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DEMOGRAPHIC CHANGES TO DRIVE RETAIL

Business Standard, MUMBAI, 30 November 2006

The growth of financial sector was to a large extent responsible for the current consumption boom in the country and that there ought to be further collaboration between financial service providers and retailers to keep this going, said Suman Bery, director general, NCAER, at the National Retail Summit 2006.

“Sentiment is a big driver behind consumer behaviour and retailers should get ready for a bumpy ride ahead,” he added. Commenting on other factors that will boost growth, Roopa Purushothaman, chief economist and strategist, Future Group, pointed out how increase in the number of women in the consuming class would give a boost to retail.

“Increased participation of women on the professional front will result in an increased demand of 10 per cent over the next five years while per capita income will be boosted by five per cent by 2015, 12 per cent by 2025 and 25 per cent by 2050,” she said adding that at present, the country was at a ‘sweet spot’, where it could improve its demographic ratios.

Ireena Vittal, partner, McKinsey & Co, clarified a few myths surrounding the sector saying that changing demographic patterns and not changing incomes would determine the consumption patterns in India.

“Increasingly, as women and younger people enter the consuming class, the product mix will undergo a tremendous change,” she said adding that because of that reason, it wasn’t possible to compare the consumption mix in India at present to the kind of consumption mix seen in other countries, when they were at a similar stage in retail.

Devangshu Dutta, CEO, Third Eyesight, pointed out that it was important to look at an Indian model of retail development given the kind of disparities that existed in the Indian market.

“It is as important to share the growth downwards as much as we are pulling it upwards in terms of aspirations,” he said.

Though the retail sector in India is expected to grow rapidly over the next few years, analysts point out that this will definitely not be a smooth ride.

As the market develops, it will see its share of ups and downs, and just because it’s at a nascent stage does not mean that the going will necessarily be good.

Retail as an Economic Engine






















Retail as an Economic Engine

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Zoozoo merchandise launched by Vodafone and Shopper’s Stop

Reported by Nikita Rana

For Brand Equity, on ET Now (a TV channel run by the Economic Times, Bennett Coleman Group)

17 November 2009

ZOOZOO_ET_NOW_Devangshu_Dutta.jpgThey’re egg-headed, have squeaky voices and formless pale bodies, but the viewers seemingly can’t get enough of them. Vodafone’s Zoozoos have now ventured into merchandise. The reason: public demand.

"Everyone loves the commercials. It’s almost like public demand, where people wanted some part of Zoozoos which they could own," said Rajiv Rao, National Creative Director of Ogilvy and Mather.

For the moment it’s just Zoozoo T-shirts, but one can look forward to the soon-to-launched Zoozoo mugs, linen and bathwear. They’re all set to shine at Shopper’s Stop. But are the takers queuing up?

Vinay Bhatia, Vice President, Marketing & Loyalty (Shopper’s Stop) states, "There are millions of Zoozoo fans in this country. There are more than 300,000 people who are members of the Zoozoo fan-page. Given those kind of numbers you can imagine the kind of market potential for merchandise of a brand like Zoozoos."

The Rs. 1,500 crores merchandise market in India is dominated by Disney, which has a share of Rs. 500 crores. Bollywood commands a share of Rs. 50 crores. The sector is small and competition is tough. So will the Zoozoos be able to carve a niche for themselves?

Kumar Ramanathan, Chief Marketing Officer of Vodafone Essar, clarifies, "We’re not interested in the size of the business. See, if it is business which we’re after then we would define the demand, size of market and all that. We thought this would be a decisive way to keep the connect in a much more visible, tangible manner, and bring the character to some kind of life."

In that case, what’s in it for Shopper’s Stop?

Vinay Bhatia explains, "When we’d done movie merchandising, in the case of Om Shanti Om, a movie which we merchandised for exclusively, we did about Rs. 6 crores of turnover. In recent times we’ve done a hit movie called Love Aaj Kal, where we did about Rs. 1.5 crores of turnover. A movie is typically restricted to about 6-8 weeks of key selling. I think in the case of an advertising character it is a number of years where the whole thing plays out."

Vodafone is a dynamic brand and its ad campaigns change quickly. Ogilvy is, in fact, working on a brand new campaign for the telecom major. So what happens to the merchandise when the ads go off air, and the Zoozoos aren’t top of mind anymore?

