fdi-single/ mutiple brand

7/29/2019 fdi-single/ mutiple brand

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FDI in Retail SectorSingle and Multi Brand

Pramila Gawand

Harvinder kaur

Komal Kaur

Vinod pillai


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About MNCs

An enterprise operating in several countries butmanaged from one (home) country. Generally, anycompany or group that derives a quarter ofits revenue from operations outside of its home

country is considered a multinational corporation. All major multinationals are either American,Japanese or Western European, such as Nike, Coca-Cola, Wal-Mart, AOL, Toshiba, Honda and BMW.

According to UN data, some 35,000 companieshave direct investment in foreign countries, and thelargest 100 of them control about 40 percent ofworld trade.


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About MNCs

Advantages: Increase in job oppurtunities Better and cheaper products will be available to the consumers The Govt. will also benefit by earning more in taxes etc

It will lead to an increase in infrastructure improvement.

Disadvantages: Kills the domestic savings by destroying competition, remove local

entrepreneur, unstable industrial growth. Cause strain to BOP i.e. balance of payment, profits, interests,

loyalties, management fees. Local professional cannot access to working strategies of MNCs MNCs by introducing new technology cause technological

unemployment. MNCs adopt capital intensive technique. Somachine takes place of workers.


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An investment is..

The commitment of money or capital to

purchase financial instruments or assets inorder to gain profitable returns.


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An investment becomes foreign

investment when..

Foreign Investment through Investment done bycitizens and government of one country (homecountry) invest in industries of another country(host country).

Foreign Investments through:-Foreign Institutional Investors

Foreign Direct Investments

FDI Routes :-Automatic Route - No permission required

Government - Approval /License required.


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Advantages of FDI

FDI has many advantages for both the investor and the recipient:

Increase economic growth by dealing with different internationalproducts

1 million (10 lakhs) employment will create in three years - UPAGovernment

Billion dollars will be invested in Indian market

Spread import and export business in different countries

Agriculture related people will get good price of their goods

The below given points are filled up:-

the Nation Saving Gapthe Foreign exchange gap, the tax revenuethe management, entrepreneurship, technology and skill gap


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Disadvantages of FDI

Will affect 50 million merchants in India

Profit distribution, investment ratios are not fixed

An economically backward class person suffers fromprice raise

Retailer faces loss in business Market places are situated too far which increases

traveling expenses

Workers safety and policies are not mentioned clearly

Inflation may be increased Again India become slaves because of FDI in retail

sector.


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Brief Latest Developments on FDI

2012 - October: In the second round of economic reforms, the government

cleared amendments to raise the FDI cap(a) in the insurance sector from 26% to 49%;

(b) in the pension sector it approved a 26 percent FDI;

Now, Indian Parliament will have to give its approval for the final shape,

2012 - September : The government approved the

(a) Allowed 51% foreign investment in multi-brand retail,

(b) Relaxed FDI norms for civil aviation and broadcasting sectors. FDI cap in

Broadcasting was raised to 74% from 49%;

(c) Allowed foreign investment in power exchanges

2011 December :

The Indian government removed the 51 percent cap on FDI into single-

brand retail outlets and thus opened the market fully to foreign investors

by permitting 100 percent foreign investment in this area.


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Countries investing in India


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FDI LIMIT IN INDIA

Foreign Direct Investment (FDI) in India is

subject to certain Rules and Regulations and is

subject to predefined limits ('Limits') in

various sectors which range from 20% to100%.

Limit for different sectors is shown in Page

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Latest update on FDI

1. On Tuesday, 16th July, 2013, the Government approved the recommendationsgiven by the Arvind Mayaram Committee to increase FDI limits in 12 sectorsout of the proposed 20 sectors, including crucial ones such as defense andtelecom.

2. FDI Limit in Telecom Sector is increased from 74 per cent to 100 percent.

3. FDI in 4 sectors i.e. gas refineries, commodity exchanges, power trading and

stock exchanges, FDI will be allowed up to 49 per cent under automatic route.4. FDI in single brand retail is to be allowed up to 49 percent under the

automatic route.

5. In credit information firms, 74 per cent FDI under automatic route will beallowed.

6. FDI cap in defense sector remained unchanged at 26%

7. In the contentious insurance sector, it was decided to raise the sectoral FDI capfrom 26 per cent to 49 per cent under automatic route

Note: Beyond Every limit investment that shall be through approval of FIPB -The Foreign Investment Promotion Board .


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What is this FDI in retail ?????

In simple words FDI in retail refers to opening of retail sector to foreign

investors. Now foreign companies will be able to set up and invest into

retail market of India, and if the bill is passed one would be soon seeing

international retail giants like Wal-Mart and Tesco investing heavily in

Indian retail and bringing with them their cutting-edge global expertise.

The opening of the retail sector to foreign investors will have three keyimpacts beginning with wide scale mergers and acquisition activity,

gush of investments in logistics, realty and manpower training besides

job creation in the organised sector of the economy.

There has been lot of opposition in India due to FDI in retail both from

political parties and also from small retail shop owners and their pointof contention is that in the long run FDI in retail will be detrimental to

all whether its farmers, small shop owners or ultimate consumer.


