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RGNUL-IPAN Working Paper Series 2012

Call for Submissions (With Attached Concept Note)

FDI IN MULTI-BRAND RETAIL IN INDIA

International Policy Analysis Network, Asia‘s first youth-led public policy think tank has initiated an

Annual Working Paper Series in association with School of Agriculture Law and Economics (SALE),

Rajiv Gandhi National University of Law, India from the year 2012. The Research Theme for 2012

edition of this series is “FDI in Multi-Brand Retail in India”. Students, academicians and Ph.D

scholars are invited to submit papers to this Working Paper Series. Papers should address some

specific social, political, economic or cultural aspect of this policy.

Foreign contributors are especially encouraged to submit their contributions which discuss their

own country‘s experience in Organised Retail Sector. Even though the issue is essentially a policy

action by Govt. of India, the objective of this project is to stimulate and promote inter-disciplinary,

multi-jurisdictional and comparative public policy analysis.

This series for 2012-2013 will culminate with an international seminar or a book release by April,

2013. Next edition of the series with a new call for submissions will be issued in late October, 2013.

Contributions selected by a peer review panel will be notified about their prospective

presentation/publication by April, 2013.

The RGNUL-IPAN Working Paper Series is intended to:

Present high quality research and writing (including research in-progress) to a wide audience

of academics, policy-makers and commercial/media organizations.

Set the agenda in the broad field of public policy and sustainable development.

Stimulate and inform debate and policy, especially amongst youth.

Series Editor: Ms. Brindpreet Kaur

Coordinator, School of Agriculture Law and Economics (SALE)

Rajiv Gandhi National University of Law, Punjab, India

Series Asst. Editor: Mr. Kshitij Bansal

President, International Policy Analysis Network (IPAN)

Research Assistants:

1. Ms. Sonali Dhanker, IPAN Research Coordinator

2. Mr. Angshuman Hazarika, IPAN Research Coordinator

3. Mr. Nikhil Suresh Pareek, RGNUL Student of Law

4. Ms. Aparajita Paul, RGNUL Student of Law

5. Mr. Ankush Thakur, RGNUL Student of Law

The Editorial Board is comprised of RGNUL academics and IPAN experts with a wide range of

interests in public policy and economic research. They come from a variety of disciplinary

perspectives including economics, geography, law, politics, sociology, cultural, gender and

development studies.

Submission Guidelines

Contributors are encouraged to submit papers that address any specific social, political, economic or

cultural aspect of this retail policy, including its forms, institutions, audiences and experiences, and

its global, national, regional and local development. Specific and micro case studies are specifically

encouraged.

Contributors are highly encouraged to go through the detailed Concept Note attached with this call.

They should bear in mind when they are preparing their paper that it will be available online for

public reading.

The deadline for submissions is January 31, 2013.

Papers should conform to the following format:

3000-5000 words (excluding bibliography, including footnotes).

150-200 word abstract.

Headings and sub-headings are encouraged.

Chicago Manual of Citation should be strictly adhered to.

Papers should be prepared as a PC compatible Microsoft Word (2003 or 2007) file.

Graphs, pictures and tables should be included as appropriate in the same file as the paper.

The paper should be sent by email to:

(With the subject line as “SUBMISSION_RETAIL POLICY WORKING PAPER”)

Mr. Kshitij Bansal, Series Asst. Editor

[email protected]

For regular updates on this series and other IPAN initiatives:

www.facebook.com/IPANglobal

mailto:[email protected]

IPAN Working Paper No.01/2012

©RGNUL & IPAN 2012 For Regular Updates, follow www.facebook.com/IPANglobal

Concept Note

RGNUL-IPAN WORKING PAPER 2012

ON

FOREIGN DIRECT INVESTMENT IN MULTI BRAND RETAIL IN

INDIA

NOTE: This concept note is a part of RGNUL-IPAN Working Paper Series. IPAN and

RGNUL hold exclusive rights over its use and distribution. Unauthorised use of this

document in any form is strictly prohibited. The views expressed here are of the

Research Assistants involved in this project and don’t reflect those of International

Policy Analysis Network (IPAN) or of RGNUL.

PART 1: INTRODUCTION

Foreign Direct Investment in retail has a major significance in the present economic setup of Indian

economy. A major shift in the policy of Foreign Direct Investment (hereinafter referred to as FDI)

climate has provided an interesting future option to several international retailers' entry and

expansion plans for India. Foreign Direct Investment in multi-brand retail is an economic reform

which would allow global chains like Wal-Mart, Carrefour and Tesco etc. to own up to 51 percent of

joint retail ventures with Indian companies. The policy would let foreign retailers own up to 51

percent in multibrand retailing and 100 percent of single brand retailing.1

According to Deardoff’s Glossary of International Economics, FDI is defined as ―Acquisition or

construction of physical capital by a firm from one (source) country in another (host) country.‖2 FDI

is also stated as ―Investment that is made to acquire a lasting interest in an enterprise operating in an

1 Agencies, ―What‘s FDI in retail?‖ Hindustan Times, Nov. 29, 2012. Available at http://www.hindustantimes.com/India-

news/NewDelhi/What-s-FDI-in-retail/Article1-775543.aspx, Last accessed on 14 October, 2012.

2 Deardoff‟s Glossary of International Economics. Available at

http://www-personal.umich.edu/~alandear/glossary/f.html#fdi2, Last accessed on 12 October, 2012.

CONCEPT NOTE:



Concept Note

economy other than that of the investor, the investor‘s purpose being to have an effective voice in the

management of enterprise‖.3

It is the stated intent and objective of the Government of India to attract and promote foreign direct

investment in order to supplement domestic capital, technology and skills, for accelerated economic

growth. ―Foreign Direct Investment, as distinguished from portfolio investment, has the connotation

of establishing a lasting interest in an enterprise that is resident in an economy other than that of the

investor.‖4

Latest Policy Move:

The policy cleared by Union Cabinet stipulates that FDI in multi brand retail will be allowed up to

51% foreign equity through the government approval route, subject to adequate safeguards for

domestic stakeholders. The policy rollout will cover only cities with a population of more than 1

million5. It also specifies at least 30% of the procurement of manufactured/processed products must

be sourced from Indian ―small industries‖. 'Small industries' have been defined as industries which

have a total investment in plant & machinery not exceeding US $ 1.00 million.6

Organized retail penetration remains low, at 5 to 6 percent indicating room for growth.7 This provides

ample space for multi brand retailers to setup and explore the retail investment environment in India.

3 International Monetary Fund, Balance of Payments Manual, Washington, DC, 1977, pp.408

4 Circular 1 of 2012, Chapter 1, P. 6, Intent and Objective, Dept. Of Industrial Policy and Promotion, Ministry Of

Commerce And Industry (Circular On Consolidated FDI Policy),

Available At Http://Dipp.Nic.In/English/Policies/FDI_Circular_01_2012.Pdf, Last accessed on 14October, 2012.

5 Press Release Id 77725, Press Information Bureau, Government of India,

Available at http://pib.nic.in/newsite/erelease.aspx?relid=77725, Last accessed on 9 October, 2012.

6 Press Note No.4 (2012 Series), Ministry Of Commerce and Industry, Government of India.

Available at http://dipp.nic.in/English/acts_rules/Press_Notes/pn4_2012.pdf, Last accessed on 08October, 2012.

7 News release, 2012 Global Retail Development Index, June 11, 2012, AT Kearney, Global management consultancy

firm. Available at http://www.atkearney.com/consumer-products-retail/global-retail-development-index/news-release/-

/asset_publisher/56Fncka0K9JJ/content/brazil-tops-a-t-%C2%A0kearney-global-retail-development-index-for-the-

second-year/10192., Last accessed on 14October, 2012.



Concept Note

What is Single Brand Retailing and Multibrand Retailing?

Single brand retailing: its meaning says own label brands or they can be described as those which are

created and owned by businesses that operate in the distribution channel. Single brand implies that

foreign companies would be allowed to sell goods sold internationally under a ‗single brand‘, viz.,

Reebok, Nokia and Adidas. FDI in ‗Single brand‘ retail implies that a retail store with foreign

investment can only sell one brand. For example, if ‗Nike‘ were to obtain permission to retail its

flagship brand in India, those retail outlets could only sell products under the ‗Nike‘ brand and not

the ‗Reebok‘ brand, for which separate permission is required.

Foreign direct investment in multi brand retail means that foreign players can sell multiple brands of

his parent company in another country under one roof. Multi Brand Retail allows foreign companies

to sell goods of more than one brand under one roof viz. Wal-Mart, Tesco etc. For example, in India,

Pantaloons is a multibrand retail shop where if talked about garments, one can sell Reebok, Nike and

Adidas under one roof only.

It is only after Press release of Ministry of Commerce and Industry, that Foreign Direct Investment in

multi brand retail is allowed8. Opening up FDI in multi-brand retail will mean that global retailers

will offer a range of daily use items which are directly related to consumers in same way as other

local ‗kirana‘ shops sell.

History of FDI in Retail in India:

The advent of FDI in general in India was witnessed during the end of 1990‘s when government

announced number of reforms which helped in the process of liberalisation and deregulation of the

economy. Since its inception there has been significant upsurge in the FDI flows in the country. But

when we talk about FDI in retail, it came quite late in 2006.

Prior to 2006, India prohibited FDI in both single brand and multi brand retail. In the second month

of 2006, government decided to open retail sector for FDI which was subject to certain conditions. At

8 Press Note No. 5 (2012 Series), Dept. Of Industrial Policy and Promotion, Ministry Of Commerce And Industry 14-09-

2012. Available At http://Dipp.Nic.In/English/Acts_Rules/Press_Notes/Pn4_2012.Pdf, Last accessed on 07 October,

2012.



Concept Note

that time government provided 51 percent FDI in single brand retail.9 There have been

recommendations to further liberalize the Indian government‘s policy regarding FDI in retail trading,

including to increase the permissible level of FDI in single-brand retail operations and to open up the

multi-brand retail sector to FDI.

In November 2011, the Union Cabinet of Ministers, decided to permit up to 100 percent FDI in

single-brand retail trading and up to 51 percent FDI in multi-brand retail trading. Unfortunately for

foreign retailers, the Cabinet‘s November 2011 decision produced a considerable political backlash in

India. The political backlash was mainly focused on multi brand aspect of the FDI. Consequently, the

Indian government reversed course and indefinitely suspended plans to reform the retail sector. But

later government of India on January 12, 2012 allowed 100 percent FDI in single brand retail10

and

still there was no FDI in multi brand retail in the country.

Later amidst rising inflation, policy paralysis, risk of low grading by credit rating agencies and

surging deficits, Government of India decided to allow 51 percent FDI in multi brand retail.11

General Nature of Indian Retail Sector:

India is one of the most desirable retail destinations in the world due to a large middle class which

has a dispensable income. India‘s economic growth and demographic profile set it apart from others

Developing Nations and set up a case for global retailers to enter the market. Retailing is a significant

sector of the economy, both in terms of GDP contribution and share in public employment. Although

there is no set definition for retail but to opt for a reliable authority, the definition of retail was given

by the Delhi High Court in the case of Association of Traders of Maharashtra V. Union of

India12

defined ―retail as sale of final consumption or sale to ultimate consumer‖. A manufacturer

selling his own brand is not retailing. Retailing is the bridge between the manufacturer and the final

consumer and falls last in the distribution chain having interface with the end customer.

9 Press Note 3 (2006 Series), Issued On February 10, 2006, Issued By Dipp. Ministry Of Commerce And Industry.

Available At http://Www.Ksidc.Org/FDI_Policy_2006.Pdf, Last accessed on 06 October, 2012.

10 Press Note 1 (2012 Series), Issued On January 10, 2012, Issued By Ministry Of Commerce and Industry. Available At

http://Dipp.Nic.In/English/Acts_Rules/Press_Notes/Pn1_2012.Pdf, Last accessed on 07October, 2012.

11 Press Note 5 (2012 Series), Issued On January 10, 2012, Issued By Ministry Of Commerce And Industry. Available At

http://Rbidocs.Rbi.Org.In/Rdocs/Content/Pdfs/PRES210912_5.Pdf, Last accessed on 07October, 2012.

12 Federation Of Association Of Traders v. Union Of India, 2005 (79) DRJ 426.



Concept Note

There is no definition of retail trade under the FDI policy. In layman‘s term it means selling of goods

to the consumer. So from local Kirana shops and mall based shopping formats, both form part of

retail sector. From street/cart retailers working on pavements/roadsides and small family run

businesses to international brands such as Rolex and Nike, the retail market in India is vibrant,

colourful and highly fragmented. In India, the retail industry is divided into organised and

unorganized sectors. Organised retailing refers to trading activities undertaken by licensed retailers,

that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed

hypermarkets and retail chains, and also the privately owned large retail businesses.13

Unorganised

retailing, on the other hand, is dominated by large number of small retailers consisting of local kirana

shops, owner manned general stores, chemists, footwear shops, paan or beedi shops, pavement

vendors etc. which together make up the so called ―unorganised retail‖ or traditional retail14

.

At Kearney, a global management consulting firm, rates India as the most attractive nation for retail

investment. The study, presented in the Global Retail Development Index of 2012, is carried out

annually for 30 emerging markets, and has rated India fifth in all emerging markets. This report

expresses even more optimism, and estimates that suggests that India's retail market is expected to be

about US$535 billion by 2013, with around 10 per cent coming from organized retail.15

.

Indian retail is mainly dominant with small and medium enterprises in contradiction to the presence

of few giant corporate retailing outlets. Coming up of FDI in retail may see a significant shift in

Indian retail industry.

Key Features of the Policy:

Following are certain conditions which have been specified under the Press Note no. 5 of 201216

and

the foreign players have to comply with the same.

13

―Retailing, India In Business, Investment Technology Promotion Division, Ministry Of External Affairs, Govt. Of

India‖, Available at http://www.indiainbusiness.nic.in/industry-infrastructure/service-sectors/retailing.htm, Last accessed

on 09 October, 2012.

14 Ibid

15 ―Global Retail Expansion: Keeps On Moving 2012‘, Atkearny,

Available at http://www.atkearney.com/documents/10192/4799f4e6-b20b-4605-9aa8-3ef451098f8a, Last accessed on 14

October, 2012.

16 Press Note No. 5 of 2012, Govt. Of India,



Concept Note

As per paragraph 6.1 of the press note FDI is prohibited in :

(a) Lottery Business, including Government /private lottery, online lotteries, etc.

(b) Gambling and Betting, including casinos etc.

(c) Chit funds

(d) Nidhi company

(e) Trading in Transferable Development Rights (TDRs)

(f) Real Estate Business or Construction of Farm Houses

(g) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco

Substitutes.

(h) Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway

Transport (other than Mass Rapid Transport Systems).

Foreign Technology Collaboration in any form, including licensing for franchise, trade

mark, brand name, management contract, is also prohibited for lottery business and Gambling

and Betting activities.

The above policy is an enabling policy only and the State Governments and Union

Territories would be free to take their own decisions in regard to implementation of the

policy. Therefore, retail sales outlets may be set up in those States & union Territories which

have agreed, or agree in future, to allow FDI in MBRT under this policy. The list of States

&Union Territories which have conveyed their agreement is annexed. Such agreement, in

future, to permit establishment of retail outlets under this policy, would be conveyed to the

Government of India through the Department of Industrial Policy & Promotion and additions

would be made to the annexed list accordingly. The establishment of the retail sales outlets

will be in compliance of applicable State &Union Territory laws/ regulations, such as the

Shops and Establishments Act etc.

FDI in retail is left to the discretion of state governments which will decide whether to allow

foreign supermarket chains like Wal-Mart, Carrefour etc.to enter their territory or not.

Available at http://Rbidocs.Rbi.Org.In/Rdocs/Content/Pdfs/PRES210912_5.Pdf, Last accessed on 08October, 2012.



Concept Note

Minimum amount to be brought in, as FDI, by foreigner investor, would be US $ 100

million. Minimum investment to be made by foreign investor through any multinational is at

least of $1 million. At least half of the total FDI shall consist of ‗back-end infrastructure‘ such

as warehousing and cold storage facilities. This requirement has to be met within three years

of a retailer setting up shop.

At least 30% of the value of procurement of manufactured/ processed products

purchased shall be sourced from Indian 'small industries' which have a total investment in

plant & machinery not exceeding US $ 1.00 million. This valuation refers to the value at the

time of installation, without providing for depreciation. Further, if at any point in time, this

valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose. This

procurement requirement would have to be met, in the first instance, as an average of five

years' total value of the manufactured! Processed products purchased, beginning 1st April of

the year during which the first tranche of FDI is received. Thereafter, it would have to be met

on an annual basis. The multinational investing in the country will have to source almost one

third i.e. 30% of their manufactured and processed goods from industries with a total plant

and machinery investment of less than $1 million.

Retail sales outlets may be set up only in cities with a population of more than 10 lakh (1

million) as per 2011 Census and may also cover an area of 10 kms around the

municipal/urban agglomeration limits of such cities; retail locations will be restricted to

conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be

made for requisite facilities such as transport connectivity and parking; In States/ Union

Territories not having cities with population of more than 10 lakh as per 2011 Census, retail

sales outlets may be set up in the cities of their choice, preferably the largest city and may

also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities.

The locations of such outlets will be restricted to conforming areas, as per the Master/Zonal

Plans of the concerned cities and provision will be made for requisite facilities such as

transport connectivity and parking..