Devangshu Dutta, chief executive of Third Eyesight, says, "When the merchandise is on the market, and the character is on air, clearly it’s going to help the merchandise and vice-versa. If the two are delinked, if the ads are not running then there is bound to be some kind of an impact because the awareness levels would dip, or maybe even the bond that you have with the merchandise would get a little weaker."

While loyal Zoozoo lovers would queue up to pick a T-shirt worth Rs. 299, it is clear that even an optimistic estimated initial sale worth Rs. 6 crores will barely make a dent in the merchandise market. And leaving aside the actual sales of T-shirts and mugs, the real question is whether the merchandise will enable more loyalty and subscribers for Vodafone.

Consumption & The Role of Retail in Economic Growth  

(Based on a presentation at the CII National Retail Summit, Mumbai, November 2006)

View the PDF of the handout by clicking on the link at the bottom of the page.

Some years ago, a very lively and friendly conversation that I was having came to a dead stop when the other person got to know that I worked with the retail sector.

Her attitude towards me immediately underwent a dramatic change. From a normal human being, I suddenly became comparable to the “lowest of the low” on the planet. I was instantly accused of being “one of those who promote others to consume more and more, endlessly” (obviously to their and others’ detriment).

That incident seemed to typify for me the mind-set that we in India had fallen into – “dukandari” (shopkeeping) is bad, because it promotes ill-afforded consumption. We have reached that mind-set due to centuries of living a poor life pre-independence and, after independence, decades of good intent but poor practice.

Contrast that with the American philosophy that not only is consumption ‘good’ and necessary for economic prosperity – it is akin to God. In fact, from my point of view, much more to the other extreme…but that is another story.

However, the Indian attitude is certainly a strange contrast, since consumption, commerce, change are well-established and accepted in the traditional Indian schools of thought. Let me offer the two following examples, from millennia-old Indian philosophy:

  • The concept of “Purushartha” that offers a balanced view to managing life, bringing together Dharma (righteousness), Artha (wealth), Kama (sensory pleasure) and Moksha (communion with the Infinite). The physical and worldly is as important as ethereal and spiritual. As Arjuna is quoted in the Mahabharata: “Without Profit or Wealth, both Virtue and (the objects of) Desire cannot be won…Do not applaud poverty”.
  • The division of life into the four ashramas, Brahmacharya (Focus on Study), Grihastha (Focus on the World, Family), Vanaprastha (Withdrawal from the Worldly), and finally Sanyasa (Renunciation). Again, while the approach is not prescriptive, the weightage offered to each phase of life is equal. And grihastha, the worldly phase, is presented as the root that allows the others to flourish.

Clearly, there is a role for commerce and consumption-led economic development in the overall re-development of India. And I believe retailing as a sector has a very large role to play in this.

Retail’s Role as an Economic Engine

If we consider the hierarchy of economic development and subsequent impact, progressively we see:

  • Subsistence farming giving way to modern farming
  • Cottage industry developing into larger scale manufacturing
  • Small towns and poor villages transforming into a vibrant and balanced urban and rural Mix
  • Fragmented retail businesses growing into modern retailing, and
  • Generic merchandise paving the path for brand developmen

In this evolution tangible (touch-feel) values give way to intangible (imagined / perceived) values that are much greater in magnitude. In fact, the inflexion point really comes when the transition to modern retail happens. While the previous steps are essential for the growth of modern retail, the reverse impact of modern retail on those very steps – manufacturing, agriculture and urban development – is huge. At this stage, the economic development starts spiralling through this feedback loop.

Why is there such a wide and deep impact of modern retail on the other sectors? The prime factors are mainly three, and all have an impact on agricultural supply, manufacturing and other SME suppliers, town planning, services infrastructure, as well as having an impact on the socio-cultural environment.

Firstly, as retailers grow larger, into chains, the need for efficiency grows. Process and system-led planning and execution become the norm. Wastages or inefficient processes which may only be quirks in a small business, may be fatal in a larger one in a more competitive market. Second, a related factor, is the need for consistency across the chain since any modern retailer would wish to communicate certain core brand messages from each and every store. Both of these factors push the need for more structure into the supply base, whether farm or factory.

 

    The third major factor is the need for differentiation from competitors. As the market grows and matures, competitors’ offers can start looking very similar to each other. The successful players start pushing more product development, private label growth etc. which can help them stand out in the market. This has its own separate impact on the supply chain in terms of upgradation of product in terms of features, quality and benefits delivered to the consumer.
   

