GD 1: FDI In Retail

[Manish Salian]

Hi,

I think all the different colour codes are becoming confusing. So from now on we will have different threads, for different topics.

I will collate the different points made by people on this topic here:

DevanshiVaishnav

(1) The most important factors for a good retail chain are:
- Wide spread distribution stores.
- Variety of products.
- one stop shop place
- good Supply Chain Management(most imp.)
For this we require Good infrastructure for the purpose of storage , distribution and display

(2) Companies like Marks n spencers started out about 3 years back in India and were not able to make their mark and today have entered into a JV with Reliance industries.

(3) To name some big FDIs - Carrefour , Walmart - Bharti , Tesco in talks with Birlas.

(4) 13 million kirana stores would run out of business.

(5) Vegetable vendors would be majorly affected

(6) Alterante plans for business losses given to vendors is jobs at these Retail stores.

(7) Retail industry of $300 million

(8) 51% investment allowed in single-brand retails



Merup Kapadia

(1) FDI is necessary in cases where there is lack of capital investmenst. So, first we need to consider the question, is FDI required in Retail Sector? If the growth of organized retailing sector (corporate owned retails) is already progressing at good rate, where does this need come from? Statistcs show that corporate owned retail business was Rs. 15,000 crores in 1999 and which grew to Rs.35,000 crores in 2005 and is growing at a rate of 40% per annum. So, there seems to be no dearth of indigenous capital, then why fdi in retail?

(2) Recommendation to the solve the problem:
(a) The Government and RBI need to evolve suitable lending policies that will enable retailers in the organised and unorganised sectors (the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores,) to expand and improve efficiencies.
(b) There should be a clear set of conditions on giant foreign retailers on various aspects aiming at encouraging the purchase of goods in the domestic market, state the minimum space, size, employment opportunities. Giant shopping centres must not add to our existing urban snarl.
(c) If FDI is allowed, then the entry of those foreign entities must be gradual and with social safeguards so that the effects of the labour dislocation can be analysed & policy can be finetuned, as and when necessary.
(d) The government must actively encourage setting up of co-operative
stores to procure and stock their consumer goods and commodities from
small producers to address the dual problem of limited promotion
and marketing ability, as well as market penetration for the retailer.

[Manish Salian]

Biren Master

(1) India has been ranked as the 5th most desired retail destination. The total size of Indian retail sector, including organized and unorganized sector, is $300 billion, where currently the organized sector accounts for 4% only. It is expected to grow to anywhere from 12-20% by 2010.

(2) Foreign players are already present in the luxury retail sector through Nike, Reebok and International fashion house's outlets.

(3) One of the benefits of FDI/Foriegn players is that they provide access to global markets for Indian Producers as it might ultimately lead to increased sourcing from India as was the case in China.

(4) Foreign players also bring in better operations in production cycles and distribution.

(5) A strong retailing sector could boost tourism as seen from experience in Singapore and Dubai.

(6) Growth in retail desirable for primary producers as middle-men are eliminated.



Akhil

(1) Some Data:-
India is the second most attractive destination for retail among thirty emerging nations - AT Kearny

(2) With a contribution of 14% to the national GDP and
employing 7% of the total workforce (only agriculture employs more) in the
country, the retail industry is definitely one of the pillars of the Indian

(3) FDI can have some positive results on the economy,
-lead to greater efficiency and
-improvement of living standards,
-apart from greater integration into the global economy,
-consumer is benefited by both price reductions and improved selection,
brought about by the technology and know-how of foreign players in the
market.
This in turn can lead to greater output and domestic consumption
economy

(4) Disadvantages:-
-Render millions of unorganised retail sector jobless
-will transfer lower technology or goods in India (Dumping of goods)
-Foregn goods will be sought, so flow of foreign exchange and also loss of domestic industries
-Domestic Industries (Manufacturers) will also have to face competetion in both pricing as well as quality
-Will also start influencing government laws and regulations (As done in China, Malasyia,etc.)

(5) If you assume 40 mn adults in the retail sector, it would translate into around 160 million dependents using a 1:4 dependency ratio. Opening the retailing sector to FDI means dislocating millions from their occupation, and pushing a lot of families under the poverty line. Plus, one must not forget that the western concept of efficiency is maximizing output while minimizing the
number of workers involved – which will only increase social tensions in a
poor and yet developing country like India, where tens of millions are still
seeking gainful employment.

[Manish Salian]

SaurabhP

I think most of the pros and the cons related to FDI in retail have been covered by Devanshi, Merup and Akhil.

(1) What I would like to speak about is the way the implementation should be done so that all stake holders namely the general public, the retail corporates, the kirana-maal shop owners,etc get the best possible benefit.
It is very necessary to understand that various social implications are associated with the retail sector opening up to FDI. Hence, the steps taken in this direction should be very cautious.

(2) I personally feel that the implementation strategy of allowing FDI in retail should be done in phases so that healthy competition in the retail sector is encouraged and the small Indian cos are able to compete and match up to their global counterparts. This is considering that the organized retail sector is doing well and growing at 40% per year as mentioned earlier.
A major issue is that majority of the retail sector still lies in the unorganized domain and steps should be taken to make the sector completely organized. Only then will we be able to attract more FDI and Indian cos will be able to compete on global standards.



