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Abstract
FDI in retail industry has been one of the most sought after reforms in India. On 14th September 2012
Government of India opened its doors for FDI in multi-brand retail. This has triggered a debate on the
associated threats and opportunities. This paper examines consumers attitudes and perceptions towards FDI
in multi-brand retailing in India. We have used a structured questionnaire having 32 statements on five point
scale basis and conducted a survey of 160 respondents across a wider section of consumers. Responses have
been analyzed using Factor analysis, Likert scale, Chi square test and Structural Equation Modelling (SEM).
Our data is reliable with a Cronbachs Alpha of 0.865. A majority of the respondents believe that FDI in multibrand retailing in India will bring numerous benefits for consumers, farmers and help in generating
employment opportunities. However consumers are also apprehensive about whether the overall economy
would be benefitted after the coming of FDI in multi-brand retail in India.
Loss of business of small vendors is one of the most cited threats by the sample respondents.
Keywords: Foreign Direct Investment (FDI), Multi-Brand Retailing, Factor analysis, Foreign Retail Investors,
Reliability test, Likert scale, Structural Equation Modeling.
Introduction
Over the last two decades, India has emerged as one of
the favorite destinations for foreign direct investment
thanks to conducive economic environment and
government policies. The sectors like
telecommunication, IT, hospitality, education,
pharmaceutical, Real estate, Jewellery and
construction have attracted most of the MNCs for FDI
in India.
Retailing industry is the direct interface between
producers and final consumers of goods and services.
It contributes about 15 percent of GDP in India. The
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Dr. Vanita Tripathi , Mr. Varun Bhandari and Ms. Ritika Seth
several sectors but retail sector remained to be an
issue. The decision of the government permitting FDI
in retail has been strongly opposed by the opposition
parties due to its obvious negative effects on small
retailers. However, the MNCs have been permitted to
set a foot in the booming retail business in India and
the consequences will be followed as viewed through
various perspectives.
Durand (2007) analysed the impact of foreign direct
investment on the retailing sectors of developing
economies by specifically focussing on the Mexican
retailing sectors. It was observed that on one hand the
big retailers are benefitted and on the other hand
small retailers are in difficulty. Similarly, other
positive impacts were also counterbalanced by the
negative impacts. Thus, the retailing industry as a
whole remains unaffected in the developing
economies.
Parekh (2010) critically examined the necessity of
conditions put forward by many to allow FDI in Indian
retail market. He argued that conditions such as
mandatory rural employment creation and
mandatory investment in back-end infrastructure,
etc. will only be a burden and lower down the financial
benefits which can be achieved through large scale
investment. Thus, such restrictions should be limited
only to an extent so that investment in retail FDI
remains commercially attractive to start with.
Singh (2010) examined the right way of
implementing FDI policy in context of Indian retail
market. He found that the Indian retail market is
highly fragmented and domestic retailers are coming
together for consolidation. Thus, he said that FDI
regime should be brought in Indian market in a
phased manner over 5 to 10 years time frame so as to
give the domestic retailers enough time to adjust
changes.
Bisaria (2012) analysed the consumers responses on
the government policy on multi brand retail by using
Random sampling. He found a majority of prople to be
in favor of a positive impact of the policy on
36
consumers and farmers and a negative impact on unorganised retail sector and other Indian industries.
Thus, they were supporting the governments policy
of FDI in multi brand retail.
Hariharan and Rajeswari (2012) observed that India
enjoys a strong position as a global investment hub
with the country registering high economic growth
figures even during the peak of financial disaster. As a
result, overseas investors showed their confidence in
the Indian economy which eventually pushed foreign
direct investments (FDI) in India. They claimed that
FDI in telecom, power, computer software, finance or
in single brand retail have not affected the common
man. They have helped even a man on the street.
When FDI in other sectors have not harmed the
common man, it is not likely to harm if permitted in
multi brand retail also.
Jain and Sukhlecha (2012) established the role of the
retail sector to attract FDI in multi brand retailing
using descriptive analysis. They analysed the positive
and negative impacts of the reforms to be undertaken
and also assessed the market situations for the same
changes in other countries. They concluded that the
positive impacts overshadowed the negative ones.
According to them, FDI in retail sector can lower
down the prices, improve the quality standards
whereas the unorganised sector remains unaffected.
It was also observed that such policy action could lead
to improvements in employment and GDP levels.
Popli and Singh (2012) also tried to analyse the
impact of FDI retail policy on Indian retail industry.
According to them, India is at the first position in
providing growth opportunity for investment in retail
sector. They found out that the pros are overpowering
the cons of FDI in retail sector. Thus they also favoured
the foreign players entry in the Indian markets. They
argued that the local retailers will not be affected by
foreign big giants as their geographical boundaries
are different.
Rajput et al. (2012) tried to study the impact of
current retail FDI policy of India on the consumer
2.
3.
