Internationalisation of Retailing: Can Foreign Direct Investment Redefine It In India?

Dr. Dwarika Prasad Uniyal & Dr. Swagato Sarkar

O.P. Jindal Global University (JGU) is a non-profit global university established by the Haryana Private Universities (Second Amendment) Act, 2009. JGU is established in memory of Mr. O.P. Jindal as a philanthropic initiative of Mr. Naveen Jindal, the Founding Chancellor. The University Grants Commission has accorded its recognition to O.P. Jindal Global University. The vision of JGU is to promote global courses, global programmes, global curriculum, global research, global collaborations, and www.jgu.edu.in global interaction through a global faculty. JGU is situated on a 70-acre state of the art residential campus in the National Capital Region of Delhi. JGU is one of the few universities in Asia that maintains a 1:15 faculty-student ratio and appoints faculty members from different parts of the world with outstanding academic qualifications and experience. JGU has established four schools: Jindal Global Law School, Jindal Global Business School, Jindal School of International Affairs and Jindal School of Government and Public Policy.

Jindal Global Business School (JGBS) began its first academic session with an MBA programme in 2010. The vision of JGBS is to impart global business education to uniquely equip students, managers and professionals with the necessary knowledge, www.jgbs.edu.in acumen and skills to effectively tackle challenges faced by transnational business and industry. JGBS offers a multidisciplinary global business education to foster academic excellence, industry partnerships and global collaborations. JGBS faculty are engaged in research on current issues including: Applied Finance; Corporate Governance & Applied Ethics; Digital Media & Communications; Emerging Economies & Markets; Family Business & Wealth Creation; Social Entrepreneurship, Supply Chain & Logistics Management; Infrastructure, Energy & Green Technologies; Innovative Leadership & Change; and New Consumer Trends Studies. JGBS has established international collaborations with the Naveen Jindal School of Management, University of Texas at Dallas, Kelley School of Business, and Carleton University.

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Table of Contents
Acknowledgements .............................................................................................................................. 2 Executive Summary ............................................................................................................................ 3 Chapter 1 Introduction ........................................................................................................................... 5 Chapter 2 Conceptual Model for Retail Internationalisation and Its Impact.......................................... 8 Chapter 3 Impact of FDI in Other Developing Countries ...................................................................... 10 Chapter 4 Cases of Failure of Retail Internationalisation ..................................................................... 13 Chapter 5 Overview of the Indian Retail Market .................................................................................. 18 Chapter 6 Existing Regulatory Frameworks and FDI Policy ................................................................ 23 Chapter 7 Viewpoints for and against FDI in the Retail Sector.............................................................. 25 Chapter 8 Current Status and Other Perspectives on the Issue ............................................................. 28 Chapter 9 Conclusions and the Way Forward ...................................................................................... 30 Bibliography ........................................................................................................................................ 32

Acknowledgments
We, the authors of this study, would like to acknowledge the contribution of many people without whom this effort would not have been possible. First, we would like to thank Professor Aseem Prakash, who joined us in organising the first workshop on 'FDI in the Retail Sector' in January 2012, and was instrumental in shaping the agenda both of this report as well as the conference. The broad framework of the report had been suggested by Dr. Leigh Sparks, Institute for Retail Studies, Stirling University; we are grateful to him for his comments and guidance. We would also like to extend our thanks to the speakers of the workshop, notably, Dr. Arpita Mukherjee of ICRIER, Professor T.S. Papola of ISID, Dr. Sukhpal Singh of IIM(A), Mr. Vishal Sehgal of Metro AG, Mr. Prasenjit Bose, formerly with the CPI(M), and Mr. Gautam Mody of the New Trade Union Initiative. Their deliberations during the workshop enabled us to grasp the multiple perspectives on this subject and to develop a critical understanding of the issues. We would like to acknowledge the contribution of the student research assistants for their commitment, passion and hard work both during the organisation of the workshop as well as the compilation of this report. We would especially like to acknowledge the contribution of Lavanya Setia, Niyati Raj, Rohit Singh, Varun Rai and Venkat Tushar of MBA-2, JGBS. Further, they would like to thank Dr. Michael J Barnes, ExDean, JGBS; Dr. D.N. Pandey, Vice Dean, JGBS; and Dr. Brajesh Kumar, and Dr. Prageet Aeron of JGBS for offering valuable suggestions. In addition, we would like to recognise the support of the faculty and administration at O.P. Jindal Global University (JGU), especially of JGBS and JSGP, especially the support of the Registrar, Prof. Y.S.R Murthy, Dr. Mamta Sharma, Mr. Rajendra Tiwari, and their graphic designers, Mr. Manoj G.D. and Mr. Dinesh Gupta. Last but not the least, we would like to thank the Vice Chancellor of JGU, Professor C. Raj Kumar for his encouragement, support and guidance. Dwarika Prasad Uniyal Swagato Sarkar

Executive Summary
The Indian retail sector has seen a gradual though steady metamorphosis over the last decade. Despite the myriad advances over the years, the sector continues to remain highly fragmented; it is still primarily dominated by the unorganised segment, reflected in the quintessential traditional family-run stores. The entry of Foreign Direct Investment (FDI) in the retail sector has always been a contentious issue, courtesy the well-documented proclivity of our policy-makers to dither and delay decision-making on key aspects stemming from political risks at large. The retail FDI policy has been burning smoke every now and then with the government trying hard to buy it off the shelves before it expires. Political consideration is a real obstacle. Regional satraps oppose the liberalisation of policies, which might lead to an increase in foreign investment. Since the Government is dependent on the support of these outfits, it is forced to slow down the liberalisation of FDI policies. Also, despite the importance being accorded to infrastructure by the Government, it still continues to be a reason for foreign investors to not invest in India. India's roads continue to be among the worst in the world. Regular power cuts here remain a way of life. The existing infrastructure projects often do not get adequate government support, leading to the withdrawal of foreign investment. Enron faced such a situation when it pulled out of the Dabhol power project, which had an FDI of $2.9 billion, while citing government opposition to the project. India also needs to upgrade its labour laws to attract foreign investors, which in the long run, would also prove beneficial for the labourers. The inflexible nature of labour laws often makes investors shy away from India. Moreover, international reports on transparency accord a very low rank to India. A combination of legal hurdles, lack of institutional reforms, bureaucratic decision-making and allegations of corruption at the top have turned foreign investors away from India. In fact, in view of the manner in which India is expanding and influencing the world after liberalisation, there is a need to improve lifestyles in India as compared to other countries.
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The proponents of FDI in Multi Brand Retail Trade (MBRT) and Single Brand Retail Trade (SBRT) point out that opening up of the retail sector is the single most important second-generation economic reform. It would provide backward and forward linkages to agricultural/farm products, enable the farmers to obtain better prices for their products, generate employment opportunities in both rural and urban areas, help control spiralling food inflation, bring in the much required foreign capital, and contribute to the overall growth of the economy. Those in favour of FDI in retail offer the following arguments: It would reduce intermediaries between farmers and the retailers, thereby helping the former get more money for their produce. It would help in bringing down prices at the retail level and reduce inflation. Big retail chains would invest in supply chains, which, in turn, would reduce wastage, currently estimated to be 40 per cent in the case of fruits and vegetables. Small and medium enterprises would be able to access a bigger market, along with better technology and branding. It would bring in much-needed foreign investment into the country, along with international technology and global best-practices. It would actually create employment rather than displace people engaged in small stores. It would induce better competition in the market, thus benefiting both producers and consumers.

Those offering counter-arguments to these claims cite devastating experiences from countries that have allowed FDI in retail. They point out that opening up of the retail sector would lead to the concentration and centralisation of supply, resulting in price rise, and the destruction of livelihood opportunities of small retailers, besides allowing foreign capital to earn an above-average margin. Those against FDI thus argue that: It would lead to the closure of tens of thousands of mom-and-pop shops across the country and endanger the livelihood of 40 million people. It may bring down prices initially, but would subsequently fuel inflation once multinational companies gain a stronghold in the retail market. Farmers may be given remunerative prices initially, but eventually they would be at the mercy of big retailers. Small and medium enterprises would become victims of the predatory pricing policies of multinational retailers. It would lead to the disintegration of established supply chains by encouraging the monopolies of global retailers.

