Foreign Direct Investment in Indian Retail Industry

Introduction

“India is poised as the most favourite FDI destination in South East Asia, outpacing China” (IGRM 2006). FDI is the short form of Foreign Direct Investment. Direct investment means the involvement in direct ownership of foreign based assembly or manufacturing facilities. When the market is big enough, then the possibility arises for direct investment. The question is why the foreign company will provide the direct investment. It may be because the company can make safe its cost economies from the view point of labour or raw materials cost or by it the company can continue the full control over its investment. The successful return from the direct investment depends on the performance financed by the investors.

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Their efficient role can be very valuable in increased competition and quick change of technology. India is the second largest country on the basis of population after China. According to a reliable estimate, the approximate population of “India is now 1.2 billion” (Pinacal 2005) and is one-sixth of the total population of the entire world. In fact this is likely to exceed china’s by 2050 (Rudra 2006) So there is no need to mention that it is a vast and gradually increased market because of the increasing rate of the population, per capita income, living standards and urbanization. From the economic point of view, India is now recognized as the one of the fastest growing economy in the world and that’s why the foreign investors always signify the Indian market as to expand their business. Retailing is the world’s largest private industry that provides £3.324 trillions annual sales (ICICI Bank 2004). The Indian people especially the urban people are getting exposed day by day to international lifestyle. Besides this the demand and consumption of the Indians is now more than ever. That’s why the tendency to spend is increasing by the Indians. The reasons behind this are:-

  • Boosting the high and middle income population
  • Affordability increased
  • Increase in per capita income
  • No longer need-based shopping
  • The change in mind
  • Greater Improvement in Education

The objectives of the study is to examine and analyse the status of the FDI in Indian Market, challenges and opportunities of the FDI in Indian Market and scrutinize its influence on the stakeholders, trading associations, and customers.

Methodology of the Study

This study looks at the size and composition of the FDI in Retail Market in India, analyzing the opportunities and challenges that exist for national, regional and international stakeholders and providing the best strategies for entry. Competitive dynamics and stakeholders, trading associations, politicians and customer tendencies are analysed in the study, including a case study on Wall-mart in India. FDI in retail markets’ status and investment data collected directly from both primary and secondary sources including stakeholders, trading associations, politicians and customers.

Method of the Study

This type of study is generally called both qualitative and quantitative study. Data have been collected both from primary and secondary sources. A secondary source is a explanation that are totally derived from primary sources. The original data has been picked by a market other than the secondary sources. Researcher usually uses a number of primary sources to produce a secondary source, thus amalgamating the all information. Secondary sources are basically the published books, journals, periodicals leaflet, and loose-leaf etc. Online sources for case study have been used. In addition, the Internet is increasingly becoming a resource for marketing research.

Market analysis

The collation of data is used for market analysis of the process Foreign Direct Investment as well as ascertaining its status. The primary data are also generated on trends and developments in the retail markets. If a foreign investor invests in retail sector in India, Mumbai, Bombay and Bangalore would be their prime choice. Mumbai is famous for film industry and the people, especially young like to follow the western culture. A foreign retailer like Wal-Mart will find most of its customers with in these areas. Besides this the rate of literacy and per capita income of these states are high. And the people of this area are more aware about product quality, style and price. So, to evaluate the condition of the retail market for foreign investors these states are more important. Analysis and data interpretation are also complied in this study. All the above methods are amalgamated and merged for bringing out as much information as possible for a critical analysis.

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Limitation of the Study

As with any research, this study has several limitations. First, the focus of the study is limited to the Indian only one big city, such as Mumbai as the main host country because of the lack of reliable data for India, which would allow us to compare all other countries. Ideally, the inclusion of these seven retail goods like, Foods, Drinks, Clothes, Cosmetic, Electronic Goods, Educational Books, and Automobile in the study would result in a more complete study and would allow for a better understanding of the dynamics of all other retail goods. The second limitation of the study relates to the nature of some of the data used in the empirical model. It is only a study on 50 people to understand the whole people attitude towards foreign products, the use of aggregate data can lead to misleading findings. Lastly, for the instances of different buying habit, behaviour and standard of life of 28 provinces of India may differ from state to state; it can also be lead to misleading the findings of study on the basis of aggregate data of Mumbai.

Justification or Rationality of the Study

This study elevates to the forefront the opportunities and challenges of FDI in Indian Retail Market and market-level strategic considerations as key but missing variables in market-level FDI research. The study argues essentially that an understanding of the effects of differences in retail sectors FDI on how investors acquire and interpret information, and use the insights gained as a strategic tool, may be vital in explaining strategic decisions such as FDI at retail sector in Indian market, specially Mumbai. This study addresses this theoretical fissure in FDI by investigating the moderating influence of investment readiness on the relationship between a market’s apparent competitiveness and its level of FDI in a host market.

Literature Review

Mukherjee, & Patel, 2005

In this book, the authors try to explain of the global developments in retailing including statistical information, organised retailing and expansion of global retailers, FDI in retailing and its impact, market entry strategies of foreign players, barriers to international expansion in first chapter; they explained retailing in India: recent trends and developments including growth of organised retailing, future growth of organised retailing and survey methodology with explanation of purpose of the survey, design of survey instruments, selection of respondents in subsequent two chapters; Survey findings: sectoral analysis also discussed by authors explaining food and grocery, textiles and apparel, consumer durables, music and books, specialty products, fast food chains, non-store formats, shopping malls, fuel retailing in fourth chapter.

Foreign direct investment policy and the entry routes including government policy, entry routes of foreign players and perceptions, concerns and likely impact including perception of foreign players about the Indian market, arguments by those opposed to FDI in retailing, arguments by those favouring FDI in retailing also discussed in subsequent two chapters. Multilateral liberalisation: negotiating strategies in retailing with gats framework, analysis of Uruguay round commitments, developments since the Uruguay round, Doha round, possible negotiating strategies and domestic constraints, reforms and suggestions also identified by the authors. The stakeholders, trading associations, politicians, etc. have given a variety of opinion for and against FDI in retailing. And the authors proved that India would be a hub of a retail boom. The discussion on ‘FDI in Retail Sector of India’ in this book would be of enormous interest to retailers, manufacturers, trading associations, chambers, real estate developers, venture capitalists, foreign retailers and their representatives, consultants, industry associations, government ministries/departments, academicians, and all those who have an interest in the growth of this sector.

People’s Democracy, 2003

In this article, the last four years’ campaign against the move on part of the government of India to permit FDI in retail investment in the country by the Federation of Associations of Maharashtra (FAM) and similar associations has been shown elaborately. This study strongly criticised the approval of FDI to two international retail stores organisations, viz Metro GmbH of Germany (the fourth biggest retailer in the world) and Shoprite Checkers of South Africa.

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Biswas, 2005

The high bread growth of retail in India has been a burning question for the recent years. The stupendous afford on this sector has brought a glorious victory in industrial world in India. The key features of Indian retail sector has been mentioned by the writer such as “new formats and strategic issues such as supply chain, people and security, consumer behavior and changing face of Indian consumerism, Infrastructure in terms of quality and availability of real estate and mall space and logistics.” The writer expects from the international retailers that they will be interested to draw their attention here and will be proud to be an industrialist.