Dr. Vanita Tripathi , Mr. Varun Bhandari and Ms. Ritika Seth
Modeling (SEM) to determine whether a certain
model is valid or not rather than to find a suitable
model. SEM is a statistical technique for testing and
estimating causal relation using a combination of
statistical data and qualitative causal assumptions.
SEM allows both confirmative and exploratory
modeling, meaning they are suited to both theory
testing and theory development. However, it is largely
confirmatory rather than exploratory technique. One
of the major strengths of SEM is the ability to
construct latent variables, the variables which cannot
be measured directly but are estimated in the model
using several measured variables, each of which is
predicted to tap into the latent variables.
5. Empirical results
Factor Analysis Results
First of all, the internal reliability of all the statements
was tested and for this we have calculated Cronbachs
Alpha. It is commonly used as a measure of the
internal consistency or reliability of a psychometric
test score for a sample of examinees. Cronbach's alpha
will generally increase as the inter-correlations
among test items increase, and is thus known as an
internal consistency estimate of reliability of test
scores. Because inter-correlations among test items
are maximized when all items measure the same
construct, Cronbach's alpha is widely believed to
indirectly indicate the degree to which a set of items
measures a single uni-dimensional latent construct. It
has come out to be as 0.865 which shows the internal
reliability of the statements and it shows good
internal consistency.
Table 1: Factor 1 -Improved Product Quality along with Innovation and Novelty in Retail
S.No.
STATEMENTS
FACTOR
LOADING
1.
0.660
2.
0.649
3.
0.627
4.
Competitive environment will be created which will put pressure on domestic firms
to improve their quality to survive.
0.609
38
5.
The role of management colleges will increase for giving retail education to the youth.
0.608
6.
0.553
7.
0.529
8.
0.502
STATEMENTS
FACTOR
LOADING
1.
0.749
2.
0.733
3.
0.679
4.
0.663
5.
0.547
6.
0.512
STATEMENTS
FACTOR
LOADING
1.
FDI in multi-brand retailing will reduce profit margin for domestic companies.
0.732
2.
0.593
3.
0.557
4.
0.545
39
Dr. Vanita Tripathi , Mr. Varun Bhandari and Ms. Ritika Seth
The critics of FDI in multi-brand retail are of the view
that such a reform will do more bad to the overall
economy rather good. First and foremost, it will drain
out the countrys share of revenue to foreign
countries which will negatively impact Indias
economic prospects. Further, small domestic retailers
would not be able to tackle the international
STATEMENTS
FACTOR
LOADING
1.
0.649
2.
0.592
3.
0.539
4.
Elimination of Middleman.
0.539
5.
0.504
FACTOR
MEAN
SCORES
1.
3.818
2.
4.079
3.
3.608
4.
3.443
40
S.No.
NULL HYPOTHESES
PROB. VALUE
REMARKS
1.
0.085**
REJECT
2.
0.019*
REJECT
3.
0.019*
REJECT
4.
0.700
ACCEPT
5.
0.381
ACCEPT
6.
0.432
ACCEPT
7.
0.416
ACCEPT
8.
0.502
ACCEPT
9.
0.803
ACCEPT
10.
0.168
ACCEPT
41
Dr. Vanita Tripathi , Mr. Varun Bhandari and Ms. Ritika Seth
11.
0.296
ACCEPT
12.
0.424
ACCEPT
13.
0.067**
REJECT
14.
0.052**
REJECT
15.
0.002*
REJECT
16.
0.138
ACCEPT
<
<
<
42
Dr. Vanita Tripathi , Mr. Varun Bhandari and Ms. Ritika Seth
Approximation) of about 0.05 indicates a close fit of
the model and it is coming out as 0.052 (Cudeck and
Browne, 1983 and Steiger, 2000).
Thus on the basis of SEM results we can conclude that
our model with three factors, namely: Improved
product quality, Consumer convenience and Nations
economic well-being explains a significant 74% of
receptiveness of consumers towards FDI in multibrand retailing in India.
6. Conclusion and Policy Implications
The recent major reform taken by the Government of
India to allow FDI in Multi brand retail up to 51% has
created a lot of upheaval in the entire country.
Government has tried to justify the same by bringing a
number of arguments in favour of the same but at the
same time, there are critics who find a lot of threats
attached with such reform measure. So, we have made
an attempt in this research paper to collect the
responses of consumers who are going to be affected
the most by such a development. A structured
questionnaire has been developed containing 32
statements covering various pros and cons of the
incoming of FDI in multi brand retail in India. The
respondents were asked to mark their responses on a
scale of one to five i.e. one for strongly disagree, two
for disagree, three for indifferent, four for agree, and
five for strongly agree. Factor analysis has been used
to test the reliability and face validity of the
questionnaire and to arrive at meaningful conclusion.
We found that our data is reliable with a Cronbachs
Alpha of 0.865. Further, through factor analysis, we
have categorized our statements into four broad
factors namely: Improved product quality along with
innovation and novelty in retail; Consumer
convenience in accessing products; Threat to
domestic economy and Nations economic well being.
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