admin
December 10, 2011
Vishal
Krishna
Businessworld,
December 10, 2011
The government blinked. After battling the political opposition
for about two weeks, the government backed down from introducing
a policy allowing foreign direct investment (FDI) in multi-brand
retail.
The expectations of corporate India and the people at large were belied; you could hear the collective whoosh of disappointment. Then came some repressed anger, especially among captains of industry, at the political wrangling over what many of them see as a policy that is in the public interest.
Others were cynical. “It was expected,” says Shrinivas Rao, CEO (Asia-Pacific) of Vestian Global, a real estate advisory. “The geopolitical risk is large; big box retail will wait and watch for positive vibes from the states.” But from all indications, it might be a long wait, and we will probably see little.
“It was clear that when the Cabinet said yes to 51 per cent foreign investment in multi-brand retail and 100 per cent in single brand retail, it didn’t quite mean an all-clear to accelerated development of modern retail in the country,” says Devangshu Dutta, CEO of Third Eyesight. But, he says, the debate is not over. The states have the power to let foreign-owned retail businesses operate within their boundaries, so local and regional political parties have an impact on retailers’ expansion strategies.
The political skittishness revolves around three factors: the interests of ‘small’ farmers and the wider farming community that might get squeezed by big, organised retail; the mom-and-pop stores that will give way to large supermarkets and job losses; and, the middlemen that proliferate in the retail business.
Food For Thought
Food accounts for more than 70 per cent of all retail trade,
and fresh agricultural produce is a big chunk. On an average,
about 190 million tonne of fruits and vegetables are produced
each year; farmers get about a third of the price realised from
the customer. In organised retail markets, that number is about
two-thirds.
Letting in FDI in building backend infrastructure — cold chains and logistics — would improve farmer’s realisations. Yet, there are just over 5,500 standalone cold storage facilities, 80 per cent of which hold one vegetable: potatoes. Government statistics have put the waste of produce — including foodgrains — in the absence of cold chains and storage at 18-20 per cent.
In the absence of organised retail — which would grow if there is FDI in the backend because domestic companies lack both the technology and the financial capital to build it — the share of SMEs in manufacturing has fallen from nearly 35 per cent in 1999-2000 to less than 30 per cent in 2009-10. In both cases, the case for allowing FDI in retail seems self-evident; yet, it has not been made possible. Some of it has to do with state politics; the powerful agricultural produce marketing committees (APMCs) seem to be a stumbling block. The APMC Act and middlemen play an influential role in shaping FDI policy.
For years, retail trade has been a shock absorber; part-time agricultural labourers, laid-off factory workers and migrants have found employment in retail trade. Even skilled labour has found refuge there.
Take the textile workers of Mumbai: after the strike that closed down Mumbai’s textile factories, workers found jobs in the street food industry of the metropolis, many becoming entrepreneurs, thriving in their new-found vocations.
Here’s the takeaway: what most miss is that a huge part of employment in retail trade is not visible, but nevertheless exists, even if not captured in the official employment statistics. FDI in retail could help change that, as technology and practice bring the reality to the fore.
What Foreign Retailers Think
Companies such as Walmart, Tesco and Carrefour that have been waiting for progress on the FDI policy for retail have been rather quiet. Metro Cash & Carry, a wholesaler, has indicated it won’t enter the front end of the retail business.
But the disappointment is tangible. “Direct and in-time sourcing is the key for the success of modern retail,” says Viney Singh, CEO of Spar Hypermarkets, a retail firm. “The time is right, and any political delays will not be good signs for the global investing community.”
Allowing FDI in the backend would have resolved supply-chain problems to some extent. “Retail helps local manufacturing, creates jobs and drives product to market faster,” says Mark Ashman, CEO, HyperCity Retail India.
“The proposed FDI policy presents retailers with an unprecedented opportunity to expand into Tier-2 and Tier-3 cities,” says Pankaj Renjhen, managing director (retail services), Jones Lang LaSalle India. A report by his firm says that the entry of large retailers into non-metros would catalyse consumer demand.
