A Report on FDI in Retail Industry of India & Wall-mart case

UNDER THE SUBJECT STRATAGIC MANAGEMENT

Prepared by Vikram solanki 10MBA105 MBA 2010-12, Semester III Submitted to MR. PRANAV DESAI

INDUKAKA IPCOWALA INSTITUTE OF MANAGEMENT (I2IM) CHAROTAR UNIVERSITY OF SCIENCE AND TECHNOLOGY (CHARUSAT)

QUE:-1. Effect on Indian Economic by FDI in Indian Retail Sector/Investors.

FDI is investment in a foreign country through the acquisition of a local company or the establishment there of an operation on a new site. The recent opening up the retail sector to Foreign Direct Investment (FDI) becomes a very sensitive issue, with arguments to support both sides of the debate. It is widely acknowledged that FDI can have some positive results on the economy, triggering a series of reactions that in the long run can lead to greater efficiency and improvement of living standards, apart from greater integration into the global economy. Supporters of FDI in retail trade talk of how ultimately the consumer is benefited by both price reductions and improved selection, brought about by the technology and know-how of foreign players in the market. This in turn can lead to greater output and domestic consumption. But the most important factor against FDI driven modern retailing is that it is labour displacing to the extent that it can only expand by destroying the traditional retail sector. Till such time we are in a position to create jobs on a large scale in manufacturing, it would make eminent sense that any policy that results in the elimination of jobs in the unorganized retail sector should be kept on hold. It is not fully applicable to the retailing sector in India, or at least, not yet. This is because the primary task of government in India is still to provide livelihoods and not create so called efficiencies of scale by creating redundancies. As per present regulations, no FDI is permitted in retail trade in India. Allowing 49% or 26% FDI (which have been the proposed figures till date) will have immediate and dire consequences. Entry of foreign players now will most definitely disrupt the current balance of the economy; will render millions of small retailers jobless by closing the small slit of opportunity available to them. Economies of scale and huge resources, a big domestic retailer or any new foreign player will be able to provide their merchandise at cheaper rates than a smaller retailer. But stopping an Indian retailer from growing bigger is something current public policy cannot do, whereas the State does have the prerogative in whether foreign entry in the retail sector should be stalled or not.

The consumers best interest to obtain his goods and services at the lowest possible price. But this is a privilege for the individual consumer and it cannot, in any circumstance, override the responsibility of any society to provide economic security for its population. Clearly collective well-being must take precedence over individual benefits. The government recently came out with a concept note on foreign direct investment (FDI) in multi-brand retail trading. This is an emotional issue, and has been placed on the back burner by successive governments in response to fears about its impact on small retailers, who are large generators of employment. The retail sector is the second largest employer after agriculture, providing job opportunities to at least 33 million people. Few can underestimate the importance of being circumspect with regard to any legislation that will affect so many jobs. A crucial argument against foreign investment in retail is the belief that small retailers will suffer. This, in some sense, suggests that low price is all that counts in the retailing industry. Small retailers offer of personalized service, home delivery and credit seems to have been given little importance. One question is whether customers, used to these services for long, will give them up easily. India has had several retailers with deep pockets and access to skills. That they have not been able to swamp the domestic small retailer says something about consumer behaviour and small retails resilience.

2- Case of wall mart

Wal-Mart has started to do business in India in 2005. At the time, John Menzer, the former President of Wal-Mart International, said regulatory hurdles, which bar international retailers from directly entering the Indian market, stymied Wal-Marts plans to set up shop in the country. Citing his talks with leading Indian government officials, he said the government was considering opening up foreign direct investment (FDI) to retailers. In November 2006, WalMart beat out Tesco for a joint venture opportunity with Indian mobile services leader, Bharti. The reason was because Wal-Mart was more flexible about the retail model to be adopted. The companys priority seemed to be an early entry, so that the worlds largest retailer did not miss out on the Indian consumer boom. As per the agreement between the two corporate giants, Bharti would manage the front-end of the business, while Wal-Mart would take care of the supply chain, logistics and other back-end operations. Under the plan with Wal-Mart, Bharti would have 100 per cent ownership of the front-end stores and will form a 50/50 joint venture with Wal-Mart to provide wholesaling and logistics. Wal-Mart planned to launch joint venture wholesale stores in India by the middle of 2008 and expand to 75 cities in five to seven years.But due to major opposition; they had to scale back their plans. In April 2008, Bharti Retail quietly launched three stores under the name Easy Days in Punjab. Bhartis Sunil Mittal said 90 per cent of sourcing would be from the local market and going forward this joint venture would help in increasing Wal-Marts global sourcing from India.The proposed Bharti venture seeks to serve the retail market by supplying it with goods directly from producers such as agriculturists, craftsmen and artisans.

