E-Business for Marketing of Handicrafts and Textile Products for SMEs Experience of the Bhutans E-business Pilot Project

on Textile Handicrafts

Kinzang Tobgyal Project Manager, E-Business Project kintob@druknet.bt Policy and Planning Division MINISTRY OF Economic Affairs Thimphu: Bhutan.

August 2007

UNDP funded Project E-Business Piloting & Readiness for Rural Women Artisans and Entrepreneurs in Bhutan.
Introduction The titled project E-Business Piloting & Readiness for Rural Women Artisans and Entrepreneurs in Bhutan was signed in August 2003 with funding from the Women in Development Fund (WIDF) and UNDP with a total fund allocation of US $ 212,180/-. The project has extensive collaboration with National Handloom Development Centre (NHDC), Handicrafts Emporium of the National Womens Association of Bhutan and the community weavers of Khoma and Radhi villages. The project intends to assist the rural women weavers in terms of quality improvement, product diversification, packaging and product branding of the hand woven textiles so as to have better access to local and international markets. Objective The main objective of the E-Business project is to empower rural women handicraft producers through training and network building, strengthening of the intermediary level of handicraft trade. (Favoring women entrepreneurs) The project also aims to facilitate the creation of an enabling environment for e-business within the handicrafts sector by building capacity in the Ministry of Trade and Industry and the regional offices. Further, the project will study the possible e-business modalities within handicrafts (textiles) and following the result an experimental e-business application for the handicraft sector will be carried out. By supporting the piloting of e-business, the project is expected to enhance the economic empowerment of rural women through expanded economic opportunities. UNDP Bhutan assistance is aimed to support the RGoB at three outcome levels: Strengthening the capacities of rural handicraft producing women; Strengthening the capacities of handicraft entrepreneurs; Facilitating the creation of an enabling environment for e-business in Bhutan.

The project has been divided into 4 out puts with clear cut objectives and activities planned under each out put. A Pilot e-business Plan to enhance the market for handicrafts producers in East Bhutan formulated. Support provided to MTI/RTIOs to implement the e-business action plan. The Pilot E-business Plan carried out. E-business Policies examined and strategies identified. Project implementation scheme: Although overall objectives and out puts were specified in the project document, a detailed field visit was felt necessary to ascertain the needs of the communities. Subsequently a needs assessment exercise was carried out by the project team1 with the objective of selecting a relevant project site (s) and also to develop a detailed work plan which addresses the needs of the communities. The project team visited 4 eastern Dzongkhags2 and based on the needs assessment, Khoma Geog in Lhuntse and Radhi Geog in Trashigang was chosen as the Pilot project sites. Some of the important findings or problems faced by the rural weavers during the needs assessment were as follows: I. II. III. IV. V. VI. VII. Limited product development or product range Lack of skills for product development or diversification Limited of information on market access Problems in accessing finance and raw materials Need for a vegetable dyeing training Irregularities in pricing of the products Lack of mechanization

The needs and problems of the rural artisans/stakeholders were discussed and incorporated into the work plan of the project during the UNDP Learning Session in June, 2004, and approved during the Project Steering Committee Meeting in late June 2004. However some of the activities had to be targeted at an intermediary level to make it logical and beneficial. Based on the discussion with stakeholders, an agreement was reached, where by NHDC would provide support in terms of
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Officials from MTI, UNDP, NHDC and NWAB carried out the needs assessment exercise. Districts. The team visited Trashigang, TrashiYangtse, Mongar and Lhuntse Districts.

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UNDP funded Project E-Business Piloting & Readiness for Rural Women Artisans and Entrepreneurs in Bhutan.
trainings, supply of vegetable dyed yarns and quality control and Handicrafts Emporium would provide market access to the rural weavers. 1. Group formation among rural weavers for SME development. Having identified the needs, the next logical step was to form the groups among the weavers for better coordination of the project activities and hence the weavers in the project sites were selected in consultation with the geog officials. These two weavers group in Khoma and Radhi became the basis for implementation of the project activities. A total of 20 weavers are registered in Khoma weavers group and another 23 women in Radhi weavers group. These weavers groups are guided by a simple Memorandum of Understanding (MoU) signed by the group leaders. The MoU specifies the roles and responsibilities of the groups and other arrangements ranging from operation of the yarn bank instituted by the project, to product development and marketing. 2. Trainings conducted by the project. To address the needs of the community weavers, numerous training were conducted by the project in collaboration with the UNDP and other stakeholders like NHDC, Handicrafts Emporium and the experts fielded by the UNDP. The following trainings were conducted since the inception of the project till date. I. II. III. IV. V. VI. Training on natural dyes and processes. Product Development & Designing Workshop/Training Creative Weaving Training Creative Dyeing Training Creative Weaving & Dyeing Training: (for western and central Dzongkhags) Pricing and costing analysis workshop for handicraft traders.