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RETAIL SECTOR

Retail sector includes all the shops that sellgoods to the ultimate customer, who buysthem for personal use and not business use.

It encompasses all kinds of shops, from kiosksand small groceries to supermarket chains andlarge department stores.

In addition to traditional bricks-and-mortarshops, the retail sector includes mail-orderand online businesses.


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Single Brand Retail

Single Brand by its meaning would mean own label brands' arethose which are created and owned by businesses that operatein the distribution channel. Actuallly the position of the meaningof this term is variable and thus is ambiguous. The inclusion ofthe meaning of store brands, private labels and branded during

manufacture do not make the matter any easier. The lattermeaning that any foreign investment may not benefit suppliersof locally produced labeled goods.

Single brand retail is one in which a single item is sold across alloutlets. Such as Reebok, Titan, Puma etc.

Multi-brand retail or "Supermarket" is where many items aresold under a single roof. For e.g. Wal-mart, Big Bazaar, Central.etc.


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Single Brand Retail

Department of Industrial Policy andPromotion Ministry of Commerce andIndustry notified the decision to allow 100 per

cent FDI in Single brand retail today In January 2012, 100% FDI was permitted in

SBPRT (single brand product retail trading) butlatest update on 5 August 2013, FDI in singlebrand retail is to be allowed up to 49 percentunder the automatic route


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Multi- Brand Retail

Multi-brand retail, as considered by the Indiangovernment, would include retailers like Wal-Mart, Tesco, Carrefour, CVS, Walgreens, 7-11,Best Buy, Home Depot, Staples and Office Depot.

Multi-brand foreign retailers that have alreadyinvested in India under cash-and-carryarrangements and now have an option to investin Indian companies undertaking direct retailing.

In January 2012, 51% FDI was permitted in MBRT(multi brand retail trading) and there is no changein this sector till now.


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b


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RETAIL HICCUP

What GovernmentHas Proposed What Retailers Want

Minimum investment of $100 million in

back end infrastructure.

More clarity on what back end means,

since it differs from one business to

another

Compulsory sourcing of at least 30 % ofgoods from small and medium enterprises

Compulsory sourcing from SME notpractical in segments like consumer

electronics, home textiles

States to decide on approval on case-by-

case basis

Only 11 states have agreed to allow FDI in

retail. State to state clearance risky, since

new governments may pose treats to

existing business.

E-commerce a fast growing channel

since India already has a 157 million

internet user base. And the e-commerce

market is worth $14 billion. Hence, it

cannot be ignored.


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Pros of FDI

It reduces the gap between farm prices and retail prices.

Gives best management practices from all over the world.

It makes market intelligent and also provides good

understanding and practical knowledge to he domestic

retailers .

To achieve expected growth in India GDP: India is targeting for

its GDP to grow by 8 to10 percent per year. This requires

raising the rate of investment as well as generating demand

for the increased goods and services produced.

Provide an aid to Indian agriculture to become lowest costsource of farm produce.

To bring trade balance and to increase liquidity by the way of

foreign exchange reserves


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Cons of FDI Threats on organized and unorganized retail players.

Replacement of established national brands by the brands of theretail gains. For e.g Wal-Mart is committed to buying the bestgoods at the cheapest prices to give its customers the best valuefor money. That is why it sources so heavily from China.

70% of merchandise in Wal-Mart contains components made inChina. Which might hamper Indian industries sales.

FDIs may enter the host country for unique strategic reason butthere is ultimately the need to achieve returns on investments.For e.g. paying a premium for the price of labor may improve theconsumption power of workers, but it also has the detrimentalability of disrupting the local employment market. When pricesrise, supply increases while demand falls.

Similarly, when the price of labor increase, wage premiums in thiscase, this creates a distortion and creates disequilibrium in thelabor market. Job matching stops being efficient and may evencreate unemployment


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Conclusion

On the basis of above research and discussion FDI has both positive

and negative impact on India Economy.

Government should promote FDI and in order to lower down its negative

impact it should have redesigned framework for the local players.

Government should encourage FDI on gradual basis depending on

products from one area to other Product category wise clauses should bedeveloped to allow FDI.

To keep pace with growing GDP government should encourage foreign

investments.

India needs inflows to drive investment in infrastructure, a lack of which

is often cited as restricting the countrys economic growth. Investment is also needed to expand capacity and technology in sectors

such as autos and steel, as well as to offset a big current account deficit.

In a nutshell, FDI should be encouraged with strict feasible and mutually

beneficial regulations.

Better Investment Climate Need of the Hour.


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Reasons for MNCs entering India

2nd world largest Population

World largest Democracy

Largest Open market Economy +7% annual growth rate.

400 MM people in the middle class

By 2025 middle class will be worlds 5th largest consumer economy


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IKEA HISTORY

In 1943, IKEA was founded by Ingvar Kamprad

Based in Sweden

Worlds largest furniture retailer Worlds largest home furnishing retailer

IKEA numbers 1,04,000 employee in 267

stores in 45 countries


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Vision and business idea

To create a better everyday life for the many

people, this is the IKEA vision.

