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Triumphant Institute of
Management Education P
Ltd
Nyayapati Gautam
FDI in
Multi-Brand
Retail
Retail Market
The Indian retail industry has
experienced growth of:
10.6% between 2010 and 2012
Expected to increase to USD
750-850 billion by 2015.
Food and Grocery is the
largest category
Apparel and Mobile segment.
Retail Market
Organized vs
Unorganized
Growth
FDI - Policy



Approval
The Lok Sabha endorsed the
governments FDI Policy
Margin of 253 to 218 votes
against the motion.

The UPA defeated the motion
The SP and the BSP helped the
government by walking out in
protest without participating in
the vote.
Leaders of the parties had
spoken against the move during
the debate that led up to the
vote.

The government also defeated
a motion seeking a
modification in amendments to
the Foreign Exchange
Management Act that
facilitates the entry of foreign
companies into multi-brand
retail.

Rajya Sabha
The Rajya Sabha voting
against a motion seeking
withdrawal of the measure.
Despite being a minority in the
Upper House, the government
won 123-109.
Where are they?
Four months after the FDI
Policy (as on Feb 1st)
The Govt. has not received a
single investment proposal so far

Global retailers play wait-and-
watch
Seek more clarity about the
conditions imposed on their entry

Why arent they here?
Mass Grocery needs
significant investment in the
backend.
However, other segments such
as Apparel, Beauty & Wellness
and Consumer Electronics
have limited requirements in
the backend.
Land cost and rentals that
might be incurred for
warehousing:
Are not included in the definition
of backend infrastructure.
A challenge for any player in
the retail segment other than
Mass Grocery.

30% sourcing
Existing Mass Grocery retailers
in India source many products
directly from producers and
small food processing units.
However, suppliers of Consumer
Electronic and other specialty
stores such as Beauty &
Wellness are large size
companies.
Economies of Scale
More than 50% of the retail
stores
Spencer, Shoppers Stop,
Lifestyle, Apollo
are in states NOT supporting
FDI in multi-brand.
Economies of Scale
This policy condition impacts
the access to a significant
market.
Further, limited cities means
limited stores and reduces
economy of scale.

Key Issues for the
Walmarts of the World
Availability of Retail Space:
High rental cost:
Clarification on policy features:
Red Tape:
Skilled Manpower:
Infrastructure Challenge:
Political Risk:
Space
Hypermarkets require more than
60,000 sq. ft. and departmental
stores require more than 20,000
sq. ft. of retail space.
Scarce and/or available only at
high costs.

Costs
The Indian retail rentals:
Around 300-400 basis points
higher
Rents in prime properties:
Increased by 50 per cent in 3
yrs.
According to an industry
estimate:
Rentals are 40% of total cost
Walmart Good or
Evil?
Over the years opponents of
Walmart have catalogued
many evil actions on its part.
Pay:
The average employee makes
only $15,000 a year for full-time
work.
Most are denied even this
poverty income. - part-time work.
Walmart says 70% are full-
time:
"full time" is 28 hours a week.
Less than $11,000 a year.

Health-care benefits:
Only if youve been there two
years;
Huge premiums
only 38% of Wal-Marters
covered.

Opposed to unionization:
"You, as a manager, are
expected to support the
companys position. . . . This
may mean walking a tightrope
between legitimate campaigning
and improper conduct."
"While unions might be
appropriate for other
companies, they have no place
at Wal-Mart,"

Employee Turnover:
Above 50% a year
Many stores having to replace
100% of their employees each
year
Some reaching as high as a
300% turnover
Brazil
Late January 1st Walmart
strike
Exploitation and low wages.
Workers obliged to work
overtime,
Offered no compensation,
No pay increase,
Lack protective health and safety
equipment.

Bangladesh
Last December there were
protests across 9 countries
Moments Silence - factory fire in
Bangladesh - 112 workers.
Recent reports show that
Walmart played a leading role
in blocking an effort to
improve electrical and fire
safety systems in factories in
the country.

Mexico
The NYTimes identified 19
store sites across Mexico that
were the target of Wal-Mart de
Mexicos bribes.
The Times:
Matched info about specific
bribes against permit records for
each site.
The dates of bribe payments
coincided with dates when
critical permits were issued.
The strictly forbidden became
miraculously attainable

Bribe payments - $341,000:
Wal-Mart built a Sams Club in
one of Mexico Citys most
densely populated
neighborhoods,
Near the Baslica de Guadalupe
without a construction license
or an environmental permit
or an urban impact assessment
or even a traffic permit.

Bribe - $765,000:
Built a vast refrigerated
distribution center in an
environmentally fragile flood
basin north of Mexico City
In an area where electricity
was so scarce that many
smaller developers were
turned away.

City of the Gods
In Teotihuacn:
The Times found that Wal-Mart
de Mexico executives approved
at least four different bribe
payments more than
$200,000 in all
To build just a medium-size
supermarket.
Possibilities
State of the art storage
technology:
Products which were being
wasted available for
consumption
Obvious
Who are winning and who are
losing?
Can this also lead to improved
agricultural wages?

Assumption:
The buyers side of the market
would become more competitive
with the entry of multinational
retailers
An improvement in storage
technology would increase the
demand for agricultural goods
in village markets.
Products that went rotten and
wasted before would now be
available for sale to the urban
markets.
This would imply a fall in selling
costs to urban markets
And a further rise in the demand
for the product in the rural
market.
The rise in demand would
increase the price of the
agricultural commodities in
question.
Who benefits?
Farmers who sell.
The higher price would also
induce these farmers to invest
more
According to a National
Sample Survey report more
than 40% of rural households
do not have any land.
They would be hurt by this policy
In other words, higher farm
prices induced by better
storage technology is likely to
have gradual trickle-down
effects.

Local Traders
Multinational can push a
significant portion of the local
traders out of the market.
The multinational may do so by
entering into exclusive
interlinked contracts with the
farmers.
International Trade
Is it reasonable to assume that
the giant retailers will be
importing manufactured
products from China and
export agricultural goods?
So will we be flooded by low-
priced Chinese products?
Indian medium and small
manufacturing units will suffer?
Loss of employment?
Export of agricultural goods
has other kinds of problems.
Exports would tend to increase
domestic prices.
Opening up to trade is likely to
increase uncertainty of the
farmers.
Scale effects of MNC
operations
Less left for the indigenous
traders to trade with.
This will obviously reduce the
volume of the latters activities.
Some Other Issues

Businesses Fail:
For instance, both in Germany
as well as in South Korea, Wal-
Mart has been an utter failure.
Kiranas can offer credit to local
clients.
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