“It is a missed opportunity, which would have created over 10 million new jobs in three years, curbed agricultural wastage, benefited farmers with better remuneration for their produce and brought down prices of many commodities for consumers,” says D.S. Rawat, secretary-general, Assocham.
Bleeding Indian retailers such as Provogue and Koutons could have sold out. Kishore Biyani’s Pantaloon has over 1,000 stores and getting a partner with the capital would reduce the debt burden.
“People were keen on FDI because of the valuations created with so many stores with a loose backend being ready; people scouting for foreign buyers would have made money after all these years,” says Akash Gupt, executive director (tax and regulatory services), PricewaterhouseCoopers.
Foreign investment could change the way India retail firms function. But for now, most proponents of the policy will have to swallow their disappointment and hope that the government gets its act together enough to put it back on the agenda: the sooner, the better.
(Read: "Debate on FDI in Retail — More Heat than Light")
admin
December 2, 2011
Indrajit Basu
China Daily Asia Pacific, December 2, 2011
Some predict it will herald a consumer revolution in the huge
retail sector, some forecast doom for countless small traders
and farmers.
The country’s business and political class has been divided down the middle ever since the central cabinet decided to throw open the retail sector to foreign investors.
While the industry calls it a “landmark decision”, the United Progressive Alliance (UPA) government is feeling the heat, both from outside and within. Opposition parties as well as some key UPA allies demand an immediate rollback, or else they threaten to paralyze Parliament.
Thousands of small traders, farmers and retailers are holding protest rallies across the country fearing that foreign retailers could deprive them of their livelihood.
After almost a decade of foot-dragging and consensus building, the Indian government approved a plan to let foreign investors hold a 51 percent stake in multi-brand retail. The plan also allows foreign investment cap to be raised to 100 percent from 51 percent for single brand retail operation.
Besides allowing global retailers like Walmart, Carrefour, Tesco and IKEA to sell directly to Indian consumers, the relaxed FDI norms will enable fashion brands such as Gucci, Mango, and Zara to open exclusive stores.
That apart, the move would help several troubled organized local retailers to raise money by selling stakes to foreign investors.
“We are absolutely thrilled and have been waiting for the day,” said Gregg Mowins of IKEA in a statement while Raj Jain, chief executive of Bharti Walmart, the 50:50 wholesale joint venture between Walmart and Bharti Enterprises, said the move is “fine”.
Kishore Biyani, the founder of Pantaloon, India’s largest local retailer, predicted the sector could attract as much as $10 billion in 5-10 years. According to him, it’s the “beginning of second generation reforms”.
It is predicted that the burgeoning middle class in Indiawill help the sector generate over $450 billion in annual revenues. Analysts say the 400 million strong, and growing rapidly, middle-class Indians, will transform the sector to a $675 billion behemoth in five years.
The new policy could bring many indirect benefits too. Commerce and industry minister Anand Sharma has said opening of multi-brand retail will not only bring down inflation, the resultant inflow of foreign funds may also help Indiafinance the current account deficit.
“It will also unfold immense employment opportunities for rural youth and make them stakeholders in the agri-business chain from farm to fork,” Sharma said in an open letter.
Nonetheless, with many issues and agendas at play and conflicting views emerging, the issue may be generating “more heat than light”, says Devangshu Dutta, chief executive of Third Eyesight, a consulting firm.
Already all opposition-ruled states, and some UPA allies are against the move. Even some Congress-ruled state governments in Haryana and Kerala are wary of the possible consequences of global retail giants Walmart and Tesco doing business in their states.
“We have no evidence that it will be beneficial for small businessmen,” said Amit Mitra, the finance minister of the state of West Bengalwhich is ruled by key UPA ally, Trinamool Congress.
Admittedly, there will be winners and losers.
According to Dutta, losers will include simple intermediaries and low-value wholesalers who have a diminishing role in a better-connected economy. However, he adds, “The fact is that most of them would anyway be losing in absolute or relative terms to the large Indian retailers over the course of the next few years; it would be naive, even dishonest, to suggest otherwise.”