Retail trading, in any form, by means of e-commerce, would not be permissible, for

companies with FDI, engaged in the activity of multibrand retail trading. The Press Note



Concept Note

5 provides that retail trading, in any form, by means of e-commerce, would not be

permissible, for companies with FDI, engaged in the activity of multi-brand retail trading.

This would mean the web platforms carrying out enabling function shall not be impacted but

foreign firms that buy or sell any goods or services on online portals are prohibited under the

FDI policy17

.

Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry,

fishery and meat products, may be unbranded.

Government will have the first right to procurement of agricultural products.

At least 50% of total FDI brought in shall be invested in 'backend infrastructure' within

three years of the first tranche of FDI, where 'back-end infrastructure' will include capital

expenditure on all activities, excluding that on front-end units; for instance, back-end

infrastructure will include investment made towards processing, manufacturing, distribution,

design improvement, quality control, packaging, logistics, storage, ware-house, agriculture

market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be

counted for purposes of back end infrastructure. At least half of the total FDI shall consist of

‗back-end infrastructure‘ such as warehousing and cold storage facilities. This requirement

has to be met within three years of a retailer setting up shop.

Applications would be processed in the Department of Industrial Policy & Promotion, to

determine whether the proposed investment satisfies the notified guidelines, before being

considered by the FIPB for Government approval.

There are few states and union territories which have agreed to allow FDI in multibrand

retail:: States: Andhra Pradesh, Assam, Delhi, Haryana, Jammu & Kashmir, Maharashtra,

Manipur, Rajasthan, Uttarakhand; Union territories: Daman & Diu and Dadra and Nagar

Haveli.

17

Nidhi Bothra, ―FDI in Retail Business: The Key Issues of New Policy”, Moneylife, Sep. 26, 2012. Available at

http://www.moneylife.in/article/fdi-in-retail-business-the-key-issues-of-the-new-policy/28689.html, Last accessed on

07October, 2012.



Concept Note

There has been a sort of mixed response by policy analysts and corporate masters. Corporate

professionals like Akash Gupta (retail expert at consultancy firm PricewaterhouseCoopers India

Ltd.), estimates that opening up the retail sector will lead to significant improvement of supply-chain

infrastructure, which will help reduce food waste by 30% to 40%. Adi Godrej, president of

the Confederation of Indian Industry, a leading trade body, said coming up of FDI in retail

announcements have ―restarted the reform process‖18

.

18

WSJ Staff, ―FDI in retail: The End of Policy Paralysis‖, The Wall Street Journal. Available at

http://blogs.wsj.com/indiarealtime/2012/09/14/india-reacts-the-end-of-policy-paralysis/, Last accessed on 06October,

2012.



Concept Note

PART 2: INDIAN RETAIL: WHAT MAKES IT UNIQUE?

It is considered that unorganized Retail is the second step after agriculture for those seeking to

climb the ladder of affluence and in search of higher income.19

The traditional Indian retail sector

is highly fragmented,20

mainly consisting of small, independent and family managed stores/ventures.

The domestic organized retail industry is also at a nascent stage. The factors which affect the sector

at the macro level are the growth of nuclear family structure and the rise of consumerism among the

youth.21

Over the last few years a number of business houses in India22

have started invested in the

field of retail either through the acquisition of existing businesses or through fresh investment. These

business houses include The Aditya Birla Group, Reliance and the Bharti Group.23

Organised Retail in India by Domestic Players:

The advent of the domestic business houses in the retail scenario has led to a huge change in the

domestic retail business scenario due to their deep pockets.24

The focus of the new entrants to the

field of retailing is to capture the eyeball of the customer by providing maximum value coupled with

modern business principles. The new retailers aim to bring in maximum number of repeat customers

and build a stable base.

Although the primary differentiator between the different businesses is price of the products,

however the retailers aim to build their own identity through the following main ways 25

:

(i) By improving sourcing and distribution efficiencies;

(ii) By expanding the product portfolio;

19

Kamaladevi Baskaran, ―The Fdi Permit for Multi Brand Retail Trading in India - Green Signal Or Red Signal‖,

Business Intelligence Journal - January, 2012 Vol.5 No.1, p. 176-186.

20 Natika Jain, ―Consumer Behaviour at Retail Outlet/ Shopping Mall”, Tirpude‟s National Journal of Business Research,

Vol. 2 Issue 1, p. 1

21 Mathew Joseph, Nirupama Soundararajan, Manisha Gupta, Sanghamitra Sahu, ―Working Paper No. 222 Impact of

organized Retailing on the Unorganized Sector‖, Indian Council For Research on International Economic Relations, 2008

22 Manju Smita Dash, ―Next-Generation Retailing In India: An Empirical Study Using Factor Analysis‖, International

Review of Management and Marketing ,Vol. 1, No. 2, 2011, p. 29

23 Retail Insights, Available at http://www.dnb.co.in/IndianRetailIndustry/insight.asp , Last accessed on 12October, 2012.

24 R.Y Naryanan, Temper Expectations from Retail Story, Available at http://www.thehindubusinessline.com/markets

/article3910762.ece , Last accessed on 11October, 2012.

25 Retail Advantage India, IBEF, November, 2010.



Concept Note

(iii) Providing personalised customer services

(iv) Creating a unique store ambience.

The Indian Retailers who have established stores till date have tried to build a strong sourcing and

distribution network across the country to ensure that they can ensure consistent and stable supplies

of their products. The retailers however had a few teething problems which also resulted in a few

players falling out of the market. However, a few players have emerged strong and look to take

homegrown organised retailing into the coming years.

The Indian home grown organised retailers have also tried to consistently tried to widen their product

portfolio to bring in more variety for the customers. A few players such as Big Bazaar have

consistently ventured into new areas such as electronics and furniture to provide greater variety to the

customers across different product segments.

The growth of organised retail in India has also prompted the players to bring about changes to

ensure customer retention and loyalty. To ensure a steady footfall the businesses have started loyalty

programs and also promotion schemes including branded credit cards and point redemption schemes.

The organised retail sector has also seen constant modifications in the store designing and

maintenance strategies to keep up with the changing consumer preferences. The stores have

consistently tried to innovate with new product presentation and display strategies with an eye to

attract customers across age groups and spending capacities.

Growth in the Domestic Indian Retail Sector

The last decade has seen a sea change in the field of Indian retail. India's retail sector is estimated to touch

US$ 833 billion by 2013 and US$ 1.3 trillion by 2018.26

At present the retail sector contributes 10% to our

GDP and is the largest provider of employment after agriculture. The dynamics of the Indian retail sector

relating to political, social or economic environment has seen stark changes over time which has been

primarily led by the change in consumption patterns. The new millennium has seen a clear bifurcation of the

sector into organise and unorganised retail sectors.27

The fastest growing segments have been the wholesale

26

Tazyn Rahman, ―Organized Retail Industry In India – Opportunities And Challenges”, International Journal of

Research in Finance & Marketing, Volume 2, Issue 2 (February 2012) , p. 83

27 Sanjay Manocha and Anoop Pandey, ―Organized Retailing in India : Challenges and Opportunities‖, VSRD-IJBMR,

Vol. 2 (3), 2012, 79



Concept Note

cash and carry stores (150 per cent) followed by supermarkets (100 per cent) and hypermarkets (75-80

per cent). 28

Pattern of Retail Growth In India

The growth of the retail sector in India has been highly skewed to the urban sector and primarily

metropolitan cities due to the high population density and large populations. On comparison between

the different states across the country, it is found that the south Indian states of Tamil Nadu, Kerala,

Karnataka, Andhra Pradesh, lead the way followed by the prosperous West Indian states of

Maharashtra and Gujarat. The new wave of retail in India has now spread it to the peripheries of the

National Capital region and the prosperous states of Punjab and Haryana. The trend of modern retail

in the late 1990s29

started in the southern region as South India has clusters of metro cities and

tier-1 towns. Further, the licensing process in states such as Andhra Pradesh, where the licensing

process is now online, has greatly reduced the time lag.30

Mode Of Entry Into Retail Route

In India, the main players of organised retail have entered into the market through the following

modes:

(a) the acquisition route which gives a jump-start to take advantage of the already

experienced manpower, infrastructure, front-end property of the acquired firm;

Ex: Spencers acquired by RPG.31

(b) the JV partnerships, a preferred route for firms seeking foreign collaboration for

technical know-how and assistance in the back-end operations as well as future export

opportunities. Ex: Bharti Wal-mart India32

(c) New venture route for market entry. Ex: More Stores33

28

Ali Asgar Motiwala, Growth of Malls in India, US Commercial Service.

29 Rohit Bhasin and Bharti Ramola, Winning in India‟s Retails Sector, PwC, Mumbai, Unknown.

30 Available at http://www.indianexpress.com/news/retailers-want-single-window-clearance-for-setting-up-

outlets/205068/, Last accessed on 11October, 2012.

31 Available at http://www.spencersretail.com/cms.php?page=milestones , Last accessed on 10 October, 2012.

32 Available at http://ibnlive.in.com/news/bhartiwalmart-will-be-a-5050-pc-partnership-rajan-mittal/296496-7.html , Last

accessed on 11October, 2012.

33 Available at http://www.morestore.com/abt_retail.html , Last accessed on 12 October, 2012.



Concept Note

(d) Mixture of Acquisition and JV routes for quick market access.

To take advantage of the second wave of business now, the firms have moved into the formation of

subsidiaries or specialised stores targeting a particular population group. The firms are normally

present in one or both of the segments: lifestyle and value retailing under multiple retail formats

except for a few exceptions which target only one of the sectors. The leaders in the Indian Retail

sector are adopting a combination of formats including, mega (hyper and/or super), medium

(department and/or speciality), and small size (convenience and/or discount) for expansion. Rapid

expansion by the firms helps them to:

(i) Attain a large size increasing the bargaining power;

(ii) Economies of scope in sourcing by accruing costs across stores; and

(iii) Reach out to consumers at their doorsteps.

Understanding the way Indian Mega Retailers Run

Through this section we look into the important players of the organised retail market in India which

are run by the Indian business houses. The mega retailers follow an overall common strategy

irrespective of the type of product segment or market and a representative of each of the prevalent

models is taken for a case study. The main objective of these case studies is to understand how these

firms are planning to34

:

(i) Penetrate markets and build market share;

(ii) Introduce multiple product and format categories;

(iii) Operate the chain from sourcing to marketing;

(iv) Create product identities through prices

(v) Capture customer footfalls.

In India, the main formats prevalent among the retail stores are studied below in relation to store

sizes and their business identities.

The formats prevalent in retail sector are35

:-

34

Ibid

35 The IPAN SALE working group has taken these figures from (a) Working Paper No 222, Impact of Organized

Retailing on the Unorganised Sector, ICRIER, Indian Brand Equity Foundation, Retail, 2010. p. 8, (b) Rohit Bhasin and



Concept Note

Type of Store Store Size Description Examples

1. Restaurant Chains As required The restaurant

chains cater

mainly to a

particular

cuisine and

operate mainly

in the high-end

segment.

Sagar Ratna,

Mainland China,

O Calcutta

2. Hypermarket 50000- 100000

sq. Ft.

Offer a

large basket of

products,

ranging from

grocery, fresh

and processed

food, beauty and

household

products,

clothing and

appliances, etc.

Spencer, Big

Bazar, Easy Day

Market

3. Cash and Carry (B2B

format)

More than

75,000 sq. Ft

Focussed on

bulk buying and

selling of

Metro Cash and

Carry, Bharti-

Walmart

Bharti Ramola, Winning in India‟s Retails Sector, PwC, Mumbai , (c) Ms. Vidushi Handa And Mr. Navneet Grover,

―Retail Sector In India: Issues & Challenges‖, Zenith International Journal of Multidisciplinary Research, Vol. 2, Issue 5,

May 2012, p. 256, (d) Aditya P. Tripathi, ―Emerging Trends in Modern Retail Formats & Customer Shopping

Behavior in Indian Scenario: A Meta Analysis & Review‖, Unknown, p. 10 (e) Tazyn Rahman, ―Organized Retail

Industry In India – Opportunities And Challenges”, International Journal of Research in Finance & Marketing, Volume

2, Issue 2 (February 2012) , p. 85 and (f) Sanjay Manocha and Anoop Pandey, ―Organized Retailing in India : Challenges

and Opportunities‖, VSRD-IJBMR, Vol. 2 (3), 2012, p. 75 to design this table providing the division of different types of

retail formats. In addition to the existing concepts provided in the mentioned papers, a few formats have been added by

the research team itself.



Concept Note

commodities.

Have bulk

buying

requirements.

4. Departmental Stores 10,000- 60,000

sq. Ft

Wide range of

merchandise

mix, usually in

cohesive

categories, such

as fashion

accessories,

gifts and home

Furnishings, but

skewed towards

garments. These

stores are

focused towards

a wider

Consumer

audience

catchment, with

in-store services

as a primary

differentiator.

Westside,

Reliance Trends.

5. Super Markets 3000-25000 sq.

ft36

Offer household

as well as food

products. Aim to

be one stop shop

for daily needs.

Nilgiri‘s, Food

Bazar.

6. Shop-in-shop No fixed size. Offer specialised Spice Mobile

36

Available at http://www.igd.com/index.asp?id=1&fid=1&sid=7&tid=26&cid=94, Last accessed on 11October, 2012.



Concept Note

Normally

smaller than

supermarkets

products with a

shop within a

mall.

Store, The

Travel Shop

7. Speciality Stores 2000-5000 sq. ft Speciality stores

are single-

category,

focusing on

individuals and

group clusters of

the same class,

with high

product loyalty.

Typical

examples of

such retail

format are:

Footwear stores,

music stores,

electronic and

household

stores, gift

stores, food and

Beverages

retailers, and

even focused

apparel chain or

brand stores.

Archies, Ferns n

Petals, Mom and

Me

8. Category Killers Average size

8000 sq. ft

Category killers

focus on a

particular

segment and are

Mochi, Krome-

Republic of

Fashion



Concept Note

able to provide a

wide range of

choice to the

consumer,

usually at

affordable

prices due to

the scale they

achieve. They

that offer less

variety but deep

assortment of

merchandise.

9. Discount Stores Average Size

1000 sq. Ft

Offers wide

range of

products,

mostly branded

at high rates of

discount.

Primarily

provide

discounts by

selling in bulk.

The Loot,

Koutons,

Liverpool

10. Convenience Stores37

400-2000 sq.ft Located near

Residential areas

in thickly

populated areas.

For easy access

and daily

Safal, 6ten,

Subhiksha,

Mother Diary

stores

37

Ms. Vidushi Handa And Mr. Navneet Grover, ―Retail Sector In India: Issues & Challenges‖, Zenith International

Journal of Multidisciplinary Research, Vol. 2, Issue 5, May 2012, p. 256



Concept Note

purchase.

11. Round the clock stores No fixed Floor

area

Focussed on

providing

necessities with

availability

throughout the

day. Some sell

Liqour.

24 x 7, In and

Out

We have taken a representative brand from the segments mentioned above and have tried to evaluate

the brand from the parameters we have stated before.

The flowing chart evaluates closely the strategies taken by the market leaders from all the above

mentioned segments for maintaining their growth and market share in India.

Brand

Category

Brand

Name

Brand

Information

Market Strategies Growth and

Size in India

Restaurant

Chains

Dominos Owner:

Jubilant

Foodworks

Limited

Business

Model:

Franchisee of

Dominos Pizza

International

Focuses on a product line

covering all segments of the

market from value for money to

premium. Captured the delivery

market with timely delivery

guarantee.38

Have constantly

focused on consumer-centric

areas such as product

innovation, taste, pricing and

More than 500

stores across

more than 110

cities in India.

Market leader in

both organised

Pizza market

and Home

Delivery

38

Ratna Bhushan, Domino's, Pizza Hut use delivery and dine-ins to whet the taste buds of demanding Indians, Available

at http://articles.economictimes.indiatimes.com/2012October, 10/news/34363627_1_dine-in-stores-yum-restaurants-

pizza-hut, Last Accessed on 12October, 2012 at .



Concept Note

based in USA customer service.39

To increase

share in dine in market

Domino's is upgrading its dine-

in stores, allocating larger

spaces for them and foraying

into new cities. 40

Markets with

55% and 70 %

share

respectively.41

Income of Rs.

3145 million in

1st Quarter of

FY 2013.42

Hyper

Market

Big

Bazaar

Owner:

Pantaloon

Retail India

Limited

Business

Model:

Wholly Owned

Subsidiary

Coined the 3 C strategy:

Confidence, Change and

Consumption.43

Has succeeded

largely due to its emphasis on

consumer behaviour and

understanding the diversity of

Indian consumers. Further, it is

products driven where the focus

is on the front end to serve the

consumers well. Additionally,

the business model is based on

low margin and high turnover.

The shops offer products from

numerous categories spread

across multiple floors.44

More than 164

stores in India

in Big Bazaar

Format.45

Total income of

Rs. 7317 crores

in 2011-2012.46

39

Drypen, Domino's Marketing Strategies – Says, Affordability is the key to survival in India market,

http://drypen.in/branding/dominos-marketing-strategies-says-affordability-is-the-key-to-survival-in-india-market.html,

Last accessed on 09October, 2012

40 Id at 22.

41 Press Release, Jubilant Foodworks Limited, August 30, 2012.

42 Earnings Presentation, Jubilant Foodworks Limited, Q1 FY 13, July 25, 2012

43 Priya Kumar, The Story of Big Bazaar, Available at http://www.chillibreeze.com/articles_various/the-story-of-Big-

Bazaar-611.asp, Last accessed on 11October, 2012.