Phani, Ghosh, and Harding, 2004

The liberalization of foreign direct investment in India has performed bad impression on individual business particularly on banking sector. This also effects on stock exchange. Generally creating open market for the investor increases the demand for and value of domestic currency. Suppose in exchange rate can play negative role on the country’s competitive position for goods and services in international market. The potential benefit of opening domestic market to foreign investor can not be avoided because of attractive economic growth. The writers clam that the results demonstrate that valuation gains by private sector banks are significantly higher than government owned banks. Further, valuation gain is a function of an individual bank’s market value, investment opportunity and efficiency, labor productivity, earnings quality, and asset quality. They have also welcomed to the investors to take over the in efficient firms following the liberalization by removing all of the bindings. The have expected that third world country will be influenced by liberalization of FDI where foreign ownership of domestic companies is still restricted to a level where takeover and control is too costly, and often, impossible.

Guruswamy, Sharma, Mohanty, and Korah, n.d.

Here in this article the writer has introduced the stakeholders as a critic. Thy have criticized the present system of Indian retailing. They have given their concept on the retailers like a retailer is one who stocks the producer’s goods and is involved in the act of selling it to the individual consumer, at a margin of profit. As such, retailing is the last link that connects the individual consumer with the manufacturing and distribution chain. There is no controversy about the potentiality of Indian retail sectors. Already they have shown their performance. The writers want changes that’s why in this article the have drawn some recommendations and thrown some questions to the FDI in retail. They have claimed that “it’s a forced employment sector, disturbing the Hornet’s Nest, The Waiting Foreign Juggernaut etc. Although those are controversial matters but the have shown very strong logics. If we would say in a word about retailer it is said that it has a gigantic possibility to build up a healthy economy.

Historical Development of the FDI in Retail Market

Industrial Evolution in Retail Market

At first the Kirana stores provide the consumers needs. Khadi and village industries commission run some franchise model for supporting rural retail sector (Narayanaswamy and Sharma n.d.). At the beginning of 1980 the situation of India began to change as it open up the economy. Some textile companies at first feel the need for the retail chains. Shortly the watch company Titan made an innovative concept regarding the retailing chain. At that time it opened a series of showrooms. From 1990-1995 many manufacturers become in pure retailing sector. The shopping centres become popular later 1995 as it provide some new facilities. The hyper and super market began to satiate the customers’ value, variety and volume. The company began to consider about the market segmentation and market positioning. Target market becomes the way to reach the potential consumer (MaGee 2007). At year end of 2000 the size of the Indian organized retail industry is estimated at £1630.8507 million (Retail Reality 2007 and Narayanaswamy and Sharma n.d.).

Retail in India

There are four stages of a products life cycle and so the business in retail sector. The stages are introduction, growth, maturity and decline (White Papers 2004). At Introduction stage the product is introduced to the consumer and also the sellers. It is the opening phase of the market (Sadrieh 1998). At the growth stage the sales become increased and the market developed quickly and become suitable for modern retailing. The next stage is maturity stage and at this stage the market starts to grow. In this stage it becomes more difficult and tighter for the new entrants. The window of opportunity becomes thin at the decline stage.

Retail Formats in India

Historically traditional, neighborhood grocery stores and “mom & pop” outlets have dominated the Indian retail sector (FASOnline 2002).There are two types of retail sector. One is informal retailing sector and another is formal retailing sector. There are some features that determine which one is formal and which one is informal. The features of informal (unorganized) retailing sector are: small in size, not flexible in tax paying, don’t follow the labour laws. On the other hand the features of formal (organized) retailing are: large in size, are flexible in tax paying and as usual maintain the labour laws. The size of retail market in India is £741.10932 million.Unorganized retail market estimated as £734.80737million and organized market as £63.0195 million.

Modern Format of Retail Sector

The format of retail industry can be classified into two types. One is modern formal and another is traditional format. Modern formats of retailing account just 5% of the country’s retail industry. “Since the mid 1990s, India’s grocery sector has started to evolve from a traditional to a modern retail market” (Free Factsheets 2007).

The facilities provided by the modern retailing, is better in quality and reliable. But the price of the product or service is comparatively higher than the others in modern retailing. The target customer of modern retailing is generally for the peoples from the urban areas. The following are the category of modern retailing sector:-

  1. Malls: Malls are known as the largest organized retailing format. Generally the locations of the malls are in the metro cities or nearby the cities. The range can be about 60000 sq ft to 700000 sq ft (Narayanaswamy and Sharma n.d.) or more than that and these malls provides the service that is high classed in quality. Service and other things are operated under common-roof.
  2. Specialty stores: These stores are based on the some special product or services that makes easy for the customer to minimize the time and decision making complexity. These store focus on the special segmenting customers and emphasize their service quality provided by their stores.
  3. Discount stores: Some stores offer some monetary discount on their product to minimize their cost. They offer this type of discount to reach their specific target that can be seasonally or non-seasonally. The product category can be either perishable or non-perishable.
  4. Department stores: A large store which is ranged from 20000 sq ft to 50000 sq ft. These stores stored variety types of consumer products. The stored goods can be cloth, food, stationary or home-goods.
  5. Hyper markets/ Super markets: These markets are large self-service outlets and offer various types of products. “These stores today contribute to 30% of all food & grocery organized retail sales” (Narayanaswamy and Sharma n.d.). So the super or hyper market plays an important role in the economy of Indian retail economy. There are two types of super market; one is mini super market and another is large super market. The mini super market is ranged from 1000 sq ft to 2000 sq ft and the large super market is from 3500 sq ft to 5000 sq ft. The products are food & grocery and personal sales. These super markets are located near or in the residential high streets.
  6. Convenience stores: These stores are comparatively small that are ranged from 400 sq ft to 2000 sq ft. They stocks limited range of product line and are open for 24 hours services. The prices of the product are higher than the other stores because of the convenience premium.
  7. MBO (Multibrand outlets): MBO is the short form of multi brand outlets also known as category killers, which under a single category offers a variety brands (Scribd 2007). These multi brand outlets are located generally in the busy market place or metros.

Traditional Format of Retail Sector

Traditional format retail stores continue to rule the industry. About 95% of the entire retail sector of India is traditional (Bhushan 2002). The target customer of traditional retailing is the people from the village mostly as because their income level is much lower than the middle class. The price of the product or services provided by the traditional retailing is comparatively less than the others. There are some the category of the traditional retail sector they are Kiosks, Street Markets and Exclusive /Multiple Brand Outlets. ‘Mom-and-Pop shops’ stores are known as Kiranas, paan/beedi shops, convenience shop that “employs about 40 to 50 million persons.” (Free Factsheets 2007). In Kiranas store sales are generally happened over the counter and there is no way to touch or browse the expected product or service before buying for the customer.

In spite of these obstacles and the increased in competition and pressure from the modern retail chains, the Kiranas are doing well. This performance is because of their excellent customer services and ability to provide branded goods or services at low prices. Generally Kiranas are not more than 500 sq ft in space.

Retail Sector in India

As it mentioned earlier that India has a vast and rapidly growing market, it is treated as the largest emerging market. “Indian retail trade is of enormous size ($180 billion), nearly 10 per cent of GDP, employing 21 million persons, which is about 7 per cent of the labour force” (rediff.com 2005). According to the report from the India Retail Report 2007, “the value of the retail market is estimated at around £135.98577 billion with a growth rate of 5.7 percent per annum” (Ramachandran 2007). So the foreign investors like Wal-Mart or Carrefour are very much eager to enter the Indian market.

