International Experience on Policy Issues India vs China

1
International Experience on Policy IssuesIndia
vs China

• Alan Rosling
• Chairman, Jardine Matheson Group - India

FICCI Footfalls 2002 15th November 2002 New Delhi
2
The retailing industry in India is
under-developed, fragmented and inefficient
but is huge in size ( 180 bn)

• 12 million kirana shops
• 96 less than 500 sq. ft.
• Limited stock / choice
• But convenient, local and service oriented

• Wholesale system under-invested with 20-40
  wastage

3
Retailing worldwide is the biggest private sector
industry, so its neglect in India is odd

• Accounts for almost 10 of GDP in most countries
• Major employer in most economies
• 16 in US
• 15 in Brazil
• 12 in Poland
• 7 in China
• Generates competition which results in
• reduction of prices
• product and service innovation
• enhanced customer experience
• Major driver for real estate and urban
  development

4
The growth of modern retailing and economic
development clearly go hand in hand
Singapore
U.K.
Germany
France
Taiwan
Korea
Argentina
Malaysia
Metro India
Brazil
India
Philippines
China
Thailand
Indonesia
33
66
100
5
Growth in Retailing in India is constrained by

• Policy neglect
• Shortage / high cost of real estate
• Complex regulatory regime
• Inefficiency in supply chain
• Paucity of expert management and trained staff
• Availability and cost of funds
• Ban on FDI

6
The Government is fully aware of the potential
benefits of FDI in retail but feels constrained
by political considerations

• FDI in food retailing would lead to more
  efficient supply chain management systems that
  can reduce the large gap between the price
  received by farmers and that paid by consumers.
  It would thus benefit both farmers and consumers
  besides creating profitable avenues for FDI. But
  in the short term, traders and intermediaries in
  direct competition with new entrants would suffer
  a loss in income. Over time the productivity
  gains would generate much more income and
  employment opportunities, even for these
  intermediaries, by stimulating agricultural
  growth and consumer demand.
• The retail sector in India is dispersed,
  widespread, labour intensive and disorganised.
  In the light of this it is not thought desirable
  at present to lift the ban on FDI in retail
  trade.

Report of the Steering Group on FDI, Planning
Commission,August 2002
7
The voices against liberalisation are few in
number but influential

• There have been attempts to allow multinationals
  in retail trade. The Swadeshi Jagran Manch (SJM)
  has gone to the Prime Minister thrice and got the
  proposal scrapped. But they are advancing again
  because there are officials connected with MNCs,
  or whose children are working in MNCs.

K. S. Sudarshan RSS Sarsanghchalak (as quoted in
India Today)
8
By contrast China began to liberalise retailing a
decade ago

• FDI permitted in 1992
• FDI restricted to 6 major cities (including
  Beijing, Shanghai and Guangzhou) and SEZs
• Foreign ownership restricted to 49 of JVs
• 40 foreign retailers have secured approval since
  1992
• 22 billion of FDI attracted, 3.6 of total FDI
• Current restrictions on FDI will be phased out
  over 5 years as condition of WTO entry

9
A retail revolution has resulted from this
policy
10
Retailing in China has grown at 15 compound
since FDI was permitted in 1992
CHINA CASE STUDY
Source China Statistical Yearbook 2001
11
The quality of experience, choice and prices have
improved dramatically for ordinary Chinese
shoppers

• Traditional Store

• Hypermarket

Price comparison (RMB) 1 Kg rice 6.76 1 Ltr
cooking oil 8.70 1 can Coke 2.25
Savings 5.42 20 7.88 9 1.70 24
CHINA CASE STUDY
12
Traditional retailers have lost relative market
share to modern formats,but have also grown
NUMBER OF STORES

• 1996 2001

Traditional 1,920,604 2,565,028 Supermarkets 13,07
9 152,194 Convenience 18,091 Hypermarkets 593
Traditional 1,920,604 2,565,028 Supermarkets 13,07
9 152,194 Convenience - 18,091 Hypermarkets - 593
CHINA CASE STUDY
Source Retail Census 2001 AC-Nielsen
13
Employment in retailing has grown at 6 p.a.
since 1992 to 53 million
CHINA CASE STUDY
Source China Statistical Yearbook 2001
14
And the majority of even the leading retailers
are Chinese owned
TOP 10 RETAILERS Turnover m No. Stores
1. Lianhua 1,698 1,225 2. Hualian 1,027 818 3. Bei
jing Hualian 966 42 4. Shanghai Nong Gong
Shang 903 325 5. Carrefour 823 28 6. Suguo 638 663
7. Trustmart 607 43 8. Metro 598 15 9. China
Resources Vanguard 561 343 10. Wallmart 422 22
CHINA CASE STUDY
Source Retail Census 2001 AC-Nielsen
15
The policy concerns expressed about permitting
FDI in retail in India,are not supported by the
Chinese data

• Impact on traditional retailers
• Loss of employment
• Level playing field for nascent Indian retailers

FDI in retailing in China has played a positive
role in stimulating the retailing revolution
16
There are clear and undeniable benefitsto faster
development of modern retailingin India

• Consumers
• Farmers / processors
• Workers
• Government
• Economy

• Choice / Price / Quality
• New opportunities
• Good quality jobs
• Higher tax collection
• Development stimulus

FDI should be liberalised
17
Foodworld Hoskote Illustration

• Foodworld is Indias largest grocery retailer
  with 81 stores
• Only retailer with FDI (prior to closure of
  sector)
• Key success factor - quality and pricing of fresh
  produce
• Now buying 250 tonnes per month of fresh
  vegetables direct from a group of farmers
• Eliminates 7 layersof middlemen in traditional
  wholesale system

18
Foodworld Hoskote Illustration

• Benefits for farmer
• Better price realisation
• Packing margin
• Readymade channel to market
• No credit risk
• Advice

• Benefits to consumer
• Product fresher and more consistent
• Price saving
• New products / varieties

• Benefits to Foodworld
• Reliability of supply / fresher product
• Product graded / packed to specification
• Enhanced margin
• Reduces waste in systemsharply

19
The Policy Choice

• PROTECT EXISTING FRAGMENTED AND INEFFICIENT
  WHOLESALE AND RETAIL SYSTEM

vs

• POLICY CHANGE TO ENCOURAGE MODERN RETAILING TO
  BENEFIT CONSUMERS, FARMERS AND FOOD PROCESSORS