44 Ibid.



Concept Note

Cash and

Carry

Best Price

Modern

Wholesale

Owner: Bharti

Wal-Mart India

Pvt. Ltd

Focussed on wholesale of more

than 5000 products.47

Primary

target are the retailers who sell

the products to the end

consumer.

More than 15

stores in India.

Sales of Rs.

1876 crores

with 143%

increase in

sales.48

Departmental

Stores

Westside

and Trent

Owner: Tata

Group

Retailing of clothes and

lifestyle products under one

roof.

More than 106

group stores.

Total operating

income

exceeding Rs.

19000 lakh.49

Super

Markets

Food

Bazar

Owner:

Pantaloon

Retail India

Limited

Business

Model:

Wholly Owned

Subsidiary

Sale of Food Product and

Groceries at affordable prices

and sale of product through

private brands to maximise

profits.

Sales revenue

not separately

available.

45

Raghavendra Kamath, Makeover at Big Bazaar, Available at http://www.business-standard.com/india /news/ makeover-

at-big-bazaar/483456/, Last accessed on 14October, 2012.

46 Kala Vijaya Raghavan & Sagar Malviya, Future Value to be merged with Pantaloon Retail to cut operating cost,

Available at http://articles.economictimes.indiatimes.com/2012-09-10/news/33737171_1_big-bazaar-pril-kb-s-fair-price,

Last accessed on 14October, 2012.

47 Available at http://www.bharti-walmart.in/Ourstores-Overview.aspx, Last accessed on 12October, 2012.

48 Sagar Malviya, New stores, rising sales fail to boost Bharti Walmart's net worth, Available at

http://articles.economictimes.indiatimes.com/2012-05-22/news/31814426_1_bharti-walmart-multinational-retailers-first-

cash-and-carry-store, Last accessed on 12October, 2012.

49 Audited Financial Results, Trent Limited, For the financial year ended 31

st March, 2012.



Concept Note

Speciality

Stores

Archies

India

Archies India

Limited.

Sale of greeting cards and gifts

through special stores.

Selected as

Superbrand in

2009-10.50

Market leader in

organised sector

with 60%

share.51

Sales

revenue of Rs.

180 crore in

2010-2011.52

Through a comparison of the different players across the various segments mentioned in the chart

given above, a few common factors can be drawn which are enumerated as follows:

(a) Almost all of the above mentioned retailers have taken an aggressive expansion strategy with

a primary aim to build an economy of scale.

(b) The retailers are moving into smaller towns to capture a wider customer group and the

growing Indian middle class.

(c) Many of the players have a market share exceeding 60% in their sector which might show the

need for greater variety for customers and an opportunity for new players.

In addition to the formats of retail provided above, the Indian market has seen the emergence of a few

new and unique formats such as Quasi Mall by Shoppers Stop and Corner Shop by Globus.53

In

addition to the urban retail stores, the Indian players have also innovated by rural area specific

50

Available at http://www.archiesonline.com/gateway/archies_superbrand_article.php, Last accessed on 10October,

2012.

51Available at http://www.archiesonline.com/gateway/hallmark/Archies-tie-up-Hallmark.php, Last accessed on

10October, 2012.

52 PTI, Archies eyes Rs 400 cr sales in 4 years, launches UNICEF cards, Available at

http://www.thehindu.com/business/companies/article2435761.ece, Last accessed on 10October, 2012.

53 Poonam Kamboj, "Indian Retail Industry: Its Growth, Opportunities And Challenges", IJRFM, Vol. 2, Issue 2

,February 2012, p. 297



Concept Note

hypermarkets such as ITC‘s E- Choupal and HLL's project Shakthi and Mahamaza. This shows a

continuous process of innovation and experimentation by the Indian retailers.

Nature of Indian Consumerism

The Indian retail sector is frequently referred to as a gold mine which is ready to be tapped by the

most efficient businesses.54

The primary target of the marketers is an untapped consumer group with

growing spending power and India provides them that opportunity. The commonly attributed reasons

for the growth of the retail market in India have been: Rapidly increasing income level, Change in

lifestyle, Favourable pattern of geography, Retail offering one roof shopping experience, Increase in

the number of nuclear families, Improved purchasing power of Indian middle class, Presence

of domestic and foreign player, Effect of Liberalization, Privatization, and Globalization.55

In one of the few empirical research studies undertaken on the topic, conducted by Swati Kewlani and

Sandeep Singh among a random group of 150 people in Indore, India has revealed that consumers go

to shopping malls for the variety they get there and because ―they find shopping entertaining due

to good environment, and variety of products that they get there, reasonable price that are offered

along with the better quality of services rendered.‖ No doubt the big giants are giving tough

competition to small retail store, but consumers are still in favour of small retailers. 56

The study has

revealed that consumers prefer to buy consumer care and daily use products from shopping malls.

However, it has further revealed that they continue to buy from small retailers, and they spend

equally on buying from kiranas. The study listed a few benefits of local kiranas stated by the

surveyed people which are listed below:

(a) They are going to small retailers due to their long standing relations with them, the home

delivery services that the small retailers offer and because they find shopping less time

consuming while shopping with small retailers as compared to malls.

54

B.D. Singh & Sita Mishra, ―Indian Retail Sector- HR Challenges & Measures for Improvement‖, Indian Journal of

Industrial Relations, Volume 44 Issue 1, 2008.

55 Chandu. K. L , ―The New FDI policy in Retail in India: Promises, Problems and Perceptions”, Asian Journal Of

Management Research, Volume 3 Issue 1, 2012 , p.100-106

56 Swati Kewlani and Sandeep Singh, “Small Retailers Or Big Shopping Malls: Will Big Fishes Eat The Small?” Journal

of Radix International Educational and Research Consortium, Volume 1, Issue 2, February 2012.



Concept Note

(b) When the respondents were asked whether they go to small retailers because of the

relationship they have developed over the period of time with them more than half (52%)

responded were with affirmation, thus clearly underlining the dictum that relationship

marketing hold the key to the survival of the minnows, which is emerging to be the U.S.P. of

these small retailers.

The authors also listed a few points why the kirana shop will be relevant even in the changed retail

landscape:

Firstly, the location of the shop at the neighbourhood allows for easy purchase of items at short

intervals without the need of detailed travel plans.

Secondly, there is a long friendly relationship with the neighbourhood kiranawalla based on mutual

trust.

Thirdly, the shopkeeper offers free home delivery under most circumstances.

Fourthly the small shopkeepers provide easy credit on the items of daily use and the amount is paid at

a fixed flexible interval by the customer enabling a lasting relationship.

Further, it is a commonly stated fact the Indian customer looks into the value for money aspect of a

product before a purchase decision which would make product differentiation on the basis of price a

key factor for any player coming into the market.

The main challenge before the Indian organised retail sector is to cope with the customer

expectations of the Indian customer who has till date been served at home by the Kirana shop. The

kirana shop provided convenient location, personalised location and easy credit. The Indian

organised retailer will have to come up with new and innovative platforms to tackle the kirana store

challenge and some factors such as instant credit will be a challenge for even the biggest players due

to the varied Indian conditions. Understanding the tastes and preferences to suit the local needs might

also need some time for the Indian organised retailer. A possible way to tackle the challenge might be

to include representatives of the local area in the business structure.



Concept Note

Challenges Faced By the Organised Retail Sector In India

The challenges faced by a new and emerging business sector are many and new hurdles seem to

emerge with the expansion of the business. However, for the purpose of the study we have tried to

list a few of the major hurdles faced by the organised retail sector till date in its relatively short

journey in India:

Political Opposition

The Indian political scenario is crowded with varying opinions about organised retail and its

possible impact on the Indian customer. A number of views have been put forward regarding

organised retail contributing to unemployment in the country and its possible impact on the

small Kirana shop owner. Different states around the country have varied policies on

organised retail and investment by business houses in certain states have even been met with

violent opposition As such a uniform policy across the country is absent presenting a huge

hurdle to the major players in the country.

Supply Chain

India is the seventh largest country in the world with varying climatic conditions and

consumer preferences across the country. The basic infrastructure of roads and availability of

storage facilities is not standard across the country which presents a huge challenge to the

investors. Infrastructure has been developed at priority in the last decade and it is hoped that a

planned expenditure of US$ 1 trillion in the 12th five year plan will help bridge the

infrastructure gap in the country. A strong supply chain is the immediate need of the hour and

any new player will have to build the supply chain to a large extent from the scratch.

Channel Conflicts

One of the primary modes by which the organised retails sector reduces costs worldwide is by

agreements with the producers and distributors of products. In India, however, the existing

supply model has been built with the small retailer in mind and a huge hurdle exists before the

organised retail sector to tackle the varied distribution system across the country.57

Further.

57

Indian Retail Market: Changing with the Changing Times, Deloitte, August, 2010.



Concept Note

India also has varied taxation laws across the country with different rates of local taxes which

needs to be looked into by the retailers.

Location and Rental

Rent forms a large portion of the total expenditure of any organised retail business in India.58

Indian property rentals are sometimes exorbitant in the prime areas thus putting a strong

pressure on viability.59

The challenge for a retailer would be to find the right location for their

stores and select properties which do not impact their bottom-line. Certain retailers have taken

to developing their own properties keeping an eye on the savings in the long run.60

Understanding the unique Indian Customer

The Indian consumer has varied tastes and is primarily value oriented and pricing is critical in

the country.61

Further, the tastes vary across the country. Thus, a particular product may be a

best seller in one area while might not sell in the other state. The organised retailer has to

identify the tastes of the different areas and cater to the varied demands62

which might lead to

lesser volumes and lesser bargaining power. Further, the Indian customer also has a

preference for fresh products and the retailers would have to modify their strategies to suit

such preferences.63

Regulatory measures

As mentioned before, the Indian tax structure varies to a large extent among the different

states and Goods and Service Tax which is likely to be implemented in 201364

will replace a

58

Malls and Hyper Markets: Perspectives of Contemporary Shopping, School of Management Studies, Punjabi

University, Patiala, p. 40

59 Nargundkar Rajendra, Services Marketing: Text and Cases, Tata McGraw Hill, New Delhi, 2010, p. 348

60 Ratna Bhushan & Rasul Bailay, Tata, Reliance join retail rush, plan to build shopping malls across the country,

Available at http://articles.economictimes.indiatimes.com/2012-07-11/news/32632952_1_malls-retail-space-retail-

formats, Last accessed on 12 October, 2012.

61 Amisha Gupta, ―Foreign Direct Investment In Indian Retail Sector: Strategic Issues And Implications‖, IJMMR,

Volume 1, Issue 1 (December, 2010) , pp. 56

62 Ramaswamy VS, S Nakamuri, Marketing Management, Macmillan Publishers India Limited, New Delhi, 2009 p. 272

63 Unknown, The Great Indian Bazaar, McKinsey and Company, Mumbai 2008, p.22

64 GST rollout likely in 2013-14: Modi, Available at http://www.financialexpress.com/news/gst-rollout-likely-in-201314-

modi/938756/, Last accessed on 11October, 2012.



Concept Note

host of levies like excise, sales tax, value-added tax, entertainment tax and luxury tax.

Further, starting a new business venture in India requires a number of licenses, which have to

be obtained from different government departments leading to considerable lead time in

opening up of the stores.65

Slow acceptance of private labels

Private labels enable retailers to offer products at better prices due to the removal of the high

cost brand names. Further, it lets the retailer package their own products middlemen and

enhances bargaining power with supplier. In-house brands account for 12-15% of sales and

more than 20-25% of profits for most Indian retailers which is very low compared to the

global mark of earning 55-60% of revenues from private labels. 66

The concept of private

labels has however not captured the desired attention in the Indian market which in certain

sectors shows a high brand loyalty thus reducing the options for the retailers.

Absence of trained labour force

Indian retailing faces the challenge of lack of trained manpower67

and the new employees

which are employed by the companies have to be trained in the sector, thus increasing the cost

for the companies which employ the workers. Further, lack of past experience reduces

efficiency. Further, the sector sees high attrition levels due to shortage of quality manpower.

65

Laxmikant S. Hurne, ―Proposed FDI in Multi-Brand Retailing: Will it heat the Indian unorganized Retail Sector?‖,

Review Of Research, Vol.1,Issue.VI, March, 2012, p.3

66 Sagar Malviya & Sarah Jacob, Private labels' euphoria subsides in retail, Available at

http://articles.economictimes.indiatimes.com/2011-06-13/news/29653341_1_private-labels-spencer-s-kampani-ceo-

thomas-varghese, Last accessed on 14 October, 2012.

67 Frost and Sullivan, Overview of The Indian Retail market, 2008 , p. 7



Concept Note

PART 3: EVOLUTION OF ORGANISED RETAIL WORLDWIDE

Retailing has come to be recognized as a discipline due to rapid growth in market coverage and

investments in this sector in India and the world. There are various factors responsible for retail

revolution across the globe, including in India. The demographic profile of the consumer has changed

and due to economic development and increased income level he has become affluent. Also it has

been observed that the powers have slowly started moving out of brands into retailer‘s hands due to

their proximity with customers and improvements in customer service. The emergence of private

labels will substantiate this fact. All the mass produced products are being served to mass consumers

through retail platforms allowing the customer to choose from wider assortments. There has been

revolution in retail industry. The India Retail Industry is the largest among all the industries,

accounting for over 10 per cent of the country‘s GDP and around 8 per cent of the employment. The

Retail Industry in India has come forth as one of the most dynamic and fast paced industries with

several players entering the market.

The industrial revolution necessitated dramatic changes on the retail front. The increase in

urbanization meant that consumers were now clustered .in small geographic areas. These led to the

emergence of shops to serve the needs of locals.68

The number of consumers increased and mass

transportation became a way of life. Mass manufacturing, longer distribution channels and mass

merchandisers evolved. Retail evolved in many ways over the 20th century. Self service, a concept

started in 1916 helped the retailer in reducing costs, as fewer workers were required to service the

customers.69

The emergence of the supermarkets during 1930s, discounted stores and hypermarket

like Carrefour in France in 1963 indicated retail boom. As the needs of consumers grew and changed,

one saw the emergence of commodity specialized mass merchandisers in 1970.70

The seventies also

witnessed the use of technology in the retail sector with the introduction of the barcode specialty

chains developed in the 80s as did large shopping malls. In 1995 the world of retail opened the doors

68

Andrew Edgecliffe Johnson, ―A Friendly Store from Arkansas‖, Financial Times, 19 June 1999.

69 Wal-Mart Associate Handbook, Available at http://walmart.3cdn.net/594f2e1e559832379c_k3m6bh9d8.pdf, Last

accessed on 16 October 2012.

70 Annual Report, Wal-Mart Stores, Inc. (1971-2001), Available at http://stock.walmart.com/annual-reports, Last

accessed on 16 October 2012.



Concept Note

to global market on the web. With the growth of the World Wide Web, both the retailers and

consumers can find suppliers and products from anywhere in the world.71

Factors which Assisted the Growth of Global Organised Retail

In western states, rise of organised retail globally has been attributed towards urbanization, and

positive change brought in by post world war situation and some of the growth factors of organized

retail can be listed as72

:-

1. Increase in per capita income which in turn increases the household consumption

2. Demographical changes and improvements in the standard of living Change in patterns of

consumption and availability of low-cost consumer credit

3. Improvements in infrastructure and enhanced availability of retail space

4. Entry to various sources of financing

5. Advent of information technology

Lehman Brothers analysts have noted Wal-Mart‘s ―leading logistics and information

competencies‖.73

The Financial Times has called Wal-Mart ―an operation whose efficiency is the

envy of the world‘s storekeepers‖. Wal-Mart and other such ―big-box‖ retailer‘s competitive edge

is driven by a combination of conventional cost-cutting and sensitivity to demand conditions and

by superior logistics and distribution systems. The chain‘s most-cited advantages over small

retailers are economies of scale and access to capital markets, superior logistics, distribution, and

inventory control. These big retailer‘s cost-savings extend to its employment practices; many have

been accused of requiring employees to work off the clock and using illegal-immigrant labor

(through contractors).74

Such practices, if true, could reduce these retailers‘ measured employment

without reducing its actual labor inputs. Big retailer‘s low wages are also said to contribute to its

measured productivity. While Wal-Mart and such other companies‘ wage data are not publicly

71

Thomas L Friedman, The World Is Flat: The Globalized World in the Twenty-First Century, Penguin Books, 2007.

72 J.R. Graham, ―Marketing Strategies for Businesses that are more ‗Bricks‘ than ‗Clicks‘‖, The American Salesman, Vol.

45 No. 9, 2000, pp. 19-25.

73 Emek Basker, ―Selling a Cheaper Mousetrap: Entry and Competition in the Retail Sector‖, Draft report University of

Missouri, January 2004.

74 Steven Greenhouse, ―Suits Say Wal-Mart Forces Workers to Toil off the Clock‖, New York Times, 25 June 2002.



Concept Note

available, several sources estimate the current typical hourly wage of a Walmart ―associate‖ to be

$7-$8/hour.75

These wages are on par with wages paid by other large discount chains (like K-Mart

and Target), but are typically below union rates.

