. International Herald Tribune, 29 December 2011. 9 The boomerang effect. The Economist, 21-27 April 2012. Copyright 2012 INSEAD 6 10/2012-5888

infrastructure, such as a partnership with Grameen Bank that helped with distribution of and financing for In-Diya solutions in Bangladesh. Some enterprise customers, such as hospitals, also purchased In-Diya as a power back-up solution. However, such sales represented only a small share of the market and it was clear that in order to reach full potential the company would have to build its own distribution and sales models targeted specifically at the mass market in rural India. Commercial Approach I: Selling In-Diya through the Retail Network Most of Schneider Electric s conventional business relied on direct sales to enterprises located in cities. Although this had been extended by selling products through distributors, most of these distributors were still operating within tier 1 and tier 2 cities. While the company had also started to develop retail channels for some of its products, these efforts were still at an early stage and primarily focused on large cities. To build a rural business, efforts were now underway to develop distributors in tier 3 and tier 4 cities, using some of these as the last node to reach rural areas. These distributors often sold other electrical products and accessories, as well as diverse goods like soft drinks, books, seeds and fertilizers in order to have sufficient scale despite the geographic fragmentation they faced outside the major cities. Schneider Electric also supported distributors in identifying viable retail outlets. The hope was that In-Diya would be an attractive and affordable option for at least some of the households these retailers reached. A big challenge, in addition to the reach of the network, was controlling the costs associated with the long supply chain. Mrinal Arora explained: There is no way to access the villages without first going through the chain of nodes in urban and semi-urban locations. Each of these nodes expects at least a 5% margin. To increase its rural distribution, Schneider Electric started selling products through a network of independent entrepreneurs that were already a part of the rural communities they served (Exhibit 4). Such an approach had been shown to work well in sectors like FMCG (fast moving consumer goods), where rural distribution initiatives like Project Shakti from Unilever had generated a lot of excitement. 10 However, given the high price of a product like In-Diya compared to other products like detergents that rural entrepreneurs sold, relying on retail sales by rural entrepreneurs proved insufficient for achieving large sales volumes. The affordability of In-Diya turned out to be a bigger challenge than expected. Although the effective annual cost of an LED lamp was actually cheaper due to its energy efficiency and long life, customers seemed reluctant to pay the upfront cost. It was hard to convince even relatively well-off customers to make the purchase. Customers with access to grid or inverter power, who were not a primary target for In-Diya, preferred to use CFLs with a lower upfront cost. More importantly, many of those without access to grid or inverter power also continued with traditional or alternative solutions rather than spending scarce household funds on a multi-component solution (an LED lamp, solar panel and battery). It was clear that Schneider Electric would need very different commercial models to increase adoption of In-Diya. 10 Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century. William Davidson Institute Case Study, 06 November 2006. Copyright 2012 INSEAD 7 10/2012-5888

Commercial Approach II: A Subsidized Rental Model The rural team considered a two-pronged approach to the related issues of price and affordability. The first was to lower the overall price, which could involve subsidizing the business until Schneider Electric was able to lower the manufacturing and distribution costs through experience or by building sufficient scale. The second was to spread payments over time so that In-Diya was not perceived as much more expensive than what customers were already spending every day on substitutes to meet their lighting needs, which was roughly Rs. 10 ($0.22) for the average rural household. Undoubtedly, In-Diya provided a better quality lighting solution than alternatives such as kerosene lamps or torchlight. It also circumvented the hassle of either procuring kerosene by jostling at government-controlled outlets or purchasing it on the black market. As long as the daily expenditure on an In-Diya solution did not exceed what customers were currently paying for their lighting needs, it could be expected to succeed. The most promising model seemed to be one where a local entrepreneur rented out rather than sold In-Diya lighting products to other households in their village. The constraints of this model were the limited initial funding of the entrepreneur as well as their limited electrical expertise and business skills. The assumption was that both challenges could be addressed by nurturing entrepreneurs within Schneider Electric s BipBop framework. Since its inception in 2008, the Schneider Foundation had already focused its efforts on providing training and employment to people at the base of the pyramid. This had primarily involved working with partners to conduct electrical training courses that provided unemployed rural youth with skills to find employment as electricians. By 2011, about 1,800 youth had been trained in 26 training centres across India. Some had found work in existing Schneider Electric manufacturing plants and at some of its channel partners. Schneider Electric handpicked 200 of the electricians already in training through the Foundation as company-affiliated entrepreneurs. Recognizing that the business model could only work if the individuals had the genuine motivation and ability to succeed as entrepreneurs, they were carefully screened. For example, one of the enrolment criteria required potential entrepreneurs to demonstrate that they could name 10 households in their village that would rent the lamps and batteries. As part of a pilot programme, the Foundation agreed to donate the kit potential entrepreneurs would need to start a small business. This free kit was worth Rs. 58,000 ($1,300), and included a set of 10 In-Diya LED lamps, two sets of 10 rechargeable batteries, a batterycharging station with solar panels and installation materials. Since a battery could last approximately eight hours on one charge, while most households required four to six hours of artificial lighting a day, the entrepreneurs were expected to be able to recharge one set of 10 batteries during the day (on grid or solar power), while the other set was with the 10 households where the In-Diya lamps had been permanently installed (Exhibit 5). Each of the 10 customers were expected to pay Rs.10 per day for the entrepreneur s service of picking up, charging and delivering the battery associated with the In-Diya lamp. This did not exceed the estimated daily household energy budget. It was possible for the entrepreneur to make additional income through ad hoc services like charging batteries for mobile phones. A Copyright 2012 INSEAD 8 10/2012-5888