According to an academic, liberalization of retail is good news, but the government must put in place a few complimentary measures.
“FDI in retail’s biggest hurdle will be infrastructural issues like lack of suitable supply chain, lack of real estate availability, high power cost, etc.,” says Professor Arpita Mukherje of National Council of Applied Economic Research.
First, Indiamust scrap the Agricultural Produce Marketing Committee Act, which denies farmers and buyers the freedom to buy and sell freely and empowers a group of middlemen, she says
“Besides, there are strict conditions in the policy as well,” says Mukherjee.
According to the policy, global retailers must invest a minimum of $100 million upfront (of which half must go into back-end infrastructure) and source at least 30 percent of their products from small domestic industries or village craftsmen.
The government, too, will have the first right to procure farm products.
“Retailers across the world are bleeding; it remains to be seen how foreign retailers react to these conditions,” says Mukherjee.
Dutta feels there will be a period of “wait and watch to see how the new policy affects India’s retail. It will take a while to build momentum”.
Likewise, BS Nagesh, vice-chairman of Shoppers Stop, another major local retailer, says FDI in multi-brand retail will help only those looking at divesting their stakes or those looking for partners.
Meanwhile, the Ministry of Commerce and Industry on Nov 28 reviewed the sourcing clause to mandate a minimum 30 percent sourcing “from Indian micro and small industry having capital investment of not more than $1 million”.
In a desperate effort to pacify the opposition, the ministry also added that the clause was changed, “to encourage domestic value addition and manufacturing, thereby creating a multiplier effect for employment, technology upgrade and income generation”.
Earlier, the policy had said, “Thirty percent sourcing is
to be done from micro and small enterprises which can be done
from anywhere in the world and is not India-specific.”
(Read: "Debate on FDI in Retail — More Heat than Light")
admin
December 1, 2011
The
Times of India
Bangalore,
December 1, 2011
Traders in Karnataka are livid at the Centres move to allow 51%
FDI in multi-brand retail. The state is home to lakhs of processing
units which, traders fear, might take a hit. The FDI in retail
creates predatory pricing, says Bharath Shah, vice president,
southern chapter, Confederation of All India Trades (CAIT), New
Delhi.
Karnataka, for instance,has over 25 lakh processing units involved
in dehusking and processing dal. Big retailers are capable of
sourcing close to 30,000 bags of these on a daily basis, whereas
a kirana owner can manage only 200. This creates monopolistic
pricing in the market, he added. In the FDI policy, the government
has mandated 50% investment by foreign partners in the back-end
subject to a minimum investment of $100 million.
Retail experts played down the fears of kiranas losing out to
big retail. The opening up of the retail sector will benefit ancillary
development.Supply chain and transportation is ancillary to retail
that will reduce wastage from farm to fork, said Anil Talreja,
partner at consultancy firm Deloitte.
Trade associations feel the government advocating FDI in multi-brand retail to bring down inflation is quite contrary to its stance. The government itself, through the finance minister informed the Parliament that high inflation is due to high global food prices. If thats the position,how will FDI bring down inflation, said JR Bangera, president, FKCCI.
A section of the industry feels government needs a calibrated
approach for introducing FDI in the retail sector. Devangshu Dutta,
chief executive at retail consultancy Third Eyesight, says states
retain the power to allow or disallow foreign-owned retail businesses
from operating within their boundaries,and local and regional
political parties would certainly have an impact on retailers
expansion strategies.
Dutta draw a parallel with China where it took 12 years to
liberalise its FDI regime. It first allowed FDI in retail in 1992
at 26%,took another 10 years to raise the limit to 49%,and allowed
full foreign ownership in 2004,but only in certain cities. It
even revoked some previously granted approvals to reduce foreign
retailers footprint, he added.
Despite all the anomalies,Dutta feels the retail sector is
capital intensive and large Indian retailers can use foreign equity
and cheaper foreign debt to reduce high-interest domestic debt,and
infuse more funds into growing the store footprint.