To look into the explicit reasons behind the growth of organized retail, it would be convenient for us

to look into the growth of specific model, Wal-Mart is frequently referred as ―King of Inventory

Management‖, as the company keeps lesser inventory in comparison to it peers, reason attributed not

only to economy of scales that it has over other competitors but also scientifically advanced supply

chain management which gives corporation an edge over its competitors, forget small traders (mom

& pop store keepers). Many case studies have been conducted to decode the same, one of the most

cited one was published by Harvard Business Review, in which the whole supply chain management

was referred as Rocket Science.76

Specific departments in these corporations work to reduce per/piece

cost so as to contain the cost at such a low level which cannot be met by small retailers, thus

eventually driving them out of competition. In short, Business analysts explain Wal-Mart's success as

a function of four major factors: a big box format,77

everyday low pricing, efficiency in logistics,78

and competitive intensity.79

75

Virginia Postrel, ―Lessons in keeping Business Humming, Courtesy of Wal-Mart U‖, New York Times, 28 Feb. 2002,

At C2.

76 Marshall L Fischer, Ananth Raman and Anna Sheen Mcclelland, ―Rocket Science Retailing Is Almost Here, Are You

Ready?‖, Harvard Business Review, July-August, 2000.

77 The "Big Box Format" is the principle of how "Larger stores increase sales per square foot by encouraging customers

to buy additional goods, often on impulse. Big-Box Stores also let retailers spread fixed labor costs like store

management and cleaning crews across more sales.".

78 One of Wal-Mart's greatest achievement is its use and development of it applications:

It is widely regarded as the leader in the use of it in retail and pioneered a number of it applications including, for

example: Early adoption of computers to track inventory in distribution centers (1969),Use of computer terminals in

stores to facilitate communication (1977),Scanning using UPC codes (1980),Ground-breaking use of electronic data

interchange (1985), Satellite communications network (1987),Use of radio frequency (rf) guns (late 1980s), Expansion of

the edi system to include an extranet, which became an early form of escm (beginning in 1991), Development of 'retail

link,' a micro-merchandising and supply chain management tool (beginning in 1991), As with its managerial innovations,

these innovative uses of it improved Wal-Mart's productivity (both capital and labor) and cost position. They also resulted

in continued market share gain due to their contribution to lower prices, lower out of stocks, and more effective

merchandising.

Mckinsey & Co., US Productivity Growth, 1995-2000 1, 2001, Available at

http://www.mckinsey.com/mgi/reports/pdfs/productivity/retail.pdf, Last accessed on 07 October, 2012.



Concept Note

Comparison of these Factors with Indian Context

Most of the retail sector in India is unorganised, which are popularly referred as mom-pop stores.

The biggest advantage in this sector is the consumer familiarity that passes on from one generation to

the next. The transformation stage of the retail sector started in late 1990‘s. The emergence of pure

retailer has started at this stage as it is been perceived as a beginner and the organised retailing is

getting more attractive. In India, the retail business contributes around 14 percent of GDP in 2011.80

Of this, the organized retail sector accounts only for about five to six percent share, and the

remaining share is contributed by the unorganised sector. The main challenge faced by the organised

sector is the competition from unorganized sector. An important aspect of the current economic

scenario in India is the emergence of organized retail. There has been considerable growth in

organized retailing business in recent years and it is poised for much faster growth in the future.

Major industrial houses have entered this area and have announced very ambitious future expansion

plans.81

Transnational corporations are also seeking to come to India and set up retail chains in

collaboration with big Indian companies. However, opinions are divided on the impact of the

growth of organised retail in the country. Factors responsible for the growth of organised sector do

have applicability in Indian context also, as the growth factors of organized retail are:-

Increase in per capita income which in turn increases the household consumption

Increasing per capita income is one of the reason that has enabled foreign and domestic

investors to invest in organised retail, as with the rise in income there is bound to be rise in

living standard of people, and India has witnessed unprecedented growth post liberalization

thereby realization of higher income by households.82

79

Ibid.

80 ‗Global Retail Expansion: Keeps On Moving 2012‘, Atkearny, Available at

http://www.atkearney.com/documents/10192/4799f4e6-b20b-4605-9aa8-3ef451098f8a, Last accessed on 14 October,

2012.

81 RIL, RPG, Videcon, Bharti-Airtel, Aditya Vikram Birla Group, etc., to name a few.

82 C. K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, Pearson Prentice Hall,

2006.



Concept Note

Demographical changes and improvements in the standard of living

With the impetus provided to industrial activity by measures initiated in 1991 budget,

employment opportunities increased on exponential fold in urban centers resulting in rural-

urban migration, which had a significant effect in bringing about demographic change in the

country.83

Change in patterns of consumption and availability of low-cost consumer credit

With the objective of providing injections in the financial system, and to reduce leakages so as

to provide impetus to private investment in the country, interest rates were decontrolled in a

specific band, which resulted in easy access of credit to consumers, which in turn has led to

spur growth in the financial system.84

Improvements in infrastructure and enhanced availability of retail space

Infrastructure was government‘s first priority, as in pre-liberalisation period there was dearth

of investment in the same, so various initiatives were taken such as providing tax exemptions

on infra-bonds, various models were developed like public private partnership (PPP Model),

Build Operate Transfer (BOT Model), etc., to involve private sector in developing

infrastructure of the country. Some of the prominent projects include Golden Quadrilateral

(road sector), Ultra Mega Power Plant (Electricity generation), etc., were taken on the same

lines and has resulted in spurring investment by retail players.

Entry to various sources of financing

Post liberalization there was huge influx of capital in the economy, so to regulate the same

various legislations were passed and amended like Securities Exchange Board of India (SEBI,

1992) came into existence and since then there have been various financing models have been

allowed like mutual funds, fund of funds, relaxation in external commercial borrowings

83

National Council Of Applied Economic Research, Delhi (NCAER), report on ‗The India Market Demographic Report

2002‘.

84 Shivam Shirdhonkar, ―Analysis of Rural Retail Market for Aadhar‖, Available at

http://www.scribd.com/doc/50797888/20600169-godrej-Aadhar-Report, Last accessed on 14 October, 2012. .



Concept Note

(ECBs), Indian Depository Receipt (IDR), etc., to enable private individuals to raise money in

a proper legal framework. Various guidelines have been amended and have brought in

transparency such as ICDR 2009 regulations, etc., which regulates the conduct of companies

having securities listed in the capital market.85

Advent of information technology

Post 1990s, globe has witnessed astonishing development in the field of information technology

due to heavy investment made in the sector during dot com bubble regime, resulting in advance

technology being available at cheaper prices which has further come to as an aid to retail sector.

Big corporations like Wal-Mart uses satellites, Radio Frequency Identification (RFID) system

which has further increase the efficiency of the corporations, there by resulting in minimising

costs.86

Impact of Organised Retail Worldwide on Macro Economy

During recent decades, FDI has increased exponentially: the yearly global flows of FDI increased

from 55 billion US $ in 1980 to 1,306 billion US $ in 2006. FDI inflows increased continuously

during the 1980s and 1990s - with the sharpest growth in the late 1990s - to reach a peak in 2000.

Between 2001 and 2003 the developed economies experienced a sharp decline in FDI inflows,

associated with a general global economic recession. Developing countries were affected only to a

small extent. FDI flows started to recover in 2004 and were back at their 2000 level in 2006.87

When a firm wants to invest in a foreign country, there are two possible entry modes, greenfield

investment or M&A (mergers and acquisitions). Greenfield FDI refers to the establishment of new

production facilities such as offices, buildings, plants, factories and the movement of intangible

capital (mainly services) to a foreign country, one of the preliminary conditions laid down in DIPP

notification. Greenfield FDI thus directly adds to production capacity in the host country and, other

things remaining the same, contributes to capital formation and employment generation in the host

85

M.Y. Khan, Indian Financial System, Tata Mcgraw-Hill Education, New Delhi, 2011.

86 Miguel Bustillo, ―Wal-Mart Radio Tags to Track Clothing‖, Wall Street Journal, 23 July 2010.

http://online.wsj.com/Article/Sb10001424052748704421304575383213061198090.html, Last accessed on 16 Oct. 2012.

87 UNCTAD Report on ‗Trade and Development 2007‘,

Available at http://unctad.org/en/docs/tdr2007_en.pdf, Last accessed on 12 October, 2012.



Concept Note

country. Cross-border M&As involve the partial or full takeover or the merging of the capital and

assets of an existing enterprise in the host country by transnational companies from the home

country. M&As represent a change in ownership that does not necessarily involve any immediate

additions to investment or employment in the country.88

Greenfield investment is more important in

developing countries than in industrialised economies. The main idea underlying the FDI

liberalisation policies of many developing countries and the FDI promotion efforts of international

donors such as the World Bank and the IMF is the notion that FDI inflows foster economic growth.89

As FDI is a composite bundle of capital stock, know-how and technology, its impact on economic

growth is expected to be manifold.90

The traditional neo-classical approach to growth, this capital accumulation can affect growth only in

the short run.91

Long-run growth is only possible through a permanent increase in the level of

technology and is taken to be exogenous in neoclassical growth models.92

Yet, more recent models,

i.e. the endogenous growth model, consider technology as internal to the economic growth process,

and see a role for capital in the creation of technological advance.93

Capital allows for investment in

the development of new ideas and skills, and since knowledge is - to some extent at least - a public

good, it raises the level of technology not only within the firm but in the entire economy.94

These

externalities account for the permanent advance in the level of technology, which is needed to

promote growth in the long run. Thus, according to the new growth theories capital - including FDI -

can permanently affect output growth through increased investment in technology and know-how,

88

UNCTAD Report on ‗Trade and Development 2006‘. Available at unctad.org/en/Docs/tdr2006_en.pdf, Last accessed


89 J.H. Dunning, ―The Global Economy, Domestic Governance, Strategies Of Transnational Corporations: Interactions

And Policy Implications‖, Transnational Corporations Journal, Vol. 1 No. 3, 1992, pp. 7-46.

90 L. De Mello, ―Foreign Direct Investment in Developing Countries: A Selective Survey‖, The Journal Of Development

Studies, Vol. 34 No. 1, 1997, pp. 1-34.

91 R.M. Solow, ―A Contribution to the Theory of Economic Growth‖, Quarterly Journal of Economics, Vol. 70, 1956, pp.

65-94.

92 R.M. Solow, ―Technical Change and the Aggregate Production Function‖, Review of Economics and Statistics, Vol. 39,

1957, pp. 312-320.

93 P. Romer, ―Endogenous Technological Change‖, The Journal of Political Economy, Vol. 98 No. 5, 1990, pp. 71-102.

94 In later section China‘s and Brazil‘s home grown retailers have been discussed, how they survived competition from

foreign retailers and how they adopted practices followed by foreign retailers.



Concept Note

thereby increasing the overall level of knowledge and technology in the economy. FDI is described

as a whole package of resources: physical capital, modern technology and production techniques,

managerial and marketing knowledge, entrepreneurial abilities and business practices.95

Therefore

FDI is said to contribute directly - and more strongly than domestic investment - to accelerated levels

of growth in an economy because of the more advanced levels of technology, managerial capacity

and knowhow, resulting in higher levels of efficiency and productivity. MNCs are among the most

technologically advanced firms and account for a substantial part of the world's investment in

research and development .96

When starting up a foreign affiliate, MNCs are not likely to give the

source of their competitive advantage away for free. They will thus try to limit horizontal spillovers

(intra-industry) of productivity and market access advances to competing domestic firms that operate

in the same market.97

Yet, technology and knowledge are characterised by imperfect markets with

important externalities, so horizontal spillover of technology or trained labour to domestic

competitors can never be completely prevented. In contrast, vertical spillovers (inter-industry)

through forward and backward linkages with domestic companies are desirable for the MNC and it is

thought that these spillovers to suppliers and buyers can play a very important role. While MNCs

tend to prevent the transfer of technologies to home country competitors, they are likely to increase

the efficiency of domestic suppliers or customers voluntarily through vertical input-output linkages.98

MNCs provide incentives to local firms by imposing high standards and help them to increase

productivity and quality.99

Vertical spillover effects from FDI in the agri-food sectors of developing and transition countries

have recently received a lot of attention as FDI in the agri-food sector of developing countries is

thought to be particularly important because of the existence of vertical links with local farmers.

95

M.P. Todaro, The Economic Development in the Third World, Longman, New York, 1985.

96 R. Caves, ―Multinational firms, Competition and Productivity in Host-Country Markets‖, Economica, Vol. 41 No. 6,

1974, pp. 176-793.

97 Liesbeth Colen, Miet Maertens and Jo Swinnen, ―Foreign Direct Investment as an Engine for Economic Growth and

Human Development: A Review of the Arguments and Empirical Evidence‖, Human Rights and International Legal

Discourse, Vol. 180, 2009.

98 H. Gorg and D. Greenaway, ―Much Ado about Nothing? Do Domestic Firms Really Benefit From Foreign Direct

Investment?‖, The World Bank Research Observer, Vol.19 No. 2, 171-197.

99 H. Gow and J. Swinnen, ―Up- And Downstream Restructuring, Foreign Direct Investment, And Hold-Up Problems in

Agricultural Transition‖, European Review Of Agricultural Economics, Vol. 25 No. 3, 1998, pp. 331-350.



Concept Note

Such vertical links in the agri-food sector entail the potential for creating poverty-reducing effects in

the rural areas of developing countries, where poverty rates are often very high. Many studies provide

evidence of positive productivity spillover effects from FDI in the agri-food sector to domestic

farmers in low-income countries. Dairy farmers in Poland,100

have significantly higher levels of

output and productivity when they are vertically linked to modern FDI milk companies, similar

effects have been observed for the broiler, dairy and fruit and vegetable sectors in Thailand, the

Philippines and Australia.101

These studies indicate that such productivity spillover effects are created

because technology and know-how are transferred directly from FDI companies to supplying farms

through contract-farming schemes, including extensive farm assistance programmes.

Empirical evidence of export spillover effects is limited but there is evidence of positive export

spillover effects in the Venezuelan primary sector.102

The probability that a domestic firm engages in

export activities is positively correlated with proximity to multinational firms, while for domestic

exporting firms no export spillovers are found. MNCs' exports have a positive effect on domestic

firms' probability of being exporters but do not find evidence that such spillovers impact on the

export ratio of domestic firms.103

FDI can affect poverty is by contributing to the governments' tax revenue, which can be used for

redistributive measures benefiting the poor or spent on the development of social safety nets for the

poorest.104

In some developing countries, the importance of FDI in overall tax revenue is quite high,

creating opportunities for poverty-reducing policy measures.105

100

L. Dries and J. Swinnen , ―Foreign Direct Investment, Vertical Integration And Local Suppliers: Evidence From The

Polish Dairy Sector‖, World Development Review, Vol. 32, 2004, pp. 1525-1544.

101 P.S. Birthal, P.K. Joshi and A. Gulati, ―Vertical Coordination In High-Value Food Commodities: Implications for

Smallholders‖, Mtid Discussion Paper No. 85, 2005.

102 B. Aitken, G. Hanson and A. Harrison, ―Spillovers, Foreign Investment and Export Behavior‖, Journal of

International Economics, Vol. 43 No. 1-2, 1997, pp. 103-132.

103 D. Greenaway, N. Sousa and K. Wakelin, ―Do Domestic Firms Learn To Export From Multinationals?‖, European

Journal Of Political Economy, Vol. 20, 2004, pp. 1027-1043.

104 M. Klein, C. Aaron and B. Hadjimichael, ―Foreign Direct Investment and Poverty Reduction‖, World Bank Policy

Research Working Paper, No. 2613, 2001.

105 50% of Botswana's Government Budget Results from foreign Inflows in the primary sector,.



Concept Note

Indian scenario has been quite upbeat after the announcement of reforms as not only FIIs are on an

investment spree but there has been major announcement with regards to FDI, very recent Swedish

retailer IKEA, the world's largest furniture maker announced about € 1.5 Billion in India, over a

certain period after having correspondence with Indian Commerce Minister Anand Sharma.106

This

step comes after India allowed up to 100% FDI in single brand retail, albeit company had some

reservations as to the requirement of local sourcing. This investment does not look such a big step,

but considering the fact that total investment/FDI received by India during April 2006 and March

2010 in single brand retails totals to around $ 194.6 million,107

the period in which 51% FDI was

allowed certainly raises question as towards our FDI policy, if we are late entrant, further it also

leaves a joyful question mark in our hearts, if the single brand retail is capable of attracting such a

phenomenal investment then what would be the magnitude of investment by corporations dealing in

multi-brand retail ?

Impact of Organised Retail on Micro Economy: Global Outlook

Impact on Retail Workers: Labour Law issues

Merely bringing organised retail itself does not guarantee compliance of statutory laws, as

one of the arguments government has voiced is that labour laws are not abided by

unorganised sector. Experience of these large corporations tell us different story, as even in

developed countries Wal-Mart has exploited lacunas present in the enforcement agencies.

Wal-Mart pushes down pay/salary for retail employees even in the United States. When Wal-

Mart builds a new store there, the jobs that it displaces usually provided better pay, benefits

and scheduling than Wal-Mart does.108

Workers are also less likely to have employer-

sponsored health benefits, because they earn so little, Wal-Mart workers in the US are more

likely to rely on publicly provided health and welfare programs compared to retail workers as

a whole.109

In 2007, Wal-Mart was estimated to have lowered average retail wages by 10% –

106

Available at, http://www.Business-Standard.com/Results/News/Ikea-To-Enter-India-Invest-15-Bln-Euros-In-

Stores/175906/, Last accessed on 15 Oct. 2012.

107 Issue of Discussion Paper on FDI In Multi Brand Retailing,( Department if Industrial Policy and Promotion).

108 Emek Basker , ―Job Creation Or Destruction? Labor-Market Effects Of Wal-Mart Expansion‖, J21University Of

Missouri, January 2004.