According to the estimation in India “there are about 15 million outlets that make it the highest retail outlet density in the world” (Sridhar 2006). So it is not needed to mention that how much important is the retail sector in India. The retail sector is not only just large, but also it has a great impact on the economy of India (Gupta 2007). It provides a lot of job and income source in the country. According to Cll-AT Kearney retail study, the retailing sector is largest contributing sector to the country’s GDP (Indian Retail 2007).The employer involves in the retail sector are the second largest employer after agriculture (Bhagat 2007).

Retailing in India and a Comparison

Top 10 Grocery Retail Markets, UK £ billion, 2006, 2010F & 2020F (Free Factsheets 2007). Source: (Free Factsheets 2007).

2006 2010F 2020F
Rank Country Grocery Market Country Grocery Market Country Grocery Market
1 US 408.964612 US 432.132558 US 541.928476
2 Japan 271.97154 Japan 290.606627 China 386.300317
3 China 189.876427 China 243.767084 Japan 303.197902
4 France 144.044186 India 152.102602 India 242.759782
5 Germany 132.963864 France 148.577045 France 155.628159
6 India 118.861636 UK 121.379891 Russia 132.460213
7 UK 111.306871 Germany 120.372589 UK 126.920052
8 Italy 92.168133 Italy 94.686388 Germany 126.416401
9 Russia 72.525744 Russia 89.146227 Italy 101.737502
10 Mexico 72.022093 Mexico 78.569556 Brazil 99.219247
Total 1614.705106 1771.340567 2216.568051

“The term “Retailing” refers to any activity that involves a sale to an individual customer” (Singh 2007). “Retailing involves all activities incidental to selling to ultimate consumer for their personnel family and household use” (Garg 2007). “Despite the huge size of the industry, only 8% of the country’s population is engaged in retailing while that in United States of America it is 20%” (Singh 2007) “In Taiwan, modern format stores account for about 80 per cent of retail sales, with traditional format stores comprising the remaining 20 per cent” (Bhushan 2002). On the other hand the traditional format is favourable in the other countries such as Malaysia, Thailand, Indonesia, and China.

“The FDI in India is just 3.4% of FDI flows as a percentage of Gross Fixed Capital Formation in India by 2004 whereas in china it is 8.2% and 5.9% of FDI stocks as a percentage of GDP by 2004 whereas it is 34.9% in china.” (Keshava 2008).

Retailing can be said as the one of the essential element of the Indian economy. India economy is booming day by day and so is its retail sector. The research and study done by the CRISIL research and information services shows that it is expected to grow the organized retail sector in India “25-30 per cent annually and would triple in size from £4410.1365 million crore in 2004-05 to £13730.8251million ($24 billion) by 2010” (Domain-b.com 2005). It denotes how the Indian economy is gradually increased day by day and moreover India is known as one of the youngest countries in the world. The young generation has a tendency to spend more than the others because of the life style and the buying power. So the retail sector in India is recognized as one of the most significant and also a controversial issue nowadays. “In the US, the retail sector has an average inventory turns ratio of about 18, most Indian retailers range between four and 10, says KPMG” (Kaul and Mahesh 2007).

The Current Scenario of India

Under Indian law, foreign direct investment was not allowed in single or pure retailing (rediff.com 2005). But recently “the cabinet allowed 51 per cent FDI in single-brand retail” (The Business Line 2006). “In the wholesome cash-and-carry segment up to 100% FDI is allowed” (Free Factsheets 2007).

It means that the foreign retailers who selling their products internationally under a single brand get the opportunity to spread their retail chains across the India instead of depending on the local franchise. The Indian government is now silent about multi-brand retail and more and more domestic retail companies entering into the market. They enter the market by their own or making alliance with the foreign companies to establish themselves in a strong position in this competition. “Ever since the government permitted majority control for foreign single-brand retailers in 2006, a large number of premium-brand outlets have established their presence in the country” (Domain-b.com 2005). India FDI Watch is building awareness and facilitating grassroots action to prevent the take-over of India’s retail sector by corporations. It is said that they are building Joint Action Committees (JAC) led by those who will be most affected, mainly; trade associations, unions, hawkers organizations, farmers groups and small scale industries. Some domestic companies for example Bharti, Reliance Retail, Essar, Future Group have already have made their entry and some companies such as Mahindra & Mahindra are about to enter.

It is estimated that the total size of the Indian retail sector would be £ 215.058977 billion by 2010 and £320.825687billion by 2015 with the organised segment expected to account for 22 per cent by 2010, up from the present four per cent” (Domain-b.com 2008). Last five years, from (2001-2006) the Indian retail sector has been in a rapid growth. “From 2006 to 2010, the organized sector will grow at the CAGR of around 49.53% per annum” (RNCOS 2007). India is positioned as the leading destination for foreign direct investment especially in retail sector. That’s why the western companies like Wal-Mart or Tesco already in the Indian market. These companies are now drawing attention or emphasize the middle and upper class people especially the young generation. There are a large number of people who are aged from 20 to 34 and day by day their purchasing power is booming. This group is “boosting demand by 11.1 percent in 2004-05 to an Rs 23,308 purchasing power” (RNCOS 2005). Moreover this buying power denotes the propensity towards the western companies. According to the estimation, “India’s retail industry accounts for 10 percent of its GDP and 8 percent of the employment to reach $17 billion by 2010” (RNCOS 2005).

The former finance minister Dr. Manmohon Singh in 1993 ((rediff.com 2005). had taken decision to change the law to allow the foreign direct investment in retailing sector. At that time on the basis of that, some organization entered in the Indian market. Dairy Farm, an MNC, was among the first to enter the country’s retail sector. But later the then Finance Minister P. Chidambaram (rediff.com 2005) changed the law to permit the FDI in retail sector with the favour of communists in the then United Front Government and declared no FDI in retail sector. But now the situation has been changed.

The present government United Progressive Alliance has faced the question whether the foreign direct investment would be permitted or not. The arguments draw attention to both the foreign investors and also the public of the India. But after the World Trade Organizations Doha summit it becomes more impossible to continue the ban of foreign direct investment in retail sector. At present India is standing in such complex situation that either they have to withdraw the ban or “have to face the WTO’s ‘cross-retaliation’ measures, such as withdrawal of tariff and trade privileges that are available to India under the new General Agreement on Tariffs and Trade” (rediff.com 2005). The leftist and Swadeshiest are protesting against the permission of foreign direct investment in the retail sector in India.

A National Streering Committee has formed in Delhi, of which India FDI Watch is a facilitator and member. The National Steering Committee has come under the banner Vyapaar Rozgaar Bachao Andolan. Similarly in Mumbai, India FDI Watch is a chair and member of the Vyapaar Rozgaar Suraksha Kriti Samiti. In Bangalore, India FDI Watch are a key member and coordinator of the Karnataka Joint Action Committee against Corporate Retail. But as it is known that the growth rate of population is one of the problems to face the situation, because FDI in retail sector can ensure the employment for enormous new generation. Day by day the need for good job is increasing among the young generation and therefore the issue of allowing FDI in retail sector becoming more important. Most importantly the trade in India is unorganized and non-networked and so the retail sector.