As with any other sector, the entry of foreign players into retail would introduce competition that would benefit some while working to the detriment of others. The beneficiaries in this case are the Indian consumers, especially the lower middle class, who would benefit from the well-paying jobs that would be created, and the producers of goods, including farmers, who have been at the mercy of middlemen and monopsony buyers and trader monopolies. As usual, the interests that are threatened by this move have sought to portray it as being detrimental to India. At another time, it was said in the US that what was good for [General Motors] was good for America. It took some time for that belief to lose its status as an axiomatic truth. It is time that India too re-examined its axiomatic beliefs. After all, the East India Company left India more than 100 years ago.
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Chapter 1 : Introduction
Introduction
The US economy is struggling to expand and Europe is rapidly descending into recession. In these times of tough financial situations, fast-growing markets in the developing world seem to offer the best opportunities for boosting revenues and profits (Lal and Corstjens, 2012). It has to be noted that many multinational corporations (MNCs) from the developed world have been keen to follow the progress of organisations such as Boeing, Coca-Cola, Pepsi, P&G, Virgin, DuPont, General Electric, Nestle, HewlettPackard, IBM, Oracle, Unilever, and Disney, which appear to have succeeded in becoming significant global entities. However, the same logic cannot be applied to all industries, especially in retailing. Lal and Corstjens found that in grocery retailing, the benefits of globalisation had not accrued to the retailers. It was found that in contrast to other industries, grocery retail was still dominated by local players in most countries. International players were either absent or had very little presence in the retail markets of the developing world. Despite the challenges and past failures, retailers still strive to enter the developing markets for a number of reasons like a quest for greater economies of scale and scope, a need to diversify risks, a desire to attract fresh talent and create new opportunities for existing leaders, and a need to make up for the constraints imposed by regulatory agencies when a retailer outfit becomes too big for its home market. Retail internationalisation has become central to the future plans of many retailers, especially during the last decades. At the same time, funding of retail businesses has become international as large firms raise finance for developments, and call for funds, from the international financial institutions. It has to be noted, however, that despite the rapid growth of retail operations across countries, almost every big retailer has experienced failure abroad: Wal-Mart succeeded in Canada and Mexico but failed in Germany and South Korea; Tesco gained significant market shares in South Korea and Malaysia but failed to establish a
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presence in France or Taiwan. In this context, it has become extremely important to understand and systematically study the reasons behind Retail Internationalisation (RI) and the challenges that retailers face in new markets. Since the economies of Europe and the US have been witnessing slow growth, like many transnational or multinational companies, retailers now see Asian or Latin American markets in terms of a huge opportunity for their growth. However, it must be noted that unlike manufacturing, retail remains a local business and in many of the developing markets, local retailers still dominate the market. Global retailers in developing markets are confronted with many challenges, such as the prevalence of complex political structures leading to stringent government regulations and policies, which do not always favour FDI in this sector, with India being a case in point. The other challenges included the lack of a proper supply chain and cold chain infrastructure, problems of quality in sourcing from local vendors, the use of unique trade practices, and opposition from local small retailers and political parties. Retailers also have to deal with the lack of skilled manpower, inconsistent agricultural produce, various cultural and geographical challenges, and last but not the least, coordination problems with the parent organisation.

History of Internationalisation of Retail Business

Retailers are found to be involved in a variety of international activities (Dawson, 1994). The international sourcing of products is one of the key functions of retailers who bring together assortments from many sources. However, these phenomena are not new; there has been a history of international retail operations. In the late nineteenth century Lipton stores operated in the US, Canada, Australia, Ceylon, South Africa and Germany (Mathias, 1967). Julius Meinl of Vienna was founded as a grocery retailer in 1862 and by 1939, it had stores in Germany, Poland, the former Czechoslovakia, Hungary, the former Yugoslavia, Romania, Bulgaria and Italy. During the first half of the twentieth century, several American retailers moved into South American and European countries, most notably Sears and Roebuck, which had 53 stores in Latin America by 1957 (Wood and Keyser, 1953; Fritsch, 1962; Truitt, 1984) and FW Woolworth, which entered Canada in 1907, the UK in 1909, Germany in 1926, Mexico in 1954, and Spain in 1965. Retail internationalisation has received significant attention by scholars in recent years (Sparks, 1995). The key questions asked by Brown and Burt (1992) in a special issue of the European Journal of Marketing were: What exactly is meant by retail internationalization? What do retailers actually internationalize? Is it management expertise and management systems? Innovative forms of trading? Or Unique retail brands? Retail internationalisation has otherwise been a subject of academic study since the 1960s and can be studied from the early reviews of European (Knee, 1966) and American activities (Yoshino, 1966), and later studies by Carson (1967) and Hollander (1970). The experimental moves of European retailers were considered by Dawson (1978) and Waldman (1978). The attempts by American retailers to help in the modernisation of retailing in developing countries were considered by Goldman (1974a; 1974b), while the European adventures of American retailers were considered by Kacker (1985). However, the research on international retail activity has been dominated by empirical studies and lacks an adequate conceptual and theoretical framework (Dawson, 1994). In a general consideration of FDI, irrespective of the sector, Dunning (1981; 1988) suggested that the following three factors are important in establishing whether a firm develops direct investment in international operations: Ownership-specific advantages, in which the firm has an innovative product, process or business method, which imparts a competitive advantage to the firm in the market;
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 Location-specific advantages, in which the potential host country has particular cost advantages or market opportunities that are not present in the home country; and Internalisation advantages, in which the organisation of the firm or some environmental factor results in ownership and location advantages that can only be realised through FDI. Dunning's three factors approach, and other work (Kojima, 1982), provide a possible framework for considering the internationalisation of retail operations, but perhaps more importantly, they serve to highlight the considerable differences between FDI decisions in the retailing and manufacturing sectors, and even between the organisation and management of firms in the two sectors (Pellegrini, 1992).

Chapter 2 : Conceptual Model for Retail Internationalisation and Its Impact

Conceptual Model for Retail Internationalisation and Its Impact
The process involving retail internationalisation is complex. Dawson (2003, p. 4) proposes a four-phase model to describe the complex process, including stability, consolidation, control, and dominance. Initially, there is considerable fluidity, as the firm gains an understanding about the new market. During the second phase, the firm adjusts to new conditions, while consolidating its position. After that, it begins to try to exert control over the vertical and horizontal channel relationships. When the retailer becomes established in the market, he applies mature strategies seeking market dominance, similar to those used in the home country. Dawson (2003) also points out that few firms pass through the complete model. Many firms fail to achieve their objectives and, therefore, decide to withdraw from the market at some stage. Dawson and Mukoyama (2006) and Dawson (2007) argue that retailing has unique features, which is why one has to study the impact of retail internationalisation from various perspectives. The theoretical model proposes that retail internationalisation in a particular country would bring changes in the social cultural values among customers while also eliciting a reaction from national and international agencies engaged in public policy. Retail internationalisation would impact the effectiveness of the existing demand chains and subsequently bring changes in the competitiveness of the sector in the host country. At a firm level, this phenomenon would impact profitability, bring about changes in the cost functions and generate new managerial knowledge, while at the consumer level, it would help increase literacy through a better understanding of marketing, and provide new solutions and wider product knowledge to the consumers.
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Conceptual Model: Impact of Retail Internationalisation: Dawson and Mukoyama 2006

Innovation affecting channel structure New relationships in the chain Changes in behaviour in the chain New functions introduced into the channel

Innovation in competitive activity Additional investment Improved productivity of assets Catalyst for sectoral restructuring New competitive behaviours

Changes in the effectiveness of demand chains

Changes in sectoral competitiveness

Loss of old values Transfer of culture

Changes in sociocultural values

Impacts of Retail Internationalisation

Public policy reaction of national and international agencies

Limits on ownership Barriers to entry Limits on corporate behaviour

Performance of the firm

Increased consumer literacy

Innovation affecting channel structure New relationships in the chain Changes in behaviour in the chain New functions introduced into the channel

Innovation affecting channel structure New relationships in the chain Changes in behaviour in the chain New functions introduced into the channel

Conceptual Model: Impact of Retail Internationalisation: Dawson and Mukoyama, 2006

