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Role of Government FDI Policies

on Supply Chain

Foreign Direct
Investment(FDI)
Foreign direct investment (FDI) is an investment made by a company or
individual in one country in business interests in another country, in the form
of either establishing business operations or acquiring business assets in the
other country, such as ownership or controlling interest in a foreign
company.
The key feature of foreign direct investment is that it is an investment made
that establishes either effective control of, or at least substantial influence
over, the decision making of a foreign business.

Foreign investments needed in


Indian supply chains
India is the worlds largest producer of fruits and vegetables, has the largest area
under wheat, rice and cotton and is the second-largest producer of rice and
wheat.
But, India loses about Rs. 50,000 crore annually just on account of frail postharvest infrastructure.
A major scoop of these farm losses can be traced to a feeble supply chain system
that includes storage, transportation and distribution.
Inadequate warehouses and cold storages and poor road and rail transportation
are some of the red flags in the Indian logistics landscape.

The logistics industry in India is valued at about 13-14 per


cent of the gross domestic product (GDP), while in developed
nations, especially in the US, it ranges between seven to eight
per cent of their GDPs.

This is a clear indication that Indian consumers are forced to


pay avoidable costs for more logistics expenses and postharvest losses.

FDI FRAMEWORK

100% foreign direct investment is allowed under the automatic route in the storage
and warehousing sector, which includes warehousing of agricultural products with
refrigeration.

Further, there are a significant number of government initiatives in this sector to


provide funding and support for both Indian and foreign companies.

The Free Trade Warehousing Zone Scheme (the FTWZ Scheme) had been unveiled
by the government to spark investments in this space.

The FTWZ Scheme envisages the creation of world-class infrastructure for


warehousing of various products, as well as transportation and handing facilities to
support the integrated zones as international trading hubs.

Further, 14 such warehousing zones have been established in strategic


areas across India, which are linked by major road, rail, air, and port
networks.

Furthermore, the government also provides a series of direct and indirect


tax benefits for companies setting up facilities under the FTWZ Scheme.

India allows foreign companies to invest only up to 51% in multi-brand


retail while it has removed the cap on single-brand retail.

An Evolutionary Outlook of WalMarts Supply Chain Management


Strategy in India

Introduction

Supply chain is the backbone of retail business.

Adoption of an efficient supply chain between producers and consumers by


modern large retailers could
reduce average transaction and information costs of market exchange;
generate surplus for stakeholders such as producers, farmers, and
consumers;
expand output;
and could thereby contribute to economic growth and net employment
gains.

Foreign players can introduce a highly advanced supply chain and develop
local producers and generate externalities

Foreign direct investment in Indias


retail sector
The fast-growing middle and upper class consumer base.
The analysis also suggests that in the next few years there will be major opportunities in
India's smaller cities.
On the demand side, it will affect consumers, small retailers, wholesalers, and local large
retailers.
On the supply side, it will affect employment, farmers, manufacturers, middlemen, and
government agents.
The net effects are in terms of increase (or decrease) of total surplus of the system.
In distributional terms, there could be some losers such as the wholesalers and numerous
commission agents,

Retail sector in India


Challenges
Several constraints on efficiency owing to high transaction costs and physical
infrastructure

High transaction costs are incurred while setting up of the necessary infrastructure

Indias road network has been growing, it is still low at less than 4 km per 1000
people

The tropical environment of India provides some advantages and disadvantages

If a large retailer wants to procure directly from farmers, he/she has to enter into
relational contracts with a large number of producers which means high transaction
costs.

One way a large retailer could reduce average transaction costs is by


encouraging farmers to behave in a cooperative way, by pooling their
efforts at input procurement and output supply.

Adoption of technologies such as mobile phones, Kisan (farmer) credit


cards, and the Internet could reduce transaction costs and also foster
cooperative behaviour.

Overview Bharti WalMart, India

Wal-Mart started its operations in India in 2007. It entered the market, by forming a Joint
venture (JV) with Bharti Group, known as Bharti Wal-Mart Private Limited.

Bharti Wal-Mart entered into Wholesale Cash & Carry business.

The stores were branded as Best Price Modern Wholesale stores. Bharti Wal-Mart worked as a
key supplier to Easyday retail stores of Bharti Retail.

The JV of Wal-Mart India and Bharti Retail didnt work and was called off in October, 2013
(Bharti and Wal-Mart, 2013).

Bharti divested their stake in the JV and Wal-Mart India took complete control of the
company.

As of March, 2015, a total of 20 Best Price stores were operating with pan-India presence
(Wal-Mart, 2015). Bharti Wal-Mart Private Limited had interests in telecom, agri-business and
retail.

Current Scenario

The company opened one store after a gap of more than two years to take
its store count to 21. The new store opened in Agra was also its first after
becoming a fully-owned subsidiary of Wal-Mart Stores Inc.

Wal-Mart India revenue rises 7% as sales jump 34%

Supply Chain Processes adopted by


Wal-Mart

Wal-Mart Procurement
process

Wal-Mart Warehousing management

Conclusion

Analysing the Indian retail scenario, Wal-Mart will have to face many
challenges in the Indian soil.

At the same time, the impact that Wal-Mart would have on the Indian retail
market cant be neglected, if the Indian Government opens up the
restriction on Foreign Direct Investment in the retail sector.

The growth of the Indian retail industry to a large extent depends on supply
chain, so efforts must be made by the Indian retailers to maintain it
properly.

Therefore, with the generous use of Global and Local Experiences, Indian
retailers are going to improve their bottom lines with efficient,
management of Supply Chain and Logistics.

THANK YOU