“Union Minister of Agriculture Sharad Pawar has said that the government is not taking into account any suggestion to allow Foreign Direct Investment (FDI) in retail sector” (NewKerala.Com 2008).

It should be stated that the largest retail company Wal-Mart established their business in China in 1996 and according to estimation it alone exports £6.043 billion worth of goods in 2002. These retail sources all goods from the China inside and making the economy of China strong. “Recently the FDI watch campaign is determined to prevent anyhow the foreign invest in the retail sector in India” (Indian Food Minister 2007).

“India FDI watch is a national coalition of labour unions, trade associations, environmentalists, NGOs and academics” (Google Group 2007). Their argument is to protect FDI in retail sector as because of FDI in retail sector will be the reason for thousands of job losses. Already many small business and Kiranas are being forced to close. “It will continue the race to the bottom in wages and working conditions that Wal-Mart and other multinational mega retailers have spread across the globe” (Google Group 2007). “India’s retail industry is estimated at about £151.0953 billion, and is forecast to grow to £215.058977 billion in 2010 and £320.825687 billion in 2015, according to consultancy Technopak Advisors” (Boric 2006).

So there is no need to say that FDI in retail sector is a very controversial issue nowadays in India. “It may break or make the strong Indian economy” (Sulekha.com 2003). “The big international firms have taken advantage of the country’s increasingly prosperous consumer market” (FDI.net 2007).

Meanwhile the Wal-Mart has announces to launch their business by making alliance with the Bharti Enterprises Ltd. “Under the deal, Wal-Mart and Bharti Enterprises will set up a joint venture to manage procurement, inventories and logistics, while stores will be set up under a franchise agreement” ( Agora Financial LLC n.d.). It is said that the Bharti retail will take care of the front-end and Wal-Mart will be involved in procurement, logistics and supply chain that is said back-end. There is the objection that “when the government will open up the FDI in retail sector, then Wal-Mart will come to the front-end for the total business and become the monopoly” (Proletarian Revolutionary 2007).

But if it is true then it need not be wise to understand that by that tim e they would manage to spread its retail chain across the country with the help of Bharti retail. So the question is raised, what would happen to those 160 million (Proletarian Revolutionary 2007). People who are involved in the retail sector and their livelihood depend on it. The protestors included thousands of traders, hawkers, labours, farmers who show their opinion across the India. There was a strong slogan that is ‘quit India’ and it was a united call of all corporations. These protestors were both domestic and foreign companies, timed to commemorate the beginning of the ‘quit India’ that was “started on august 9, 1942” (Indian Food Minister 2007). The agitations took place in the metro cities Mumbai, Kolkata, Delhi, and Bangalore along with the other major cities. In Delhi thousands and thousands workers, hawkers, farmers protest against the FDI in India and showing their disagreement by burning effigies of Wal-Mart, Bharti, Reliance. They demanded the revocation of Wal-Mart-Bharti joint venture immediately and they also demanded an independent special task force comprising of stakeholders to conduct this issue. The same reaction has been seen in Mumbai when thousands of hawkers, retailers, labours and so many others called for a one-day trade bandh. The following organizations were addressed to protest against the foreign direct investment in Indian retail sector:-

  1. Federation of Associations of Maharashtra
  2. Mumbai Vyapari Seva Parishad
  3. Mumbai Vyapar Mahasang
  4. Apna Bazar
  5. National Hawkers Federation
  6. Retail and Dispensing Chemists Association
  7. India FDI Watch
  8. Center of Indian Trade Unions and
  9. Hindu Mazdoor Kishan Panchayat

In Kolkata thousands of hawkers protest against the FDI in everywhere of the twelve district of west Bengal.

In Jaipur, 50 students join with the protestors and demanded Wal-Mart to leave the India and also demanded to ensure the proper execution of national policy on street vendors. In Kerala the protestor marches more than one thousand places across the state.

Opportunities of FDI in India

For the first time, the foreign companies are talking about the opportunities for FDI in infrastructure development and manufacturing sector. Greater investment in developing countries, particularly through FDI, can have a powerful impact, bringing not only technology and capital, but also opportunities to train local workers” (Wipo). The current debate on allowing foreign direct investment (FDI) in India’s retail trade primarily focuses on two issues – employment and consumer welfare (Dey 2006). Here is the question of considering the balance of opportunities and risk. The experts say if FDI is permitted in India then it would result in improve the competition, develop the market infrastructure, improve the technology, standard of living will be increased, the supply chain will be improved, manpower and skill development, tourism development, GDP growth, increase number of tax payers. “India has one of the most transparent and liberal Foreign Direct Investment (FDI) regimes among emerging and developing economies” (Invest India n.d.).

  • Improve the competition: Allowing foreign direct investment in retail sector would not be limited only within invests but also it will create a hard competition among the both foreign and domestic companies. It is expected and known that when the market is in competition then that is good for the customer and also for the country’s economy. It is said that when the foreign direct investment will be permitted then the Kiranas will be sufferer. But it is not totally correct because if FDI is permitted then they (Kiranas) will be benefited by getting the built-in protection from the supermarket. These supermarkets are existed only in the large cities. So the Kiranas will be able to buy the goods from these supermarkets in a low price and sell those goods to their customer so that their profit margin can increase. Besides this the supermarkets which become regional and national chain, can negotiate prices of goods more forcefully, so from that the consumer can get the facilities (Mishra 2007).
  • Comparatively the others Asian countries such as “China’s organised retail sector is 20 percent of the total, while the proportion is 50 percent in Malaysia and 40 percent in Thailand” (Skeers 2006). The Indian retail stores are small in size and are owned by the families of those who have been operating them. They are involved in running these stores for a long time and are well informed about their business strategy and implementation. They know what the customers like and dislike. They also know about the customers occasional requirements in festivals and celebrations. As it is known that the market structure of the retail sector is very weak. The whole unorganized, un-networked retail market would be organized if and only if foreign direct investment is allowed. Allowing FDI in retail sector can play a major role over the world in mounting the productivity across a wide range in consumer product and services. Already the impact of retail sector in the economy has seen in countries such as the US, UK, Thailand, Mexico, Brazil, China etc. (Kundu 2005). The economy of the some other countries also has been assisted by the retail sector. It needs to mention that in India there are no foreign players, so there are the opportunities for the foreign companies to enter the Indian market and establish their business.
  • Investment in technology: About 40% FDI has come through the Merger and acquisitions (M&A). In fact three fifth of the FDI will introduce the newer technology. Foreign direct invest can create the opportunities for the Indian companies to upgrade the technological aspect. This indicates the availability of skilled workers in India in the global pool of labour. The foreign companies can be benefited by utilizing these skilled persons to fulfil their task and as well as there would be a huge number of employment opportunity. If the retail companies such as Wal-Mart enter the Indian retail market then they can use their efficient management practise and superior technology environment friendly process to reduce the wastages and also ensure the improvement of the supply chain management. By this they can replace the unorganized retail market into organized and networked system. As it is known that the Indian market management system in retail sector is the reason for wasting a lot of money.
  • Better lifestyle: The buying power of lower class as well as middle class is increasing day by day. The foreign company has a chance to enter the Indian market and serve the rapid growing middle class with a lot of money to spend. The upper and middle class people now have the tendency to become like the Americans by improving their standard of life. Besides this about “50% of Indians are now under the age of 30 (Hktdc 2006). It is known that when the production increased then the supply increased, with the supply the consumption increased and when the consumption increased then the standard of living increased. Foreign direct investment helps to increase the production. Because of the large volume of production the competition increased and the competition ensures the quality product or service. By consuming the quality product the consumer increase their standard of living. The behaviour pattern of Indian consumer is changing day by day. There are some reasons behind this as because of the western influences, increase in income, women working force is increasing and moreover the desire for luxury goods and better quality. Now the Indians are in desire to eat, shopping and get other facilities under a single system. All these make the Indian retail sector to provide better service to satisfy the consumer.
  • Manpower and skill development: It is not hard to assume that as the retail industry is expanding more day by day, the more manpower is needed to maintain it. But the manpower must be efficient and skilled. So to make running the business the company is bound to recruit a huge number of employees and train them to be efficient and skilled. Moreover this is continues process that will create a good competitive situation among the others and by this FDI can also ensure the solving of a huge number of unemployment. It should be stated that in the long run the total volume of the employment opportunities will be more than the employment losses in the short run by allowing FDI in retail.
  • Tourism development: there is another opportunity if FDI is allowed in India that is tourism development. As it is known that India is a country to visit for its well features that belonging to the cultural tradition, language and building that still exist from the past and have the historical importance. A huge numbers of tourists visit India that bring foreign currency to the country. If FDI allowed then certainly the incoming visitors will be increased as because of the availability of familiar products or services.
  • Investment in whole supply chain: The foreign direct investment provides investible resources to the host countries. When the foreign direct investment happened, it brings and introduces some new technology that makes easy access to export markets. The technology is another point to be stated because in India in retail sector the implementation of technology is not used properly. If the foreign companies like Wal-Mart, Carrefour, Tesco, Casino enter the Indian market then it would be good to see the proper implementation of technology in every aspect of supply chain management. By implementing the techniques the management can ensure the minimization of cost. Because when the mechanical and electrical devices will be used then
  • FDI in India’s defence industry: India is the largest importer of defence equipment. Their annul expenditure on importing arms is now worth $6 billion. Their present expenditure on defence equipment is now 2.8 percent of their gross domestic products (GDP), now they want to increase it up to 3 percent of GDP. According to the Associated Chambers of Commerce and Industry of India (ASSOCHAM), India’s expenditure on importing equipment for defence since the Kargil war in 1999 is worth £12.591275 billion (near Rs. 1000 billion), And from the statistical data it can be forecast that the expenditure will increase up to £15.10953 billion by the year 2012. The President of Assocham (March 2008), states that