109 Affidavit of Kenneth Jacobs to the Competition Tribunal of South Africa, Ct Case No. 73/Lm/Nov10



Concept Note

by displacing higher-paying jobs and by putting pressure on competitors to reduce wages –at

an annual cost to US workers of $4.5 billion.110

Treatment to fairer sex by Wal-Mart has also been subjected to criticism, as in 2010, Wal-

Mart employed 798,881 women at non-supervisory positions,111

who earned an average wage

of just $8.81/hour,112

which is abysmally low in accordance to US standard of living wage for

a single adult working full-time with a child.113

A lawsuit was instituted against the company alleging gender discrimination in pay and

promotions which was tagged in a class action suit because of the extra ordinarily large

number of people instituting similar proceedings.114

The lawsuit brought by Wal-Mart

employees, Dukes v. Wal-Mart, became the largest class-action lawsuit in US history, with

the plaintiffs representing around 1.5 million current and former female workers.115

As part of

the proceedings, Wal-Mart was compelled to disclose payroll and employment records. In his

analysis of these records, economist Richard Drogin found that in 2001, female employees at

Wal-Mart at all levels earned less than their male counterparts.116

On average, women earned

$5,200 less per year than men. The Dukes case was dismissed by the US Supreme Court in

110

Andrajit Dube, T. William Lester and Barry Eidlin, ―Firm Entry and Wages: Impact Of Wal-Mart Growth on Earnings

throughout the Retail Sector,‖ Institute Of Industrial Relations Working Paper No. 126, 2004, p. 05.

111 Wal-Mart Global Responsibility Report on ‗Social – Associates 2011‘. Available at,

http://walmartstores.com/Sites/Responsibilityreport/2011/Social_Associates_Diversity.aspx, Last accessed on 16 Oct.

2012.

112 Gross, Courtney, ―Is Wal-Mart Worse?‖, Gotham Gazette, 14 Feb. 2011. Available at,

http://www.gothamgazette.com/Article/Searchlight/20110214/203/3463, Last accessed on 14 Oct., 2012.

113 ―Living Wage Calculator‖ Poverty in America, Available at http://www.Livingwage.Geog.Psu.Edu/States/08, Last

accessed on 16 October, 2012

114 Jeffrey Toobin, ―Betty Dukes V. Wal-Mart‖, The New Yorker, 20 June 2011. Available at:

http://www.newyorker.com/Online/ Blogs/Newsdesk/2011/06/Betty-Dukes-V-Walmart.Html,

115 Ibid.

116 ‗Walmart‘s Global Track Record and the Implications for FDI in Multi-Brand Retail in India‘, UNI Global Union,

Available at, http://www.uniglobalunion.org/Apps/Unipub.Nsf/Vwlkpbyid/870affcdcffa1ee

7c12579c00054892d/$File/Fdi_Report.Pdf, Last accessed on 15 Oct. 2012.



Concept Note

June 2011. The justices did not rule on the merits of the case; instead, they essentially decided

to disallow the lawsuit because the class was so large. 117

Wal-Mart has broken the law multiple times in the past when it comes to minimum working

conditions even in US where minimum wage and other basic labour standards exist but lacks

strong enforcement.118

Wal-Mart recently in 2008, agreed to settle 63 pending wage lawsuits

in 42 states. The settlements totalled $640 million dollars in legal fees and payments to

former and current workers.119

Wal-Mart‘s record in case of compliance with child labour legislation is also poor as when

it comes to workplace safety of the employed young persons. An internal company audit of

128 stores in the U.S. found that in one week in July 2000 there were 1,371 instances of

minors working too late, during school hours, or for too many hours in a day. Wal-Mart

paid $1,35,540 to settle a case with the U.S. Department of Labour alleging that the

company violated child labour laws in the states of Arkansas, Connecticut and New

Hampshire between 1998 and 2002 by requiring teenage employees to use hazardous

equipment such as chain saws, paper balers and forklifts.120

Washington State‘s Department

of Labour and Industries in 2000, threatened to take over the management of Wal-Mart‘s

workers‘ compensation claims as the Department found that Wal-Mart repeatedly was not

allowing employees to file accident reports or workers‘ compensation claims , and further

failed to respond to claims, made unreasonable delays in payments, prematurely terminated

and miscalculated compensation, had consistently poor record-keeping, and failed to

recognise injured workers‘ rights to lost-time compensation.121

117

Ibid.

118 Kevin O‘grady, ―Five Decades After The Establishment of Wal-Mart‖, Business Day (South Africa), 12 May 2011.

119 Steven Greenhouse and Stephanie Rosenbloom, ―Wal-Mart Settles 63 Lawsuits Over Wages‖, New York Times, 23

Dec 2008.

120 Steven Greenhouse, ―In House Audit says Wal-Mart Violated Labor Laws‖, New York Times, 13 January 2004.

121 Affidavit of Annette Bernhardt in the Competition Tribunal of South Africa, Cc Case No: 2010 Nov 5445.



Concept Note

Effect on local existing retailers and intermediaries

Various studies have been conducted to study the impact of big corporations like Tesco and

Wal-Mart on the scope of job creation by way of opening these big stores, it has been

concluded that such stores in toto have negative impact, and one such studies explicit

finding concludes that each Wal-Mart worker takes the place of 1.4 retail worker.122

When modern retail arrived in Chile in 1990s, large number of small shops went out of

business in the span of just a few years. It was reported in ICRIER‘s May 2008 report, that

between 1991 and 1995, ―15,777 small shops went out of business, mainly in Santiago, a

city of 4 million, ―representing 21-22% of small general food, meat and fish shops, 25% of

deli/meat shops and dairy shops, and 17% in produce shops.123

Chile‘s food retail sector has

continued the process of consolidation to the point of negatively impacting free

competition.

In December 2011, government competition authorities announced an investigation of

Chile‘s highly concentrated grocery sector, where Wal-Mart is the largest player with

33.4% market share,124

for possible price collusion of basic products including meats and

detergents.125

Chile‘s experiences with modern retail is no different than Argentina where

from 1984 to 1993, during the most intense period of take-off of supermarkets, the number

of small food shops declined from 209,000 to 145,000.126

Another example from Latin America can be that of Mexico where the effects of global

retailers on existing agricultural wholesalers is noteworthy, the role of regional wholesale

122

Neumark, David, Junfu Zhang, and Stephen Ciccarella, ―The Effects Of Wal-Mart On Local Labor Markets.‖ Iza

Discussion Paper, January 2007. Available at: http://www.Newrules.Org/Sites/Newrules.Org/Files

/Images/Neumarkstudy.pdf, Last accessed on 14 October, 2012.

123 Mahtew Joseph, Nirupama Soundararajan, Manisha Gupta and Sanghamitra Sahu, ―Impact Of Organized Retailing On

The Unorganized Sector‖, Indian Council For Research On International Economic Relations, May 2008

124 ―Chile: Supermarket Sector Sending Out Sparks‖, Estrategia, 26 September 2011.

125 ―Investigan En Chile a Principales Cadenas Supermercados Por Posible Colusión‖, Abc Digital, (2011) Available at,

http://www.Abc.Com.Py/Nota/Investigan-En-Chile-A-Principales-Cadenas- Supermercados-Por-Posible-Colusion/, Last

accessed on 11October, 2012.

126 Ibid.



Concept Note

markets diminished significantly due to ―the increasing reliance on direct procurement and

distribution centres‖ as well as ―the emergence of large, powerful intermediaries closely

linked with state government and export markets.‖ Most notably, ―this sharp decline in sales

coincides with the increasing market share of big retailers like Wal-Mart and national food

retailers.‖127

Comparative Assessment of Organised Retail in Various Countries

CHINA

China ushered into an era of economic reforms, has emerged as an export juggernaut, and has

experienced unprecedented urbanization which is backed up by the state‘s unswerving commitment

to development which can be witnessed by high growth rate of GDP, have vaulted the Land of

Dragon to a venerable position globally in terms of Purchasing Power Parity GDP, second only to

the United States (U.S.). Over the past two decades China‘s Gross National Income (GNI) per

capita has expanded 13 times. And as incomes have grown, so has the capacity to spend.128

By

2015, per capita consumption in China is set to increase to 17,000 renminbi ($2502) from 13,400

renminbi ($1975) in 2008. Total urban consumption in 2015 is likely to exceed 13.3 trillion

renminbi ($1.96 trillion), making the country the third biggest consumer market after the U.S. and

Japan according to the 2009 Annual Chinese Consumer Study by McKinsey. These sweeping

changes in China‘s socio-economic framework have also led to the emergence of a buoyant retail

sector, which thrives on the progressive Chinese consumer.129

With this, domestic retailers have

come to benefit from the mounting retail appetite, and global retail chains have made a beeline to

grab a share in the booming Chinese retail market.

As demand in the developed countries reaches maturity, the lure of the flourishing retail market in

China has attracted global retailers since the floodgates of the sector were thrown open to foreign

127

James J. Biles and Et Al, ―Globalization of Food Retailing and Transformation of Supply Networks: Consequences for

Small-Scale Agricultural Producers In Southeastern Mexico‖, Journal Of Latin American Geography, Vol. 6 No. 2, 2007.

128 Available at, http://www.thomaswhite.Com/Explore-The-World/Bric-Spotlight/China-Retail.Aspx, Last accessed on

15 Oct. 2012.

129 Ibid.



Concept Note

players.130

With consumption demand in most of the developed world still reeling under the

aftermath of the global slump, the bustling Chinese retail market provides greener pastures for

retailers looking for growth. Moreover, now that the Chinese government is consciously trying to

retool its development model more towards domestic consumption rather than export dependence,

retailing in the world‘s fastest growing economy is poised for exuberant growth.131

China has experienced unparalleled levels of urbanization since the onset of economic reforms

begun in 1978. Compared to 1980, today China‘s urban population has increased by over 200%.

According to a McKinsey research study, by 2025, two thirds of the Chinese will be living in urban

areas.132

By 2030, China‘s urban centers will be inhabited by 350 million more people, this

increase itself beating the entire population of the U.S. today. Also by 2025, 221 Chinese cities will

boast of a population of over one million, with 23 cities registering over five million. In

comparison, Europe has just 35 cities with a population of over one million currently.133

The urban

economy is expected to generate 90% of China‘s GDP by 2025, with its aggregate consumption

and disposable incomes twice those of Germany.

Opening up of retail sector: experience in China

China‘s accession to the World Trade organization (WTO) in 2001 marked a new, liberalized era for

foreign investment in retail. Under the WTO‘s Accession Protocol, the opening up of the retail sector

was phased over a period of five years to December 2006. The framework of rules however, left

much to be desired in terms of clarity and transparency. 134

On the issue of equal ownership between

the domestic retailer and the foreign investor, the Commercial Sector Measures brought out in April

130

Murali Patibandla, "Working Paper No. 336 Foreign Direct Investment in India's Retail Sector : Some issues", Indian

Institue of Mangament, Bangalore, 2012.

131 ―Bric Spotlight Report on Retail Sector in China: The Next Big Thing?, 2011‖, Thomas White Global Investing,

Available at http://www.thomaswhite.com/pdf/bric-spotlight-report-china-retail-june-11.pdf, Last accessed on 12October,

2012.

132 Richard Dobbs, Sven Smit, Jaana Remes, James Manyika, Charles Roxburgh, Alejandra Restrepo, "Urban world:

Mapping the economic power of cities", 2011, Available at http://www.mckinsey.com /insights/mgi/research/urbanization

/urban_world, Last accessed on 07October, 2012..

133 Ibid.

134 Richard Self and B. K. Zutshi, ―Movement Of Natural Person Under The GATS‖, Joint WTO-World Bank

Symposium.



Concept Note

2004 by the Chinese government were in contradiction with the Accession Protocol as well as the

2007 FDI Guidance Catalogue. While the Commercial Sector Measures restricted foreign

investment to 49% equity for foreign-invested retail chains with more than 30 outlets, the Accession

Protocol as well as the FDI Guidance Catalogue of 2007 allowed for equal ownership.

However, providing some clarity, the Chinese government‘s Administrative Measures for Foreign

Enterprises or Individuals Establishing Partnership Enterprises, brought out in 2009, now permits

foreign investors or individuals to set up retail enterprises in partnership with domestic entities in

China.135

The Chinese Ministry of Commerce has also been gradually delegating the authority to

approve all foreign-invested retail businesses to provincial commerce branches, facilitating the

expansion of foreign retail players within the country. China‘s retailing sector remains highly

fragmented, housing many small and medium-sized retailers unlike the U.S. where the big retailers

have a dominating presence. China was home to over 549,000 retail enterprises. Despite the fact that

the number of chain stores has grown in recent years, cross-provincial retailers remain less common

because of local market access barriers.

However, China does flaunt a wide array of retail formats, each at a different level of evolution and

development:

» Department stores: These stores were popular earlier on, but are facing intense

competition now and are battling to stay ahead.

» Hypermarkets: The development of hypermarkets has been led by international retailers,

who are now spreading their wings to tier 2 and 3 cities, as markets in tier 1 cities reach

saturation, retailers involved in the segment includes Wal-Mart, Carrefour, Vanguard,

Tesco, Metro, RT Mart Shanghai, Trust-Mart, etc.

» Supermarkets: This highly fragmented market dominated by domestic players, is

witnessing cutthroat competition, often leading to weeding out of the weaker players

coupled with strategic consolidation.

» Franchising: Constituting about 3% of China‘s total retail market, franchising seems to

have tremendous potential for future growth, existing players in the segment include KFC,

McDonalds, 7-eleven and Pizza Hut.

135

Ibid.



Concept Note

» Specialty stores: Electronics/Appliances segment is dominated by domestic players, with

limited foreign investment.

» Direct selling: With direct selling rules introduced in 2005, providing the much needed

legal framework, the potential for further growth remains immense.

» Online retail: Online shoppers grew 68% between 2009 and 2010 to 185 million. Online

retail sales have been predominantly consumer-to-consumer transactions. Some of the

prominent retailers include Taobao, Alibaba and eBay.

Foreign companies were allowed to hold 51 per cent majority ownership (which India has now

decided to grant them) only 12 years after the sector was opened, first allowing 26 per cent foreign

equity. Initially, China also only allowed foreign retailers to open in select metropolises, such as

Beijing, Shanghai and Shenzhen, and, moreover, only in certain districts in those cities. In Beijing

and Shanghai, foreign retailers like Wal-Mart were only allowed to operate in districts where there

were no local competitors. Through these „invisible barriers', China succeeded in giving local

retailers protection, while, at the same time, they learnt from the ‗more efficient' business models of

foreign companies.136

Opening up of sector in a phased manner has benefitted local retailers in terms of logistics,

procurement and management, further benefits have also accrued to consumers as prices have fallen,

and efficiency has increased.

BRAZIL

Situation in 1990s

South American markets as a whole were characterized by economic instability attributed to high

levels of public debt and hyperinflation was the hallmark of many Latin American economies.

Inflation in Brazil had touched extreme high of 5000% in 1994.137

This resulted in buyers being

forced to make stock as soon as they received salaries for fear of losing the real value of their money;

retailers on the other hand too had to revise their price lists at short intervals. 136

Ananth Krishnan, ―Chinese Retailers Give Global Giants Run For Money‖, The Hindu, Dec. 2, 2011, Available at,

http://www.Thehindu.Com/Business/Economy/Article2681679.Ece?Service=Mobile, Last accessed on 15 Oct 2012.

137 BRIC Spotlight Report on, ‗Retail Sector in Brazil: Riding The Wave Of Middle Class Growth And Consumer Credit

Boom 2012 ‘.



Concept Note

With Cardoso, coming to centre stage Brazil‘s moved towards political and economic stability as

various economic decisions were taken, such as Real Plan that introduced a new Brazilian currency

which helped in reducing inflationary pressures over economy. The initiative unleashed a generation

of consumers who witnessed their real salary being increased on account of low and confined

inflation in the system. Again in 2003 there was a change in leadership and Lula Da Silva becoming

head of the state who continued the reforms initiated by his predecessor and extended them to family

welfare schemes, subsidized housing, an easier access to credit, and generous pay hikes, among

other initiatives.138

Consumer lending was boosted as banks were allowed to deduct interest charges on debt directly

from the workers‘ payroll. According to a study by Brazil‘s Getulio Vargas Foundation quoted in the

Financial Times, about 49 million low-income Brazilians rose to the ranks of the middle and upper-

middle classes since 2003.

Brazil‘s retail market is estimated to be worth about $230 billion, driven mostly by domestic demand.

Besides the 40% growth in GDP per capita during the last eight years or so, population distribution

also plays a vital role in encouraging the growth of sectors such as retail.139

About 30% of the

country‘s population lives in the 10 principal metropolitan cities. Sao Paulo brims over with a

population of 18 million, while Rio de Janeiro has 10 million.140

As a PwC report points out, the

lower income sections tend to spend more on essentials such as food and beverages, while those in

the upper income bracket splurge on leisure, durable goods, as well as luxury items.141

The Brazilian

market is also perhaps the most internationalized among the BRICs, as the top 10 retailers corner

almost 60% market share among themselves. Food retailers, apparel retailers, consumer goods

makers, appliance retailers, and consumer staples companies form the backbone of the sector,

138

Ibid.

139 Walter Molano, ―Latin America, Its Emerging Markets And The Global Economy - An Overview‖, The Journal Of

International Business & Law, Vol. 51, 2007.

140 Ibid.

141 PWC Report on ‗Demographics and Consumer Behaviour: Brazil‘, Available at

http://www.pwc.Com/En_Gx/Gx/Retail-Consumer/Pdf/Brazil.Pdf, Last accessed on 15 Oct. 2012.