Consumers,too,say they might see a shift if the retail FDI is allowed. Fisheries businessman from Indiranagar, S Guha, makes his weekly trip to Nilgiris store on Brigade Road to buy his weekly stock of staples and greens. Old habits die hard. I’m loyal to Nilgiris, he says, an interesting observation given the FDI hullabaloo. We will see a shift in shopping patterns that may lead to over-consumption, he said. Deep-discounting products will not only stimulate demand,but will keep customers away from kiranas and neighbourhood shops,he said.
(Read: "Debate on FDI in Retail — More Heat than Light")
admin
November 30, 2011
Shuchi
Bansal, Abhilasha Ojha & Gouri Shah
MINT,
New Delhi/Mumbai, November 30, 2011
Indians who can afford the good things in life may soon be able
to browse for exclusive labels without having to leave the country
following recent changes in investment rules.
The controversy that’s been touched off by retail reforms
has been focused on the key decision to allow 51% overseas investment
in multi-brand retailing. The move to increase the 51% limit on
foreign direct investment (FDI) in single-brand retail to 100%
hasn’t attracted as much attention, but could see a change
in existing relationships plus lead to a transformation of the
Indian high street, such as it exists in upscale malls and shopping
districts.
Other labels that aren’t visible in India but may be persuaded
by the rule change are UK-based Arcadia Group Ltd’s brands
such as Topshop, Dorothy Perkins, Miss Selfridge and Burton, besides
labels from GAP Inc. that include Banana Republic, GAP, Piperlime,
Athleta and Old Navy.
Experts say that most luxury brands would want 100% ownership
. That’s because the earlier 51% rule, which dates to 2006,
didn’t enthuse those who prefer to go solo in order to preserve
brand integrity.
There are many labels wanting to enter the market with their
own operations, said Ankur Bhatia, executive director, Bird Group
Pvt. Ltd, a Delhi-based company with interests in aviation services,
retail, travel and technology.
“Many premium brands have global mandates that they don’t
want to work through a franchise agreement and be in the country,”
he said. Brands such as GAP and Prada, have been waiting for this,
wanting to see if the environment is right for them, he said.
Prada’s international office in Milan refused to comment
on the story. GAP and Arcadia Group did not respond to queries.
Swedish fashion retailer Hennes and Mauritz said that while India
was an interesting market, it was too early to comment on stores
in the country.
“There are no concrete plans for if, and in that case when,
we would open stores there,” said a company spokesperson.
The rule change could lead to existing partnerships, which were
mandated by the old rule, breaking up as foreign brands seek to
control operations and strategize in accordance with global directives.
International brands such as Louis Vuitton, Christian Dior, Bottega Veneta, Canali, and Jimmy Choo are among those that have entered India through local subsidiaries, joint ventures and franchisees. Some brands may have already begun the groundwork to understand the market better. Ashok Goel, luxury brand consultant to many high-end watch companies and distributor for the likes of Hublot, Breitling and Gucci in India, has been asked to prepare a plan for independent stores. The upscale watch brand also wants Goel’s company to manage the stores.
“Basically, I have told them to wait till there is more
clarity on the FDI policy,” Goel said.
The government is currently in the middle of defending its decision
against the political storm that has been set off by the reform
move. Although the FDI policy is designed for the “mass market”
and not “luxury brands”, given that multi-brand retail
essentially relates to supermarkets, Goel said it has opened a
forum of sorts for the sector. The most recent ventures include
one between fashion designer Suneet Varma’s company Unique
Eye Luxury Apparel Pvt. Ltd and Giorgio Armani to bring Armani
Junior to India next year. The franchisee will open three stores,
the first of them early next year at DLF Emporio.
Luxury brands prefer to control every aspect of their operations
and style of functioning, said Kalyani Saha Chawla, vice-president,
marketing and communications, Christian Dior Couture, the French
company owned by Christian Dior SA.
“The sector—being niche— requires tremendous discipline,
so its brand philosophy can be replicated across countries, wherever
the brand is present,” said Chawla.
Christian Dior Couture entered India in 2006 through Christian
Dior Trading India Pvt. Ltd. Goel agreed that most luxury brands
would want 100% ownership.