“The Indian government opened up the defence production industry by allowing 100 percent investment by private sector firms and at the same time allowed 26 percent FDI in select areas,” Indian government is now thinking to increase the FDI on defence industry to decrease their import expenditure on defence equipment, to make India self-depended and minimizes the pressure off the state exchequer. India wants to raise the FDI up to 49 percent from the current 26 percent. Supporting it ASSOCHAM president Venugopal Dhoot said, “This needs to be further accelerated to 49 percent, as it would help procurement of latest technologies as per provisions of latest defence offset policy.” (Assocham 2008)

  • GDP growth: Another opportunity that FDI will ensure is the growth in GDP. It is not difficult to imagine that after allowing partially of FDI the GDP of India has been increased and so would be in future. India is now very much aggressive to grow its economy to compare with China.
  • Increasing the tax payers: After permitting the foreign direct invests, the number of tax payers will be certainly increased. Because most of the upcoming retail investors will be organized and they are famous for paying tax. So the government will get a large portion of it and thereby the country will be benefited.

Challenges of FDI in India

“The effect of foreign direct investment on the domestic economy has been widely debated in literature” (Ghosh 2004). FDI in India become a sensitive issue nowadays. The government wants to promote FDI in retail sector to make improvement of logistics, technology and cold chain so that the other traditional and unorganized retail stores can get help from it.” Governments with over-optimistic expectations from foreign direct investment should be aware that it does not necessarily increase employment and can have negative effects on a fragile economy” (Ghosh 2002). So, there are some challenges that the government and the investor companies will face and they must have to think very consciously. The experts say the upcoming challenges after allowing FDI in India are as follows:-

  • Managerial challenges
  • The supply chain management
  • Retail space
  • Shortage of manpower
  • Kind of employment
  • Cultural differences

Managerial challenges

It is very hard to maintain the customer relationship by making them fully satisfied. To fulfil company’s objectives, clear the old stock off, satisfy customer, incentives for the loyal user, to make effective purchase point would be always challenges for the management. The manager in charge, need to understand the impact of various types of promotional activities taken by the company. The impact on consumer behaviour may be negative or may be as it was expected. “In a crowded promotional environment, it is challenging to retain loyal consumers” (Vyas 2007). Sometimes indifferent promotional effort may impact negatively on customers mind in deal to deal buying. So a manger needs to be conscious about this and have to have the strategies to overcome them. It is recommended that the manager needs to take such types of activities which ensure the company’s positioning and advertising campaign efforts. The manager also needs to understand the critical integrated marketing communications that plays a major role in competitive market.

The supply chain management

As mentioned in the FICCI report of 2004:-

“India produces the second highest fruit and vegetables in the world (134.5 million tons) where the cold storage facilities are available only for 10% of the produce …. India is also the second highest producer of milk where cold storage facilities are available for 700000 tonne …. Besides this India is the 5th largest producer of eggs.” (Working Paper n.d.)

But the fact is that Indian is well known for its inefficiency in supply chain management system. “From 20 to 40 percentage of the £6300.195 million fruits and vegetables sector” (Swaminathan 2005) is suffered as the wastage because of poor transportation, lack of storage capacity, handling and procurement. There are some intermediary costs in India and it is the highest in the world. The farmer get very few (20-22 paisa out of 1 rupee a customer spends) whereas in the developed countries it is more than 70 paisa (Swaminathan 2005) Notably, the Kiranas are now more efficient, smarter and customer friendly than five years ago they were.

Lack of retail space

Retail space would be the one of the biggest challenge for the retail investors especially for the organized retail companies. As because of the increase in the demand from the organized retail company it is causing challenge to its growth. It would affect both the foreign and domestic retailers in their overall profitability. “Around 96 percent of the shops are less than 500 sq. ft” (Dhamayanthi and Kumar n.d.). It denotes the poor situation of the country’s retail space as well as the whole infrastructure. From this point of view the organized retail sector will face two kind of challenge. One is the lack of retail space and another is the cut of profit margin because of high investment to get the expected space. India has lowest per capita retail space in the world. So it is not difficult to realize that as the need and consumption is booming day by day the need for retail space is also increasing.

Trained manpower shortage

In the upcoming retail business there would be need for a lot of trained and skilled personnel to sustain the business. But the problem is that there can be shortage to include trained manpower in the retail sector. The payment of the trained and skilled person, as there have to pay more for trained person and also they are difficult to find, so that brings down the profit levels of the Indian retailing. The upcoming large industry needs a huge number of efficient and reliable personnel that can fulfil the company’s objectives so that the company can retain its goodwill as well as the profitable customer relationship.