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Chapter 3 : Impact of FDI in Other Developing Countries

Impact of FDI in Other Developing Countries FDI is permitted in the retail sector in Brazil, Argentina, Singapore, Indonesia, China and Thailand without limits on equity participation, while Malaysia has equity caps on FDI in the retail sector. CHINA According to a FICCIICICI report, FDI in retailing was permitted in China for the first time in 1992. Foreign retailers were initially permitted to trade only in six provinces and Special Economic Zones (SEZs). Foreign ownership was initially restricted to 49 per cent. Foreign ownership restrictions have progressively been lifted and, and following China's accession to the World Trade Organisation (WTO), effective December 2004, there are no equity restrictions. 'Wholesale and retail projects' form part of the Catalogue for Encouraged Foreign Investment Industries Employment in the retail and wholesale trade increased from about 4 per cent of the total labour force in 1992 to about 7 per cent in 2001. The number of traditional retailers also increased by around 30 per cent between 1996 and 2001. In 2006, the total retail sale in China amounted to US$ 785 billion, of which the share of organised retail amounted to 20 per cent (ICRIER, 2008). Some of the changes that have occurred in China, following the liberalisation of its retail sector, include the setting up of over 600 hypermarkets, which were opened between 1996 and 2001. The number of small outlets (equivalent to 'kiranas' in India) increased from 1.9 million to over 2.5 million during this period. Employment in the retail and wholesale sectors increased from 28 million people to 54 million people from 1992 to 2001. China is witnessing robust economic growth, and increasing urban and rural incomes are fuelling consumption levels in this vast and complex retail environment. China's promising consumer market has led to a huge foreign interest. The influx of FDI in the country's retail and wholesale trade climbed in 2007. There were 6,338 new foreign retail and wholesale enterprises in 2007, up by 35.9 per cent year-on-year. The actual utilised FDI value amounted to US$ 2.68 billion, up by 49.6
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per cent. China's retail and wholesale trade sector has thus witnessed impressive growth in FDI, among other things. THAILAND Thailand is frequently referred to as a country in which FDI had an adverse effect on the local retailers. It permits 100 per cent foreign equity, with no limit on the number of outlets. For the retail business, it has a capital requirement of Thai Bhat (TBH) 100 million and TBH 20 million for each additional outlet, while it has a capital requirement of TBH 100 million for each wholesale outlet. Wet market and small family-owned grocery stores have dominated the Thai retail industry. Modern retail outlets set up by local Thai people came to prominence during the economic boom in the early 1990s. Prior to 1997, no foreign investment was allowed in the country and hence the retail sector faced limited competition, which is why it had few incentives to upgrade operations. With the onset of the Asian crisis in 1997, the entry ban on foreign players was removed. Within a short span of time, the foreign players expanded their operations significantly and marginalised the local retailers, who were already suffering from a recessionary trend of economy. Many local players had to close down their businesses. The entry of foreign players in a recessionary economy adversely impacted all segments, including wholesalers, manufacturers and domestic retailers, in the short run. However, the entry of foreign players also had certain positive effects such as: It led to the development of organised retailing and Thailand has now become an important shopping destination. It encouraged the growth of the agro-food processing industry and enhanced the exports of Thaimade goods through the networks of foreign retailers.

RUSSIA The Russian supermarket revolution occurred only in the 2000s. It is still a fragmented sector in a country with a population of 140 million. Very high growth rates have, however, been recorded in the country. In 2002, sales by the top-15 chains totalled US$ 2.7 billion; by 2006, sales by those chains had soared to US$ 19.2 billion. The share of the top three chains was 40 per cent in 2002, and 54 per cent in 2006, with the lead domestic chains acquiring many small regional and local chains. The foreign share of sales was 33 per cent in 2002 and 35 per cent in 2006only inching up and spreading over eight foreign chains among the top 15. The two largest companies are Russian, but the origin of the capital, even in the Russian companies, is usually a mix of domestic and foreign. CHILE The Chilean supermarket sector is a case of a take-off driven by domestic capital, followed by nascent multinationalisation, followed by abrupt 'de-multi-nationalisation'. The supermarket sector in Chile was launched in the 1990s, with the backing of domestic capital. Late in the 1990s, the global chains ranked number two and number three respectively, Carrefour and Ahold, entered the country.. By 2002, these two companies accounted for 13 per cent of the total sales of US$ 4.6 billion recorded by the top eight chains. However, by 2006, their share had plummeted to zero per cent of the total sales of US$ 12.6 billion of the top eight companies (growing at a pace similar to China's); the Chilean subsidiaries of two foreign chains had been bought by the top-two Chilean chains in 2003. Today those top two chains account for 65 per cent of the market. The three market leaders, all of which are domestic players, are expanding rapidly into other Latin American countries through mergers and acquisitions, thus becoming regional multinationals. The domestic capital was based in a combination of domestic bank credit and real estate, commercial and financial services. These were the tertiary sector ripple effects of the fundamental boom in copper and wood products, and the fruit and fish boom.
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INDONESIA Indonesia permits 100 per cent foreign equity in retail business, with no limit on the number of outlets. It also does not impose any capital requirements. The take-off of modern retail in Indonesia in the 1990s primarily involved domestic chains. The current leading chain, Matahari, is indicative of this trend. Matahari started as a small shop in 1958, grew into a chain of department stores, and was then purchased by a giant banking and real estate conglomerate, Lippo Group, in 1997, just before the advent of the Asian economic crisis. The crisis created a sharp dip in modern retail sales, which began recovering in the 2000s. Matahari doubled its sales between 2002 and 2006, becoming a billion-dollar chain by 2006. The share of foreign chains (including one European and one Hong Kong) in the top seven chains is now 40 per cent. However, because the sector is still fragmented, foreign chains do not have more than a 20 per cent share, which is similar to the situation in China.

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Chapter 4 : Cases of Failure of Retail Internationalisation

