FDI in Retail (2) sec c

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Click to edit Master subtitle style12/10/12

FDI in

Retail:An Analysis


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Retail Sector in India

Some Factual Data Retail Industry : one of the pillar of Indian

Economy

15% of GDP More than $550 billion market

Main Strength is Indias Population

96% of owner manned stores, 4% of largeconvenience stores

India's retail and logistics industry, organized

and unorganized in combination, employs about


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RETAIL SECTOR CONDITION

AFTER 1991

Post liberalization, open market economic policieswere adopted.

FDI encouraged in various sectors including theRetail Sector.

Retail trading is prohibited except for single-brand

retailing. In 1997, FDI in cash and carry (wholesale) with 100percent ownership was allowed .

51 percent investment in a single brand retail outlet


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Mandatory Conditions

The minimum investment required for enteringthe sector should be $100million.

50 % of investment should be set aside forbuilding backend infrastructure such as coldstorage chains and warehouse.

At least 30% of their requirements must be metfrom Indian SMEs.

Can only be in the city of minimum population

of 1 million.


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Mandatory Procurement of Products

from Small Scale Sectors: At least 30% of the procurement

of manufactured / processed

products shall be sourced from

'small industries' which have a

total investment in plant &


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Supply Chain Infrastructure &

Distribution System Current pathetic condition ofsupply side

channels of the existing un/organized retail

industry as well as Government-run PublicDistribution System..

This is an important factor contributing tospiraling inflation..


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Public/Consumer Expectation

Positive

Operational Efficiencies Better quality

Best Deal

True Globalization

Negative

Confusion about effect of FDI on employment.


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Current Developments-1

DLF in partnership with Claires has plans toopen 75 retail stores in next 5 years.

French retail chain, Carrefour is about to finalise

lease deals across 10 to 12 sites in the country toopen cash-and-carry (wholesale) outlets.

GSK Consumer Healthcare (GSKCH) has made adebut into Indian breakfast cereal market bylaunching oats cereal under its flagship brandHorlicks'.


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Current Developmets-2

US FMCG giant McCormick, in joint venturewith Indian basmati rice brand Kohinoor Foods,

intends to tap Indian packaged food industryand achieve sales of US$ 85 million in the firstyear of operations in the country

Oral and dental hygiene products manufacturerColgate Palmolive has decided to invest Rs 200crore (US$ 38.52 million) to establish agreenfield facility at an upcoming industrial

estate in Sanand which is being developed bystate-run Gu arat Industrial Develo ment


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Suspend of Policy

Subject of fierce opposition from severalpolitical parties in India, many of which were

pushing strongly for a reversal of the proposal,primarily to protect producers and the "kirana"store industry.

Monopolistic and predatory pricing strategies oflarge retailers.

On December 7, 2011, the Indian governmentannounced the suspension of those proposals

until a further consensus is built domestically


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Economic growth- A remarkable inflow of FDI in variousindustrial units in India has boosted the economic life ofcountry.

Employment and skill levels- FDI has also ensured anumber of employment opportunities by aiding the settingup of industrial units in various corners of India. Employeesget exposure to globally valued skills.

Reduction in inflation- With the inflow of foreign capital ,production in the country has increased production ensuresstable prices, even if demand increases.

Linkages and spillover to domestic firms- Themaximum amount of the rofits ained b the forei n firms


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Integration into global economy - A developing country

like India, which invites FDI, can gain a greater foothold in

the world economy by getting access to a wider globalmarket.

Increased competition - Companies will also have to

improve their processes and products in order to staycompetitive in the market. Overall, FDI improves the qualityof a products and processes in a particular sector.

Helpful export Promotion- many foreign companies areallowed to install their units in India, on the condition thatthey would export certain percentage of their production.Foreign capital has therefore been instrumental inpromoting exports.


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Availability of risk capital- private entrepreneurs do notlike to invest in basic industries and new ventures wherethe elements of risk is great.FDI serves as venture capitaland thus make up this deficiency. As the result of foreigncapital, development has taken place in basic industriesand risky ventures like iron and steel, coal, oil exploration,

energy generation etc. the foreign capital has borne thepioneering risk.


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Opportunities


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Expected to create 10 million jobs in 5

years.

Reduce wastage of farm produce to lessthan half.

Farmers will be paid more as middlemencould be removed.

Indian Retail giants can get rid of theirdebts.

There will be greater choice for Indianconsumers.

Investments and improvement in the

supply chains and warehousing.


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Provide better value to end consumers.

Franchising opportunities for localentrepreneurs.

Increased efficiency.

Cost reduction in areas such as R&D,production, and distribution.

Fill gaps in a companys product lines in aglobal industry.

Gain a foothold in a new geographicmarket

Retail Sector poised for


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Retail Sector poised forphenomenal growth


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WEAKNESS


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Weakness-1 Approval of states.

Kirana stores Vs Retail giants- who wins isanyones guess.

Promise of employment proved false.

Walmart, worth USD 400 billion i.e. equal tothe business of entire Indian retail market,employs only 2.1 million people worldwide. Itscoming to India will pose a direct threat to the 40

million Indians who are employed in retail sector.


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WEAKNESS-2 The argument that foreign players will improve the supply

chain for farm produce is bogus. They are only required to

create storage facilities and cold chains. Comparison between India and China is misplaced.

Examples of Thailand- Big companies have seen growth of40%

Other countries

Indonesia and Malaysia have established zones within whichthese foreigners can do trade.

In Japan Big companies have to discuss with small traders.

There is Zoning system also. Hence these companies have toestablish their shops outside city limits


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Threats


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Threats -1 Rent for retail space will go up.

Global retail giants will resort to predatory pricing to create

monopoly/oligopoly.

The companies will sell internationally procured products.Domestic Industry will suffer.

Mass unemployment will widen the gap between the havesand have not's.

Once established these retail giants will become a powerhouse in itself and affect the economic structure of thecountry.


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Threats -2 Fragmented markets and Consolidated markets.

International retail does not create additional markets,it merely displaces existing markets.

Between 1970-80 in Europe about 4 lakhs Retailshops were closed.

Competition shall be limited to Big Retail Houses Chain of retail outlets- with a shop in each area the

retail small shopkeepers will be put to heavy loss. Big fish eating small fish. Slowly the local shops will

start closing down.


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v In countries where they have established their marketshare is

Name of Country % of Market ShareAmerica 80%England 80%Western Europe 70%

Brazil 40%Thailand 40%Korea 35%China 20%Malaysia 20%India 3%


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CONCLUSION

Retailing in India is one of the pillars of its economy,a sector which employs 40 million Indians (3.3% of

Indian population). Pros and cons of FDI in retail to be weighed wisely

Common man and not the retailing giants to be the

primary beneficiaries Retail Sector will shape India's future

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FDI in Retail (2) sec c