All this, of course, looks like the development path followed by the western economies over the last 150-years. And from the looks of it, this seems to be the development path being pushed by a lot of people in India, presumably aiming for the same result.

However, let’s pause for thought.

Need for An Indian Model

Economic growth or prosperity can be looked at in two ways – on average how prosperous a country is (in comparison with other countries), and what is the relative position of people within the country. Economists measure the second factor using the Gini Coefficient, which essentially measures the level of income inequality in a population. (A Gini Coefficient of 100% would theoretically be completely unequal with one person holding all the income in the country, and the lower the Gini indicates that incomes are more equal within the country. The more overall prosperous countries (such as the Scandinavian countries) have also more equal distribution of income within the country, while relatively poorer countries (such as in Africa and Latin America) tend to have higher Gini figures.)

The biggest problem that I see in the current push for consumption-led growth (retail-led growth) is that the focus is totally on the first measure (per capita GDP, average income etc.), rather than on the second. After decades of almost monastic self-denial, India seems now to be swinging to another extreme – an orgy of consumption.

Let me describe what I believe the problem is.

In this focus, there is a single minded focus on earning and spending “More” – if you want to fit in you need to acquire more, if you want to stand-out acquire something different (more), if you do not have something you need to acquire it (more), and if you do have something it is always good to have (what else!) more.

   

In itself is there a problem? After all, inequality is a fact of life, and can be good because it creates ambition and brings forth creative energy. But does that mean that more inequality must be better?

If we imagine the population of India to be a cylinder or a cone, we can visualise how aspirations to a better life are pulling everyone upwards. The problem arises when the aspirations that are raised cannot be fulfilled with the income available – that vacuum creates stress in the society. This is not a problem for the future; we already have ample evidence of it in our cities with the dramatically higher rates of crime related to money and aspirational wealth / spending.

   

Referring back to the Gini Coefficient, economists have also defined a certain optimal range – if incomes are too equal, then there is little incentive for self-driven growth, but if incomes are too unequal beyond that range then social injustice and dysfunction is more widespread.

India at the moment is actually rated to be almost in the middle of the optimal range. However, the business, economic and urban models being followed are more from the UK, the USA and China. And if we see where these countries are on the Gini Index, we find them outside the optimal range – on the more unequal side.

Can we even imagine the upheaval that moving along this path could cause in a country like India?!

So what is the solution? What should the Indian model be? And what role can retailers, especially modern retailers play in this?

I believe that it is high time we start creating economic growth where the maximum people are – in India’s case that is still the villages rather than the cities. Secondly, the small scale sector is the largest sector. The government needs to look more actively at policies that encourage agricultural development and the growth of small scale sector companies. If we need buzzwords to create a wave, let’s use “Agricultural Product Outsourcing” (APO) as a buzzword; let’s drive India’s strengths in “Small Production Outsourcing” (SPO)!

Similarly, retailers need not get cowed down by the mega plans announced by the likes of Reliance and Bharti – India can accommodate hundreds, maybe thousands, of farm-to-fork initiatives.

Retailers need to shift their attention from the assumed middle class (who are actually quite rich) to the true middle class. (I’ve written elsewhere about that issue.)

Development of domestic brands is another area where retailers can have a huge impact – as we mentioned, the emergence of strong domestic brands has a huge impact on the economic profile of the country. And in most cases, the most successful brands actually grow out of small scale businesses that are commonly dismissed as mom-and-pop or pop-and-son! Modern retail can have an enormous impact in supporting the emergence and growth of these in India.

I do believe that successful retailing is not about throwing mega-bucks at real estate and advertising, or paying humongous salaries. Apologies if this sounds completely contrary to the “gung-ho” feeling that most people have about the retail sector. But the sooner we face this issue and tackle it wilfully, the better it is – for all of us, including the retailers.

We need to start looking at retailing from a completely different angle, and look at its role in creating a new economic profile of India. Retailers need to critically look at how they interact with the rest of the economy in a totally new way.

Once we are able to do that, we will also be able to make the shifts that are necessary to create a more sustainable economic environment and more widespread prosperity. And that is most definitely in the interest of the retailers. “Inclusive growth” should be more than a buzzword for retailers – it is the way for them to create sustainable growth for their own businesses.

So – in this context – if you are a retail entrepreneur, or a retail employee, what’s your resolution for 2007?