Ikeas business idea is to offer a wide range of

well-designed, functional home furnishing

products at prices so low that as many people

as possible will be able to afford them.


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KEY FIGURES

IKEA Group at a glance 2012

Total sales EUR 27 billion

Stores 298 in 26 countries

Products About 9,500 in the range

Co-workers 139,000

Suppliers 1,084 home furnishing suppliers in 53 countriesStore visits 690 million

Web visits more than 1 billion

Catalogues 187 million printed in 22 languages

IKEA Food EUR 1.3 billion yearly turnover

Production Approximately two-thirds of our production is in

Europe

Europe 227 stores

Asia 17 stores

North America 49 stores

Australia 5 stores


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India AND Ikea

Ikea wants to bring its collapsible furniture to India and plans to conquer

the country with a massive plan that includes a nearly US$1.8 billion

(Dh6.61bn) investment drive

Ikea has a long-term vision for India.

The market for household goods - including furniture and decor - is worth$18.5bn and is growing at a rate of 10 to 12 per cent annually.

Indian foreign direct investment (FDI) rules stipulated that a single-brand

foreign retailer could enter only in partnership with a local entity. Ikea

never wanted an Indian partner !

Things changed in January this year, however, when the government

allowed 100 per cent ownership of operations in India by foreign

companies.

Ikea was first in line to say it was heading for India.


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Wal-Marts mission statement states, we save

peoples money so they can live better.


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Wal-Mart Stores, Inc.

Save money, live betterFounded by Sam Walton, the first Wal-Mart store opened in Rogers,Arkansas, in 1962.

Seventeen years later, annual sales topped $1 billion.

The company is controlled by Walton family which owns 48% stake in Wal-Mart

By the end of January 2002, Wal-Mart Stores, Inc. (Wal-Mart), was theworlds largest retailer, with $218 billion in sales.

Wal-Marts winning strategy in the U.S. was based on selling brandedproducts at low cost.

And as for today, each week, about 200 million customers visit a Wal-Martstore somewhere in the world.

Wal-Mart maintains its slogan of "Everyday low prices", by keeping itsmerchandise's prices low


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Big to Bigger

1962 : Sam Walton launched his first store Location : Bentonville, a backwater in Arkansas,

a state where chickens outnumber people

Today : Worlds Largest Retailer

Four times as big as #2 Retailer, Carrefour 5,482 stores in 14 countries as of Oct 31, 2005

Revenues: 285B vs GE: $152B

Second-largest Company after ExxonMobil ($298B)

Workforce: 1.3 M Biggest private sector employer in the world


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Walmart has 8,500 stores in 15 countries,under 55 different names.

The company operates under its own name in

the United States, including the 50 statesand Puerto Rico.

It operates in Mexico as Walmex , in the

United Kingdom as Asda , in Japan as Seiyu,and in India as Best Price.

About WAL-MART


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Business as on today

From humble beginnings as a small discount retailer in Rogers, Ark.Walmart has opened thousands of stores in the U.S. and expandedinternationally.

Through innovation, It has created a seamless experience to letcustomers shop anytime and anywhere online, through mobile

devices and in stores. Its creating opportunities and bringing value to customers and

communities around the globe.

Walmart operates more than 10,900 retail units under 69 bannersin 27 countries and e-commerce websites in 10 countries.

Employs 2.2 million associates around the world 1.3 million inthe U.S. alone.

W l M t i t t i


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Wal-Mart main strategiesBy Mike Duke, President and CEO. (2010)

Wal-Mart must become a truly global company

Keeping their culture strong. Wal-Mart had a

unique culture which is the combination of acompany culture and their business model.

The philosophy Includes;

- Respect for every individual

- Serving customers

- Probing for excellence


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Wal-Mart main strategiesBy Mike Duke, President and CEO. (2010)

It must understand the business challenges and retailers.Therefore they must be able to solve and face thosechallenges i.e. technology.

They are playing bigger role on social issues that theircustomers are interested in. Assuring the social issues ofthe world would be critical in terms of environment andsustainability.

And that is;

- Achieving zero waste- Use of renewal energy and

- Sell products that sustain people andenvironment.


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WALMART IN INDIA

May 2009: Walmart establishes its cash- and carry business in India in partnership

with the Bharti Group, opens first wholesale store in Amritsar, Punjab

December 2011: Walmart launches global investigation into possible acts of

corruption by employees.

November 2012: Walmart launches an internal probe into possible violations of USForeign Corrupt Practices Act in Brazil, china and India which follows ans earlier probe

in Mexico. India CFO Pankaj Madan and four members of legal team asked to leave.

December 2012: The Indian Government launched a probe into claims that Walmart

violated the countrys rules when it lobbied to enter Indias retail market

April 2013: Government said the enforcement directorate investing alleged violation

of Indias foreign exchange regulations by BhartiWalmart

June 2013: Raj Jain quits company after a seven-year stint, Woolworths veteran

Ramnik Narsery takes over as interim CEO


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