by eyebeam

Imagine a busy marketplace with 750-1500sq.ft shops, best fashion brands, adding to that a top class infrastructure with chain of fast food restaurants and cafés…Are you thinking about Times Square in USA???…..

…Welcome to India in the year 2025!!

Thanks to Indian government for removing the cap from Single Brand Retailing through 100% FDI. This is one of the major steps towards increasing the foreign investment in retail sector. The picture is going to change after the global giants like Carrefour, Tesco and Wal-Mart start their operations in the Indian market through this route.

History so far:

1957: Second Economic Plan Launched toEncourage Pvt.Investment            
1968: Introduction of Foreign Investment Board                      
1973: FERA introduced all firms diluted foreign equity to 40% so that they can be treated as Indian Company
1980: Restrictive Licensing Procedures
1997: Approval of Government in Wholesale Cash Carry
2006 onwards: Approval on 51% FDI in Single Brand Retail

FDI options prior to 2011: 

Through licensing agreement: Here a foreign company comes into licensing agreement with a domestic retailer and the latter promises to manufacture & sell the foreign company’s products in India. MANGO was the first to enter Indian market through this route with an agreement with Pyramid, Mumbai. A deal between Aravind Mills and US-based Geoffrey Beene is a recent example of this.

Creating its manufacturing base in India: The foreign brands like Nike and Adidas first started with the franchisee agreements but later created their own manufacturing base in India and now are treated as Indian Companies 

Wholesale cash & carry: 100% FDI is allowed to open up a large distribution system in India and to assist local manufacturers. It is mandatory to act as B2B and sell only to retailers. The only problem is to identify the buyer as a retailer or professional users/caterers/ institutional buyers, who also act as final consumers. 

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51% FDI in single brand retail: The thought was clear, as the single brand retail mainly consist of luxury goods and come under the approach of high end income group, it leaves the traditional Mom & Pop stores untouched and unharmed!

Benefits of FDI

To Producers/ Retailer:

India’s GDP (Gross Domestic Product) and Percapita Income is 6% and it comes fourth after USA, China and Japan in Purchasing Power Parity. Retail sector with a growth rate of 5%, accounts for 10% contribution to GDP and thus is an attractive destination for FDIs. The increased consumerism, liberalization of manufacturing sector, increased purchasing power of middle income group has forced the foreign players to tap the immense potential in this country, adding to retail the fresh feel. 

One of the biggest problems being faced by the Indian retail is of supply chain management which adds up to the cost of the product. Organized food retail business faces problems because of less number of cold storage and food wastage. With new and experienced players in the market we can expect for a high end distribution system. Currently Wal-Mart is working with a network of 800 farmers in Punjab. Wal-Mart agronomists are working with farmers on testing soil, reducing time, use of digital scales to ensure a correct weight, and conducting monthly workshops. The target is to increase farmers’ income by 20% and export the produce to its stores worldwide. Thus, creating a win-win situation for both the parties.

To the Economy:

Current unemployment rate in India is very high. Around 0.4 million job seekers registered themselves at the Employment Exchange while the jobs were less than 5,000. Failing to get job for a long time an unemployed person opens up a small store with low capital and infrastructure (especially in rural areas). This made retail a forced employment sector and result is in the increase of unorganized, small retailers in the economy. The manufacturing units/retail outlets being established by foreign entrants will generate more jobs in the market with an increase in specialized labor, thus engaging the unemployed educated youth. 

Restrictions by the State Government have opposed the entry for FDIs, thus reducing the competition in the market. According to a survey there were 11 outlets for every 1,000 people in India. These figures show an ineffective economic growth. Once foreign players come to Indian market there will be a continuous price war where every retailer will try to sell its products in less cost with high end infrastructure in verge of maintaining the market share. This will lead to low inflation rate and high economic growth which is the key to reduce poverty.

To the Consumer:

With Government relaxation in multi brand retail FDI there will be a direct benefit to the customer in the form of better quality of products and lower prices

Main blockade for the FDI will be:

The format of Indian labor laws is old and different from the present day scenario. Trade unions, centralized planning and restrictions in labor legislations are ineffective in the process of globalization.

Corporate tax for domestic companies is 36.59% whereas foreign players have to pay 41.82%.Moreover, sales tax and VAT may act as an obstacle in reducing prices.

Conclusion:

Though most of the political parties in India oppose the entrance of FDI in multi brand retail with a concern towards small retailers, it is a fact that unorganized sector contributes to 96% of retail market and it is difficult to overshadow it. Take an example of China where Wal-Mart has more than 100 stores but still domestic competitors capture 90% of the market. In Indonesia this percentage is close to 70%.  Countries like Thailand have become major shopping destination after permitting 100% FDI with no limit on the number of outlets.

The strengths of Mom & Pop stores in India are consumer loyalty and fast delivery. However, they are coming up with new solutions to stay in competition, such as—attractive shelf displays, computerization, taking online orders, offering loyalty programs and installing air conditioners.

Lastly, retail sector requires huge capital and infrastructure in the market. This may not be a major concern for global giants but for an Indian retailer it includes risk factor as it will take two years to breakeven. 

Key Question is…Are we ready for the buzz and confident enough to say…”Bring it on!!”….????