The people of India have not taken this retail invasion in stride. The leaders of the retail market are the 12-40 million tiny mom-and-pop retail shops which are predominantly run by small family businesses. Many of them are not organized and this economic sector is the second highest employer in the country. India also has the largest density of such small shops.

3-effect on small retailer & manufacture

Impact on Unorganized Retailers Unorganized retailers in the vicinity of organized retailers experienced a decline in their volume of business and profit in the initial years after the entry of large organized retailers. The adverse impact on sales and profit weakens over time. There was no evidence of a decline in overall employment in the unorganized sector as a result of the entry of organized retailers. There is some decline in employment in the North and West regions which, however, also weakens over time. There is competitive response from traditional retailers through improved business practices and technology up gradation. A majority of unorganized retailers is keen to stay in the business and compete, while also wanting the next generation to continue likewise. Small retailers have been extending more credit to attract and retain customers.

Impact on Consumers Consumers have definitely gained from organized retail on multiple counts. Overall consumer spending has increased with the entry of the organized retail. While all income groups saved through organized retail purchases, the survey revealed that lower income consumers saved more. Thus, organized retail is relatively more beneficial to the less well-off consumers. Proximity is a major comparative advantage of unorganized outlets. Unorganized retailers have significant competitive strengths that include consumer goodwill, credit sales, amenability to bargaining, ability to sell loose items, convenient timings, and home delivery.

Impact on Farmers Farmers benefit significantly from the option of direct sales to organized retailers. Average price realization for cauliflower farmers selling directly to organized retail is about 25 per cent higher than their proceeds from sale to regulated government India.

 Profit realization for farmers selling directly to organized retailers is about 60 per cent higher than that received from selling in the India The difference is even larger when the amount charged by the commission agent (usually 10 per cent of sale price) in the India is taken into account.

Impact on Manufacturers Large manufacturers have started feeling the competitive impact of organized nretail through price and payment pressures. Manufacturers have responded through building and reinforcing their brand strength, increasing their own retail presence, adopting small retailers, and setting up dedicated teams to deal with modern retailers. Entry of organized retail is transforming the logistics industry. This will create significant positive externalities across the economy. Small manufacturers did not report any significant impact of organized retail.

4. Comparison between logistic pattern for retail mall in India & foreign
Restructured logistical systems

Retailers have reduced inventory and generally improved efficiency through for example the development of composite distribution the distribution of mixed temperature items through the same distribution centre and on the same vehicle and centralization in specialist ware- houses of slower moving stock. In the case of mixed retail businesses common stock rooms have been developed, where stock is shared across a number of stores, with demand deciding to which store it is allocated. Increased control over secondary distribution

Retailers have increased their control over secondary distribution ware- house to shop by channeling an increasing proportion of their supplies through distribution centres (DCs). In some sectors such as food this process is now virtually complete. British retailers exert much tighter control over the supply chain than their counterparts in most other countries. Their logistical operations are heavily dependent on information technology (IT), particularly the large integrated stock replenishment systems that control the movement and storage of an enormous number of separate products. Adoption of Quick Response (QR)

The aim has been to cut inventory levels and improve the speed of product flow. This has involved reducing order lead-time and moving to a more frequent delivery of smaller consignments both internally between DC and shop and externally between supplier and DC.

Major British retailers have been faster to adopt these technologies than their counterparts in other European countries, although they still have to diffuse to many small retail businesses. . Sharing such data with key suppliers further integrates production with the supply function.

 Rationalization of primary distribution factory to warehouse

In an effort to improve the utilization of their logistical assets, many have integrated their secondary and primary distribution operations and run them as a single network system. To reduces waste and improves efficiency. increased return flow of packaged material and Handling equipment for recycling/reuse Retailers have become much more heavily involved in this reverse logistics operation. This trend has been reinforced by the introduction of the EU packaging directive. Efficient Consumer Response (ECR)

It provides a management framework within which retailers and suppliers can more effectively coordinate their activities. The overall focus in retail logistics has been altered from an emphasis on the functional aspects of moving products to an integrative approach that attempts to develop end-to-end supply chains. This outcome is normally referred to as supply chain management. Issues such as primary distribution and factory gate pricing, consolidation centres and stockless depots and Collaborative Planning Forecasting and Replenishment (CPFR) have occupied much attention.