S Kumaraperumal

retailing

The last link

the individual consumer with the manufacturing & distribution chain A retailer is selling goods at a margin of profit.

WTO & India

.

As a signatory of WTO

need to open up retail sector for foreign investment ( General agreement on trade)
94% -unorganized 6% organized- budding stage Largest source of employment after agriculture

Overview of policy

Guidelines to FDI

FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route FDI up to 51 % with prior Government approval (i.e. Foreign Investment Promotion Board FIPB) for retail trade of Single Brand products FDI is not permitted in Multi Brand Retailing in India.

Options before Jan 2006

Franchise Agreements
.

Cash And Carry Wholesale Trading Strategic Licensing Agreements Manufacturing and Wholly Owned Subsidiaries.

Single brand (2006)

.

FDI up to 51 per cent is allowed

Only single brand

(even same manufacturer of multi-brand not allowed)

sold under the same brand

internationally

branded during manufacturing any addition to product

categories to be sold under single-brand would require fresh approval

.Nov 2011

Reason for Govt Push

To enable Wal-mart, Tesco and Carrefour to setup deep

discount stores

Reason for Govt Push

At least half of the investment for backend infra Minimum investment $100 million Store can be setup only in population more than 1 million

Reason for Govt Push

State Government can prohibit if they wish States are empowered to put condition to integrate small shops in value chain At least 30% of manufactured items procured should be from SMEs At least 1/3 of sales made to small retailers either directly separate wholesale units

Indian multi brand retail players

Tata- Westside RPG- Food world

Raheja-Pantaloon

challenges
Foreign investor concern

Franchising- no change 51% route- must look for a partner Finding reliable partner Knowledge sharing partner

challenges
Foreign investor concern

Do foreign investors look to

tie up with an existing retailer? look to others not necessarily in the business but looking to diversify? Once chosen , they can not take another partner in the same field without the permission of first

challenges
Foreign investor concern

Arrangement of short to

medium term is good If Govt further liberalized

Go with partner?

Go it alone?
JV negotiation is vital and

careful

challenges
Government concern in partial allotment

Leads to unfair competition

results in large scale exit of Indian retailers exit of small outlets large scale displacement of employees in retail manufacturing did not have size and growth rate to take all

challenges
Government concern in partial allotment

Indian organized sector still in developing and budding stage Need to consolidate first before exposed with big players

challenges
limitation

Infrastructure
lack of investment in the logistics of the retail chain (inefficient market

mechanism) India -second largest producer of fruits and vegetables (about 180 million MT) cold storages total capacity - 23.6 million MT ( 80% potatoes) 100% fdi in cold storage but not attractive retail store

challenges
limitation

Intermediaries dominate the value chain flout mandi norms often lacks price transparency
Indian farmers realize only 1/3rd of the total price paid by the final consumer 2/3rd by farmers in nations with a higher share of organized retail.

challenges
limitation

Improper Public Distribution System

big question mark on the efficacy public procurement PDS set-up food subsidies is rising food based inflation - great concern Absence of a farm-to-fork retail supply system

premium for shortages and a charge for wastages on consumer

challenges
limitation

No Global Reach

SME -lack of branding and lack of

possibility to reach out to the vast world markets. Unorganized SMEs manufacturing -34.5% (1999-2000) -30.3% (2007-2008)

inability of this sector to access latest technology and improve its marketing interface.

challenges
opposing

Allow the domestic industry to

generate economies of scale and be ready to withstand foreign competition.

If (without FDI they cannot

achieve the sorts of economies of scale, supply chains and cold storage solutions)
FDI will be an indispensable

component for expanding their share of the market and therefore their profitability.

challenges
opposing

Wal-Mart turnover - $256 billion Avg growth rate - 12 -13 % annually Avg size of stores - 85000sq ft
India

avg turnover is $51 million. pantaloons, reliance cannot compare with the giant let alone the small retailers.

challenges
opposing

Indian government fears

unorganized sector will be

affected very badly large lot of unemployed retailers & other in the supply chain unemployed lot cant be absorbed in manufacturing or service sector push a large chunk of population below poverty line.

challenges
opposing

Forced employment sector

when youth dose not find enough employment opportunities or is not educated enough then the easiest resort to earn decent money is to save money or get a loan to set up a shop. (large in number)

challenges
opposing

On an average a retailer earns Rs.186075 annually and only 4% of 12 million retail outlets have area more than 500 square ft. Now if FDI is allowed in such an unorganized sector than many changes can happen which can be positive or negative

challenges
opposing

Major challenges that lie ahead are: Economies of scale global players have economies of scale perfect in cost cutting providing the best at lowest price The way they perform their process itself builds an entry barrier

challenges
opposing

Brand name: world class products high quality highly valued brand name
The domestic brands dont have that charm and attracting power as of global brands.

challenges

Technology highly advanced in technology.

The tools Equipments kind of warehouses Their processes are highly advanced better services and better quality products even in categories like perishable food etc.

cannot be compared with those used by Indian retail firms which in turn provides

challenges
opposing

Attract skilled employees: conscious towards career of their employees

Attractive salary and high incentives Can attract skilled employees a threat for big Indian retail firms.

challenges
opposing

Better infrastructure

Better storage facilities better transportation medium high investment

can pose another threat to Indian retail firms which can hardly match the capabilities of giants on their own.

challenges
impacts

M&A wide scale mergers and acquisition activity

due to entry of foreign players

in front end retailing

rush of investments in logistics, realty and manpower training

job creation in the organized

sector of the economy.

challenges
impacts

large scale investment flow to boost logistics to cater to demand of large retailers as also for leasing or buying land for setting up new stores Employment boost employment with lakhs of new jobs being created in the organised retail and logistics business.

challenges
impacts

Joint ventures Global players may not prefer to enter into joint ventures with Indian firms may also close down the existing ventures in wholesale and single brand which may adversely affect the Indian firms. This is possible when 100% FDI is allowed in multi-brand retail.