Related Retailing Articles

by eyebeam

Imagine a busy marketplace with 750-1500sq.ft shops, best fashion brands, adding to that a top class infrastructure with chain of fast food restaurants and cafés…Are you thinking about Times Square in USA???…..

…Welcome to India in the year 2025!!

Thanks to Indian government for removing the cap from Single Brand Retailing through 100% FDI. This is one of the major steps towards increasing the foreign investment in retail sector. The picture is going to change after the global giants like Carrefour, Tesco and Wal-Mart start their operations in the Indian market through this route.

History so far:

1957: Second Economic Plan Launched toEncourage Pvt.Investment            
1968: Introduction of Foreign Investment Board                      
1973: FERA introduced all firms diluted foreign equity to 40% so that they can be treated as Indian Company
1980: Restrictive Licensing Procedures
1997: Approval of Government in Wholesale Cash Carry
2006 onwards: Approval on 51% FDI in Single Brand Retail

FDI options prior to 2011: 

Through licensing agreement: Here a foreign company comes into licensing agreement with a domestic retailer and the latter promises to manufacture & sell the foreign company’s products in India. MANGO was the first to enter Indian market through this route with an agreement with Pyramid, Mumbai. A deal between Aravind Mills and US-based Geoffrey Beene is a recent example of this.

Creating its manufacturing base in India: The foreign brands like Nike and Adidas first started with the franchisee agreements but later created their own manufacturing base in India and now are treated as Indian Companies 

Wholesale cash & carry: 100% FDI is allowed to open up a large distribution system in India and to assist local manufacturers. It is mandatory to act as B2B and sell only to retailers. The only problem is to identify the buyer as a retailer or professional users/caterers/ institutional buyers, who also act as final consumers. 

]]>

51% FDI in single brand retail: The thought was clear, as the single brand retail mainly consist of luxury goods and come under the approach of high end income group, it leaves the traditional Mom & Pop stores untouched and unharmed!

Benefits of FDI

To Producers/ Retailer:

India’s GDP (Gross Domestic Product) and Percapita Income is 6% and it comes fourth after USA, China and Japan in Purchasing Power Parity. Retail sector with a growth rate of 5%, accounts for 10% contribution to GDP and thus is an attractive destination for FDIs. The increased consumerism, liberalization of manufacturing sector, increased purchasing power of middle income group has forced the foreign players to tap the immense potential in this country, adding to retail the fresh feel. 

One of the biggest problems being faced by the Indian retail is of supply chain management which adds up to the cost of the product. Organized food retail business faces problems because of less number of cold storage and food wastage. With new and experienced players in the market we can expect for a high end distribution system. Currently Wal-Mart is working with a network of 800 farmers in Punjab. Wal-Mart agronomists are working with farmers on testing soil, reducing time, use of digital scales to ensure a correct weight, and conducting monthly workshops. The target is to increase farmers’ income by 20% and export the produce to its stores worldwide. Thus, creating a win-win situation for both the parties.

To the Economy:

Current unemployment rate in India is very high. Around 0.4 million job seekers registered themselves at the Employment Exchange while the jobs were less than 5,000. Failing to get job for a long time an unemployed person opens up a small store with low capital and infrastructure (especially in rural areas). This made retail a forced employment sector and result is in the increase of unorganized, small retailers in the economy. The manufacturing units/retail outlets being established by foreign entrants will generate more jobs in the market with an increase in specialized labor, thus engaging the unemployed educated youth. 

Restrictions by the State Government have opposed the entry for FDIs, thus reducing the competition in the market. According to a survey there were 11 outlets for every 1,000 people in India. These figures show an ineffective economic growth. Once foreign players come to Indian market there will be a continuous price war where every retailer will try to sell its products in less cost with high end infrastructure in verge of maintaining the market share. This will lead to low inflation rate and high economic growth which is the key to reduce poverty.

To the Consumer:

With Government relaxation in multi brand retail FDI there will be a direct benefit to the customer in the form of better quality of products and lower prices

Main blockade for the FDI will be:

The format of Indian labor laws is old and different from the present day scenario. Trade unions, centralized planning and restrictions in labor legislations are ineffective in the process of globalization.

Corporate tax for domestic companies is 36.59% whereas foreign players have to pay 41.82%.Moreover, sales tax and VAT may act as an obstacle in reducing prices.

Conclusion:

Though most of the political parties in India oppose the entrance of FDI in multi brand retail with a concern towards small retailers, it is a fact that unorganized sector contributes to 96% of retail market and it is difficult to overshadow it. Take an example of China where Wal-Mart has more than 100 stores but still domestic competitors capture 90% of the market. In Indonesia this percentage is close to 70%.  Countries like Thailand have become major shopping destination after permitting 100% FDI with no limit on the number of outlets.

The strengths of Mom & Pop stores in India are consumer loyalty and fast delivery. However, they are coming up with new solutions to stay in competition, such as—attractive shelf displays, computerization, taking online orders, offering loyalty programs and installing air conditioners.

Lastly, retail sector requires huge capital and infrastructure in the market. This may not be a major concern for global giants but for an Indian retailer it includes risk factor as it will take two years to breakeven. 

Key Question is…Are we ready for the buzz and confident enough to say…”Bring it on!!”….????

Related Retailing Articles