“In single-brand retail, the brand is supreme. They want
to put the right face forward,” he said. “Whether brands
will come on their own or with a partner will depend on how hungry
the brand is. If it is very hungry, it will be 100% independent.
If it is testing waters, it may partner somebody.”
Overseas labels want to control operations because they’re
more about brands than stores, said Pinakiranjan Mishra, partner
and national leader, retail and consumer products, Ernst &
Young India Pvt. Ltd.
“The decision of the single-brand retailers who are already
in India to be in the country on their own minus their partners
will depend on the kind of agreements they have with their Indian
partners—whether they have the flexibility to exit the partnership,”
Mishra said.
Those in the trade feel the real action will be in the already
existing brands, and that some brands could pay their partners
to exit, he said.
Markets such as India pose a challenge in terms of luxury segment
experience.
“It is mostly a struggle to align views in terms of (brand)
experience and training,” said Radha Chadha, a marketing
and consumer insights expert who runs Chadha Strategy Consulting,
also co-author of The Cult Of The Luxury Brand: Inside Asia’s
Love Affair With Luxury. When it comes to big luxury brands with
deep pockets and vision, they would want control and ownership
of their India operations, she said. Smaller boutique brands will
be happy to go with local partners, she said.
While reputed international luxury brands will get more serious about investments in the country, local partnerships can add value, said Tikka Shatrujit Singh, adviser, Louis Vuitton, India, a division of French holding company, Louis Vuitton Moet Hennessy.
“India is a unique market,” he said. “A cut-and-paste
business model cannot be replicated here.”
In India, Louis Vuitton operates through a joint venture, said
Damien Vernet, general manager, Middle East and India, Louis Vuitton.
“Everywhere we are present, we are always keen on maintaining
a full control over our operations, thereby ensuring to our clients
the benefits of an integrated structure, which include consistently
high level of service and the guarantee of authenticity,”
he said.
Local partners will be welcomed provided they add value, whether
in terms of their existing footprint, knowledge of the consumer
or supply chain management, said Devangshu Dutta, chief executive,
Third Eyesight, a specialist management consulting firm focused
on retail.
Such partnerships cut down the learning curve and hasten the
process. This also depends on the company’s operational philosophy
and structure.
For instance, “Ikea has always maintained that it sees
very limited value in bringing on a local partner,” said
Dutta.
Ikea president and chief executive officer Mikael Ohlsson was
in the country recently to study the retail investment changes.
“The Ikea Group has decided to take some more time to plan
the next action in regard to its entry strategy into India. We
look forward to present more information about our expansion plans
shortly,” said an Ikea spokesperson.
The single-brand retailing decision is unlikely to lead to an
immediate flood of international premium brands into the country,
said Arvind Singhal, founder, Technopak Advisors Pvt. Ltd.
“Some of the brands will be careful as they are currently
facing problems in their own markets in the US and the UK. Yet
others may want the dust to settle as the situation is politically
volatile,” he said.
Dutta of Third Eyesight said those present in India may take
“more control of their operations and buy out local partners
or strengthen their presence here.”
admin
November 28, 2011
Eric
Johnson
American
Shipper, November 28, 2011
The Indian government last week opened its doors to multinational
retailers through a relaxing of foreign direct investment regulations.
The government has proposed allowing single-brand retailers (such
as the furniture giant IKEA) to wholly own stores in India, while
multi-brand retailers (like Wal-Mart and Carrefour) can own a
51 percent stake. Previously foreign single-brand retailers could
only own a 51 percent stake in a joint venture with a domestic
company, and multi-brand retailers could not hold any stake in
front-end retail operations.
The moves, which have yet to be formalized, could greatly impact
the supply chain landscape in this country of nearly 1.2 billion
people. It could also rearrange the retail pecking order in India’s
urban centers, with the country overwhelmingly relying on local
“mom-and-pop” shops for its retails needs since gaining
independence in 1948.