Aditi Manjure

Benefits:

(1) Retail trade with around 12 million grocery shops in India, is fragmented, unorganised and small, with little capital for either expansion or to extend credit to consumers. FDI in retail with influx of better managerial practices and IT-friendly techniques would synergise these stores.This would facilitate lowering of prices and offering benefits to consumers, apart from providing jobs.

(2) IT helped Wal-Mart reduce its distribution costs to 3% of sales compared to 4.5 % for others.
3)Expected reduced wastage due to setting up of integrated supply chain is another factor favouring FDI
4)McKinsey estimates that India wastes nearly Rs 50,000 crore in the food chain. Retail giants such as Wal-Mart or Carrefour can help develop the food processing industry by providing a cold chain. It is argued that linking up retailers will confer biggest benefits in terms of higher exports, as is happening in China.

Disadvantages:

(3)Buyer's monopoly: increased buyer concentration if FDI allowed in retail.
Example: in Canada, one single retailer, Wal-Mart, controls 52 per cent of the retail market.

(4)Infrastructure and Traffic problems: findign adequate space for stores,parking,etc.

(5)Labour: employment incrase but lot of cost-cutting too... low wages.



Harshil Suvarnkar

(1) Definition of FDI -
Foreign direct investment (FDI) is defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor." The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a Multinational corporation (MNC).

(2)** Statistics Se Khel Shuru Karte Hain:-
Trade or retailing is the single largest component of the services sector in
terms of contribution to GDP. Its massive share of 14% is double the figure
of the next largest broad economic activity in the sector.

A.T. Kearney's Global Retail Development Index ranks India as the first amongst 30 emerging countries for 2 years in a row as the most preferred
destination for retailers from all across the world. Today in India the retail industry accounts for over 10 percent of India`s GDP and houses over 8 percent of the total work force, second to agriculture.

(3) With 12 Million Retail Outlets India has the highest density of retail outlets in the world. It has one retail outlets for every 90 persons. It is today the ninth largest retail market in the world. But in terms of per capita retail space it is the lowest in the world. Also only 2 percent of the Indian Retailers are organised in comparison to 20 percent in China, 70 percent in UK and 80 percent in USA. But the statistics are going to gallop in India`s favour in the years to come.

(4) The IT industry has projected that organised retail will have a 25-30% market share of total retail by 2011

(5) An estimated 40 million Indians work in retail outlets.

(6) Organized retailing is already growing at 37% (while total domestic retail is growing at only 5.7%), and is expected to cross Rs 1, 00,000 crores by 2008 from its current level of Rs 48,500 crores. From 4.7% of the total retail market now, it is expected to reach 9% by 2010. This current growth at 37% of organized retail, when the total retail market is just growing at 5.7% is clearly at the expense of the small retailer.

(7) My Views:-

* Indian retail scenario has three features distinguishing it from the developed and ‘efficient’ west,
1) fragmented and multi-layered retail distribution market,
2) many retailers of various sizes at many locations vying to serve the final consumer,
3) many buyers for the grower and manufacturer thus preventing any retailer from establishing a monopsony (Monopsony is a state in which demand comes from one source. If there is only one customer for a certain good, that customer has a monopsony in the market for that good) and dictating price and credit terms to the growers and manufacturers.

(8) Also, people say that Kirana stores will lose out on their business, but that is not true, with rising realty rates, power, salaries...The organised sector would not be able to lower their rates as compared to the local kirana shops, and plus instead of crying over the FDI thing, kirana shops should try and innovate new things and obviously if i wanted my usual house stuff I would prefer to go to a local kirana store rather than going to a mall...

(9) The Indian consumer mentality is to “save and buy”, the opposite of “buy
and repay”, which exists in the West. In fact, as stated at a conference
organized by the Confederation of Indian Industries, corporate retailers will
have to spend crores of rupees on advertising in order to “create” demand
and consumer spending.

(10) Hawkers sell much fresher than any of these shops. Long distance supply
chain and refrigeration means stale fruits and vegetables. In order to give a
fresh look and of high quality corporates extensively use pesticides and
chemicals.

(11) Some viewpoints I could find from the net
**Corporate retail will displace millions of street vendors, hawkers, workers
and shopkeepers. Wal-Mart entered into Mexico and took over 20% of the
retail market in ten years and Mexican government is only now looking at
ways to protect local businesses. Thousands of local businesses have closed
in the US because of Wal-Mart’s market saturation. In Thailand when FDI
in Retail was open 60,000 small shops closed. They have destructed local
economy wherever it has gone, and is doing the same in India. Foreign
retailers will only take profits outside of the country and not reinvest in local
economies and neighborhoods as the local shopkeeper does.

(12) Corporate retail intent to hijack the whole supply chain from ‘Farm to Folk’ and establish monopoly by becoming producer, wholesaler, distributor and retailer and in this process targets to become the Giant middlemen
themselves and dictate the market to fulfill their greed. Corporates dealing
with procurement, running ware houses etc will be the new middlemen.
Hope u like it!!


Wow, that's a mountain of information on this topic. All of you should make the most of this online GD and start collating points on different topics.

Regards,

Manish sir

[Manish Salian]

Hi,

Here is how all of you have fared in GD 2: FDI in Retail

Biren Master: 9 marks

Aditi Manjure: 9 marks

Akhil: 8 marks

Harshil suvarnkar: 8 marks

Devanshi Vaishnav: 7 marks

Merup Kapadia: 7 marks

Saurabh P: 3 marks

Regards,

Manish sir