Kind of employment

It is said that allowing FDI in India will reduce the unemployment, but the question is what types of employment opportunities it will create. The argument arises that; it will not provide the employment opportunities for the semi-illiterate people. Notably, it needs to draw attention that, there are a huge number of semi-illiterate people in India that should not be out of consideration. Besides this if FDI is allowed then there is a fear that the price of the product or services will be reduced as because of technology, improve supply chain etc. Then it would certainly affect the unorganized retail sector and so the huge number of employment opportunities provided by these unorganized retail sectors.

Cultural differences

“Cultural factors affecting FDI in different regions of one large emerging economy, namely India (Sathe and Schachler 2006). India is a one country but it has more than 25 states and each of their culture is different from the others. 25 states means 25 market and each with its taste, shopping styles, dislikes, understanding and many other issues are different which would be the biggest challenge. As the culture is different then it is not hard to understand that the marketing strategy would be different for each regional. Various cultures, social and political background differences would be the challenge for the retailing sector. The social, cultural and political variables have a measurable impact on the business especially in India. The retail format that is applicable for south India would not work in the other region.

Case Study on Wal-Mart’s Retail Market in India

Wal-Mart is the world largest retailer super shop. They sell a variety of products and provide services. The study analyzes the environmental aspects including customer, market and stakeholders with respect to Wal-Mart. The study also intends to discover the wide-ranging market coverage of Wal-Mart and its popularity to the customers’ for improved services in case of household commodities. Besides, uncovering the reasons behind the popularity and prominence of Wal-Mart as a customer-oriented super-shop has also taken a significant place in the present study. The study also attempts to erect an entire organogram of Wal-Mart concerning its transaction process dealt between the Stakeholders in the Wal-Mart business Shareholders, Suppliers, Distributors, Dealers, transportation, Bankers, Advertising/Marketing/Market research agencies and impact upon them arising out of its business. “Wal-Mart is the largest grocery retailer in the United States, with an estimated 20% of the retail grocery and consumables business, as well as the largest toy seller in the U.S., with an estimated 22% share of the toy market” (Rediff 2006).

Wal-Mart is an outstanding example of a successful international retail business. It has strong organizational culture and philosophy, which plays the key role to its success. Wal-Mart has introduced the world with its new policy of advertising. The slogan of Wal-Mart is, “Save Money Live Better“, which conveys the message that its product posses a good quality but cheap in price. Wal-Mart’s this message is well accepted and won the heart of the people, especially those, who are price sensitive. Wal-Mart always fights to keep its product price low. It believes that people will buy comparatively less priced product but good in quality. This philosophy of Wal-Mart plays a pioneer role to its success.

It is now in a high growth rate, and its popularity is increasing day by day, which is certainly treated as a threat to other competitors. It is the largest retail store in the United States, and is larger than any other retail chain in the world. Currently Wal-Mart operates over 4,150 retail facilities globally. Wal-Mart is the dominant retail store in Canada, Mexico, and the United Kingdom (Walmart) According to the Fortune 500 index of the wealthiest and most powerful corporations in the world, the number one position, ranked by its total sales is belongs to Wal-Mart. The company is ranked as the second most admired company in the world by (Fortune). Now Wal-Mart is willing to enter the Indian market due to its high prospect. India possesses one of the largest numbers of retail outlets in the world. At present nearly 5 million retail shops are related to sell food and food related products, of its 12 million retail outlets. Even with this huge number of retail shops, organised retail outlets accounts for only 4 per cent of the total market of India. That shows a huge growth potential of this segment of market. Definitely it is the most attractive market to Wal-Mart.

The government decision on January 24 allows up to 51 percent foreign direct investment (FDI) in “single brand” retail stores. Nike, Nokia or Levi can establish stores, but multi-brand retailers such as Wal-Mart and Carrefour are excluded, for now (Skeers 2006).

Before discuss about the Indians law about the current FDI in retail and the opportunity and threats of Wal-Mart in India, let’s have a look about the brief history of Wal-Mart. And find out the reason of its success and motives towards India.

Wal-Mart in India

According to the Global Retail Development Index, from the view point of investors, India is positioned as the leading country for retail investment. India has a big and wide spread market which attracts the giant western retailers Wal-Mart, Tesco and others. India’s retail industry accounts for 10 percent of its GDP and 8 percent of the employment to reach £8.562067 billion by 2010. There are about 300 new malls, 1,500 supermarkets and 325 departmental stores being built in the cities very soon. A shopping revolution is ushering in India where, a large population between 20-34 age groups in the urban regions is boosting demand by 11.1 percent in 2004-05 to an £293.7717012 purchasing power.

This has resulted in huge international retail investment and a more liberal FDI (RNCOS, October 2005). Wal-Mart’s focus on India as leading international prosperity markets is pretty well-known by now. Wal-Mart’s partnership with India’s Bharti is going to take some time since there are brand management and legal issues to get past, but Wal-Mart expects to begin opening the first of six stores in less than a year. While that may sound small, Bharti Enterprises group chairman and CEO Sunil Mittal indicated that these initial openings will just be the start, as Wal-Mart/Bharti may “put up several hundred stores over four to five years” (White 2007). Slowly Wal-mart can realize that India is not like China. It is a hard nutshell for Wal-Mart to enter their market. First problem is the rules and regulation of India, which is not in the favour of foreign direct investment in retail sector.

In 1993, the finance minister of India, Dr. Manmohan Singh had changed the law regarding the retail sector of India. He had permitted the foreign direct investment in retail trade sector. After the permission dairy Farm, a multinational corporation entered India on. But, the condition changed when the next finance minister, P Chidambaram, changed the law again in 1996 to ban FDI in retail trade. But here the fact is like the other Indian law this law also has a loophole. That is the law ban the FDI in retail sector but the foreign retailers can operate their business in India through local franchises. Thus Wal-Mart will to work in joint venture with India’s Bharti to enter India’s retail market.

At present the main brands that are doing retail business in India are-

Archies
Bata
Big Bazaar
Crossword
Ebony
Fabmall
Food Bazaar
Giant
Globus
Health and Glow
Liberty
Mtr
Music World
Shoppers Stop
Style Spa
Subhiksha
Titan
Westside
International Entrants in India
Wal Mart
Carrefour
Tesco
Marks & Spencer
Metro
Boots
Pantaloon

The Opportunity and Threats of FDI in India

India is one of the most attractive markets for retail business. India’s economy is growing fast at a rate of six to seven percent. The World Bank forecasts that this average growth rate will be sustained over coming years (World Bank 2004).

A look at the statistics shows that the retail sector in India is worth £198.438494 billion and is growing at the rate of 30% annually (Kathuria 2006).

The key role playing factors that are accelerating India’s economic growth are telecommunications and information technology, as well as chemicals and pharmaceuticals. Indian governments liberalise trade and encourage Indian exports. It is a good situation for the foreign companies to invest in India. Sustainable and increasing economic development ensures the market growth and the return from it. Here the fact is Wal-Mart’s products are other than this. So, it will not face problem to market its product, rather it will get a demand full market of its products.

“The tie-up between US retail giant Wal-Mart and Bharti Enterprises was within the existing policy framework, Bharti group chairman Sunil Mittal said on Saturday. Responding to queries, Mittal told reporters that as per the MoU, Wal-Mart would provide the back-end support in terms of setting up cold chains, while Bharti would do the retailing under the cash-and-carry format” (The Hindu 2006).