back-of-the-envelope calculation suggested that the entrepreneur could make in the range of Rs. 135 ($3) per day or Rs. 4,050 ($90) per month. Although not excessive, it was an acceptable income for a typical villager with this socio-economic background (Exhibit 6). From the point of view of Schneider Electric s rural business unit, rural markets were to be served as a profit-generating opportunity. The subsidies involved came from the legally separate Schneider Foundation, a not-for-profit entity that also coordinated training future entrepreneurs with the electrical skills involved in installing and servicing In-Diya products (see Exhibit 7). Half of the net profits from commercial sales of In-Diya were to be put back into the Foundation to further the cause of BipBop and make the Foundation sustainable. Commercial Approach III: An Unsubsidized Rental Mode? In order for its rural efforts to be sustainable and scalable in the long run, it was important to come up with a business model in which the entrepreneurs did not need to be given the initial In-Diya kit for free but could be convinced to purchase it. The challenge was to build a critical mass of entrepreneurs who would find an unsubsidized rental model viable to be a decent value proposition. Given the level of subsidy in the previous model (Rs. 58,000 or $1,300), ensuring an attractive income for the entrepreneur if it were removed was not easy. Even in cases where the lifetime cost per se was not the issue, the success of even the unsubsidized rental model hinged on Schneider Electric being able to help potential entrepreneurs get access to financing, as few individuals had access to sufficient cash or credit to purchase the initial kit. The rural team believed that as long as the interest rates on the load did not exceed 10-15%, it was possible to come up with an attractive value proposition for potential entrepreneurs. However, interest rates in rural areas tended to be higher and it was unclear whether lenders would be willing to give loans at lower rates. In recent years, microfinance institutions (MFIs) had emerged as a popular mechanism for providing small loans for starting small rural enterprises, but they charged around 24% interest. In addition to charging high interest rates, MFIs rarely covered loans larger than Rs. 20,000 ($440). An alternative was for Schneider Electric to tie up with rural banks to provide loans, but it lacked the rural reach to support this. The rural team therefore explored partnerships with infrastructure-related institutions interested in breaking into rural markets, as well as with distributors who themselves might be willing to provide an entrepreneur with the option of paying for the purchased In-Diya kit in instalments. Irrespective of the source of the loan, Schneider Electric s rural team envisioned that the principal of Rs. 58,000 ($1,300), and cumulative interest at 10-15% per annum, could be serviced over the course of 10 years. This was the expected life of the In-Diya LED lamps, even though the batteries had a life of only three to four (stretching to about five years if one were willing to live with inferior performance). Assuming an interest rate of about 13%, the monthly instalment that the entrepreneur would have to pay to cover a loan of Rs. 58,000 ($1,300) over 10 years worked out at about Rs. 900 ($20). Assuming that the entrepreneur s rental income was Rs. 4,050 ($90) per month as per the back-of-the-envelope calculation described above, his monthly income after paying the loan instalment would be in the range of Rs. 3,150 ($70) about 22% lower than in the subsidized Copyright 2012 INSEAD 9 10/2012-5888