   

(c) Devangshu Dutta, November 2006

Devangshu Dutta is chief executive of Third Eyesight, a consulting firm focused on the retail and consumer products sectors. This article expresses his personal opinions and is based on a presentation made at the CII National Retail Summit, November 2006 (open PDF). The speaker panel also featured Ireena Vittal (McKinsey & Co.), Roopa Purushottaman (Future Group / Pantaloon Retail), Suman Bery (Director General of the National Council for Applied Economic Research – NCAER).

 Consumption & The Role of Retail in Economic Growth(Extract based on a presentation at the CII National Retail Summit, Mumbai, November 2006)

If we consider the hierarchy of economic development and subsequent impact, progressively we see:
• Subsistence farming giving way to modern farming
• Cottage industry developing into larger scale manufacturing
• Small towns and poor villages transforming into a vibrant and balanced urban and rural Mix
• Fragmented retail businesses growing into modern retailing, and
• Generic merchandise paving the path for brand development

In this evolution tangible values give way to intangible values that are much greater in magnitude with the inflexion point coming when the transition to modern retail happens. The reverse impact of modern retail on those very steps – manufacturing, agriculture and urban development – is huge. At this stage, the economic development starts spiraling through this feedback loop.

The prime factors for such a wide and deep impact of modern retail are mainly three, and all have an impact on agricultural supply, manufacturing and other SME suppliers, town planning, services infrastructure, as well as having an impact on the socio-cultural environment.

Firstly, as retailers grow larger, into chains, the need for efficiency grows. Process and system-led planning and execution become the norm. Second, a related factor, is the need for consistency across the chain since any modern retailer would wish to communicate certain core brand messages from each and every store. Both of these factors push the need for more structure into the supply base, whether farm or factory. The third major factor is the need for differentiation from competitors. The successful players start pushing more product development, private label growth etc.

All this, of course, looks like the development path followed by the Western economies over the last 150-years. Unfortunately, this seems to be the development path being pushed by a lot of people in India.

Economic growth or prosperity can be looked at in two ways – on average how prosperous a country is (in comparison with other countries), and what is the relative position of people within the country. Economists measure the second factor using the Gini Coefficient, which essentially measures the level of income inequality in a population. A Gini Coefficient of 100% would theoretically be completely unequal with one person holding all the income in the country, and the lower the Gini indicates that incomes are more equal within the country. The more overall prosperous countries (such as the Scandinavian countries) have also more equal distribution of income within the country, while relatively poorer countries (such as in Africa and Latin America) tend to have higher Gini figures.

The biggest problem that I see in the current push for consumption-led growth (retail-led growth) is that the focus is totally on the first measure (per capita GDP, average income etc.), rather than on the second.

In this focus, there is a single minded focus on earning and spending “More” – if you want to fit in you need to acquire more, if you want to stand-out acquire something different (more), if you do not have something you need to acquire it (more), and if you do have something it is always good to have (what else!) more.

Chasing Youth

Normal human tendency is to label what one doesn’t understand. And so we call the younger members of society by various names – youth, teens etc. By putting them into categories of age, we claim complete understanding of what they are, what moves them, and what they want, in effect adopting convenient disguise for the fact that we actually don’t have a clue.

My personal favourite term is “tweens”. In my dictionary, tweens are that magical, difficult, weird age somewhere in the region of 10-16 years, give or take a couple of years, when one is not quite an adult to be allowed an opinion, and not quite young enough to be indulged one. I believe that is why rebellion is the hallmark of the tweens and the teens.

Let’s look at the broad segment of the young (under 20) population – about 450 million individuals in India are estimated to be below 20 years of age. 105 million individuals are in the age group of 15-19 years, already in their early years of discretionary consumption. About 112 million individuals are in the 10-14 years segment – within 5 years many of these will be making career choices, and in another 5 years most would have already begun earning and spending. Imagine the power of the tweens and the teens.

However, this is not one homogenous mass of youngsters who think in the same way. Some, of course, will be a typical marketer’s delight – gulping heavily-advertised colas and wolfing down pizzas and burgers at a birthday party with their pals, while demolishing each other on the latest game console. Others may only be aspiring to acquiring a fraction of such a lifestyle in their later years. Many – too many – will not only not have these things, but may not even be able to dream of a lifestyle that looks much different from their parents.

