Date post: | 06-May-2015 |
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FDI ISSUES IN
RETAIL
what is FDI?
An investment is..
The commitment of money or
capital to purchase financial
instruments or assets in order to
gain profitable returns.
An investment becomes foreign investment when..
Investment done by citizens and government of one country (home country) invest in industries of another country (host country).
Foreign Investme
nt through
Foreign Direct
Investments
Foreign Institutional Investors
FDI Routes
Automatic Route Government
No permission required Approval /License required.
Retail Sector at Global Level
• One of the world's largest industries exceeding US$ 9
trillion.
• Dominated by developed countries.
• 47 global fortune companies & 25 of Asia's top 200
companies are retailers.
• US, EU & Japan constitute 80% of world retail sales.
• Retail trade in Europe employs 15% of the European
workforce (3 million firms and 13 million workers).
• The world’s population is poised to expand 50% by 2050.
The world currently comprises of 78% poor, 11% middle
income and 11% rich.
Contribution Of Retail Industry to GDP of Various Economies
USA
China
Japan
Brazil
India
20%
8%
16%
6%
14%
Contribution Respective to GDP
Indian Retail Industry
10%
90%
organised retailun-organised retail
Organized retail: trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc.
Un-Organized retail:traditional formats of low-cost retailing, for example, the local Kirana shops, owner operated general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.
Major Indian Retailers : Categories Format Description Retailers
Hypermarkets Offering basket of product Spencers, Big bazaar
Cash and Carry Bulk-buying requirement Bharti-wal-mart
Departmental stores Large layout, Wide merchandise mix
Lifestyle , Globus
Supermarkets Household product as well as food as integral part of the service
Apna bazaar , food bazaar
Shop-in-shop Shops located in shopping malls Navras ( big bazaar)
Specialty stores Focus on individual product type Brand Factory
Category killers Particular segment The LOFT
Discount stores Branded product at discounted prices
Subhiksha, levi’s outlet
Convenience stores Small Retail stores In and out
SegmentationRetail Segment Percentage holding in
sectorMajor retailers
Food and grocery 63% Reliance fresh, Café brio, food bazaar
Clothing, textile and fashion
9% Westside, shoppers stop, globus
jewellery 5% Tanishq
Catering services 5% IRCTC
Consumer durable 4% Viveks, vijay sales, Croma
pharmaceuticals 4% Piramal group
Entertainment 3% Bowling co.,
Furnishing, utensils 3% Hometown, Tangent Concept
Mobile handsets 2% The mobile store,
Why Global Retailers Look Up to India?
India is a developing country.
Indian market is very large market
Retail is the topmost growing market in India
The environmental and political factors are not that much bad in
India.
Tax breaks, import duty exemptions, land and power subsidies,
and other enticements.
Retail market in India
The total retail sales in India will grow from
US$ 395.96 billion in 2011 to US$ 785.12
billion by 2015
Accounts for 14% of countries GDP
Accounts for 8% of countries employment
Current Retail scenario in India
• 100% FDI is allowed in wholesale cash and carry trade.
• 51% FDI in single brand retail• No FDI in multi brand retail
WHAT WILL HAPPEN TO RETAIL TRADE
These companies open chain of shops. With a shop in each area the retail small shopkeepers will be put to heavy loss
Slowly the local shops will start closing down.
These shops will capture the trade.
In countries where they have established their market share is
Name of Country % of Market ShareAmerica 80%England 80%Western Europe 70%Brazil 40%Thailand 40%Korea 35%China 20%
Imagine Roadside DHABA’s after RELIANCE FOOD CHAIN Starts working.
WHAT WILL HAPPEN TO LOCAL RETAIL TRADE
No of Retail outlets Between 1981-99 in United Kingdom came down from 56862 to 25800.
Between 1970-80 in Europe about 4 lakhs Retail shops were closed.
Competition shall be limited to Big Retail Houses In the year 2000 Five Big Fast food companies captured
following percent market share :
Country % ShareNorway 99Switzerland 88Sweden 94UK 64Portugal 57
WHAT HAPPENED IN THAILAND
In price war traditional shop keepers are facing problem of survival. Many small shop keepers have closed down their shops.
Big companies have seen growth of 40% There was adverse impact on 60000 small shopkeepers. The Prime Minister of Thailand agreed that there was adverse impact on
retail trade. The Govt. which had opened its door for FDI in retail trade with big bang
had to provide financial assistance to retail traders by establishing a special fund.
Now its India’s turnThreat on unorganized retail players
Threat on organized retail players
Marginalize the domestic players Huge spread of retail chain stores Monopoly in the customer market and can be converted
into cartel of global players. Monopoly among suppliers
FDI in organized multi brand retail:India not yet ready Employment loss: There are about 35 towns in India with population exceeding 1 million.
There are at least 4, 32,000 people employed in these towns in India in small-scale to medium-scale shops. With the entry of big chains, many of them will lose jobs.
In food retail, farmers (the producers right at the tip of the back end chain) being left at the mercy of the foreign investors
Inflation cannot be checked: The point is that inflation cannot be checked as consumers would still have
to bear the cost
Annual turnover $ 400 bn 18 lakh rs. crores
Annual turnover $ 130 bn 5.85 lakh rs. crores
WHO ARE WE LETTING IN?
Annual turnover $ 100 bn 4.5 lakh rs. crores
Annual turnover $ 96 bn 4.2 lakh rs. crores
Cont….These are some of the ferocious, predatory companies in
the world.
Their practices in the market are ruthless and designed to wipe out competition.
Their resources are enormous. They can invest and lose money for years till then lakh of local retailers will be wiped out.
Comparison between Wal-mart and Indian retail industryThe annual turnover of Wal-Mart (Sales in 2010 were $409
billion) is higher than the size of Indian retail industry (estimated at about $370 billion) and almost 100times more than the turnover of HUL (India's largest FMCG company).
The size of any Wal-Mart store is much higher than the size of any existing shopping mall in India.
Wal-Mart has over 8500 stores (over 95 million square meters) where as none of India's large format store (Shoppers' Stop, Westside, Lifestyle) have more than 250.
New stores opened annually by Wal-Mart are about 600, much higher than all organized Indian retailers put together.
Wal-Mart has around 40,000 suppliers throughout the world and more than 700,000 SKU's on its web site, a number that cannot be compared.
Daily customers are about 18 million (almost equivalent to Mumbai's entire population).
Time between each Barbie Sale at Wal-Mart is just two seconds (same rate at which babies are produced in India!)
None of the Indian organized retailer has ventured overseas where as Wal-Mart is now in 15 countries and will expand to 21 countries in two years.
Cont….
arguments in favor of FDI Factors necessitates FDI in IndiaTo achieve expected growth in Indian GDP by encouraging export.
To reduce gap between farm prices and final retail prices through structural change in distribution - Inflation control mechanism.
To acquire market-savvy, market-intelligent and best management practices.
To bring trade balance
To increase liquidity by the way of foreign exchange reserves
Modernize the supply chain
Will bring healthy competition in market