The Opportunities for Wal-Mart

John Menzer, president and chief executive of the retailer’s international arm, said after talks with Prime Minister Manmohan Singh that India was a market “to which we will just keep coming back because of its unbelievable potential. There’s talk [that FDI in retail] could be limited to brands or even certain regions. We think that is unproductive – we can”t utilise our global leverage if that happens “. (Ghanta 2005 & Joshi 2005).

There are many reasons that are treated as the opportunity for FDI in India. The opportunities are stated below-

  1. Large market size: India is theone of the largest retail market in the world. There are approximately 40 million people and 11 million outlets doing business in India’s retail sector. Many of these retailers are marginal business man and doing business with small shops and stalls, street vendors and hawkers—which will be easily destroyed by the competition from large retail outlets like Wal-Mart. So, definitely Wal-Mart will get a huge market.
  2. Suitable Communication and transportation system: India provides a nice environment to invest. India is now holding a superior position in IT (communication) sector. Its well organized developed infrastructure creates a good field, which attract foreign investment.
  3. Available labour and cheap labour cost: India is well known for its available labour and the comparatively cheap labour cost. It ensures the low production cost as well as faster and improved marketing with a low cost by which a company can maximize its profit.
  4. Comparatively less competition in retail market: Though India is matured enough both in national and international business, still now the retail sector is comparatively less competitive for the large retail companies. Wal-Mart pulled out from Korea in 2006, after losing hundreds of million dollars. They sold their 82 shops to Metro group which are renamed as Metro’s brand ‘Real’. So from the view point of competition, it is the most attractive region for wal-mart.
  5. Faster economic growth:“According to this year’s Global Retail Development Index India is positioned as the leading destination for retail investment. This followed from the saturation in western retail markets and we find big western retailers like Wal-mart and Tesco entering into Indian market. India’s retail industry accounts for 10 percent of its GDP and 8 percent of the employment to reach £8.562067billion by 2010. There are about 300 new malls, 1,500 supermarkets and 325 departmental stores being built in the cities very soon.” (Global Information 2005 and Business Wire 2006).

Faster economic growth of India shows the potential growth of the size of its retail market and ensures the return of investment of the investors from the market. The growth of economic development increases the consumption level of the consumers. So ultimately it increases the sales of the retailers.

“In growth stage, the market is developing quickly and also ready for modern retailing. Countries, which are in Peaking stage, are India, Ukraine and Vietnam. Retailers entering this stage have the best chance for long-term success. Retailers at this stage should enter through local representations, sourcing offices and new stores. Wal-Mart success in china in the late 1990’s and early 2000’s gives us the importance of committing to a promising high-growth market at right time.” (Garg 2007)

  1. Products and services: Wal-Mart is popular for the collection of verity product within a cheap price. India is a country with different states with a verity of people, culture and custom. Though the economic growth of India is high and a suitable position, most of the people of India are in middle class and they are highly price sensitive. So it is an ideal market for the world’s largest retailer Wal-mart. If we analyze the back ground history of Wal-Mart, we will find the cause behind of its tremendous growth. It was nothing but the highly price sensitive market situation. Beside this India in now following western culture and some places it become as Indian Culture. Thus it will not face too much problem to adopt with Indian culture.

Threats of FDI in retail sector for Wal-Mart

Though Wal-Mart is the largest retailer in the world and most experienced in retail business, it may face trouble to adopt with Indian Culture and Custom and the law prevailing about FDI. These may consider as the threats towards Wal-Mart. Let see the threats that Wal-Mart may face-

  1. Rules and regulation regarding FDI in India: The present law about FDI do not support foreign direct investment in retail sector. The foreign company may invest in association with the domestic companies. It is a great obstacle in front of wal-Mart. The present foreign investment allowed in India is 29 percent. Indian government declared that they will increase it up to 49 percent, but Wal-Mart wants 100% investment of its own.
  2. Unorganized retailing in India: Another problem that will be faced by the Wal-Mart is the unorganized retailing. It is the most popular business in the sub-continent. In all over the India there are a large number of unorganized retail shops. According to Garg (2006),

“In India, the most of the retail sector is unorganized. In India, the retail business contributes around 11 percent of GDP. Of this, the organized retail sector accounts only for about 3 percent share, and the remaining share is contributed by the unorganized sector. The main challenge facing the organized sector is the competition from unorganized sector. Unorganized retailing has been there in India for centuries, theses are named as mom-pop stores. The main advantage in unorganized retailing is consumer familiarity that runs from generation to generation. It is a low cost structure, they are mostly operated by owners, has very low real estate and labour costs and has low taxes to pay.”

So, these unorganized businesses may the cause of headache for the Wal-Mart company.

  1. Custom and culture of India: Though in some states the young are following the western culture and made it of their own, India posses a strong culture of their own. India has different states with different culture, language and custom. It might be harder for Wal-Mart to keep pace with them all as they have failed to do that in Germany. India has the culture of thousands years old and they are highly religious in believe. So cultural mismatch is a question of a company’s existence.
  2. The Left and Swadeshies: The left and Swadeshies are the strong protester of FDI in retail sector. They are ready to do anything to protest the FDI. They think, if FDI occurs in retail sector, the local retailer will face a great lose. Most of the Indian retailer is marginal, weak and low in capital. Thus they are unable to compete with the multinational companies like Wal-Mart. Moreover Wal-mart is known as business killer as it has captured the market share of its competitors and abolished them. Janvad (29 December 2007) states that

“On the heels of the announcement of the Bharti-Walmart joint venture, thousands of traders, hawkers, farmers and workers protested across India. Protesters also included a group of American students who demanded that Wal-Mart not be allowed into India. Mass-based organizations called on the Prime Minister and Sonia Gandhi to immediately stop the Bharti-Walmart Joint Venture and not allow Wal-Mart’s backdoor entry into India”

Thus the left and Swadeshies are strongly protesting FDI in retail. So, Wal-Mart may find it hard to enter in the retail market and later to build relationship with them and doing business well.

  1. Future relation with its partner Bharti: As local law of India do not support FDI in retail sector and do not support to setup a large numbers of stores to compete with the Indian retailers, Wal-Mart has intended to enter the retail market in India with Bharti Group by forming a joint venture. Bharti will remain the front-end of the joint venture and Wal-Mart will put in purchasing and supply-chain expertise. Here the world’s largest retailer will play the role of Bhati’s whole seller.

Here the question is, will India Maintain its restriction on outside retailers in the long run? If not, then Wal-Mart will not be interested to continue this joint venture and set up its own shops to do the business alone. What will be the condition then? Only thing that can be mention about it that, of course, Bharti is not that stupid.

Threats of FDI in Retail Sector for Metro GmbH of Germany and Shoprite Checkers of South Africa

In other case study shows that, the Metro GmbH of Germany (the fourth biggest retailer in the world) “has itself admitted that (1) once a customer is inside its store, she or he can purchase any of the 17,000 items sold by it, and (2) there is no minimum quantity that a customer is bound to purchase” (People’s Democracy, 2003). The Metro GmbH of Germany and Shoprite Checkers of South Africa is creating threat for locally invested retail sector. The attractiveness of Mumbai as a location for FDI in retail markets is backed up by the figures on deposits held by foreign banks in India. It is shown in opinion of the Communist Party of India (Marxist) about FDI in Retail Market of India in Appendix 1.

