Indian retail
sector today is valued at $450 billion, and is increasing day by day due to its
increasing middle class population and their spending power. Indian retail
sector has two parts: organized and unorganized sector. Organized sector which
forms around 20 -30 % in other countries , here in India it forms only about 6%
while rest is all unorganized consisting of
small retailers called as ‘kirana shops’, paan/beedi wala, convenience
stores, departmental stores, pavement vendors etc. Organized retail consists of
supermarkets, hypermarkets and modern retail outlets, malls, exclusive brand outlets etc which are located in urban
areas or metros.
FDI in retail
sector is not allowed, it is only allowed up to 51 % in single brand and
government is still considering the opinion of allowing FDI in multi brand
segment.100% FDI is allowed in cash and carry wholesale and export trading,
both wall mart and Carrefour have already entered in India in this segment.
Many big giants like Wall mart, Carrefour are waiting to earn their fortune in
continuously growing market.FDI in retail sector will have both positive and
negative effect if allowed. Both organized and unorganized sector will face
adverse competition from global players. Wal-Mart has a turnover of $256
billion and growing at an average of 12 -13 % annually. Average size of its
stores is 85000sq ft and average turnover is $51 million. Organized sector
retail outlets in India
like pantaloons, reliance cannot compare with the giant let alone the small
retailers. Indian government still fears that if FDI is allowed in retail then
unorganized sector will be affected very badly and it will result in a large
lot of unemployed retailers and other youth which is employed in the supply
chain, this unemployed lot can’t be absorbed in manufacturing or service sector
which can ultimately push a large chunk of population below poverty line. In
India unorganized retail is a ‘forced employment sector’, there are large
number of retail outlets because when youth dose not find enough employment
opportunities or is not educated enough then the easiest resort to earn decent
money is to save money or get a loan to set up a shop. On an average a retailer
earns Rs.186075 annually and only 4% of 12 million retail outlets have area
more than 500 square ft. Now if FDI is allowed in such an unorganized sector
than many changes can happen which can be positive or negative.
Talking about
the organized sector, which consists of big Indian players who have entered in
retail sector just to take advantage of diversification and expand their
business, they will also be affected but from different prospects. Major
challenges that lie ahead are:
Economies of
scale: the global players have economies of scale and are perfect in cost
cutting and providing the consumer the best at lowest price which still is a
major challenge for Indian retail firms. The way they perform their process
itself builds an entry barrier for other new firms.
Brand name: They
bring with them world class products which have high quality and a highly
valued brand name. The domestic brands don’t have that charm and attracting
power as of global brands.
Technology:
Global players are highly advanced in technology. The tools, equipments, kind
of warehouses they use, their way of performing processes are highly advanced
and cannot be compared with those used by Indian retail firms, which in turn
provides better services and better quality products even in categories like
perishable food etc.
Attract skilled
employees: The work culture of global players is quite different from those of
Indian players. They believe in earning profits by cutting costs as much as
possible and at the same time are conscious towards career of their employees.
Their approach is more oriented towards achieving ends rather than means.
Attractive salary and high incentives can also attract skilled employees
towards global players which is also a threat for big Indian retail firms.
Better
infrastructure: Better storage facilities, better transportation medium and
high investment can pose another threat to Indian retail firms which can hardly
match the capabilities of giants on their own.
Joint ventures: Global
players may not prefer to enter into joint ventures with Indian firms and may
also close down the existing ventures in wholesale and single brand which may
adversely affect the Indian firms. This is possible when 100% FDI is allowed in multi-brand retail.
[The
article has been written by Monica Dhiman. She is a PGDM student of
International Management Institute (IMI), New Delhi. She has her own
personal blog at Daily rambling.
Her career interests are in finance management and strategy
formulation. In her spare time she likes to read novels (fiction),
sketch portraits, make paintings and write on her blog.]
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