Cases of Failure of Retail Internationalisation
WAL-MART According to a study by Ryu and Simpson (2011), the most well-known and researched case of retail failure deals with the world's largest retailer, Wal-Mart. Known for its dominance in global sourcing, which accounts for 10 per cent of the US trade deficit with China (Workman, 2006), the company has struggled to compete in the global retail market, often in markets with social cultures that conflict with the success that Wal-Mart has experienced in the domestic market. Their failure and withdrawal of Wal-Mart from the German market is particularly well-documented (Christopherson, 2007; Davison and Burt, 2006; Fernie and Arnold, 2002; Gerhard and Hahn, 2005; Workman, 2006; Zimmerman, et al., 2006; Heading for the Exit, 2006). Wal-Mart entered Germany at the end of 1997 with the purchase of 21 existing Westkauf stores and shortly thereafter of 74 Interspar hypermarkets. With the company known for its preference for acquiring existing companies that can be moulded into the existing corporate structure (Fernie and Arnold, 2002), its purchase of two existing German retailers was not unusual even though it gave Wal-Mart only a 3 per cent share in the German retail market sector (Davison and Burt, 2006). Many of the stores purchased were also outside of town centres, and were thus frequented less by German consumers. As the largest retail market in Europe, and with its central location ideal for future expansion in all directions within Europe, Germany looked like an ideal starting point for Wal-Mart in Europe (Gerhard and Hahn, 2005). However, Germany is also the most competitive European market with strong and wellestablished hard discounters, heavy government regulations, and strong workers' unions (Davison and Burt, 2006). The factors which harmed Wal-Mart in Germany included their inability to compete on price in the already heavily discounted German market. Known for offering 'everyday low prices' in the United States, Wal-Mart did not hold a price advantage in Germany where companies already operate on
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extremely low profit margins and where customers are accustomed to a wide selection of heavily discounted items. Although wholly owned, Wal-Mart was unable to capitalise on that level of control to their advantage. It faced negative factors immediately upon entry into the market. Since most of its German competitors were privately owned and thus less acquirable, Wal-Mart was left to purchase the smaller, available retailers many of whose stores were in need of renovation. A delay on WalMart's part to get their name on new stores, and then to renovate them to represent the Wal-Mart brand well, resulted in an almost immediate negative association with image for the brand. Wal-Mart was thus never able to achieve status as a significant brand in Germany (Halepete, et al., 2008). Wal-Mart also erred in misreading the German people's expectations with regard to customer service. The company's friendly sales staff approach was not well received by German consumers, who found the behaviour of the smiling sales staff disconcerting (Workman, 2006). Due to the long travel distance to stores that were located outside of local shopping districts, most German customers relied on Wal-Mart for monthly purchases rather than their regular weekly and thus main shopping purchases (Gerhard and Hahn, 2005). Wal-Mart is generally considered to have two areas of organisational advantage over its competitors: (a) control over suppliers which affects cost, storage and distribution time, and (b) the technological ability to move rapidly with market changes, which normally help Wal-Mart achieve a cost advantage over its competitors across a very wide range of products. Unable to achieve the same level of control over German suppliers, distribution channels, and employees, as it experiences in other markets, Wal-Mart was unable to gain significant advantages over its German competitors (Christopherson, 2007). Wal-Mart was also unable to adjust to the social norms of a German labour force, including assigning of a director over German labour interests who spoke no German (Heading for the Exit, 2006). The German labour movement is accustomed to direct involvement in company decisions. By not adequately including employees' unions in every step of company practices, Wal-Mart lost the support of its employees and subsequently of the general public, which places a high value on the involvement of labour in corporate affairs. In July 2006, Wal-Mart sold its 85 German stores to the powerful German retailer, Metro AG. Wal-Mart also experienced a textbook-like case of failure in the South Korean market. Forming a joint venture in 1998, Wal-Mart operated 16 stores in South Korea. As in the German market, South Korean consumers found the warehouse style retailing at Wal-Mart unfriendly and housewives felt that the selection of food and beverages it offered did not meet the needs of Korean families (Workman, 2006). Wal-Mart failed to adequately adapt to these differences in taste. In addition, they were unable to gain network advantages over their competitors, a key to Wal-Mart's success in other markets. With only 16 stores in the market, Wal-Mart Vice Chairman Michael Duke noted, it became increasingly clear it would be difficult for us to reach the scale we desired (Workman, 2006). Wal-Mart also lacked a diversification of investment in their joint venture arrangement within South Korea. A country dominated by family-controlled conglomerates with interests in manufacturing, retailing, and real estate, Wal-Mart was challenged to compete against these conglomerates that had strong control over sourcing, costs, distribution and store locations. As in Germany, Wal-Mart was unable to achieve its successful, competitive advantage of control over suppliers and technological advantages in terms of distribution and market adjustment. Price wars were common, as domestic retailers earnestly met Wal-Mart's efforts to lower prices (Halepet, et al., 2008). Wal-Mart consistently ranked fifth among the top five retailers in South Korea (Wal-Mart Sells Korean Business, 2006). In May 2006, Wal-Mart sold its 16 stores to South Korea's largest discount retailer, E-Mart, owned by Shinsegae. CARREFOUR Competing in highly developed markets has also proven to be a challenge for France's number one retailer, Carrefour. Entering the Japanese market in 2000 with eight stores, Carrefour was significant as the first
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greenfield wholly owned international entrant (Aoyama, 2007). Like Wal-Mart in Japan, Carrefour experienced aggressive price competition from existing domestic retailers. Japan has one of the world's strongest luxury brand markets, with few low-income households, which results in a smaller market for discounted items. Upon entry to the market, consumers anticipated that Carrefour would represent luxury French products for which there was a demand. Instead, Carrefour followed its internationally successful strategy of working with local suppliers for goods that were common to the local market. Unfortunately, the market for local products was saturated, and thus Carrefour held no advantage over established retailers. Although the company attempted to adjust by bringing in French wine and other food products, the initial damage was too great to enable it to overcome its failure to achieve enough of the market share for remaining viable (Baek, 2004). Carrefour also miscalculated the desire for service and appearance to the Japanese consumer. By instituting statement merchandising, Carrefour sacrificed store appearance for shelved product maximisation. Aoyama (2007) suggests that Japanese consumers are relatively priceinsensitive and value a fashionable store atmosphere and location, as well as higher customer service, over lower prices. Japanese consumers tend to be extremely brand conscious, even on everyday products and food. They regularly associate low price with cheap quality and instead prefer retailers who provide entertaining shopping experiences and products that enrich their lives (Aoyama, 2007). While Japanese consumers do monitor pricing, in this highly developed market where domestic retailers are able to establish prices that are equal to or lower than those of international retailers, Carrefour was unable to achieve any competitive advantage on pricing. Carrefour also faced challenges relating to distribution and location within Japan. Without that advantage, and by not meeting consumer's expectations, Carrefour was unable to achieve an economy of scale that was large enough to compete in the market. Carrefour split its store locations between Osaka and Tokyo, which resulted in neither location achieving a strong market share. The distribution systems in Japan are notably complex to outsiders (Aoyama, 2007), involving layer upon layer of difficult to track wholesalers, manufacturers, and transportation companies. Accustomed to direct distribution from manufacturers, and faced with unwillingness on the part of distributors to adapt to a fairly weak retailer, Carrefour was unable to gain its usual advantage over competitors in its distribution channels. In March 2005, Carrefour sold its eight brand new stores to Japan's number one retailer Aeon. Carrefour had faced similar difficulties on a smaller scale in the American market, when it entered with stores in Philadelphia in 1988. As in Japan, it entered a well-established, consumer-relevant market. At the time of its entry, many of the innovations of Carrefour's hypermarket format were not unique or significant to American consumers (Dupuis and Prime, 1996). Large-scale parking lots were not uncommon and established retailers such as Wal-Mart and Kmart were already providing items at discounted prices to consumers. At the time, the American market had also not yet adapted to the concept of purchasing food items and non-food items at the same store. As it would later experience in Japan, apparently unable to learn from its experiences in the US market, Carrefour was unable to achieve a large enough economy of scale to affect purchasing price and consequently significantly boost its ability to compete in the market. Similar to Wal-Mart's experience in Germany, Carrefour also faced employee union resistance, which directly resulted in negative public opinions towards the company brand. As it would do in Japan almost a decade later, Carrefour closed its US operations in late 1993 (Carrefour Makes Plans, 1993). TESCO British retailer Tesco has experienced market failure and exit as a result of errors in market entry decisions. In the late 1970s, Tesco initially purchased a food retailer as a way into the retail market in Ireland. By treating the market as an extension of its UK operations, it showed neglect in adapting to local Irish tastes and suppliers, which resulted in a general distrust on the part of the local consumers due to the fact that few Irish products were offered for sale (Palmer, 2004). Like Wal-Mart would do in Germany, Tesco also made a poor choice in its wholly-owned purchase, as the stores it acquired were mostly situated in poor, less
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densely populated locations that were not well suited for Tesco's products. Tesco sold its stores to an Irish supermarket chain in 1986. Interestingly, Tesco re-entered the Irish market in 1997 with the purchase of another food retailer, this time securing the position as the largest food retailer in Ireland with 109 stores. Although initially cautious to not repeat errors that led to customers distrusting the Tesco brand, the company again failed to meet customers' expectations. Legal problems concerning the dress code of female employees and a revelation that the company was regularly overcharging customers in error and not fully refunding the charges created new distrust for Tesco on the part of the Irish consumers (Palmer, 2004). Learning from previous mistakes and with the scale surpassing all other Irish food retailers, Tesco adopted a 'buy Irish' campaign to improve its image, and currently over half of the products sold in its Irish stores are Irish-made or grown. It purchases Irish products worth over 650 million each year for export to its global stores (Tesco, PLC, 2008). In 1992, Tesco attempted entry into the French market with the purchase of 85 per cent of a small regional chain, in the hope of expanding it into a nation-wide brand. Hindered by a downturn in the market and concern across Europe as Wal-Mart entered Germany while Carrefour and Casino expanded, Tesco was handicapped by its lack of experience in global markets. Ultimately, it became apparent that the amount of effort needed from the domestic office to sustain the French market exceeded the profits returned to the company, and Tesco chose to divest from the market to focus its attention on the more profitable domestic and international markets (Palmer, 2004). Yet, as an example of the need for retailers to plan for divestment in conjunction with market entry strategy, it took three years for Tesco to locate a suitable purchaser for its French stores, finally selling the chain of 90 stores to Promodes in 1997. Table 4.1: Summary of Selected Cases of Failure Retailer Country of Entry Germany Wal-Mart South Korea Japan Carrefour USA Ireland* Tesco France 5 5 8 8 5 Years in Factors Responsible for Exit the Market 9 Poor Entry Strategy: Wholly owned instead of joint venture Inward Focus: Prevented market adaptation Poor Entry Strategy : Weak joint venture Inward Focus: Prevented market adaptation Poor Entry Strategy: Split locations for loss distribution advantages Inward Focus: Prevented market adaptation and misplaced confidence in strategy Poor Global Strategy: Not innovative in the US marketplace Inward Focus: Unable to adapt to US consumers Poor Entry Strategy: failed selection of wholly owned stores Inward Focus: unable to adapt to Irish Versus UK consumers Inward Focus: Lack of experience for market adaptation and lack of global strategy