Concept Note

supplemented by lesser savings rate existent in Brazil in comparison to its peers Brazil became a hot

destination for investors.142

Opening up of sector: experience

Although organized retail in Brazil could be traced back to 1948 when the current market leader

Companhia Brasileira de Distribuicao (CBD), better known as Pao de Acucar, started off as a small

bakery. Among foreign-owned entities, French retailer Carrefour S.A. was among the early birds to

set up shop in Brazil, coming in as early as 1975. Walmart Brazil, the third in the pecking order, was

established in 1995 but global biggies did not witness instant success rather homegrown retailers

such as Hypermarcas and apparel retailer Lojas Renner S.A. have grew at faster rates, helped by their

knowledge of the local market.

Brazil has emerged as the world‘s third-biggest grocery market, next only to America and China,

thanks to the aggressive growth strategy adopted by players operating in the market, both foreign and

domestic.143

Global retailers such as Walmart and France‘s Carrefour bank on the Brazilian market to

make up for sagging sales elsewhere. At the same time, domestic market leaders such as Pao de

Acucar give them a run for their money. Still, the new entrants find it tough to gain a foothold in the

highly competitive market, which offers great potential for growth.

Pao de Acucar is the biggest diversified retailer in Brazil, selling everything from groceries to home

appliances to clothing. The company has a market share of about 18% which is more than any of the

foreign retailer.

Carrefour S.A., French retailer, second only to Walmart worldwide, has been a significant market

presence in Brazil for more than 25 years with a market share of about 14.5%. Carrefour has got

support from locals as it became the first foreign retailer to source/procure Brazilian agriculture

products to its store located across the globe.144

142

At, http://www.egmontinstitute.Be/Paperegm/Ep31.Pdf, Last accessed on 16 Oct 2012.

143 Ibid..

144 Ibid.



Concept Note

Wal-Mart the world‘s largest retailer though was a late entrant in Brazil retail space, its Brazilian unit

is now one among its best performing subsidiaries.145

Last year, Wal-Mart Brazil, which has a market

share of 12%, created ripples in the market when it implemented its ―Everyday Low Prices‖ strategy

to take on its rivals. Though Wal-Mart Brazil first entered the market through a joint venture with

local player Lojas Americanas, its growth has been driven by acquisitions of the local units of

Netherlands‘ Royal Ahold and Portugal‘s Sonae.146

Many analysts are alarmed over Brazil‘s rapid credit growth, fearing that a U.S.-model credit bubble

may be brewing. However, as a Financial Times report pointed out, this concern may be unfounded

as about 60% of consumer loans are made against payrolls, property, or cars and are offered at fixed

rates.

145

Alessandro Bonanno, Wal-Mart, ―Oligopsony Power and Entry: An Analysis Of Local Labor Markets‖, Aaea & Acci

Joint Annual Meeting In Milwaukee, Wi, July 26–28, 2009.

146 Ibid.



Concept Note

PHILIPPINES

Several factors contribute to a growing middle class and rising consumer demand in the Philippines

which was ranked 29th

in 2012 Global Retail Development Index. Here salaries remain low, but

household income is bolstered by overseas remittances that help maintain positive economic growth.

Further new emerging sectors have also fueled the growth, like Business Processing Outsourcing in

which it recently surpassed India resulting in increase of aggregate investment in the Country.147

The

bulk of income goes towards retail spending. The domestic job market is improving as the

outsourcing industry grows, thus bringing more dual-income to middle class families and young

professionals with disposable income to urban areas. Most of Philippines‘ retailers and shopping

centers are in urban areas, with about half of total retail sales concentrated in the Manila area.

Organised retail accounts for 35% of the total trade.148

Opening of the Economy

Retail sector was opened to foreign investors in 2000 when Retail Trade Liberalization Act of 2000

(Retail Trade Act) was passed. This new act, which went into effect on March 26, 2000, essentially

opened the retail sector to foreign ownership. The Retail Trade Act declared that ―the Philippine

retail industry is hereby liberalized to encourage Filipino and foreign investors to forge an efficient

and competitive retail sector in the interest of empowering the Filipino consumer through lower

prices, higher quality of goods, better services, and wider choices.‖149

Under the Retail Trade Act,

foreign ownership in the Philippine retail sector is contingent on the level of total paid-up capital of

an enterprise, as specified under four categories. Category A consists of enterprises with less than

US$2.5 million in paid-up capital, and is reserved exclusively for Filipinos and corporations wholly

owned by Filipinos.150

Category B consists of enterprises with minimum paid-up capital of at least

US$2.5 million and may be wholly-owned by foreigners after March 26, 2000, two years after the

Act went into effect. During the first two years the Retail Trade Act was in effect, foreign ownership

147

Goutam Das and Sunny Sen, ―Born again India's BPO Industry Losing Voice, Finds Life Elsewhere‖, Business Today,

1 Apr. 2012.

148 UNCTAD Report on ‗Trade and Development Report 2012‘.

Available at unctad.org/en/PublicationsLibrary/tdr2012_en.pdf, Last accessed on 05 October, 2012

149 Retail Trade Act, 2000 (Phil.), Available at http://www.chanrobles.Com/Republicactno8762.Htm.

150 Ibid.



Concept Note

was allowed up to only sixty percent.151

The third category, Category C, consists of enterprises with

at least US$7.5 million in paid-up capital, and could be wholly-owned by foreigners immediately

upon the Act's effective date." In addition, the Act requires that Category B and C enterprises with

more than eighty percent foreign ownership offer a minimum of thirty percent of its equity on any

Philippine stock exchange within eight years from the start of operations. The final category,

Category D, includes those enterprises specializing in so-called high-end or luxury products, with a

paid-up capital of at least US$250,000 per store. Category D enterprises can be wholly-owned by

foreigners.152

Invisible Barriers

Under the Retail Trade Act, a foreign retailer must demonstrate that its parent corporation had153

: 1) a

net worth of at least US$200 million for Category B and C enterprises, and US$50 million for

Category D enterprises; 2) five retail branches or franchises anywhere in the world, unless it has at

least one store with minimum capitalization of US$25 million; and 3) a five-year track record in

retailing. Additionally, only foreign retailers formed or incorporated in countries that allow Filipino

retailers are allowed to engage in retail trade in the Philippines. Finally, in order to promote locally-

manufactured products, the Retail Trade Act required that, for the ten-year period beginning on

March 26, 2000, Philippine-made products must make up thirty percent of the aggregate cost of a

foreign retailer's inventory.

Effect on Infrastructure

Economic indicators such as exports, imports, and employment in the country zoomed after

liberalizing economy, further FDI made significant contribution to the country‘s development, its

impact on technology transfer, productivity, domestic linkages, and employment are limited. The

apparent lack of local suppliers and poor logistics and infrastructure had been the major impediments

to FDI, but with gradual increase in investment there was creation of spillover effect by local

151

Retail Trade Act § 3.

152 Ibid.

153 Van V. Mejia,‖The Modern Foreign Investment Laws of the Philippines‖, Temple Int'l & Comp. L.J., Vol. 17 No. 2,

2003.



Concept Note

suppliers on the rest of the economy.154

Moreover, poor logistics and infrastructure which limited

FDI flows to industries with weak linkages with the rest of the economy has also been addressed,

with investment in not limited to the retail sector, as with the development of the requisite

infrastructure country also started attracting investments in outsourcing attributed to the presence of

cost effective manpower.

154

Rafaelita M. Aldaba and Fernando T. Aldaba, ―Assessing the Spillover Effects of FDI to the Philippines‖, Discussion

Paper Series No. 2010-27.



Concept Note

PART 4: POTENTIAL POSITIVE IMPACT OF INDIAN FDI IN RETAIL

Foreign direct investment plays an important role in India‘s growth dynamics. The examples

are software and services industry, two-wheeler, automobile and auto-component industries,

electronics and telecommunications155

. FDI in these industries expanded domestic and export

markets, benefitted consumers, generated employment, increased productivity and wages and

generated externalities to local firms.

FDI in the retail sector, supported by effective local institutions, might play similar role. The

most important dimension of the possible benefits is generation of world class supply chain in

India which might decrease transaction, information and production costs of business and

expand markets significantly156

.

Change is essential part of any dynamic society. The role of the government is generating

effective institutions that manage change which compensate the losers and make it work for

the interests of larger sections157

. The main role of government is to establish and implement

effective and autonomous regulatory institutions - restraining anti-competitive conduct by

firms, labour and environmental regulation158

. The government has to make credible

commitments of its policies. Agents react differently if they believe that the reform is only

political window-dressing and most of it will be retracted in the face of opposition159

. This

behaviour has a significant effect on the success of the reforms and the time it takes for the

reform process. If the government acts opportunistically in changing its policies, it sends

signal of non-credible commitments which discourages investments especially in durable

assets (with high fixed and sunk costs)160

.

155

―Indian Retail Sector—An Outlook (2005-2010)‖, Research and Consultancy Outsourcing Services, 2004.

156 M. Levy. and B. A. Weitz, Retailing Management, McGraw Hill Publishing Company Ltd, New York, 2003

157 S. Ganguly, ‗Retailing Industry in India‘, 2004,

Available at http://www .researchandmarkets.com/reportinfo.asp?report_id=307524, Last accessed on 12October,2012 at

1420 hrs

158 ‗The final frontier for global retailing is beginning to open‘, 2006, Available at

http://www.indiaonestop.com/retailing.htm , Last accessed on 11October,2012 at 1740 hrs.

159 "Coming to market", 2006, Available at http://www.economist.com/node/6795668?story_id=6795668, Last accessed


160 N.K. Malhotra, Marketing Research – An applied Orientation, Dorling Kindersely India, New Delhi, 2011.



Concept Note

Huge investments in the retail sector will see gainful employment opportunities in agro-

processing, sorting, marketing, logistics, and front-end retail. At least 10 million jobs are

likely to be created in the next three years in the retail sector161

. FDI in retail will help farmers

to secure remunerative prices by eliminating exploitative middlemen. Foreign retail majors

will ensure supply chain efficiencies162

. Policy mandates a minimum investment of $100

million with at least half the amount to be invested in back-end infrastructure, including cold

chains, refrigeration, transportation, packing, sorting and processing. This is expected to

considerably reduce post-harvest losses. There has been impressive growth in retail and

wholesale trade after China approved 100% FDI in retail163

. Thailand has experienced

tremendous growth in the agro-processing industry. In Indonesia, even after several years of

emergence of supermarkets, 90% of fresh food and 70% of all food is still controlled by

traditional retailers164

. In any case, organized retail through Indian ownership permissible.

Experience of the last decade shows small retailers have flourished in harmony with large

outlets165

.

Macro economic impact

1. Presence of Strong FDI

A strong FDI presence in retail sector is expected to not only boost the retail scenario, but also

act as a driving force in attracting FDI in upstream activities as well166

. This will be more

161

‗Innovation is key to sustain growth in FMCG sector‘, 2005, Available at

http://www.indiainfoline.com/news/news.asp?dat=72291, Last accessed on 12October,2012 at 0910 hrs.

162 ‗The Retail Industry‘, 2007, Available at http://www.ibef.org/industry/retail.aspx , Last visted on 10October,2012 at

1120 hrs.

163 David Barstow, ‗Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top Level Struggle‘, The New York Times,

21 April, 2012.

164 E. Basker ‗Job Creation or Destruction? Labor Market Effects of Wal-Mart Expansion‘, The Review of Economics and

Statistics, Vol. 87 Issue 1, 2005, p. 174-83.

165 Amitabh Mall, Kanika Sanghi, Abheek Singhi and Arvind Subramanian, The Tiger Roars: Capturing India‟s

Explosive Growth in Consumer Spending, Boston Consulting, New Delhi, 2012.

166 H Brea-Solis, Ramon Casadesus-Masanell and Emili Grifell-Tatje, 2010,„Business Model Evaluation: Quantifying

Walmart‟s Sources of Advantage‟, Available at http://www.webmeets.com

/files/papers/SAEE/2010/461/Quantifying%20Walmart%20Sources%20of%20Advantage.pdf, Last accessed on

11October,2012



Concept Note

prominent in food processing and packaging industries because many large retail chains

also promote their own brands by way of backward integration/contract manufacturing167

.

i. Generation of Employment

The outcome of FDI in retail is noteworthy in terms of the benefits to the customer,

the generation of employment and the ability of more people generation X

marketing168

.

ii. Indian Retail Sector

According to the market research report, ―Indian Retail Sector- An Outlook‖ (2005-

2010) prepared by RNCOS it is found that if the government allowed 26% of FDI

into retail, the sector would grow at an AAGR of 28%-32% much more than current

Rs 27,000cr169

.

iii. Unreasonable apprehension

If one looks at the experience of countries like China & the US, one gets a feeling

that the apprehensions of the left parties as well as the local retailers are

misplaced170

.

iv. Situation in United States of America

In America, which is by far the most matured retail market in the world, 95% of

retailers are store operations. Now they may not be as small as our grocery shops, but

are still small when looked at from the US perspective171

. Some of the world‘s largest

retailers, like Wal-Mart, JC Penny, Target, etc. are American. Notwithstanding the

dominance by these large players, the smaller ‗mom n pop‘ stores still co-exist with

them, though one may not find them in the same vicinity as the big retailers. And,

167

PM Chandran, Wal-Mart‟s Supply Chain Management Practices, ICFAI ICMR Case Collection, 2003

168 Pankaj Ghemawat, Redefining Global Strategy, Harvard Business School Press, Cambridge, 2007.

169 N. Lichtenstein, ‗Wal-Mart: Template for 21st Century Capitalism‘, New Labor Forum, Volume. 14 Issue1, , 2005, p.

21-30.

170 Murali Patibandla, ‗Pattern of Foreign Direct Investment in Developing Economies: A Comparative Analysis of China

and India‘, International Journal of Management and Decision Making, Volume 8 Issue 2-4, 2007, p. 356-77.

171 Price Water Cooper (2011): ‗Winning in India‘s Retail Sector: Factors for Success‘, Available at

https://list2.pwc.fr/assets/files/lettre_retail-and-consumer/pwc_winning_in_india_retail _sector_1.pdf, Last accessed on

05 October, 2012.



Concept Note

even though their market share is getting eroded slowly, they still account for just

under 50% of the total American retail trade172

.

v. Situation in China

Similarly in China, the top 10 retailers (both domestic & International), had only 9.6%

share of the $628-bn retail market in 2004. This was up from 2.9% in 2000173

.

vi. The Kirana Store Position

The Kirana store owners in India face a threat from the domestic players, who have

aggressive expansion plans for the future. In addition, few of the country‘s large

corporate houses like Reliance, the Tatas and the Munjals, etc. too have mega plans for

the retail sector174

. In fact Reliance has announced one. So, the grocery shopkeepers

will feel the heat from these companies in any case, which is a point the communists

ally of the Government fail to appreciate175

. Even in China, where FDI in retail was

allowed long time back, small vendors of vegetables and fruits coexist with the

hundreds of superstores, who are perceived to be the biggest threat to the Kirana

shops176

. Even in India, where organized retailers have started mushrooming in big

cities, the grocery shop owners have not been wiped out177

.

172

P. Ghemawat and Ken A. Mark, ‗The Real Wal-Mart Effect‘, Harvard Business School Working Knowledge, 2006.

173 A. Ray, B. Das, B. Baral, J. Rico and R.S. Pramanik, FDI in Multi-Brand Retail in India, Indian Institute of

Management, Bangalore, 2012.

174 S. Robinson, ‗Food Fight‘, 2007, Available at http://www.time.com/time/magazine/article/0 9171,1626725,00.html,

Last accessed on 13October,2012 at 0950 hrs.

175 O Schell, ‗How Walmart Is Changing China‘, 2011, Available at

http://www.theatlantic.com/magazine/archive/2011/12/how-walmart-is-changing-china/308709/#, Last accessed on

12October,2012 at 0520 hrs.

176 Narayan Basu, ‗Big Retailers not to effect mom ‗n‘ pop store: ICREIR‘, Financial Chronicle, May 27, 2008,

Bangalore.

177 Murali Patibandla, Evolution of Markets and Institutions: A Study of an Emerging Economy, Routledge Taylor and

Francis, New York, 2006.



Concept Note

vii. Exposure to Global Supply Chain

Though one may argue that the supply chain efficiency can also be brought in by the local

retailers too, the moot point is that the global giants like Wal-Mart can substantially

improve the fortunes of India‘s farm sector by directly linking it with global supply

chain178

. Remember, China‘s agriculture exports to the US nearly trebled from $3.86bn in

1999 to $9.96bn last year. India, on the other hand has made only a marginal progress,

with its farm exports to America rising from $3.19bn in 1999 to just $4.28bn179

.

viii. Draft ICRIER Report, 2004

A draft ICRIER report released in November 2004 called for 49% FDI in retail and opening

up of the sector in a phased manner over a period of five years. Fears about large-scale loss

of jobs in the unorganized retail sector due to inflow of FDI was unfounded, said the study.

