Foreign Direct Investment in retailing

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Foreign Direct Investment in retailing

• By
• Peer Mohamed. S
• Shyam Sunder. P

Sri Sai Ram Institute Of Management
Studies Chennai- 44
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The minds of the Indian consumers is changing
along with their lifestyle
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Evolution Of Indian Retail
Exclusive Brand Outlets Hyper/Super
Markets Department Stores Shopping Malls
PDS Outlets Khadi Stores Cooperatives
Convenience Stores Mom and Pop/Kiranas
Modern Format Shopping Experience/ Efficiency
Weekly Markets Village Fairs Melas
Govt.Supported Low costs
Pervasive Reach Neighborhood/ Convenience stores
Rural Reach Source of entertainment
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Categories of Indian Retail

• Corporate Houses
• Tata Tata Trent, westside,
  Landmark
• RPG group Spencers daily,Health and Glow,
  music world etc
• ITC Wills Life Style

• Dedicated brand outlets
• Nike, Reebok, Zodiac etc
• Multi-brand outlets
• Vasanth co, Viveks etc
• Manufacturers/ Exporters
• Pantaloons, Bata, Weekender

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Differentiation

• Unorganized Retailers
• Typically small Retailers
• Evasion of taxes
• No monitoring of labour laws

• Organized Retailers
• Typically Large Retailers
• Must pay Tax
• High level of labour mechanism

Organized Retailers 2
Unorganised Retailers 98
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Growing Middle Class

• Indian middle class has grown 57 mn by 2001-02
  since 1995-96.
• It is expected to cross 92 mn by 2005-06 153 mn
  by 2009-10.
• The younger population translated into higher
  propensity to spend.
• This growth in middle class will fuel the growth
  in retail.

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Pitfalls in Indian retail

• Low domestic competition
• Lack of exposure to global best practices
• Low entry barriers for unorganized retailers
• Moderate entry barriers for organized retailers
• Wide difference in treatments of small large
  retailers

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Entry of FDI in retail

• India allowed to own up to 49 of retail ventures
  time frame of 3-5 years
• India has ranked no.1 in 2005 global retail
  development, index released by AT Kearney
  recently
• Giants such as Wal-Mart and Tesco are keen in
  expanding their business in India
• Entry of FDI through joint ventures with local
  players

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Benefits from FDI in retail

• Improve competition
• Best practices in retailing
• More choice for the customers
• Global market for Indian producers
• Employment opportunity
• Better infrastructure and customer Facilities

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Standing challenges

• Government Regulations
• Lack of trained manpower
• Availability of quality real estate
• Logistical support
• Competition of local players
• The format does not suit rural India
• Purchasing patterns not very conducive

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Case Study Chinese Retailing

• FDI permitted in 1992. 40 foreign retailers have
  secured approval
• Retail sales have grown_at_13.5 CAGR since FDI was
  permitted
• FDI initially restricted to 6 major cities
  (including Beijing, Shanghai and Guangzhou) and
  SEZs
• Foreign ownership initially restricted to 49
• US 22 bn of FDI attracted, 3.6 of total FDI
• In 2003, FDI in wholesale and retail was US 1.1
  bn (Around 30 of our total FDI in 2003)
• Current restrictions on FDI will be phased out
  over 5 years as condition of WTO entry

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China after FDI
375
300
225
150
75
9 2
7 8
8 0
8 5
9 0
9 1
9 3
9 4
9 5
9 6
9 7
9 8
9 9
0 0
0 1
0 2
Years

• Retail sales grew _at_ 19.6 CAGR for the next 4
  years after the introduction of FDI in 1992

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Lessons from china

• FDI improves the entire size of the industry
• Retailing in China has grown at a compound rate
  of 15 per annum after FDI inflow
• Local players can survive and even beat foreign
  competition
• Employment growth
• Evolution of modern formats

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Conclusion