Foreign Players in Indian Retail


June 12, 2010

Erica Lee Nelson
Span, May-June, 2010

Despite some concerns in India regarding foreign direct investment (FDI), Devangshu Dutta, chief executive of the retail and consumer goods consulting firm Third Eyesight, has witnessed many improvements in the Indian supply chain as large U.S. companies, such as McDonald’s, have set up operations here.

He recalls the improvement in skills, technology and quality the company imparted to Indian vendors as it required them to meet its exacting global standards. In the retail sector, the government of India allows FDI of up to 51 percent for single-brand retailers, and 100 percent for wholesale cash and carry multi-brand outlets which are open to businesses but not individual consumers.

While multinational companies have preferred franchise models, more are now seeking joint ventures and greater control over their presence here.

Today many U.S. retailers want to own and operate their own stores in India. Dutta explains that this is motivated from the need to take advantage of core business competencies and control quality. When they are in a new market abroad, “brands that are used to retailing directly to consumers naturally want that ability,” he says.

“When you actually have the ownership it becomes that much easier to transfer knowledge, transfer skills and transfer people.”

Retail models are also an issue of geography. The U.S. market is much more consolidated with large, vertically-integrated national players, whereas the Indian market has more layers and suppliers that don’t sell directly to consumers. It is their concerns, as well as those of consumer groups and small retailers, which are reflected in the Indian government’s current policies, Dutta says. Giving the example of international fashion brands, he explains there is a feeling their deeper pockets and global brand image give them an advantage over Indian clothing brands.

That’s not to say that Indian retailers are running scared from international competition, though. Dutta believes that over time fears about increased FDI levels have decreased.

“Indian retailers have gained in scale…they feel more confident to compete now,” he says. Dutta also advises that foreign companies can help limit these fears by aiding manufacturing and supply chains in India.

“It can only be tackled by working on a model that is truly a win-win,” he says, “both for the foreign entrant and for the local economy.”

Erica Lee Nelson is a Washington, D.C.-based journalist who is studying at Jawaharlal Nehru University in New Delhi.

This article was published in Span (Issue of May-June 2010).