Job creation in the organized sector would more than compensate for loss of jobs, and

consolidation in the retail sector would also push up economic growth. The report said that

allowing foreign investment in retail would lead to inflow of technical know-how,

encourage large-scale production, increase employment and investments and strengthen

India‘s position as a sourcing hub. Domestic companies would be able to compete on a

stronger footing in the international market on the strength of the experience gained from

working and competing with multinationals180

.

ix. Generation of Employment

The retail sector can generate huge employment opportunities, and can lead to job-led

economic growth. In most major economies, ‗services‘ form the largest sector for creating

employment181

. US alone have over 12% of its employable workforce engaged in the retail

sector. The retail sector in India employs nearly 21 million people, accounting for roughly

6.7% of the total employment. However, employment in organized retailing is still very low,

because of the small share of organized retail business in the total Indian retail trade. A 178

Arjun Swamp, "India's Retail Revolution", Blog Global Economy, March, 2007.

179 Singh Sukhpal, ‗Spencer‘s Retail‘, in M Harper, Inclusive Value Chains: A Pathway out of Poverty, World Scientific,

Singapore, 2010, 81-93.

180 Bijoor Harish, ‗The Sin of Retail‘, Business Line,, 2008, Available at

http://www.thehindubusinessline.in/catalyst/2008/06/12/stories/2008061250170400.htm, Last accessed on


181 V.Namakumari Ramaswamy. , Marketing Management Global Perspective Indian Context, Macmillan Publishers

India, New Delhi, 2009.



Concept Note

modern retail sector has the potential of creating over 2 million new jobs within the next 6

years in the country (assuming only 8-10% share of organized retailing), according to

Arvind Singhal, CMD, KSA Technopak India Ltd182

. A strong retail front-end can also

provide the necessary fillip to agriculture & food processing, handicrafts, and small and

medium manufacturing enterprises, creating millions of new jobs indirectly183

. Through its

strong linkages with sectors like tourism and hospitality, retail has the potential of creating

jobs in these sectors also184

.

x. Planning Commission‟s Views

Though the Planning Commission has identified retail as a prospective employment

generator, in order to strengthen the multiplier effect of the growth in organized retailing

upon the overall employment situation, a pro-active governmental support mechanism needs

to evolve for nurturing the sector185

. Issues like FDI in retail, allocation of government-

controlled land on more favourable terms, strong political and bureaucratic leadership, etc.,

need to be addressed adequately186

.

xi. FICCI Views

Mr. Ravi Raheja, Chairman, FICCI Retailing Committee, while underlining the need for

FDI in the sector pointed out that foreign investment would generate competition and not

adversely affect the small retailers187

. Ultimately, the consumers would stand to benefit in

terms of a wide range of products of world-class quality and lower prices.

xii. Inflation Control

Industry trends for retail sector indicate that organized retailing has major impact in

controlling inflation because large organized retailers are able to buy directly from

producers at most competitive prices188

. World Bank attributes the opening of the retail

182

Rosemary Varely and Mohammed Rafiq, Principles of Retail Management, Palgrave, London, 2003

183Sandeep R.S.Roy, Opportunity in Indian Retail Macmillan, New Delhi .

184 Patibandla Murali ()‗Structure, Organizational Behavior and Technical Efficiency‘, Journal of Economic Behavior and

Organization, Vol.34, Issue3),p. 431-42.

185 Department of Economics and Statistics, Statistical Outline of India2002-03, Tata Service Limited, New Delhi, 2004

186 Swapana Pradhan , Retailing Management: Text & Cases, Tata Mcgraw Hill Publishing Limted, New Delhi, 2009n.

187 S.R. Subba Rao, ―Organised Retail Sector in India: Growth and Impact on the Economy‖, The Journal Of Indian

Management and Strategy, Vol. II, No.2 April – June ,2006.

188 Julia Hanna, Ground floor opportunities for retail in India, 2004, Available at www.hbswk.hbs.edu, Last accessed on




Concept Note

sector to FDI to be beneficial for India in terms of price and availability of products as it

would give a boost to food products, textiles and garments, leather products, etc., to benefit

from large-scale procurement by international chains; in turn, creating jobs opportunities at

various levels.

Impact Upon Local Dealers In Unorganised Retail – Negligible Or Substantial?

i. Situation of Mom-and-Pop stores

At present, mom-and-pop stores cater to 95% of the total market. They have unique

advantages, like home-grown processes, skills in retaining customers, nearness,

convenience and services. However, global retailers investing in new markets have not

hampered local retailers. The kirana shops in large parts of the country will enjoy

built-in protection from supermarkets because the latter can only exist in large cities.

The Kirana shops can get goods from the large outlets (which are present in large

towns and cities only) and sell it to their customers so that their profit margin would

increase. For instance, FDI in telecom did hit urban STD booth operators, but most of

them have now been converted to kiosks selling mobile connections and SIM cards.

ii. Reliability and Profitability of Markets

They promote the linkage of local suppliers, farmers and manufacturers, no doubt only

those who can meet the quality and safety standards, to global market and this will

ensure a reliable and profitable market to these local players189

.

iii. Inflow of Real Competition in the Market

By allowing 51% foreign investments in the Indian market, it will teach the local

retailers about real competition and help in insuring that they give better service to

Indian consumers. It is obviously good for local competition. The kirana stores operate

in a different environment catering to a certain set of customers and they will continue

to find new ways to retain them.

iv. Retention of domains by smaller traders

In the Indian policy debate, a contrasting view is that growth in organized retail is

expected to benefit producers, without (significantly) hurting smaller traders and that

189

Patibandla Murali and Bent Petersen, `Role of Transnational Corporations in the Evolution of a High-Tech Industry:

the Case of India‘s Software Industry- A Reply‘, World Development, Vol. 32 Issue 3, 2004, pp. 561-66.



Concept Note

they may preserve their smaller domains without being swallowed up by large

retailers190

.

Impact upon Agriculture

i. The vicious circle of poverty for farmers

As long as the foreign players such as Wal-Mart do pricing based on long run average

costs, the benefits will accrue to consumers and farmers. Small and medium farmers

are trapped into a vicious circle of poverty because of inefficient input and output

markets especially distress sales at the time of harvest owing to underdeveloped

agricultural supply chain in India. Since the independence of India, India‘s

government systematically failed in solving this vicious circle. As a matter of fact, it

made it worse by bad economic policies. A simple example is banning of cotton

exports and causing suicides of farmers because the mill sector is better organized

than small farmers in capturing the government policies191

. Another example is inter-

state barriers of agricultural trade which depresses prices in the regions which are

productive which means punishing the farmers who are productive.

ii. Better infrastructure

Facilitating the Indian and foreign players to generate the supply chain infrastructure,

farmers can be made to be better off. The growth dynamics of generation of efficient

supply chain are that it increases farmers‘ surplus and agricultural productivity which

releases people from agriculture that have to be absorbed by the manufacturing. The

supply chain will also result in the growth of manufacturing (home and export market

expansion) which would absorb the people released from agriculture provided that the

agricultural workers are imparted with basic literacy skills.

iii. Elimination of middlemen

The main losers would be the middlemen rather than small traders. Small traders

retain the advantage of low overhead costs and take advantage of geographic

distribution and density of consumers. Any technological and organizational changes

have disruptive effects - some losers in the short run and larger number of gainers in

190

Arpita Mukherjee & Nitisha Patel ,FDI in Retail Sector: India , Academic Foundation in association with ICRIER and

Ministry of Consumer Affairs, Food and Public Distribution(Govt. of India), New Delhi, 2005..

191 ―R-day reforms: Single brand retail opened to foreign funds‖, Indian Express, January 25 2006.



Concept Note

the long run. As the presence of large retailers increases, government tax revenues

will increase which can be used to compensate the losers. It is unlikely that centuries

old entrepreneurial dynamism of India‘s bazaars will be seriously dented by the

advent of large retail firms in India192

. The farmers will benefit from FDI as they will

be able to get better prices for their produce. The elimination of the intermediate

channels in the procurement process will lead to reduction of prices for consumers193

.

iv. Backward linkages with agriculture sector

Those who are against FDI in retail are also missing an even bigger point. It concerns

with the backward linkages with the agriculture sector, efficiency in supply chain that

foreign retailers can bring and the huge opportunity in farm exports. India can attain

huge savings by merely improving the supply chain. Some 20-40% of all fruits &

vegetables grown in the country go waste due to poor transportation, storage and

handling infrastructure. Also, for every rupee that an Indian consumer spends, the

farmer gets only 20-22 paise, as against 70-80 paise in developed markets. If large

retailers, whether domestic or foreign, directly source through farmers, consumers

will have to pay less and the retailers will get higher margins.

Impact upon demand-supply gap:

i. Entry of foreign retailers

In political economy terms, the entry of foreign retailers affects different stakeholders

on the demand and supply side. Improvement in supply chain, especially for food

items, across the country benefits low income groups because their major part of the

consumption basket is food.

ii. Increase of supply to small and medium farmers

Secondly, it will increase surplus to small and medium farmers. Low income

consumers on the demand side and small and medium scale farmers on supply side are

less cohesively organized in influencing government policies than wholesalers,

middlemen, and Indian large retailers. Indian large retailers (such as the newly

entrenched interests like the Reliance fresh) may block the entry of foreign players

192

Patibandla Murali and Trilochan Sastry ‗Capitalism and Cooperation: Cooperative Institutions in a Developing

Economy‘, Economic and Political Weekly, Vol. XXXIX Issue27, 2004, pp. 2997-3004.

193 Arpita Mukherjee, "Working Paper No. 80, Distribution Services: India And The Gats 2000 Negotiations", Indian

Council For Research On International Economic Relations, 2002.



Concept Note

with short-term calculations of their interests. However, they can benefit from

externalities arising out of the entry of foreign players if the foreign players invest

significant resources in developing the supply chain and improve the know-how of

large number of vendors. This took place in the case of the automobile sector. Apart

from this, some of the wholesalers and small Kirana stores adopted innovative

practices in procuring and selling goods in response to competition from the large

retailers which will improve the overall organization of the markets194

.

Impact in terms of better availability to consumers

i. Availability of better technology

The global retailers have advanced management know how in merchandising and

inventory management and have adopted new technologies which can significantly

improve productivity and efficiency in retailing195

. Entry of large low-cost retailers and

adoption of integrated supply chain management by them is likely to lower down the

prices196

.

ii. Lowering of prices

Lowering of prices will not be a disadvantage, because if foreign players are present in

India it makes the availability of goods at cheaper prices. This arises because the foreign

players will have good technology, supply chain etc. that makes the product cost cheaper.

So this can be availed by the Kirana shops (i.e. buying the goods from the large retailers

and selling it to their customers). Moreover, as the price decreases, the purchasing power

of the people will also increase. So the issue of lowering prices will not be a

disadvantage, it will always be an advantage197

.

iii. Access to larger financial resources

FDI will provide access to larger financial resources for venture in the retail sector and

that can lead to several of the other advantages. The larger supermarkets, which tend to 194

Patibandla Murali and Bent Petersen, ‗Role of Transnational Corporations in the Evolution of a High-Tech Industry:

the Case of India‘s Software Industry‘, World Development, Vol. 30 Issue 9, 2002, 1561-77.

195 M. Rehman, , ‗Impact of FDI in Retail in India‘ 2006, Retrieved, from http://ezinearticles.com/?Impact-of-FDI-in-

Retail-in-India&id=380228, Last accessed on 04 Ocxtober, 2012.

196 Michel Chossudovsky, The Globalisation of Poverty: Impacts of IMF and World Bank Reforms, Zed Books Limited,

London, 1997.

197 Murali Patibandla, Deepak Kapur and Bent Petersen : ‗Import Substitution with Free Trade: The Case of India‘s

Software Industry‘, Economic and Political Weekly, 8 April, 2000, pp. 1263-70.



Concept Note

become regional and national chains, can negotiate prices more aggressively with

manufacturers of consumer goods and pass on the benefit to consumers. They can lay

down improved and tighter quality standards and ensure that manufacturers adhere to

them. The supermarkets offer a wide range of products and services, so the consumer can

enjoy single-point shopping. FDI in retailing can easily assure the quality of product,

better shopping experience and customer services.

Others

i. Development of supply chains

As multinational players are spreading their operation, regional players are also

developing their supply chain differentiating their strategies and improving their

operations to counter the size of international players. This all will encourage the

investment and employment in supply chain management198

.

ii. Presence of joint ventures

Joint ventures would ease capital constraints of existing organized retailers. FDI

would lead to development of different retail formats and modernization of the

sector199

. FDI would lead to expansion of opposite sell formats as good as

modernization of a sector200

.

iii. Potential of Retail Sector

As foreign investors exploring their potentials in the retail sector are keen on

developing malls in India, the size of organized retailing is expected to touch $30

billion by 2010 or approximately 10 per cent of the total. This has initiated market-

entry announcement from some retailers and has signalled to international retailers

about India‗s seriousness in promoting the sector201

.

iv. Suitability of India

198

A. Mukherjee, & N. Patel, , FDI in Retail Sector: India, Academic Foundation in association with ICRIER and

Ministry of Consumer Affairs, Food and Public Distribution(Govt. of India), New Delhi, 2008

199 United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), Transnational Corporations and

Primary Commodity Exports from Asia and the Pacific, Bangkok, 1981.

200 ‗Forms of Foreign Capital Flowing into India‘, Available at http://business.mapsofindia.com/fipb/forms-foreign-

capital-flowing.html, Last accessed on 10 October, 2012

201 Global Economic Prospects and the Developing Countries, World Bank, New York, 1994, p. 41.



Concept Note

India is already a key sourcing country for some global retailers. The entry of foreign

retailers is likely to further promote India‗s manufacturing and export sectors, leading

to a double bonus for the economy.

v. Social agenda

Allowing FDI in multi-brand retail can give a big push to the country‗s social agenda,

too, and has the potential to even positively impact and promote tourism,

computerisation, systemisation, government‗s ability to influence trade when required,

address issues such as inflation (since data available becomes more reliable/ accurate

and trade gets increasingly organized), reduction of black economy, control over food

hygiene, better food quality assurance and accountability, increased direct and indirect

employment, push to real estate and availability of better managerial talent, etc. Also,

the retail revolution can change country‗s perception across the globe, integrating it

seamlessly into world trade and economy.



Concept Note

PART 5: POTENTIAL NEGATIVE IMPACT OF INDIAN RETAIL FDI

It is believed that this move will lead to large scale loss of self-employment because of

intense competition heat for unorganized retailers. International experience shows

supermarkets invariably displace small retailers. Small retail has virtually been wiped out in

developed countries like the USA, and in Europe. South East Asian Countries had to impose

stringent zoning and licensing regulations to restrict growth of supermarkets because small

retailers were getting displaced.

India has the highest shopping density in the world with 11 shops per 1000 people. It has 1.2

crore shops employing over 4 crore people; 95% of these are small shops run by self-

employed people202

. Global retail giants will resort to predatory pricing to create

monopoly/oligopoly. This can result in essentials, including food supplies, being controlled

by foreign players. Fragmented markets give larger options to consumers203

. Consolidated

markets make the consumer captive. Permitting the foreign players with deep pockets will

lead to consolidation. International retail does not create additional retail markets, it merely

displaces existing markets. Jobs in the manufacturing sector will be lost because structured

international retail makes purchases internationally and not from domestic sources.

Political control by pumping in enormous FDI into the country will lead to re-colonization

that we had during the pre-independence period. The indigenous trading community will be

adversely affected. This will be nothing but an enactment what this country had already

experienced during the alien rule. Control of manufacturing sector and biasing the production

of goods will also enable pricing policy that will be decided by the marketers.

There will be destruction of cottage industries as they will have no appreciable marketing

strategies or powerful retail outlets. A purchase phobia will be created in the minds of middle

class people and make them credit dependent and thus trying to push them in debt trap. Entry

202

ICICI Property Services-Technopak, ―India Retail Real Estate: The Read Ahead‖, ICICI Property Services Technopak

White Paper, 2007-08.

203 Mandeep Singh, ―Globalization in retailing; Causes, Impact and Trends in India", National Seminar On Foreign Direct

Investment in Retail Business, Feb. 18, 2006 in Guru Nanak Khalsa College, Karnal.



Concept Note

of foreign and enemy agents inside India in the garbs of merchants will result in destabilizing

the security of the country.

The hypermarket concept will further increase the gap between haves and have not. Thus the

formation of an egalitarian society will only be a dream. The aggression of the developed

countries against the underdeveloped or poor countries will be more pronounced. The

developed countries with a better economy will register for all patents and rights in the

international market and make the ill equipped and poor countries fully dependent on them.

The wealth of the country is likely to be siphoned off to alien countries without our

knowledge or by circuitous means.

Macro Economic impact

i. Per capital income

India's per capita income is now $800204

. This is per capita income through the Atlas

method, using official exchange rates for conversion. It is not per capita income using

purchasing power parity, which adjusts exchange rates for purchasing power of

currencies205

. From the World Development Indicators database, we know India's

PPP per capita income was $3,100 in 2004, leading to a rank of 145th out of 208

countries ranked206

.

ii. Purchasing Power Parity

Understandably, PPP blows up incomes of developing countries, in relative terms. If

we find a compromise in per capita income, we may assume it nearer to $1000207

.

However, about 30% of the population in India is below poverty line and they cannot

afford to have even one square meal a day. The concepts of FDI or Hypermarkets are

204

R. Banga, "Working Paper No. 154, Trade and Foreign Direct Investment in Services : A Review‖ Indian Council For

Research on International Economic Relations, 2005. Available at http:\\www.icrier.res.in/wp154.pdf, Last accessed on

14 October, 2012.

205 E. Basker, . "Working Paper No. 0215 Job Creation or Destruction? Labor-Market Effects of Wal-Mart Expansion‖,

Department of Economics, University of Missouri,2004.

206 B. Carver, , C. He and J. Hister, "India's Textile Industry : What will Happen When the Quotas are Lifted ?" Final

project presented at GTTL Conference on June 2, 2004 at the University of Washington.