Apart from these trainings numerous other activities were held by the project at intermediary levels to achieve its objectives and outcomes. I. II. III. IV. V. VI. VII. VIII. IX. Establishment of Yarn Bank at NHDC, Khaling Plantation of natural dyes Participation in the trade fairs and trade mission Launching of the new products Development of an interactive website for the Handicrafts Sector Training of the MTI IT personnel on web page development Training of the IT personnel from NHDC and Handicrafts Emporium on basic IT skills and Branding and graphics workshop and Infrastructure support stakeholders.

3. Collaborative approach with other projects. The E-business project is perhaps one of the few projects where close collaboration and synergy is seen with other similar projects. Given its modest achievement with limited funds, the activities of the E-business project were continued in the Rural Enterprise Development Programme (REDP) funded by UNDP and SNV. A separate component was born under the RED Programme which supplemented the activities of the E-Business Project. 4. Best Practices- The Institution of Yarn Bank at NHDC. The Pilot Yarn Bank is administered under the UNDP Rural Enterprise Development (RED) Programme. The project helps weavers to overcome their problems in purchasing the yarns and transforming their traditional modes of production into a form which is more lucrative. Furthermore, it aims to expand and extend the off-farm supplementary income generation sector in order to increase weavers earning capacities. The means of executing this concept is to penetrate into the non-traditional market sectors and thus expand their modes of production and sale. However, the execution of the concept into the nontraditional market sectors proposes a challenge because weavers do not have the necessary capital needed to invest in this expansion, especially in purchasing raw materials such as yarns. The financial credit facilities that are available in rural areas are extremely limited. For example, financial institutions such as banks are far and few in rural regions. More importantly, because weaving is a non-institutional commercial activity, credit facilities might not be readily available for them and weavers have problems in raising the necessary collaterals. The current interest rates may also not be favorable to weavers to borrow from the bank in order to invest in this new venture. November 2007 3

UNDP funded Project E-Business Piloting & Readiness for Rural Women Artisans and Entrepreneurs in Bhutan.
In Bhutan most of the yarns (silks, raw silks and cotton) are imported from India. As with all agriculture products, the supplies of yarns are highly seasonal and irregular. This presents a serious problem because if an order is placed and if the yarns are not on hand, they are not able to delivery the product on time. Worse, this might affect the credibility of their future commercial engagement. The irregular supply of the yarns presents another dimension to their problem; the costing of the yarns fluctuates according to the supply. Thus, because of this uncertainly, it is difficult for them to quote prices for orders. The quality and colors of the yarns is subjected to availability as well. Hence, at times, the colors which they require are not available which means that they are not able to fulfill the stated orders. In these situations, weavers often substitute colors and the eventual product at a greater risk of being rejected by the customers as it was not woven as per the agreement. In most cases, the dyes of the imported yarns are chemical dyes and it might not be suitable, especially when orders specify that natural dyes should be used. The issue of repertoires of yarns is also being addressed as almost 100% of the yarns in Bhutan originate from India. This means that hand-woven fabric produced from project sites differs very little from those produced elsewhere in the country. Economically, fabrics from the project sites do not have much added value. In the rural areas, the weavers are also confronted with the issue of cost effectiveness when purchasing yarns. Individually, weavers have to travel to towns to purchase yarns. As each individual weaver travel far and wide, individual purchase is not productive as compared to cases when weavers amalgamate into a collective group to purchase yarns together. Objectives of the Yarn Bank Make yarns more readily available to weavers Ensure the necessary quality and colors of the yarns used Expand the repertoires of yarns Promote cost effectiveness Encourage entrepreneurship among weavers Teach weavers fundamental business skills.

Implementation Scheme of the Yarn Bank. The implementation of the Yarn Bank is governed by the Memorandum of Understanding3 signed between the NHDC, Handicrafts Emporium, the Community Weavers in the presence of the Ministry of Trade and Industry. The implementation of the Yarn Bank has been kept as simple as possible for the benefit of the community weavers. The Handicrafts Emporium places product order directly to the Community Weavers with a copy to the NHDC for the preparation of Yarns based on the Yarn coding4. Once the yarns are ready, the Core Group Leaders from the Community weavers collect the Yarn and distribute to the weavers maintaining an inventory of the yarn distributed to the individual weavers. The completed products are sent to Handicrafts Emporium along with the yarn distribution list and the Handicrafts Emporium deducts the Yarn Cost from the product cost and remits directly to NHDC. Therefore the weavers do not have to pay cash for the yarn. The Recovery Rate is 100% as of now and given the current mode of operation of the Yarn Bank, the recovery of the seed money will always be 100%, therefore making is sustainable. 5. Status of e-business in Bhutan. The internet services was introduced in Bhutan in 1998, however over the last 9 years, there has been tremendous growth in the IT sector and its usage. However the use of ICT has been limited to day to day functions and actual usage in the field of e-business is yet to be seen. The government has initiated various schemes to promote e-services. The role of the government is to create enabling environment and policies for development of ebusiness and to that effect the Bhutan Information, Communication and Media Act was passed in 2006. The section 131 to 144 of the Act specifically pertains to electronic commerce. Apart from the act various rules and regulations are in place for promoting ICT services in the country. Thus the role of the government at this moment is seen at a much broader level. However private and some of the
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MoU signed on 18 December 2005 at NHDC. Yarn Coding Yarns have been assigned numbers based on the color and copy has been given to NHDC & Weavers.

