Download Global Retailers in India

Wal-Mart In India
What’s the Impact of Giant
Retailers?
Back Ground – Key Points
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India is the Second Largest Retail Market
India is Slowly Opening its Retail Sector for FDI
Huge Opportunities exist for Global Retailing Giants
in India
Population > 1.1 Billion!!
GDP >~ $800 Billion in 2003
GDP > $1.5 Trillion by 2012!! (Estimate)
Economy Growth Rate 8.2%
Back Ground – Retail Sector
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Highly Fragmented Retail sector!!
India has 30 Million Retailers!
Retail sector is the Second Largest Employer
Organized Retail trade is $247 Billion
Unorganized Retail trade is estimated at $600+
billion
Retail Sector Analysis
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Most Retailers are Mom-Pop operation
Large Retail Chains are few and mainly
Concentrated in 6 Cities – Delhi, Mumbai,
Bangalore, Kolkotta, Chennai &
Hyderabad.
In addition to small retailers, there are
Street Vendors, Push cart vendors
Retail sector employs about 40 Million
people
Government Rules & Regulation
Foreign Investment Promotion Board in 1997 set up
rules that govern Foreign Investments in Retail Sector
which categorized foreign companies into 3 broad
types:
 Companies that set up domestic manufacturing facilities
and sold products manufactured domestically.
 Companies that came in to trade prior to the 1997 norms.
 Companies that came in to trade after the 1997 norms were
adopted.
Policy Favors Domestic
Manufacturing
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No restrictions on the sale of products made in India.
Sony, LG, Samsung & Phillips etc, manufacture and
sell products in India.
They also import and sell other high-tech products
like laser printers and photocopiers etc
• Provided that current manufacturing techniques and costs
do not yet permit them to manufacture these items
domestically.
• And they undertake to do so in the near future.
Rules for Global Retailers
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Global Retailers planning to setup shop in
India need to:
• Setup Wholly Owned Subsidiaries in India
• Sell only to Whole Sellers
• Cannot sell to Retail Customers
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Whole Sellers are defined as “Government
certified Whole Seller who holds a Sales Tax
registration Number”
Regional Government Rules
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In Addition to the Federal Rules, there are
Local rules which govern the location & size
of Retail Stores.
• Retail Stores cannot be in City Centers
• Land Availability conditions imply that New Mega
retail stores to be setup at the outskirts of the city.
• Must get permission from Local municipality or
City Corporations
Current Scenario
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German Retail Giant Metro GmbH set up
operations in 2003
Metro GmbH entry was cleared by Late Cabinet
Minister for Industry and Commerce Murasoli
Maran.
Metro GmbH was permitted to
• Setting up of state-of-the-art cash and carry wholesale
complexes
• Sell only to Whole Sellers
• Not permitted to have retail outlets or sell products to
consumers directly.
Metro’s Experience
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Metro GmbH was a huge success in the very
first year of operation.
Metro instituted a Costco style Membership
program
Has over 250,000 members in 9 months!!
Local Retailers are upset – Setting a stage for
Political Backlash
Controversy
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Local Retailers allege Metro GmbH has violated its
terms of entry by:
• Issuing membership cards to other businessmen and
professionals like Doctors, Architects, Consultants etc.
• Issued membership cards to those without a registered
sales tax certificate.
• Sold Items in single numbers, like in retail trade and not in
large volumes like in a whole sale trade
• Metro did not specify a minimum value for purchase
Political Battle
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India had been a closed Socialist Society for
last 50 years
India has a Strong & Vibrant Democracy
Year 2004 is an Election year!!
India has about 40 million people employed in
retail sector, Most of them are registered
voters!
Political Battle – Contd.
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Foreign Retailers is now an Election Issue!
Federation of Associations of Maharashtra
state (FAM), a state-level organization of small
traders, Communist Party of India (Marxist)
and Swadeshi Jagaran Manch (SJM) – wing of
the ruling party are opposed to Foreign
Retailers
Confederation of Indian Industry (CII)
supports FAM on this issue
Battle Lines
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FAM, SJM, CPI(M) & others have a strong
political lobby – A key factor in an election
year
Metro GmbH has hired former Minister for
Commerce Mr. P Chidambaram as its chief
consol
Final outcome will be decided in Courts
Election Results will not affect Metro
Learning for Wal-Mart & Others
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Metro’s court case will decide on the nature of
Foreign Retail business
Companies cannot afford to ignore regional
governments & Political groups
Socialists might force a unionized labor
• India has very liberal union laws
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Federal Rules for Foreign Retailer might
change – Depending on Court’s decision
Long Term Outlook
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India is an attractive Market
• Retail giants cannot afford to Ignore
• Rules & Regulations will change with time to level the
playing field
• Wal-Mart’s “No Union” policy may be challenged
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Indian Retailers will be tough competitors
Current opposition is similar to those faced by
Wal-Mart in many US towns and Cities
Companies must not read too much about Metro’s
woes, These are part of business environment
Competitive Landscape
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Small retailer may look unsophisticated and
cash strapped but …
Small retailers will be tough competition
• Small Independent retailers are a part of Indian
Culture
• Have better relationships with customers
• Often offer better service than giant retailers
• Unorganized retail sector has hidden tax benefits
(many evade taxes or pay minimum taxes)
Global Retailers in China
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As on December 1st 2004, China will open its
retail sector for foreign investment
• Foreign firms can setup wholly owned distribution &
retail operations – without central government
approval
• Any foreign wholesaler or retailer can import or
export goods
• Stores can be set up anywhere – but with approval
from municipal government
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Setting the stage for rapid domestic growth,
increasing local consumption & modernization of
retail sector