*Market re-entered in 1997 and remains to date (Adapted from: Ryu and Simpson, 2011: Retail internationalisation: Lessons from Big Three global retailers' failure cases, Journal of Business and Retail Management)
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Retailer Internationalisation in the Asian Context

The expansion of retailers beyond their domestic markets is a major feature of twenty-first century commerce (Dawson and Lee, 2004). Whilst the international operation of retailers has a long history, there has been a surge in such an activity over the last two decades. International activity has become a significant element of strategy for many of the world's large retailers. From being a peripheral aspect of retailer strategy, international activity has become much more important to the continuing growth of retailers. The moves of major retailers from both Europe and USA into Asia and the international moves within Asia of large Asia-based retailers since the late 1990s has introduced a new dimension into the concept of the global spread of retailing. The gradual relaxation of governmental constraints on development in China is providing a similar stimulus for retailers to that of the privatisation of Central Europe during the post-1989 period. The issues that are now coming to the fore not only replicate the experiences of Europe and North America, but are also new and particular to the retail cultures present in Asia. The contrasts in retail culture within Asia are greater than within Europe or North America. Retailers entering Asia are, therefore, faced with not only a consumer and retail culture that is very different from their own but also issues that are very different, depending on the country of entry. Retail internationalisation in Asia is generating new managerial and academic issues that have not been previously addressed by managers or academics. Two decades of economic reform have nurtured an affluent consumer market in China, and the size of the consumer market has continued to grow during the last five years. Within the globalising economy, China is the new frontier for much of international business, and the country offers itself as both a major source of cheap labour and as a market of mass consumption. Foreign retailers began to enter China 16 years ago in 1992. Since then, many of them have established a firm presence in the largest emerging market in the world. Nonetheless, the Chinese market has not been easy to penetrate, and from the beginning, foreign retailers have encountered a variety of difficulties there. Indeed, when China first opened its consumer market to foreign retailers, there were high threshold barriers to the inflow of foreign retail capital. The earlier patterns of entry and expansion of foreign retailers were documented in a 2003 study by Wang (2003).

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Chapter 5 : Overview of the Indian Retail Market

Overview of the Indian Retail Market
Although substantial work has been done on the internationalisation of retail formats across Europe and from Europe to USA and vice versa, scholars have paid little enough attention to the developing countries, particularly the BRIC nations (Brazil, Russia, India and China). During the last ten years, these economies have outperformed all others in terms of GDP growth and thus attracted the attention of international retailers for investing in these countries. In China, especially since the turn of the century, it became increasingly essential to understand the markets and the impacts of FDI. There is a need to study developing markets through comparative research test models and to put together theoretical frameworks that are applicable in this wider context. During the last few years, many European and American retailers have been trying to enter India, hence it becomes all the more important to learn the peculiarities of the Indian marketplace, the economy, the politics of policy-making and the impact of FDI on various interest groups, including small 'mom and pop' stores, national retailers, and farmers. According to the FICCI Industry Report 2011, the Indian retail industry has experienced a high degree of growth over the last decade with a noticeable shift towards organised retailing formats. The industry is moving towards a modern concept of retailing. The size of India's retail market was estimated at US$ 435 billion in 2010. Of this, US$ 414 billion (that is, 95 per cent of the market) comprised traditional retail while US$ 21 billion (that is, 5 per cent of the market) comprised organised retail. India's retail market is expected to grow at the rate of 7 per cent over the next 10 years, reaching a size of US$ 850 billion by 2020. Traditional retail is expected to grow at the rate of 5 per cent and reach a size of US$ 650 billion (accounting for 76 per cent of the market), while organised retail is expected to grow at the rate of 25 per cent and reach a size of US$ 200 billion by 2020. The US-based global management consulting firm, A.T. Kearney, in its Global Retail Development Index (GRDI) 2011, has ranked India as the fourth most attractive nation for retail investment, among 30 emerging markets. Retail is the largest private sector in the country and in 2009-10, its share in the GDP was around 8.1 per cent. Food and grocery constitutes the largest retail
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segment (accounting for a 50 per cent share), followed by healthcare, apparel and home textiles, and housing. India also has the highest retail outlet density in the world, that is, it has 15 million outlets, but at the same time only 4 per cent of these are larger than 500 square feet. According to the latest National Sample Survey (NSS), 44 million people are employed in the retail sector in India. Some of the key players in the Indian retail market, with a dominant share are: 1) Pantaloon Retail Ltd., (a Future group venture): Has over 12 million sq. ft. of retail space spread over 1,000 stores, across 71 cities in India. 2) Shoppers Stop Ltd.: Has over 1.82 million sq. ft. of retail space spread over 35 stores in 15 cities. 3) Spencer's Retail, RPG Enterprises: Has retail footage of over 1.1 million sq. ft., with approximately 250 stores across 66 cities. 4) Lifestyle Retail (Landmark group venture): Has approximately 15 lifestyle stores and 8 Home centres. Other major domestic players in India are Bharti Retail, Tata Trent, Globus, Aditya Birla 'More', and Reliance Retail. Some of the major foreign players who have entered the segment in India are: 1) Carrefour, which has opened its first cash-and-carry store in India in New Delhi. 2) The Germany-based Metro Cash and Carry, which opened six wholesale centres in the country. 3) Wal-Mart, in a joint venture with Bharti Retail, is the owner of Easy Day Stores, and it plans to invest about US$ 2.5 billion over the next five years to add about 10 million sq. ft. of retail space in the country. 4) British retailer Tesco Plc (TSCO) signed an agreement in 2008 with Trent Ltd., the retail arm of India's Tata Group, to set up cash-and-carry stores.

Presence of MNC Retailers in India and China

A study of the top 250 retailers reveals that 110 of them operate in a single local home country. Of these, 175 retailers operate in less than five countries, mainly neighbouring ones. Only 50 retailers operate in more than 10 countries. It has been observed that 36 MNC retailers have entered into China after the late 1990's and out of these, 50 per cent (17) are already present in India as detailed in the following table: Table 5.1: Details of Retailers in India and China S. Retail Company No. Sales Rank 1 2 3 4 5 6 7 8 9 10 11 1 2 3 4 15 16 17 18 30 44 48 Wal-Mart Inc. Carrefour SA Metro AG Tesco Plc Groupe AuchanSA Seven and i Holdings Co. Best Buy Co. Inc. Aeon Co. Ltd. The IKEA Group PPR SA Country of Origin 2009 Retail Sales
(US$ Billions)

Present in Number of Countries 16 36 33 13 14 18 15 9 38 84 9

China India

USA France Germany UK France Japan USA Japan Sweden France

405.05 119.88 90.85 90.43 54.057 52.508 49.694 49.021 29.100 18.714 16.440

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Yes No Yes No No No No No No Yes No

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Alimentation Couche-Tard Canada

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

50 52 53 55 57 60 61 62 64 67 73 96 101 102 116 124 125 133 158 179 193 223 230 238 248

Inditex S.A. Kingfisher Plc Marks & Spencer A.S. Watson and Company Ltd. Staples Inc Groupe Adeo Isetan Mitsukoshi Toys"R"Us.Inc.

