FDI ISSUES IN

RETAIL

what is FDI?

An investment is..

The commitment of money or

capital to purchase financial

instruments or assets in order to

gain profitable returns.

An investment becomes foreign investment when..

Investment done by citizens and government of one country (home country) invest in industries of another country (host country).

Foreign Investme

nt through

Foreign Direct

Investments

Foreign Institutional Investors

FDI Routes

Automatic Route Government

No permission required Approval /License required.

Retail Sector at Global Level

• One of the world's largest industries exceeding US$ 9

trillion.

• Dominated by developed countries.

• 47 global fortune companies & 25 of Asia's top 200

companies are retailers.

• US, EU & Japan constitute 80% of world retail sales.

• Retail trade in Europe employs 15% of the European

workforce (3 million firms and 13 million workers).

• The world’s population is poised to expand 50% by 2050.

The world currently comprises of 78% poor, 11% middle

income and 11% rich.

Contribution Of Retail Industry to GDP of Various Economies

USA

China

Japan

Brazil

India

20%

8%

16%

6%

14%

Contribution Respective to GDP

Indian Retail Industry

10%

90%

organised retailun-organised retail

Organized retail: trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc.

Un-Organized retail:traditional formats of low-cost retailing, for example, the local Kirana shops, owner operated general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.

Major Indian Retailers : Categories Format Description Retailers

Hypermarkets Offering basket of product Spencers, Big bazaar

Cash and Carry Bulk-buying requirement Bharti-wal-mart

Departmental stores Large layout, Wide merchandise mix

Lifestyle , Globus

Supermarkets Household product as well as food as integral part of the service

Apna bazaar , food bazaar

Shop-in-shop Shops located in shopping malls Navras ( big bazaar)

Specialty stores Focus on individual product type Brand Factory

Category killers Particular segment The LOFT

Discount stores Branded product at discounted prices

Subhiksha, levi’s outlet

Convenience stores Small Retail stores In and out

SegmentationRetail Segment Percentage holding in

sectorMajor retailers

Food and grocery 63% Reliance fresh, Café brio, food bazaar

Clothing, textile and fashion

9% Westside, shoppers stop, globus

jewellery 5% Tanishq

Catering services 5% IRCTC

Consumer durable 4% Viveks, vijay sales, Croma

pharmaceuticals 4% Piramal group

Entertainment 3% Bowling co.,

Furnishing, utensils 3% Hometown, Tangent Concept

Mobile handsets 2% The mobile store,

Why Global Retailers Look Up to India?

India is a developing country.

Indian market is very large market

Retail is the topmost growing market in India

The environmental and political factors are not that much bad in

India.

Tax breaks, import duty exemptions, land and power subsidies,

and other enticements.

Retail market in India

The total retail sales in India will grow from

US$ 395.96 billion in 2011 to US$ 785.12

billion by 2015

Accounts for 14% of countries GDP

Accounts for 8% of countries employment

Current Retail scenario in India

• 100% FDI is allowed in wholesale cash and carry trade.

• 51% FDI in single brand retail• No FDI in multi brand retail

WHAT WILL HAPPEN TO RETAIL TRADE

These companies open chain of shops. With a shop in each area the retail small shopkeepers will be put to heavy loss

Slowly the local shops will start closing down.

These shops will capture the trade.

In countries where they have established their market share is

Name of Country % of Market ShareAmerica 80%England 80%Western Europe 70%Brazil 40%Thailand 40%Korea 35%China 20%

Imagine Roadside DHABA’s after RELIANCE FOOD CHAIN Starts working.

WHAT WILL HAPPEN TO LOCAL RETAIL TRADE

No of Retail outlets Between 1981-99 in United Kingdom came down from 56862 to 25800.

Between 1970-80 in Europe about 4 lakhs Retail shops were closed.

Competition shall be limited to Big Retail Houses In the year 2000 Five Big Fast food companies captured

following percent market share :

Country % ShareNorway 99Switzerland 88Sweden 94UK 64Portugal 57

WHAT HAPPENED IN THAILAND

In price war traditional shop keepers are facing problem of survival. Many small shop keepers have closed down their shops.

Big companies have seen growth of 40% There was adverse impact on 60000 small shopkeepers. The Prime Minister of Thailand agreed that there was adverse impact on

retail trade. The Govt. which had opened its door for FDI in retail trade with big bang

had to provide financial assistance to retail traders by establishing a special fund.

Now its India’s turnThreat on unorganized retail players

Threat on organized retail players

Marginalize the domestic players Huge spread of retail chain stores Monopoly in the customer market and can be converted

into cartel of global players. Monopoly among suppliers

FDI in organized multi brand retail:India not yet ready Employment loss: There are about 35 towns in India with population exceeding 1 million.

There are at least 4, 32,000 people employed in these towns in India in small-scale to medium-scale shops. With the entry of big chains, many of them will lose jobs.

In food retail, farmers (the producers right at the tip of the back end chain) being left at the mercy of the foreign investors

Inflation cannot be checked: The point is that inflation cannot be checked as consumers would still have

to bear the cost

Annual turnover $ 400 bn 18 lakh rs. crores

Annual turnover $ 130 bn 5.85 lakh rs. crores

WHO ARE WE LETTING IN?

Annual turnover $ 100 bn 4.5 lakh rs. crores

Annual turnover $ 96 bn 4.2 lakh rs. crores

Cont….These are some of the ferocious, predatory companies in

the world.

Their practices in the market are ruthless and designed to wipe out competition.

Their resources are enormous. They can invest and lose money for years till then lakh of local retailers will be wiped out.

Comparison between Wal-mart and Indian retail industryThe annual turnover of Wal-Mart (Sales in 2010 were $409

billion) is higher than the size of Indian retail industry (estimated at about $370 billion) and almost 100times more than the turnover of HUL (India's largest FMCG company).

The size of any Wal-Mart store is much higher than the size of any existing shopping mall in India.

Wal-Mart has over 8500 stores (over 95 million square meters) where as none of India's large format store (Shoppers' Stop, Westside, Lifestyle) have more than 250.

New stores opened annually by Wal-Mart are about 600, much higher than all organized Indian retailers put together.

Wal-Mart has around 40,000 suppliers throughout the world and more than 700,000 SKU's on its web site, a number that cannot be compared.

Daily customers are about 18 million (almost equivalent to Mumbai's entire population).

Time between each Barbie Sale at Wal-Mart is just two seconds (same rate at which babies are produced in India!)

None of the Indian organized retailer has ventured overseas where as Wal-Mart is now in 15 countries and will expand to 21 countries in two years.

Cont….

arguments in favor of FDI Factors necessitates FDI in IndiaTo achieve expected growth in Indian GDP by encouraging export.

To reduce gap between farm prices and final retail prices through structural change in distribution - Inflation control mechanism.

To acquire market-savvy, market-intelligent and best management practices.

To bring trade balance

To increase liquidity by the way of foreign exchange reserves

Modernize the supply chain

Will bring healthy competition in market