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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 “The minds of the Indian consumers is changing along with their lifestyle” Evolution Of Indian Retail Exclusive Brand Outlets Hyper/Super Markets

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foreign direct investment in retailing

Foreign Direct Investment in retailing

By

Peer Mohamed. S

Shyam Sunder. P

Sri Sai Ram Institute Of Management Studies

Chennai- 44

slide2
“The minds of the Indian consumers

is changing along

with their lifestyle”

evolution of indian retail
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

categories of indian retail
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
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

Differentiation

Organized

Retailers

2%

Unorganised

Retailers

98%

growing middle class
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.
pitfalls in indian retail
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
entry of fdi in retail
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
benefits from fdi in retail
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
standing challenges
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
case study chinese retailing
Case Study: Chinese Retailing
  • FDI permitted in 1992. 40 foreign retailers have secured approval
  • 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
china after fdi
FDI in retail allowedChina 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 @ 19.6% CAGR for the next 4 years after the introduction of FDI in 1992
lessons from china
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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