Some are motivated by firang lifestyles, and may look at the earliest opportunity to apply for a student visa in the west. Others are surprisingly loyal to the idea of staying within the country, and actually contributing to progressing it. An increasing number find their “Indian skin” very comfortable to wear, even while moving in rhythm with a semi-westernized lifestyle.

They’ve got a whole bunch of different ideas about relationships. To many, career options are always wide open and whoever works for life in one job may have no other options. Yet, when it comes to personal friends, the buddies from pre-school may still be the ones they hang around with.

Clearly age, then, is not the key differentiating or grouping factor. Neither, it would seem, is income or education. SEC segmentation more or less breaks down when dealing with the youth. There are many, possibly hundreds of segments for a marketer to deal with.

“What’s hot” may change every week – if it’s really hot, it may stay around 3-4 months. RDB ( Rang De Basanti ) was a protest against the society the young are inheriting, and its candle-light march was emulated for many a cause. But Munnabhai is cool today, and Gandhigiri is now the road to follow. On the other hand – are these really two sides of the same coin?

Some very global trends catch on very fast, while others are uniquely Indian.

So how does one make sense of this kaleidoscope? How is a marketer to predict what will appeal to the most consumers? How can we lead the consumers into our store, to our brand counter, to the product that we want to promote?

If I were to pick one learning for the youth market that made – and still makes – youth markers successful, it is the fact that they do not predict fashion and trend. They do not attempt to lead the consumer but follow diligently. They identify the opinion leaders, identify with them, and understand what’s hot with them. Then they place their bets – a lot of them, well-spread out. Sure, not all of them are right, but it’s a whole lot better than trying to predict fashion 8-12 months in advance.

An equally critical step is to let go of the trend even as it is being picked up by others. After all, if you’re really with it, by now you ought to have identified the next hot trend rather than flogging the same horse that everyone else is on.

Here a newsflash, the youth are bright, for all the appearance of vacuity; extremely opinionated, despite the apparent boredom they display; fully-charged up with the current domestic social concerns and a clear view – well-informed or not – of what’s happening around the world.

We’ve seen some successes in the Indian market, with a few companies being at the forefront of trying to understand and cater to the youth with offerings that are innovative and promotions that talk to them in their language. And yet, most companies are still working at them in the same mould as they were a decade ago, while others are simply trying to transplant strategies that worked in another country.

The largest market opportunity in decades is going a-begging. What’s going to be your platform to make the connection? What’s the relevance of your message? Unless you’re listening to the youth, they’re unlikely to be listening to you.

 SISLEY BREAKS INTO THE INDIAN MARKET

From: www.just-style.com, 31 October 2006

Benetton brand Sisley has entered the Indian market with a store in capital New Delhi.

The store, which is almost 400-sq-m big, contains Sisley women’s and men’s clothing collections plus accessories ranges.

Speaking at the official opening of the store, Benetton Group chairman Luciano Benetton said: “The launch of our trendsetting label in India strengthens Benetton’s presence on a market that is strategic for us, and with which relations are becoming increasingly strong and profitable.

“The expansion plan includes not only the opening of new stores in Delhi, but also the exporting of this experience to other major Indian cities. I am certain that Sisley will gather the same success and the same admiration which sophisticated
Indian customers have shown United Colors of Benetton.”

Top fashion brands have been increasingly investing in the Indian market recently as its retail sector, helped by an increasingly affluent consumer class, continues to accelerate its pace of growth.

As Devangshu Dutta, chief executive of advisory and business services firm Third Eyesight, said earlier this year: “With growing urbanisation, we see a sustained growth in the (Indian) consumer market. Credit and debit spending is rising by 30%-40% a year.”

1968-established Sisley has 850 retail outlets globally. Benetton’s other brands include United Colors of Benetton, Playlife, and Killer Loop.

Benetton India said in June it plans to open 100 stores in India by the end of the year, adding to its existing chain of 80 stores.

The company is also developing India as a sourcing hub for its Asian market, which it has identified as the growth engine of the future.

CHASING YOUTH

By Devangshu Dutta (Column from The Economic Times – 31 October 2006)

Normal human tendency is to label what one doesn’t understand. And so we call the younger members of society by various names – youth, teens etc. By putting them into categories of age, we claim complete understanding of what they are, what moves them, and what they want, in effect adopting convenient disguise for the fact that we actually don’t have a clue.