case. This still did not take into account the cost of replacing the batteries during the 10 years, which would reduce the income further. Moreover, this income was not assured and was sensitive to the exact assumptions built into the model. Nevertheless, the hope was that it would still be attractive to well-qualified entrepreneurs, especially if it was possible to find ways in which they could extend their income. Going Forward Looking back at the development of new rural products like In-Diya and at the new channels, structures and processes Schneider Electric had set up to reach rural markets, Olivier Blum had every reason to be proud of what the company had achieved in just a few years. Yet a lot still needed to be done, and it would likely take years of experimentation and learning for Schneider Electric to build all necessary resources and capabilities and to perfect commercial models that could lead to a sustainable profit-generating rural business. Several broad issues were still being discussed regarding Schneider Electric s rural strategy: To what extent should rural efforts focus on making a profit? Was In-Diya the right platform for building a rural business? How would the evolution of solar and alternative technologies affect the viability and profit potential of products like In-Diya? How could the rural reach of the company s distribution and retail channels be extended and made more cost-efficient? Regarding the rental model, his most urgent concerns were: How would Schneider Electric continue developing a critical mass of entrepreneurs with the right skills? Who were the right training and financing partners for scaling up the business? How could the model be improved further to reduce the entrepreneur s dependence on subsidies? Despite the fact that the rural market offered a significant long-term opportunity, there was uncertainty on how the competitive game would play out. A key risk was that cost could turn out to be the most dominant factor determining success, in which case it would be harder for Schneider Electric to build a sustainable competitive advantage. In particular, strong domestic competitors might still be able to develop lower-cost solutions that were still good enough for rural needs and also build rural networks with better reach in terms of sales and distribution. While aware of the challenges in serving rural markets, the Schneider Electric management was also optimistic about the potential benefits of these efforts for the company as a whole. The efforts from India would surely be important for the overall BipBop programme and strengthen the company s brand and reputation globally in line with its social responsibility agenda. In addition, it could help create new business models for emerging markets worldwide, including suggesting new ways of allying with non-conventional actors like nongovernment organizations, varied financial institutions, social entrepreneurs and government bodies. Finally, innovation lessons from rural India might inspire new ideas relevant even for the more mature markets. The rural opportunity itself, combined with these broader benefits, in the management s view justified continuing to view rural India as a priority market. Copyright 2012 INSEAD 10 10/2012-5888

Exhibit 1 Charter for Schneider Electric Foundation in India Source: http://www.sei-foundation.com/images/pdf/the-seif-charter.pdf Copyright 2012 INSEAD 11 10/2012-5888

Exhibit 2 Schneider Electric s BipBop Programme BipBop global cumulative targets for the end of 2011: 1,000,000 households at the base of pyramid to have access to energy thanks to Schneider Electric solutions. 10,000 young people at the base of the pyramid to be trained in the electricity field. 500 contractors at the base of the pyramid to set up their activities in the electricity sector. Source: Access to energy program for the base of the pyramid. Schneider Electric web site: <http://www2.schneider-electric.com>. Accessed 22 April 2012. Copyright 2012 INSEAD 12 10/2012-5888

Exhibit 3 The In-Diya Rural Home Lighting Solution Features Can illuminate a room of 12ft x 12ft uniformly for normal activity. Can be used off-grid with a 12V 10Wp Solar panel and 12V 5Ah battery. Provides 8 hours of operation when using battery. Maintains same brightness even during low voltage supply from grid. Specifications Operating voltage : 90V 250V AC/ 50-60Hz, 12V DC Light Output : Equivalent to 11watt CFL ( Compact Fluorescent lamp ) LED Life : 50000 hours Power consumption by LED : 5.5 watt when operated on AC supply : 4.5 watt when operated on battery / Solar Battery :12V, 5Ah Sealed Maintenance Free battery Source: In-Diya - efficient lighting solution for the BOP. Schneider Electric web site: <http://www2.schneider-electric.com>. Accessed 22 April 2012. Copyright 2012 INSEAD 13 10/2012-5888

Exhibit 4 Using Entrepreneurs for Rural Sales and Distribution Ent 5 Ent 10 Ent 4 Retail Node 3 Ent 3 Ent 1 Ent 2 Ent 2 Schneider Electric Distributor Ent 1 Ent 3 Retail Node 1 Ent 10 Ent 4 Ent 5 Ent 10 Retail Node 2 Ent 4 Ent 1 Ent 2 Ent 3 Source: Adapted from a Schneider Electric presentation Copyright 2012 INSEAD 14 10/2012-5888

Exhibit 5a The Battery Rental Business Model Source: Adapted from a Schneider Electric presentation Exhibit 5b A Closer Look at a Battery Charging Station Source: Adapted from a Schneider Electric presentation Copyright 2012 INSEAD 15 10/2012-5888

Exhibit 6 An Entrepreneur Enrolled in the Battery Rental Model Source: Adapted from a Schneider Electric public document for a case-writing competition Copyright 2012 INSEAD 16 10/2012-5888

Exhibit 7 Supporting Entrepreneurs in the Rental Model Finances Seed Money for entrepreneurs Provides the battery charging station and the configuration for setting up the business Schneider Electric Foundation France Training Partner Entrepreneur Schneider Electric India Foundation and training partner Trains Trainers Trains Entrepreneur Schneider Electric India Hand hold the entrepreneurs to identify segment market, help in promotion of the products and establish the business, induction to Retail Sales Entrepreneur Source: Adapted from a Schneider Electric presentation Copyright 2012 INSEAD 17 10/2012-5888

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