207 S. Daunfeldt, ., Niklas Rudholm and Fredrick Bergstrom . ―Umea Economic Studies No. 599, Entry into Swedish

Retail and Wholesale Trade Market‖, Department of Economics, Umea University, 2002..



Concept Note

beyond their reach. Instead, this phenomenon will bring in spiralling effect on prices

of consumer goods due to which the population below poverty line may increase208

.

Micro economic impact

i. 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 firms209

.

ii. 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 brands210

.

iii. 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.

iv. 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 employees211

. 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.

v. Better infrastructure 208

M. Bertrand, and Francies Kramarz, " IZA Discussion Paper No. 415, Does Entry Regulation Hinder Job Creation ?

Evidence from the French Retail Industry", Institute for the Study of Labor.(IZA), 2002

209 P.S. Birthal, ., P.K. Joshi, and A. Gulati, Vertical coordination in high value commodities. In From plate to plough:

Agricultural diversification and its implications for the smallholders in India. Submitted to Ford Foundation, New Delhi,

by International Food Policy Research Institute, Washington DC, 2006.

210 A. Desai, . The Price of Onions, Penguin Books, New Delhi,1999

211 Dabra Johnson, Book. Review of "Investment Analysis in Emerging Markets", Transnational Corporations, Vol. 14,

No. 2, Aug. 2005.



Concept Note

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 own212

.

vi. 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.

Loss of jobs from unorganised retail

i. Unfair Competition

Opening up FDI may lead to unfair competition and ultimately result in large-scale

exit of incumbent domestic retailers, especially the small family-owned business.

Given the large unorganized component of the retail sector, this is a major concern213

.

Small shops in Mumbai are adversely affected, in terms of falling sales, by the

growing influence of shopping malls in the city. If employment too is adversely

affected, it is not clear how organized retail may absorb this displaced labour214

.

ii. Kirana Stores

The main fear is that the ingress of MNC Giants like Wa1mart, Tesco and Carrefour

will throw the hundreds of thousands of the neighbourhood Kirana store owners out

of business, leading to millions of job losses215

.

212

D. Farrell, . "The Case for Globalisation : The Results of McKinsey's Latest Study of the Pros and Cons of Emerging

Market Foreign Investment," The International Economy, Winter Issue, 2004 Available at

http:\\www.findarticles.com/p/articles/mi m2633/is 118 / ai 113564062, Last accessed on 04 October, 2012

213 A. Knorr, and A Arndt. "Why did Wal-Mart fail in Germany?" Paper presented at the Hawaji International Conference

on Business, June 18-21, 2003.A.Mukherjee, "ICRIER Working Paper No. 80, Distribution Services: India and the GATS

2000 Negotiations, ", 2002.

214 T. Reardon,, C.P. Timmer, C.B. Barrett and J.A. Berdegue "The Rise of Supermarkets in Africa, Asia and Latin

America," American Journal of Agricultural Economics, Vol. 85, No. 5, pp. 1140-1146, December 2003.

215 W.G. Saab, W.G. and Luiz Carlos Perez Gimenez ,"Current Aspects of Food Retailing within Brazil and at

International Level," The Brazilian Development Bank, 2000, Available at http://www.bndes.gov.br/

english/studies/studies02.pdf, Last accessed on 6 October, 2012.



Concept Note

iii. Unorganised retail sector

It may be estimated that about 5 crores of population are employed at present on

unorganized retail sector and this population will be hit badly if the mall system is

introduced. This will again add unemployment problem to the common labour

market216

.

iv. Agricultural aspect

The agricultural employees are part timers in the system of rural marketing and their

case will become worse and they will go jobless for about 6 months period in a year

during which they practice marketing their agricultural products217

.

v. Negative impact of loss of intermediaries

Also, by reducing the number of intermediaries, organized retailing will lead to some

job displacement218

.

vi. Literacy

It is said that FDI would provide employment opportunities. But, the fact is that they

cannot provide employment opportunities to semi-illiterate people219

. Though they

can provide employment opportunities like drivers, watchman etc. but this argument

gets more attention because in India semi-illiterate people in quiet large in number220

.

Predatory pricing leading to losses to SMEs and Small Scale Industry

i. Domestic players

Another concern is with regard to the pricing power of the global retail giants which

the communists say will squeeze out the suppliers and hurt farmers. The left are also

worried that the foreign retail majors will hurt domestic players with the practice of

predatory pricing and become monopolies.

216

Vedpuriswar, A.V., (2001). "The Globalisation of the Retailing Industry," Chapter from the Book - The Global CEO,

ICFAI Website: http://www.vedpuriswar.org/book/bookoverview.

217 N. Wrigley, and A. Currah "Globalizing Retail and the E-conomy: The Organizational Challenge of E-Commerce for

the Retail TNCs, "International Review of Retail and Distribution Management, 2003

218 Philip Kotler and Kevis Lan Kelles, "Managing Retailing, Wholesaling and Logistics" Marketing Management,

Pearson Prentic Hall, Delhi, 2006.

219 D. Dutt,, ‗An outlook for Retailing in India, Vision2005‘ (Form a presentation by KSA Technopak at MDI Gurgaon

in January and February, 2004).

220 Philip Kotler, Marketing Management,., Prentice Hall of India Pvt Ltd, New Delhi, 2000



Concept Note

ii. Monopoly position

Due to financial clout of the global retailers, they often sell below cost in the new

markets. Once the domestic players are wiped out of the market foreign players enjoy

a monopoly position which allows them to increase prices and earn profits221

.

iii. Hyper marketing and super marketing

There are about one crore small time traders whose investments are within the range

of a few thousands to one crore. These traders are having a base in urban, semi urban

and in rural areas. The hyper marketing and super marketing concepts will kill them,

as they cannot afford to compete with the giants as far as their marketing presentation,

product delivery and pricing domination. Once such an unequal war is fought against

the parties, the destruction of the small traders is certain222

.

iv. Pepsi – Cola – Parle Case

The best example is the war that was fought between the indigenous soft drinks

manufacturers and the international giants Pepsi and Coke. Both the erstwhile Janatha

Government drove out the companies Pepsi and Coca Cola in 1977-78 that re-entered

in India during 1989-90. During the re-entry stage, the giants found that comfortable

market was enjoyed by the indigenous manufacturers such as Parle etc. The Pepsi and

Coke found that the pricing strategy will give a blow to the Indian software marketers

and they started to sell 250/300 ml bottles at the price of Rs.5/- whereas the Indian

marketers were selling 200 ml at the cost of Rs.6/-. This aggravated their markets and

the hot and chirpy taste of the foreign giants made a trick in the psyche of the

consumers. The tingly taste was liked along with a lowered price for the commodity

and that was the death bell for the local manufacturers. The Pepsi and Coke

amalgamated or purchased all the Indian manufacturing companies along with their

bottling units and converted them as its own marketing and manufacturing points.

v. Higher lending rates

Indian retailers have argued that since lending rates are much higher in India, Indian

retailers, especially small retailers, are at a disadvantageous position compared to

foreign retailers who have access to international funds at lower interest rates. High

221

P. Powers,. "Distribution in China: The End of the Beginning, "The China Business Review, July-August 2001.

222 Madona Devasahayam, , ‗Big Deal‘, Praxis Quarterly Journal on Management, August, Vol.2, No.2., 1998



Concept Note

cost of borrowing forces the domestic players to charge higher prices for the

products223

.

Cooperative Movement v. Foreign funded organised retail

i. Retailers‟ Cooperatives

There is a need for setting up of Retailers Cooperatives which functions as

distribution centres and warehouses. It will help the retailers to buy the products they

want directly from original manufacturers in bulk quantity.

ii. Definition of Cooperative Stores

Cooperative stores in India are the result of the cooperative movement that can be

traced to the Pre-independence period. They emerged as a reaction to the feudal

system & attempted to place the fruit of labour in the hands of the producer himself to

make himself relevant. A consumer cooperative is a retail institution owned by

member customers. A consumer cooperative is generally formed either because of

dissatisfied consumers who's needs are not fulfilled by the existing retailers or on

account of initiative by enlightened consumer.

iii. Mother Dairy Case

Mother Dairy was established in 1974 with a view of making liquid milk available to

city consumers. It is set up by National Dairy Development Board under first phase of

operation flood programme224

. Mother Dairy also markets dairy products such as ice

cream, dahi, lassi, butter cheese dairy whitener, Dhara range of edible oils and Safal

of fresh fruit and vegetables frozen vegetables and fruit juices225

.

223

R. Rastogi,. ―India : Country Report on E-Commerce Initiatives‖, Department of Information Technology, Ministry of

Communication and Information Technology, India, 2002 Available at http://www.unescap.org/tid/ publication/part

three2261_ind.pdf, Last accessed on 01 October, 2012

224 Panle Jia, , . ―What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing

Industry,‖ Econometrica, Vol. 76, No. 6, 2008, pp. 1263–1316.

225 Anuradha Kalhan, , , ―Impact of Malls on Small Shops and Hawkers,‖ Economic and Political Weekly, Vol.42, No.22,

2007, pp.2063-66.



Concept Note

Mother Dairy Model : Mother Dairy follows cooperative models. This model directs

the formation of federation, by the help of village level societies and district level

unions, whose prime responsibilities is the marketing of milk and milk products.

Pricing Strategy : Mother dairy ensures that farmers get market price by offering

quality produce and also provide the produce to the consumers at reasonable prices

through minimizing costs.

Challenges Faced: Company is facing competition from other organised retailers and

increased imports. The quality of milk, low yields, falling cattle health are some

major challenges faced by company.

iv. Advantage to small farmers

The organizational form of rural producers as they interact with Big Retail is still not

being done. Small farmers can undertake contract farming, but they have no

bargaining power and will be at the mercy of their buyers. Small producers need to be

organized into farmer companies or producer cooperatives that can deal with Big

Retail from a much stronger position so that their interests are not lost226

.

Others

i. Premature Indian retailers

Indian retailers have yet to consolidate their position227

. The existing retailing scenario

is characterized by the presence of a large number of fragmented family owned

businesses, who would not be able to survive the competition from global players.

ii. Upsetting import balance

The examples of south-east Asian countries show that after allowing FDI, the domestic

retailers were marginalized and this led to unemployment228

. FDI in retailing can upset

226

Jerry A Hausman,. and Ephraim Leibtag, . ―Consumer Benefits from Increased Competition in Shopping Outlets:

Measuring the effect of Wal-Mart‖, Journal of Applied Econometrics, Vol. 22, No. 7, 2007, pp. 1157–1177.

227 Anuradha Kalhan, and Martin Franz, ―Regulation of Retail: Comparative Experience,‖ Economic and Political

Weekly, Vol.44, No.32, 2009, pp.56-64.

228 David Neumark, Junfu Zhang, and Stephen Ciccarella,. ―The Effects of Wal-Mart on Local Labor Markets,‖ Journal

of Urban Economics, Vol. 63, No. 2, 2008, pp. 405-430.



Concept Note

the import balance, as large international retailers may prefer to source majority of their

products globally rather than investing in local products229

.

iii. Margin of unorganised players

Some fear that, if FDI is allowed in retailing then it would result in lowering of prices

because FDI will result in good technology, supply chain, etc230

. If prices were lowered

then it would lower the margin of unorganized players231

. As a result the unorganized

market will be affected232

.

iv. Loss of foreign investment

FDI in retail trade would not attract large inflows of foreign investment since very little

investment is required to conduct retail business. Goods are bought on credit and sales

are made on cash basis233

. Hence, the working capital requirement is negligible. On the

contrary; after making initial investment on basic infrastructure, the multinational

retailers may remit the higher amount of profits earned in India to their own country234

.

v. Loss of culture

Loss of cultural and ethical values due to more influence of the other cultures235

.

vi. Infant industry argument

A concern raised by domestic incumbent firms in the organized retail sector is an infant

industry argument: that this sector is under-developed and in a nascent stage. In this

229

Gupta, R., ‗Pharma retailing gains momentum in India‘, www.galtglobalreveiw.com

230 E.A.S Sarma, , ―Need for Caution in Retail FDI,‖ Economic and Political Weekly, Vol.40, No.46, 2005, pp.4795-98.

231 R.J. Volpe, R. J. and N. Lavoie, . ―The Effect of Wal-Mart Supercenters on Grocery Prices in New England,‖ Applied

Economic Perspectives and Policies, Vol. 30, No. 1, 2008, pp. 4 - 26.

232 Department of Industrial Policy and Promotion, 2010. ―Foreign Direct Investment (FDI) in Multi-Brand Retail

Trading,‖ Discussion paper. Available at http://www.dipp.nic.in, Last accessed on 06 October, 2012

233 Arindrajit Dube, , Lester, T. William and Eidlin, Barry,. ―Firm Entry and Wages: Impact of Wal- Mart Growth on

Earnings Throughout the Retail Sector.‖, 2007 Available at http://ssrn.com/abstract=841684, Last accessed on 05

October, 2012.

234 , Emek Basker,. ―Job Creation or Destruction? Labor Market Effects of Wal-Mart Expansion,‖ Review of Economic

Statistics, Vol. 87, No. 1, 2005, pp. 174-183.

235 K. Gupta,D. Roy, and H. Vivek, Do small farmers gain from participation in producers‘ organizations? The case of

Milkfed Dairy Cooperative in Indian Punjab. In From plate to plough: Agricultural diversification and its implications for

the smallholders in India, 2006 Submitted to Ford Foundation, New Delhi, by International Food Policy Research

Institute, Washington DC.



Concept Note

view, it is important that the domestic retail sector grow and consolidate first, before

being exposed to foreign investors236

. Domestic firms in this sector oppose liberalizing

retail to FDI as they view multinational companies as direct competitors237

.

vii. Findings of UK Competition Commission 2000

The UK Competition Commission found in a 2000 study of major retail chains

including Marks & Spencer, Sainsbury and Tesco that ―the burden of cost increases in

the supply chain has fallen disproportionately heavily on small suppliers such as

farmers.‖238

Apart from prices, the report states that smaller farmers came under severe

pressure from supermarkets due to the latter‘s requirement for large volumes of each

product, pushing farmers to grow single crops rather than the multiple produce they

would usually grow to minimise risk239

.

viii. Incumbent retailers

Observed supermarket practices too may work against the interests of incumbent

retailers, even organized ones. Supermarket chains routinely sell some products at

lower than market prices, which appears to benefit consumers, but this puts pressure on

small local stores and has an adverse impact on low-income and elderly consumers who

rely on local shops240

. Supermarkets also tend to alter prices in different branches

adjusting to local rivals, ―price-flexing‖ as the UK Competition Commission termed it,

again working to the disadvantage of local mom-and-pop stores241

.

236

Emek Basker, 2005. ―Selling a Cheaper Mousetrap: Wal-Mart's Effect on Retail Prices,‖ Journal of Urban Economics,

Vol. 58, No. 2, 2005 pp. 203-229.

237 Mohan Guruswamy, , Kamal Sharma, Jeevan Prakash Mohanty, Thomas J Korah, ―FDI in India‘s Retail Sector: More

Bad than Good?‖ Economic and Political Weekly, Vol.40 No.7, 2005, pp.619-23.

238 L.,J.Foster, Haltiwagner and C.J. Krizan ,The Link between Aggregate and Micro Productivity Growth Evidence from

Retail Trade, Centre for Economic Studies, 2002

239 Emek Basker, . ―The Causes and Consequences of Wal-Mart's Growth.‖ Journal of Economic Perspectives, Vol. 21,

No.3, 2007, pp. 177-198.

240 Jerry A Hausman,. and Ephraim Leibtag,. ―NBER Working Paper No. w10712CPI Bias from Supercenters: Does the

BLS Know that Wal-Mart Exists?‖, 2004.

241 Keith Head, Ran Jing, and Deborah L. Swenson, 2010. ―NBER Working Paper No. 16288 From Beijing to

Bentonville: Do Multinational Retailers Link Markets?‖.



Concept Note

PART 6: PRELIMINARY CONCLUSION

This concept note has been prepared to initiate this Working Paper on FDI in Multi-Brand Retail.

This concept note is for prospective contributors to know the basic ideas and features of this policy.

RGNUL-IPAN Research Team has done this preliminary research to take forward this debate. We

have dealt comprehensively with all the associated factors which might impact or get affected by this

retail sector policy.

After this preliminary insight into the issue, few generalised conclusions which can be inferred are

as follows:

Retail sector of any economy is one such area which is primarily governed by the local

factors, preferences and conditions for growth. Thus, foreign investment in this sector largely

has to adapt to the local conditions unlike other core areas like steel, mining, power,

manufacturing etc where large foreign players have been able to modify the local economic

environment according to their needs and suitability.

Retail Sector essentially goes according to the consumer psychology and not by the economic

prowess of any industry player.

India is a highly complex and unique consumer market which is not at all comparable to any

other economy in terms of its consumer preferences, consumer-retailer relationship and

retailer margin patterns.

Most importantly, this policy in question at this stage of initial proposal cannot be stated to be

highly beneficial or highly detrimental to the Indian economy. It will have a long gestation

period before any such conclusion can be made out. The claims of govt. as well as the

opposition are highly ill-founded and exaggerated.

Nevertheless, these preliminary conclusions are purely on the basis of an initial study. We hope

to receive highly critical contributions which either establish these notions or completely negate

these general inferences. Specific case studies/questionnaires/interviews/impact evaluation

reports from other countries will be preferred for acceptance and publication.

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