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UNDP funded Project E-Business Piloting & Readiness for Rural Women Artisans and Entrepreneurs in Bhutan.
corporate entities have developed e-business in a modest way, the Bhutan National Bank has introduced ATM services along with debit cards and similarly some of the private entrepreneurs have started web based transactions for sale of souvenirs, but these websites are hosted outside Bhutan. The Ministry of Economic Affairs (erstwhile Ministry of Trade and Industry) as an economic sector is entrusted with the development of private sector and the SMEs. To this effect, the Ministry has established Business Promotion Sections (BPS) in the 6 Regional Offices and one of the main objectives of the BPS is to provide business development services to SMEs. The Ministry has simplified licensing procedures and requirements for establishment of businesses. The application forms, security clearance forms and other related documents are available online for free download, which has greatly facilitated the development of SMEs. The BPS also has hot line telephone enquiry to answer the queries from the private sector relating to establishment of businesses. There are also plans and programs to establish One Stop Window service for the development of SMEs and the private sector. Concerted efforts are being made by the sectors for development of SMEs incorporating ICT as one of the main tools or enabler for business development. 6. Opportunities and Challenges for e-business The usage of ICT will have many fold impact on the development of SMEs in Bhutan given its geographical settings. The advent of ICT has made the world a small village and its full utilization has many advantages: Cost reduction and efficiency gain Better service delivery in less time Market accessibility for products Resource pooling and information sharing Access to raw materials and services/technologies Enhanced productivity The development of e-business presents its own set of challenges to Bhutan. Following are some of the challenges specific to Bhutan: Policy issues and lack of clear strategy ICT infrastructure (e-readiness, computer literacy, telecommunication equipment) Lack of Human resources especially ICT Change management (culture, resistance to change) Partnership and collaboration (PPP, community network creation) 7. The experience of selling textile products using internet. The project in collaboration with Handicrafts Emporium has developed an interactive website (www.colorsofbhutan.org.bt) for the handicraft sector. The website has information on handicraft sector in Bhutan and also has an online e-store. As of now the website is still under testing phase. However sincere attempts have been made to take advantage of the ICT in promoting the textiles under this project, but not much success has been made due to the following reasons. I. II. III. IV. V. Lack of Policy/Laws on E-commerce/business Lack of online payment system/credit cards Customers often like to feel the texture of the products physically Variation in colour of the product on the web and the actual product Low usage of ICT within the handicraft sector

Couple of handicraft traders has attempted to sell on line using the internet but have been not successful due to the above reasons. As of now, the use of internet may be feasible in terms marketing by providing information regarding the nature of the product; cost, size, composition etc and actual selling of the textiles may be too early due to the above cited problems. 8. Achievements of the project and future opportunities. The project has made good achievements in terms of product development, product diversification, skills intervention and development at the producers level. Since the inception of the project, there has been increased range of products from the project sites, which has directly contributed to the increased income level of these rural weavers. The rural weavers have been formed into groups and similarly the project has established institutional linkages between the rural weavers, NHDC and Handicrafts Emporium, which will ensure the November 2007 5

UNDP funded Project E-Business Piloting & Readiness for Rural Women Artisans and Entrepreneurs in Bhutan.
sustainability of the project activities in terms of product ordering, delivery, marketing and payment system5. The project management has been monitoring the system and has found to be very affective benefiting the rural communities and the stakeholders alike. The development of handicraft sector in Bhutan has a huge potential in raising the income level of the rural communities. Weaving is a way of life for most of the rural women and targeted intervention in terms of product diversification and market access will provide expanded economic opportunities to the rural communities. The networking of these weavers will have greater access to market, sourcing of raw materials, transfer of skills and technologies, sharing of market information, access to micro finance etc. As of now there are no women cooperatives in Bhutan, however there are some Associations and Groups, which are not gender specific. The formation of associations/cooperatives has a huge potential in developing the rural communities and concerted efforts are required from the relevant sectors and donors given the nascent stage of such concept in Bhutan.

The MoU guides the operational aspect of the system.

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