Spain UK UK Hong Kong SAR USA France Japan USA

15.424 15.381 15.224 14.977 14.635 13.807 13.575 13.568 13.218 12.843 12.054 8.823 8.661 8.632 7.587 7.118 7.029 6.574 5.074 4.378 4.020

74 8 39 34 23 9 11 35 36 79 177 5 33 45 14 19 10 9 32 25 66 51 30 6 18

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No

Yes No Yes No Yes No No No No Yes Yes No No Yes Yes No Yes Yes Yes Yes No Yes No No Yes

H&M Hennes & Mauritz AB Sweden LVMH Moet Hennessy Dell Inc. Lotte Shopping Co. Office Depot, Inc. Limited Brands, Inc. Oxylane Groupe Fast Retailing Co. Ltd. Dairy Farm International Apple Inc. /Apple Stores Next plc Luxottica Group S.P.A Groupe Vivarte Compagnie Financiere Lagardere Services SA Coach, Inc. Woolworths Holdings France USA S. Korea USA USA France Japan Hong Kong SAR USA UK Italy France

Switzerland 3.372 France USA S. Africa 3.226 3.156 3.093

(Source: Store Magazine, January, 2011)

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Old Format

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New Format

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Chapter 6 : Existing Regulatory Frameworks and FDI Policy

Existing Regulatory Frameworks and FDI Policy
In India, retail is a state subject and FDI is under the Department of Industrial Promotion and Policy (DIPP), Ministry of Commerce and Industry; the shop opening timings are governed by the Shops and Establishment Act (State Act) and the 'zoning' is regulated by the local municipal bodies. In 2006, FDI up to 100 per cent was allowed through automatic route for cash and carry (C&C) wholesale trading and export trading. In April 2010, the Government announced that sales of a C&C outlet to a group of business entities should not exceed 25 per cent of a C&C company's turnover. During the same year, FDI up to 51 per cent was allowed in single-brand retail, subject to some conditions. Before 2006, FDI up to 100 per cent with Foreign Investment Promotion Board (FIPB) approval was allowed for trading of items sourced from the small-scale sector, test marketing, trading of items for the social sector, trading of hi-tech, medical and diagnostic items, and domestic sourcing of products for exports subject to the provision of the EXIM (Export Import) Policy. However, FDI up to 100 per cent is permitted for B2B e-commerce activities, direct marketing and in the Franchising and Commission Agents services, with the approval of the Reserve Bank of India (RBI). Policy Revisions With effect from 10 January 2012, 100 per cent FDI is allowed in single-brand retail subject to the following conditions for FIPB approval: Only single brand products can be sold (that is, retailing of goods of multi-brand even if produced by the same manufacturer would will not be allowed). Products should be sold under the same brand internationally. Single brand product retailing covers only products that are branded during manufacturing.
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Any addition to product categories to be sold under the single brand would require fresh approval from the Government. The foreign investor should be the owner of the brand. For FDI beyond 51 per cent, 30 per cent sourcing from small and medium scale enterprises (SMEs) would be mandatory.

The Cabinet also proposed allowing FDI up to 50 per cent in the multi-brand retail sector, subject to the following conditions: The minimum foreign investment should be US $100 million. At least 50 per cent of the total FDI should be invested in 'backend infrastructure'. At least 30 per cent of the goods should be procured from SMEs. Foreign retailers can establish their presence only in cities with a population of more than 10 lakh as per the 2011 Census and may also cover an area of 10 km around the municipal/urban agglomeration limits of such cities. The Government would have the first right to procurement of agricultural products.

The Current Debate The proponents of FDI in MBRT and SBRT point out that opening up of the retail sector is the single most important second-generation economic reform. It would provide backward and forward linkages to agricultural/farm products, enable the farmers to obtain better prices for their products, generate employment opportunities in both rural and urban areas, help control spiralling food inflation, bring in the much required foreign capital and contribute to the overall growth of the economy. Those offering counter-arguments to these claims cite the devastating experiences of countries that had allowed FDI in retail. It is pointed out that opening up of the retail sector would lead to the concentration and centralisation of supply, resulting in price rise and the destruction of livelihood opportunities for small retailers, while allowing foreign capital to earn an above-average margin. Table 6.1: Different Views on FDI in Retail In Favour of FDI Would lead to the inflow of technology and skill development Would streamline the supply chain, bringing about efficiencies in distribution and elimination of middlemen; Would lead to a spurt in productivity and remove supply side constraints; Would help develop front-end and back-end retail operations; Would facilitate respectable working conditions Would ensure lower prices for consumers Would contribute to brand building Against FDI Anti-competitive practicesmalpractices due to buying power, predatory pricing, etc.; Loss in employment;

Lack of formal contractsreduction in risk-sharing with farmers

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Chapter 7 : Viewpoints for and against FDI in the Retail Sector

Viewpoints for and against FDI in the Retail Sector
The Necessity of FDI in the Retail Sector According to Professor Arpita Mukherjee of ICRIER, the retail sector could itself have decided to go aggressive two decades earlier. The hurdles in doing so have chiefly been the dismissive attitude towards this sector as a career option. People in India nurture a mentality that selling products at shops is the last option for survival. The basic perception of a marketing person among his neighbours is that he sells soaps and shampoos. They do not realise that the retail sector is the largest employment provider in the country, ahead even of the Indian Railways and the Indian Army. And it is a dire need, on behalf of both the companies and the Government to change this perspective substantially. The brands available in India have had a lethargic approach towards making branding, marketing and retailing as one of the most desirable jobs in the subcontinent. They caught up with the euphoria in post-2000, substantiated by the service and hospitality industry in India. Furthermore, 100 per cent FDI in SBRT has not been perceived by Indian businesspersons as important or financially attractive. The problem with 51 per cent FDI in MBRT is not the argument of 'Foreign vs. Indian', but rather that of 'Big vs. Small'; that is, big organisations/vendors/brands/conglomerates pitted against the small traders. Political parties, trade unions and traders' associations have been resisting the opening up of the retail sector to foreign companies because they believe that it would wipe off the small traders and shopkeepers across the country. According to Mr. Vishal Sehgal of Metro AG, the fight over FDI is more towards 'Big vs. Small than Foreign vs. Indian. Further, he also emphasises the need for generating resources necessary for the sustenance and proliferation of the retail sector in India. Land acquisitions of regular shapes and no-legal25

mortification (in excess of 100,000- 150,000 sq ft.) for opening retail outlets in the metros and other tier 2 and tier 3 cities have become a near impossibility. The handling of unskilled and uneducated labour en masse, in order to keep the operating costs low, has finally started becoming a major hurdle. Dr. Mukherjee and Mr. Sehgal both agree that India is fast running out of capital required for investment in such sectors and that if foreign investment does not come soon enough, we might end up draining our financial resources over survival issues rather than ensuring the growth prospects of the nation. They also agree that market surveys over issues/policies/products did not exist earlier and that they would only help in leading to false conclusions. Thus, in effect, it is important to run 'pilot projects' on 51 per cent or 100 per cent FDI across various states for a couple of years, after which their and then its impact analysis can be undertaken. Such projects should be taken up eagerly and proactively by both the private and public sectors. Consequential Changes in Agriculture, Labour and Retail Markets According to Professor T.S Papola of ISID, the increased stake of foreign retailers would increase investment, but could drive kirana shops and local retailers out of business. Jobs may shrink due to the fact that these chains fall under the organised sector, and would employ skilled labour. The labourers currently employed in local stores are unskilled. Another drawback is that farmers may be left at the mercy of big chains after having burnt their bridges with mandis. Increased FDI would lead to a flood of cheap imports as retailers hunt for best bargains. Since an important argument is that such big chains would generate more employment, it becomes obligatory to consider the disparity between jobs lost (small retailers and workers) and the new jobs generated. According to recent figures, 48 million workers are employed in the trade sector, out of which 51 per cent are in retail. Most of these workers are unskilled. India has a high density of retail outlets but these are unorganised. The average production per worker in the organised sector is about six times the average production per worker in the unorganised sector. Hence, it is natural for retailers to become organised. Also, the Indian retail market is characterised by disguised employment, which would end by the development of the organised supply chains. Displacement and some job loss are inevitable. However, FDI should be welcome if it leads to an increase in productivity. The downsides may be ignored if the benefits overshadow the hitches. A suggested solution is to try and achieve faster growth in other sectors like manufacturing to accommodate the displaced people. Professor Sukhpal Singh of IIM Ahmedabad emphasised the impact of increased FDI on farmers. In his view, the debate should address the larger issue of capital mobility vs. labour mobility. The investment that is being made differs in scale and not nature. An investment of this scale, whether Indian or foreign, is bound to have the same impact. To conclude the debate as to whether more FDI should be allowed in the retail sector, it may be useful to look at the experience of the FDI phenomenon globally and rely on the evidence from the latter. It is important to consider what is expected out of this expansion. Is it only limited to better prices or does it contain other benefits? A common myth that has been propagated is that bigger retail stores, better packaging, refrigeration and transportation would reduce the wastage of food and other commodities. However, wastage as such is not that significant even under the present market practices, and it would more or less remain so. Also, it is important to understand that lower wastage after procurement does not affect or afflict the farmer in any way. It might be questionable as to whether FDI in retail would benefit the export sector or will would impose the threat of cheaper imports, that is, a retailer might not prefer to export local produce, and instead import better or cheaper produce from someone else. This makes the intentions of MBRT questionable. Would it serve this market or merely use this market to serve other markets? The policy that has been proposed falls short on a number of accounts. It has no mechanism to benefit or protect the small farmers. Some important and useful aspects that should have been included/considered are: mandatory procurement from small and medium farmers, enforcement of contract farming regulation of malpractices, and written contracts. The new policy, if implemented, shall undoubtedly affect
26