My personal favourite term is “tweens”. In my dictionary, tweens are that magical, difficult, weird age somewhere in the region of 10-16 years, give or take a couple of years, when one is not quite an adult to be allowed an opinion, and not quite young enough to be indulged one. I believe that is why rebellion is the hallmark of the tweens and the teens.

Let’s look at the broad segment of the young (under 20) population – about 450 million individuals in India are estimated to be below 20 years of age. 105 million individuals are in the age group of 15-19 years, already in their early years of discretionary consumption. About 112 million individuals are in the 10-14 years segment – within 5 years many of these will be making career choices, and in another 5 years most would have already begun earning and spending. Imagine the power of the tweens and the teens.

However, this is not one homogenous mass of youngsters who think in the same way. Some, of course, will be a typical marketer’s delight – gulping heavily-advertised colas and wolfing down pizzas and burgers at a birthday party with their pals, while demolishing each other on the latest game console. Others may only be aspiring to acquiring a fraction of such a lifestyle in their later years. Many – too many – will not only not have these things, but may not even be able to dream of a lifestyle that looks much different from their parents.

Some are motivated by firang lifestyles, and may look at the earliest opportunity to apply for a student visa in the west. Others are surprisingly loyal to the idea of staying within the country, and actually contributing to progressing it. An increasing number find their “Indian skin” very comfortable to wear, even while moving in rhythm with a semi-westernized lifestyle.

They’ve got a whole bunch of different ideas about relationships. To many, career options are always wide open and whoever works for life in one job may have no other options. Yet, when it comes to personal friends, the buddies from pre-school may still be the ones they hang around with.

Clearly age, then, is not the key differentiating or grouping factor. Neither, it would seem, is income or education. SEC segmentation more or less breaks down when dealing with the youth. There are many, possibly hundreds of segments for a marketer to deal with.

“What’s hot” may change every week – if it’s really hot, it may stay around 3-4 months. RDB ( Rang De Basanti ) was a protest against the society the young are inheriting, and its candle-light march was emulated for many a cause. But Munnabhai is cool today, and Gandhigiri is now the road to follow. On the other hand – are these really two sides of the same coin?

Some very global trends catch on very fast, while others are uniquely Indian.

So how does one make sense of this kaleidoscope? How is a marketer to predict what will appeal to the most consumers? How can we lead the consumers into our store, to our brand counter, to the product that we want to promote?

If I were to pick one learning for the youth market that made – and still makes – youth markers successful, it is the fact that they do not predict fashion and trend. They do not attempt to lead the consumer but follow diligently. They identify the opinion leaders, identify with them, and understand what’s hot with them. Then they place their bets – a lot of them, well-spread out. Sure, not all of them are right, but it’s a whole lot better than trying to predict fashion 8-12 months in advance.

An equally critical step is to let go of the trend even as it is being picked up by others. After all, if you’re really with it, by now you ought to have identified the next hot trend rather than flogging the same horse that everyone else is on.

Here a newsflash, the youth are bright, for all the appearance of vacuity; extremely opinionated, despite the apparent boredom they display; fully-charged up with the current domestic social concerns and a clear view – well-informed or not – of what’s happening around the world.

We’ve seen some successes in the Indian market, with a few companies being at the forefront of trying to understand and cater to the youth with offerings that are innovative and promotions that talk to them in their language. And yet, most companies are still working at them in the same mould as they were a decade ago, while others are simply trying to transplant strategies that worked in another country.

The largest market opportunity in decades is going a-begging. What’s going to be your platform to make the connection? What’s the relevance of your message? Unless you’re listening to the youth, they’re unlikely to be listening to you.

The author is CEO of Third Eyesight (More articles on www.thirdeyesight.in/articles.htm )

The Chindia Equation


The economic expansion of these two neighbouring giants is frequently tracked, analysed and compared. Last month, the ChIndia conference gave the relationship a closer look.

By Anthony Lin

hina and India. India versus China. China or India. The relationship between the two anc ient civilis ations a nd behemoth countries has been viewed and versed in various contexts, on numerous levels and under different lights. Particularly in recent years, as these two neighbours – home to nearly two-fifths of the world’s population – seemingly chase each other around the global economic circuit.

Yet, as government and business leaders on both sides of the Himalayas insist, it is not a race, nor is there a definitive finish line. They prefer to raise and realise mutual benefits in an era of simultaneous and parallel development.