Bear in mind, the proposed new FDI rules would be subject to
state approval, meaning individual states could limit, or even
block, the entrance of foreign wholly- or majority-owned retail
outlets. Indeed, one particularly hardline state politician has
already threatened to burn down any foreign hypermarket that opens
in the country.
The new FDI rules have the potential to bring more efficiency
to the nation’s retail supply chains, through development
of better transport infrastructure, and foreign best practices
in logistics. But the looming threat of major global retailers
entering India’s largely insular retail market has prompted
cries of protectionism.
The argument goes that large-format outlets would quickly put
small corner shops out of business by beating them on price, thanks
to economies of scale and negotiating leverage that the private
shops can’t match.
It’s been speculated that the big winners, if the rules are indeed adopted, would be the nascent group of domestic organized retailers. They would see the country’s supply chain landscape made more efficient, and they would be in a great position to partner, consult, or sell to foreign retailers looking for local knowledge.
Devangshu Dutta, chief executive of Third Eyesight, a retail
consulting firm based in the New Delhi area, wrote Saturday in
the Financial Express that he doesn’t see the local mom-and-pop
shop culture disappearing anytime soon. He also said it’s
naïve to think that Wal-Mart and the like will blast their
way across the Indian landscape without any hurdles.
He said there will likely be intense blowback from local government,
and noted that China’s acceptance of foreign retailers has
been gradual and not without its own setbacks.
“If efficiency is simply a matter of scale, and if building
up scale is simply a function of having deeper pockets from which
to invest, it is obvious that the largest global retailers will
squeeze their smaller Indian counterparts out of business, one
way or the other,” he wrote. “However, retail is not
a global business or even a ‘national’ business: it
is an intensely local business. Sheer financial muscle can be
used to bulldoze competitors, but the consumer chooses to shop
at a particular retailer for several reasons, many of which are
not influenced by the size of the retailer’s balance sheet.
So, local retailers have more than a fighting chance. Walmart,
Carrefour and Tesco are the only three foreign retailers in China’s
top 10, although two of them have been there for more than 15
years.”
Dutta said the group most likely to hurt by the development
of the foreign retail sector is India’s huge wholesale sector.
“The losers will include simple intermediaries and low-value
wholesalers who have a diminishing role in a better-connected
economy,” he wrote. “Large suppliers, including multinationals,
will gradually find power slipping from their hands.”
He also said not to expect an immediate improvement in Indian
supply chain, adding that the new FDI rules were no “panacea.”
“Where India as a whole can potentially derive the biggest
benefit from foreign retailers is in developing agricultural practices
and supply chains that comply with global requirements,”
he wrote. “If channelled well, this can create tremendous
export possibilities (‘agricultural produce outsourcing’),
and help to propel rural incomes upwards, creating a wider economic
impact. However, I think the critical things that have been debated
most hotly will also be the slowest to be impacted: foreign retailers
contributing to bringing prices down, and on the other hand, potentially
damaging local competitors.”
Dutta also warned that the presence of foreign retailers won’t,
in and of itself, drive supply chain efficiency.
“The growth of modern retail is an outcome of the development
of the economy and a better supply chain, and a working population
that is seeking food in more convenient and safe forms; it doesn’t
necessarily drive supply chain improvements itself,” he wrote.
“Indeed, in India, during the last decade, modern retailers
have deployed money and management more on opening stores in a
drive to capture market share, than actually in supply chain improvements
and operational efficiencies. However, without investments in
the supply chain, neither can the quality of products be significantly
improved nor their cost significantly reduced.”
Finally, Dutta argued that the government can’t absolve
itself of future economic development responsibility and merely
let the private sector drive supply chain investment.
“We also cannot run 21st century supply chains on dirt
roads, with unpowered storage and a poorly educated workforce,”
he wrote. “The benefits of FDI in retail will remain largely
unrealized for the nation overall if there is no simultaneous
investment by the government in three key areas: transport infrastructure,
electricity and education. The Indian government must be a ‘co-investor’
and active partner in developing and maintaining these aspects
much more aggressively.
(Read: "Debate on FDI in Retail — More Heat than Light")