employment. But this effect has been mostly misreported. It is incorrect to count farmers who would sell their produce as employed. If this is true, it implies that the same farmers were unemployed earlier. To gauge the consequences, it is important to try and assess the net effect on employment. A major concern is inflation, which features in almost all the debates related to this issue. There is no evidence to support the argument that the introduction of supermarkets leads to a reduction in prices, hence it is erroneous to assume so. Instead, this may lead to supermarkets charging higher prices in remote and poorer areas due to increased logistic costs. The policy should leverage the strengths and resources of foreign investors and help us develop ours. It must be regulated well. A useful suggestion is that zoning should be followed in cities to prevent massive displacement. There could be a quota for SME and SMF to ensure their welfare. Rules like slow expansion and mandatory distance from the city centre would ensure a sort of quasi-protection. Political Response to FDI in the Retail Sector Prasenjit Bose, a former member of the CPI(M), suggested that one needs to go beyond the free market orthodoxy and look for heterodox view about how the economy actually functions and its impact on the life of common people. He pointed to the growth process during the last 20 years of economic reforms. In 1991, the agricultural sector contributed 30 per cent of the GDP while employing 65 per cent of the workforce. Agriculture in 2011 contributed around 17-18 per cent and employed 58 per cent of the workforce. This clearly indicates that the locus of growth and output have shifted out to the service and manufacturing sectors. As a result, we do not have sufficient employment in the service and industry sectors to pull out the surplus workforce from the agriculture sector. He mentioned that the informal sector today accounts for 90 per cent of the workforce and that FDI in retail would lead to a massive loss of jobs. The unorganised retail sector is the second highest employer after the agricultural sector. The average number of employees in a hypermarket like Wal-Mart is 200. Thus, at least 20,000 stores are required to accommodate the displaced labour force. Therefore, it is a myth that organised retail would create new jobs. FDI in retail would not benefit the farmers and the Government needs to support them. There is much more scope for the public sector to grow. In the US, 75 per cent of the cold storage facilities are run by public sector companies, whereas in India, the corresponding figure is less than 1 per cent. Bose argued that the Government needs to understand that our domestic growth is not based upon sustained expansion of our domestic market, but is dependent on a very thin crust or the elite class of the Indian society. The modernisation in the retail sector has to happen at a pace wherein the interests of the unorganised retailers are not jeopardised. Gautam Mody of the New Trade Union Initiative argued that FDI in retail cannot accommodate the huge number of people working in the informal work. There is no evidence that FDI helps in fighting poverty. If we are addressing the food inflation and high prices, then we also have to address the question of food security. We need to create jobs. Manufacturing is a highly elastic sector for creating jobs. The manufacturing sector in India, after a few initial stages, is either import-dependent or technologydependent, and is not creating jobs. Rather than allowing FDI in retail, we need to find a way of modernising our retail sector. We need to look for alternative supply chains, and above all, to find a better alternative to fight poverty and to create jobs.

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Chapter 8: Current Status and Other Perspectives on the Issue

Current Status and Other Perspectives on the Issue
Finally, after a lot of discussion and debate, the UPA Government at the Centre mustered courage on 14 September 2012 to open the gates for foreign investment in multi-brand retail. Foreign giants such as WalMart, Tesco and Carrefour are now allowed to enter the Indian market with a 51 per cent stake in Indian joint ventures. The Government also eased sourcing norms for single-brand retail and permitted them to buy at least 30 per cent of the goods from the Indian market instead of the earlier stipulation that made purchases mandatory from small and medium units. The decision of implementing FDI in multi-brand retail has been left totally to the states. The states which do not wish to implement it would get the freedom to follow their decision without any interference from the Centre. As of now, 10 states have given their approval in writing, including Delhi, Maharashtra, Rajasthan, and Haryana. Ms. Shiela Dixit, the Delhi Chief Minister (CM) believes that FDI in retail would help resolve the problem of wastage of foods and vegetables, which is occurring today at a large scale due to the unavailability of cold storage facilities. She also believes that due to this move, farmers would be able to get the right price for their produce and the customers would get quality products at a reasonable rates. However, states like Uttar Pradesh (UP) and Tamil Nadu are strongly against this move of the UPA Government. Mr. Akhilesh Yadav, the CM of UP, feels that FDI should be allowed in the field of electricity and roads, but not in retail. His concern is for the small kirana shop owners, who would get replaced by big giants such as Wal-Mart and Carrefour. Ms. Jayalalithaa, the CM of Tamil Nadu, also holds a similar opinion. According to her, giving the states the liberty to choose whether FDI should be allowed or not, would only lead to confusion and eventually cripple the economic growth of the country. She further said, FDI in retail is neither going to bring down the prices nor will it improve the investment climate. It will only promote growth of large monsters in the name of MNCs, which will destroy the small and marginal traders and exploit consumers through their predatory
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pricing as has already happened in many countries all over the world in the past. Mr. Ashok Chawla, Chairman, Competition Commission of India, said that the entry of big players in the Indian retail market, would encourage competition whereas according to a different school of thought, it is only the MNCs that would benefit from this policy. The proponents of the latter believe that this policy is attacking 22 crore jobs in trade as well as influencing farmers by selling them costly seeds, fertilisers, insecticides, etc. Wal-Mart, for example, is a $470 billion business, which is run by only 2.1 million employees, whereas the Indian trade sector is a $420 billion industry run by 220 million people. Therefore, the gap is huge and according to Ashish Mittal, leader, All India Kisan Mazdoor Sabha (AIKMS), it would be impossible to fill. Meanwhile, defending FDI in retail and other sectors, Union Minister V. Narayanasamy, said that the country was expecting an investment of about US$ 700 million besides the provision of huge employment and the creation of agro-infrastructure. He said that FDI in retail would not only help farmers and consumers but would also boost the country's economy. He also claimed that farmers could get agricultural loans at low interest rates while the consumers would be able to avail of quality products at lower prices. Only the middlemen would suffer while the farmers and consumers would benefit. The former would no longer be able to take undue advantage of the infrastructure such as cold storage facilities. Also supporting FDI in retail, R.V. Kanoria, President, Federation of Indian Chambers of Commerce and Industry (FICCI) said, There will be a multiplier effect in terms of employment generation and domestic manufacturers will benefit as they integrate with the supply chains of global retail majors. Consumers will have a wider choice and get better deals. He averred that the farmers and consumers too are in favour of 51 per cent FDI in retail. A delegation of farmers from Punjab thanked the Congress President and UPA Chairperson Ms. Sonia Gandhi for the Government's decision to allow foreign equity in multi-brand retail and said that the move would benefit both the farmers and consumers. In order to ensure justice to farmers, Wal-Mart aims at procuring as much as possible from direct farming so that the procurement from traders in local markets is as little as possible. When the consumers were asked about their views, 55 per cent of them felt that this decision of the Government would generate more jobs. More than half of the respondents felt that the big giants would throw the kirana stores out of business. However, at the same time, they were optimistic about the back-end infrastructure that the big business houses would set up in order to reduce the wastage of farm produce and the consequent improvements they would bring about in terms of livelihood for farmers. On the opposing side, certain corporations pointed out that the Indian grocery stores are anyway not doing too well because of inflation and opening doors to international brands would only worsen their situation. The RBI Deputy Governor, Subir Gokarn said, The ultimate solution for high food prices is very simply [ensuring] more production of things that the people consume more. You might debate the merits and demerits of FDI in (multi-brand) retail. But let's focus on the basic problem. We need to increase productivity and distribution efficiency. He further said that considering that India has low productivity and inefficient distribution, increasing the scale of investments in the organised retail sector is one way of increase productivity and distribution efficiency. And FDI enables us to do so.