Result of Study on Consumer’s Demand on Retail Goods

FDI in retail sector in India is now a debate. Some are supporting, some are strongly opposed it. Even the economists are in debate. So, we conduct a survey on 50 customers in diffident age, job and status. The subject of the survey is consumer’s preferences on different goods that are consumed in their daily life. This survey helps to understand the present demand of the consumers, whether they like locally made or foreign goods.

Sl. No Name of goods Consumer’s Preference
Local Neutral Foreign
01 Foods 80% 20%
02 Drinks 44% 24% 32%
03 Clothes 46% 10% 44%
04 Cosmetic 30% 30% 40%
05 Electronic Goods 30% 70%
06 Educational Books 20% 10% 70%
07 Automobile 30% 40% 30%

This figure proves that India has a huge foreign market and a great opportunity for the foreign invest in India. If we accumulate the total preference than it is found that total local product preference 40%, total neutral 16.285% and total foreign product preference 43.714%. If it is considered that neutral is no group and divided it equally to local and foreign groups then it becomes, local preference 48.1425% (app) and foreign preference 51.8565%.

The study empirically shows that access to Foreign Direct Investment (FDI) opportunities have a significant positive impact on Indian retailers. By contrast, the level of involvement of the domestic investment in Indian Retail Markets showed a significant negative impact on Indian retailers. In addition, quite surprisingly, an appreciating Foreign Direct Investment (FDI) in the host country was found to have a long term significant influence on Indian Retail Markets.

Conclusion and Recommendations

Foreign direct investment is an important part of free and effective international economic system. It is the key element of economic development and highly beneficial for India. India is now considered as the hot destination for foreign direct investment. FDI accelerate technological development, create more effective and competitive business environment, and contributes to the international trade integration and so others. It is certain that India will take part in international business and invest foreign countries after the successful business operation in Asia. India has a large number of people, available and reasonable raw materials, labour, healthy communication and transportation system, it is treated as important emerging country and favourable for the foreign investors. It can be mention here that FDI has a long run positive advantage for India’s socio-economic aspects.

It is saying that, whenever you take wrong steps then the opportunities will be gone. It can be recommend to India that, to accelerate the growth of the Indian economy and to hold India in a leading position from the third world to the first, they should allow the foreign investment and help to increase it. There may be some barriers and unexpected element that makes thinking about some pessimistic consideration. So, India should investigate it more that how much they are benefited for the FDI and it is totally absurd to think that if FDI in retail than they will loot. As India is developing they have to learn many things from the developed countries as well as the successful multinational companies. Once USA wanted the faster globalisation and the weaker countries were not willing to it. They thought as India thinking now. Now result is other countries are much more benefited than the USA does. We believe India is not a Stupid, so hope, it will take the right and proper decision about retail and implement those perfectly and there would be nothing to worry.

As India is on the way to be a developed county, foreign investment is essentially needed for its sustaining growth. The left and the Swadeshies may think that they will lose financially if they agree with FDI in retail. That’s true, but the question is how much they will lose? Is that really lose or overall improvement? The real fact is the multinational companies are experienced and have strong management. They will obviously employ the Indian people in their business and make them efficient and skilful. India is now increasing its export business and slowly stepped towards the multinational business. So, India has many thing to learn from the giant companies like Wal-Mart. To make a successful business in India Wal-Mart’s must focus on the growth of its market share by building a high quality, low price brand, as it is assumed that India is a matured in business and there may caused some problem to gain the market share.

It may be recommended that:

  • Conduct feasibility study and due diligence in recommended regions to establish mode of entry
  • Prepare a strong and intelligent plan to enter in the market.
  • Wal-Mart will face increasing competition in local markets where the local retail business is already established.
  • It may lose market share in the next due to increasing presence of suppliers (from China) and other FDI in these emerging markets
  • It should maximizing its investment to gain and capture the market share
  • It should not leveraging access to new goods and product raw materials
  • It should observe the culture of this region and keep pace with it.
  • Obviously it should care about its philosophy, to keep the price low.

Questionnaires

Dear Participant,

I am going to conduct a study on “Customer Preference towards the domestic or foreign product” for the requirement of understanding and evaluation of consumer’s preference. The findings of the study will help me to understand the present condition of customer’s preference and demand about their daily consumable goods in India. The answer will be used for research purpose only. Your given all information will be strictly confidential.

I would very much appreciate if you answer all of the questions carefully. I believe the following questions are fairly simple and easy. Your true and careful opinion is highly encouraged for conducting the study smoothly.

Important:

  1. Please think deeply and answer.
  2. Please do not omit any question.
  3. Please tick (  ) where it is necessary and do not choose double.
Sl. No Name of goods Consumer’s Preference
Local Neutral Foreign
01 Foods
02 Drinks
03 Clothes
04 Cosmetic
05 Electronic Goods
06 Educational Books
07 Automobile

Your present job:………………………………age:………………………

Thank you for your active cooperation.

The Result 50 Person’s Questionnaire

Sl. No Name of goods Consumer’s Preference
Local Neutral Foreign
01 Foods 40 10
02 Drinks 22 12 16
03 Clothes 23 5 22
04 Cosmetic 15 15 20
05 Electronic Goods 15 35
06 Educational Books 10 5 35
07 Automobile 15 20 15

Percentage of 50 person’s Statement

Sl. No Name of goods Consumer’s Preference
Local Neutral Foreign
01 Foods 80% 20%
02 Drinks 44% 24% 32%
03 Clothes 46% 10% 44%
04 Cosmetic 30% 30% 40%
05 Electronic Goods 30% 70%
06 Educational Books 20% 10% 70%
07 Automobile 30% 40% 30%

Appendix 1

Views of the CPIM (the Communist Party of India (Marxist) about FDI in Retail Market of India

FOR the last four years, the Federation of Associations of Maharashtra (FAM) and similar associations in other states have been waging a campaign against the move on part of the government of India to permit foreign direct investment (FDI) in retail trade in the country. They have so far made several representations on this subject, copies of which were also forwarded to various members of parliament as well as to the offices of various political parties. It was primarily because of the support from several parliamentarians and political parties that the government of India was obliged to take a decision not to permit FDI in retail trade. …. A similar case is of the Shoprite Checkers of South Africa, which is the world’s number 1 retailer. This company too has obtained a similar approval for retail trade and is now in the process of starting its operations; it has already acquired over 60,000 square feet space in Nirmal Life Style Mall in Mulund, Mumbai. It is also said that, in order to overcome the policy hurdles, this company is busy creating fronts in the form of Indian franchisees, which would be nothing but the company’s puppets.
As for the retailers associations, they have already drawn the government of India’s attention to the dangers the permission granted to foreign retailers to do retail business in India would pose to the indigenous traders. For example, the Federation of Associations of Maharashtra (FAM), which represents over 750 trade associations in Maharashtra, has over the last four years taken up the issue of FDI in retail trade. This year too, it sent a letter to the union commerce ministry on March 7, and another on August 4, on this subject — besides the one sent on November 12. But the government has failed to act in this regard.
Therefore, the Indian retailers’ demand is that, as assured in writing by the former commerce minister, Murasoli Maran, the ministry must take immediate and decisive action to stop the multinational trading giants from indulging in retail trade in India and, it necessary, cancel or suspend their approval pending enquiry. They have also demanded that any such approval to any company must not be granted in future.

Source: People’s Democracy, 2003.

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