In September, a group of professionals and entrepreneurs from China and India gathered in Shanghai to advance that objective at the business level. The occasion was the ChIndia Forum 2006, organised by the China Supply Chain Council (CSCC) – and the mantra was cooperation.

“When it comes to India-China ties, I believe it’s only limited by our imagination,” says Vishnu Prakash, Consul General of India in Shanghai, during the opening remarks. Common depictions that pit the two countries against each other are inaccurate, Prakash believes, suggesting instead, “What about India plus China?”

Twin Engines

Bilateral economic ties are strengthening, as Prakash pointed out. Trade between China and India grew to USD18.7bn last year. “That will easily surpass USD20bn this year,” he says, foreseeing the figure to reach USD50bn by 2010.

For the second time this year, the Asian Development Bank (ADB) raised its 2006 growth forecast for Asia, excluding Japan, and attributed the adjustment to “strong performance” in both China and India. The Manila-based lender says, in its Asian Development Outlook 2006 Update – released on 6 September, the same day that ChIndia was taking place – that the region’s developing economies will expand 7.7 per cent this year, up from April’s forecast of 7.2 per cent.

China is outpacing the other economies in the region. “Acceleration in growth in China, due to booming investment and exports, has significantly influenced this regional upward revision,” the ADB says. It adjusted China’s growth projection from 9.5 per cent to 10.4 per cent, and India’s from 7.6 per cent to 7.8 per cent. Together, however, the countries are the twin engines of Asia’s growth, accounting for half of the region’s economy.

Divergent Developments

Participants of ChIndia were keen to highlight the distinctions between China and India, as they analysed various business sectors. The two countries are most intimately bound by their immense economic potential and, in business terms, their seemingly boundless markets. Otherwise, they are distinct nations on divergent paths of development and with dissimilar business structures.

Basic contrasts in political systems help explain some of the differences for doing business in the two countries, says Laurentius Metaal, Managing Director of Lehman & Co., a Beijing-based business advisory firm. The Chinese government is “capable of making fast yet unpopular decisions,” says Jim Ridgwick of Deloitte Consulting, and its strong economic involvement means that the “industrial sector is based on a subsidised model,” says Metaal. By comparison, India’s federal system makes it “hard to push through reforms,” but its economy may be “far more efficient.”

Thanks to the state-directed opening to external trade and investment, China has achieved a “much more integrated” economy, contributing to six per cent of global exports of goods and services in 2004, according to Heiko Bugs, Principal Consultant at Fiducia Management Consultants. India’s share was one per cent during that year. Comparing labour costs between the two markets reveals minimal differences, according to Bugs, but China’s significantly higher literacy rate among factory workers “can have a big impact” on production. When it comes to sourcing, finding a proper supplier is an “easier task” in India, given the availability of information, says Ridgwick. In China, there’s more need to check cross-references and much of suppliers’ information is often outdated. “You need to be really creative in terms of where you find suppliers from,” he says.

In the retail sector, the distinctions between China and India are stark. China’s savings rate is more than four times that of India’s: 94 per cent to 22 per cent, respectively. Despite a larger middle class, says Paul French, Director of Access Asia, India has “virtually no foreign retailer penetration,” while 97 per cent of its sales are via ‘Mom ‘n Pop’ stores. “In India, brands have the power,” he says. “In China, retailers have the power. In that sense, it’s a complete reversal.”

Cooperative Convergence

As it laid out the distinctions, ChIndia also marked several points of convergence. Trade of goods and services, after all, has always been based on comparative advantages. In a sector where one country lacks know-how, the other can fill it with skills and investment. That is perhaps most “What’s happening today is it’s not about having R&D in one place. It’s having R&D centres across different time zones,” says Anand Rangachary, Director, South Asia and the Middle East, at Chennai-based Frost & Sullivan. “The advantage is that you’re not completely dependent on one person.”

U.S.-based IT firm Cognizant, which has 23,000 workers in Kolkata, employs 200 people i n Shangha i ’ s Zhangjiang Semiconductor Park. China’s skills base is as immense as its market access, one that can be extended to Japan and Korea. “That, we believe we can leverage best with a development centre in China,” says Atanu Mukherjee, the firm’s Chief Architect.

Chinese companies a lso have an opportunity to invest in various sectors in India, particularly its under-developed infrastructure. Whereas Indian companies have been “aggressive” in pursuing manufacturing opportunities in China, “I don’t see many Chinese companies looking to India,” says Bugs of Fiducia. “I think this is an oversight.”

“Both China and India will continue to grow in manufacturing,” says Ridgwick of Deloitte. “We cannot think of global manufacturing without a China and India strategy. There are benefits for both countries to collaborate.” An ideal scenario would be to leverage the “unique advantages” of both nations, says Bugs. Motorola has set up an R&D centre in Bangalore and a manufacturing facility in Tianjin. “Together, you can reap the benefits of both countries.”

Why Now and How?

and attract investment from China or elsewhere, its business leaders are optimistic about “turning current challenges into opportunity,” says lawyer Zarir Bharucha, of Bharucha & Associates. For business communities on both sides, China and India may still be looking over their respective shoulders, but the race is becoming more of a relay than an all-out sprint.

This first Ch India ’s event will be replicated in India – and, when it comes to China plus India, there are certainly myriad issues be discuss.

The Chindia Equation

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Everyone wants a slice of retail

CHAITALI CHAKRAVARTY & BHANU PANDE NEW DELHI
[ THURSDAY, OCTOBER 19, 2006 01:44:20 PM]

CALL it the Reliance effect! The retail boom has sent the aspirations of small regional retailers soaring. Delhi-based pharmacy chains, Guardian and 98.4, garment retailer Ritu Wears and Bombay Selections, department store Big Jo’s , VMart , Gokul Mart and SRS, South Indian durables retail chain Viveks are all engaged in talks with banks, high networth individuals (HNIs) and private equity funds to raise money for expansion. Not surprisingly, scores of terms sheets and investment seeking proposals are floating in the market.

For instance, Guardian Life Care is looking to raise $20m and is in talks with a few PE firms. “We want to put in place 2,000 – 3,000 outlets in the next five years and the fund we are raising will help implement our first phase of expansion (600-700 outlets),” says Ashutosh Garg, CMD, Guardian Life Care. Similarly, South Indian durables retail chain, Viveks, wants to raise around Rs 150 crore to complete its expansion in the South . Subsequently, it has plans to go for an IPO to fund its pan India expansion. Gokul Mart and Bombay Selection are looking for funds to open 10 new stores. Small retailers have sought the help of financial consultants who can devise innovative ways to raise funds. Says Jyoti Gadia , director of Resurgent India, a management and financial consultancy, which has the mandate from six retailers to tie-up funds, “Banks put forth too many conditions on small players. Under such circumstances , we have to look at new ways of raising funds. Credit card securitisation is one of them.” According to him, many HNIs have also shown interest in the retail sector. “Some of the retailers want only Rs 25-30 crore to help them open the first few stores and that’s not much for an NRI,” says an industry source.

Even private equity players find the sector interesting as most retailers are no longer single store entities. As they show reasonable scalability, PE firms see a clear exit prospect,” says Devangshu Dutta, CEO, Third Eyesight, a retail consultancy. “On the other hand, small retailers are finally showing appetite for external investors and willingness to share ownership.”

For instance, last month PE fund Actis invested $65m in the Nilgiri’s group, a South Indian food brand. GIC Special investments from Singapore has joined Actis in making this investment. The funding provided by Actis will be used to expand the company’s South Indian franchise network and strengthen its supply chain and distribution capacity as well as to expand the group’s food manufacturing operations.

Reliance books prime space in Ansal malls

New Delhi: With the fight for retail space heating up, Reliance Industries, which has major plans for this sector, has reached an understanding with Ansal Properties and Infrastructure (APIL) for taking up the anchor space in the real estate major’s upcoming mall projects, report Mayur Shekar Jha & Joji Thomas Philip. According to sources, the first of the deals has already been signed, under which Reliance Retail will be the anchor tenant in the upcoming Ansal Plaza malls in Greater Noida and Palam Vihar, Gurgaon. Even as sources confirmed the development , this comes as a blow to Shoppers’ Stop, which is currently the anchor tenant in most of the Ansal Plazas. This move also assumes importance considering that APIL has already outlined plans to build about 18 new malls, most of which would be located in tier II and III cities. “With Reliance Retail too actively targeting these cities, the company can now ride on the APIL’s infrastructure,” sources added. When contacted, an Ansal Properties and Infrastructure (APIL) spokesperson said, “We are hopeful of a long lasting relationship with Reliance, but there is no formal agreement as such.”

Everyone wants a slice of retail

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