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Chapter 9 : Conclusions and the Way Forward

Conclusions and the Way Forward
FDI in multi-brand retail has become a contentious issue in India because it has the potential to change the landscape of India and the way in which local markets are organised. On the one hand, the evidences for both the beneficial and adverse impact of FDI in retail are available, and it is quite unpredictable as to the kind of impact it would have on the Indian retail scene in the short and long run. On the other hand, it is also not necessary that foreign retailers would find it easy to set up and run successful business ventures in India. Many of the Indian retailers in the organised sector have found it difficult to make profits due to high operation costs, which includes exorbitant rates of acquiring retail space and unreliable supply chain. Unlike the manufacturing, finance and service sectors, retailing is deeply anchored in the local context, and hence, there is a cultural dimension, which may pose a challenge in a contradictory way: people might be ambivalent about the cultural changes which would emerge with the disappearance of the familiar shopping experience, whereas foreign retailers might find it difficult to adjust and cater to the local tastes. The challenge before the MNCs who want to enter the Indian market are: achieving the right retail format to meet the demand of various consumer groups, creating a modern back-end operation system, accessing reasonably priced floor space, and adjusting to the local tastes. The cost of such intervention is extremely high. It remains to be seen whether the private sector alone would invest in and develop warehouses, cold storage chains, and rural roads, and facilitate electrification, or it would invariably depend on the public sector to develop the required infrastructure. On the political front, there are various strong regional interest groups which control the market, and it has to be seen how they interact with the MNCs and other big retailers. It is quite likely that they would form
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some alliance with these big retailers, while retaining their share in the supply chain. However, one significant concern is that FDI in retail would be detrimental to the interests of small traders and many of them would find it difficult to operate in the new environment, and hence, this would lead to a large-scale loss of jobs. Given that FDI in retail is a state subject, the state governments might not be willing to allow MNCs to operate if the loss of jobs is substantial and with many of these governments facing financial constraints, they might not be willing to take the risk. What we would perhaps witness is a gradual entry of MNCs, initially restricted to the metropolitan cities, and even there, within the well-off areas. The other real challenge before the proponents of FDI in retail and the MNC-retailers is as to whether the average prices of products would remain steady or fall even lower. The latter situation would augment the inflationstabilisation policies besides also attracting the pricesensitive Indian consumers.

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In 2009, JGU began its first academic session with the establishment of India's first global law school, Jindal Global Law School (JGLS). JGLS is recognised by the Bar Council of India and offers a three-year LL.B. programme, a five-year B.A. LL.B. (Hons.) programme and an LL.M. programme. JGLS has research interests in a variety of key policy areas, including: Global Corporate and Financial Law and www.jgls.edu.in Policy; Women, Law, and Social Change; Penology, Criminal Justice and Police Studies; Human Rights Studies; International Trade and Economic Laws; Global Governance and Policy; Health Law, Ethics, and Technology; Intellectual Property Rights Studies; Public Law and Jurisprudence; Environment and Climate Change Studies; South Asian Legal Studies, International Legal Studies, Psychology and Victimology Studies and Clinical Legal Programmes. JGLS has established international collaborations with law schools around the world, including Harvard, Yale, Columbia, Michigan, Cornell, UC Berkeley, UC Davis, Arizona, Cambridge and Indiana. JGLS has also signed MoU with a number of reputed law firms in India and abroad, including White & Case, Amarchand & Mangaldas & Suresh A. Shroff & Co., AZB & Partners, FoxMandal Little, Luthra and Luthra Law offices, Khaitan & Co. and Nishith Desai Associates.

Jindal School of International Affairs (JSIA), India's first Global Policy School, is enhancing Indian and international capacities to analyse and solve world problems. It intends to strengthen India's intellectual base in international relations and affiliated social science disciplines that have hitherto been largely neglected by Indian www.jsia.edu.in academic institutions. JSIA commenced its academic session in August 2011 with a Master of Arts in Diplomacy, Law and Business [M.A. (DLB)]. The programme is the first of its kind in Asia, drawing upon the resources of global faculty in Jindal Global Law School, Jindal Global Business School, as well as the Jindal School of International Affairs to create a unique interdisciplinary pedagogy. The [M.A. (DLB)] is delivered on week days to residential students and on weekends for working professionals, including diplomats, based in the National Capital Region (NCR) of Delhi. JSIA has established international collaborations with the United Nations University in Tokyo and the School of Public and Environmental Affairs (SPEA) of Indiana University. JSIA hosts India's only Taiwan Education Centre, which has been established by National Tsing Hua University of Taiwan with the backing of the Ministry of Education, Government of Taiwan. JSIA publishes the Jindal Journal of International Affairs (JJIA), a critically acclaimed bi-annual academic journal featuring writings of Indian and international scholars and practitioners on contemporary world affairs.

The Jindal Institute of Leadership Development and Executive Education (JILDEE) seeks to draw upon the best of the intellectual resources available at www.jgu.edu.in/jildee the JGU in collaboration with its international academic partners with a view to promoting leadership development at the highest levels of decision-making within corporations, government agencies, inter-governmental organizations, public sector organizations, NGOs, regulatory bodies and other institutions. JILDEE aims at training and equipping the leaders of today and tomorrow who lead their organizations, the nation, and society for a better future by imparting leadership development, executive education, and knowledge creation and build upon a multi-disciplinary approach and innovative thinking so as to prepare leaders to take critical strategic decisions in an ethical and socially responsible environment.
JINDAL INSTITUTE OF LEADERSHIP DEVELOPMENT AND EXECUTIVE EDUCATION

JILDEE

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O.P. Jindal Global University

Governing Body
Chairman Mr. Naveen Jindal, Chancellor, O.P. Jindal Global University Members Professor C. Raj Kumar, Professor and Vice Chancellor, O.P. Jindal Global University Mr. Anand Goel, Joint Managing Director, Jindal Steel & Power Limited Dr. Sanjeev P. Sahni, Professor, Jindal Global Business School Dr. A. Francis Julian, Senior Advocate, Supreme Court of India Professor D.K. Srivastava, Former Pro Vice Chancellor (Academic), O. P. Jindal Global University Professor Jane E. Schukoske, CEO, Institute of Rural Research and Development (IRRAD) Professor Peter H. Schuck, Yale University Professor Stephen P. Marks, Harvard University Mr. S.S. Prasad, IAS, Secretary to Government of Haryana Education Department (Ex officio) Professor Y.S.R. Murthy, Registrar, O.P. Jindal Global University

Board of Management
Chairman Professor C. Raj Kumar, Professor and Vice Chancellor, O.P. Jindal Global University Members Mr. S.S. Prasad, IAS, Secretary to Government of Haryana Education Department (Ex officio) Dr. Sanjeev P. Sahni, Professor, Jindal Global Business School Dr. A. Francis Julian, Senior Advocate, Supreme Court of India Professor Y.S.R. Murthy, Registrar, O.P. Jindal Global University Professor Parmanand Singh, Former Dean, Faculty of Law, University of Delhi Dr. R.K. Raghavan, Consulting Advisor (Cyber Security), Tata Consultancy Services Ltd. Dr. Sreeram Sundar Chaulia, Professor and Dean, Jindal School of International Affairs Professor Padmanabha Ramanujam, Assistant Professor & Assistant Dean (Academic), Jindal Global Law School Dr. Shounak Roy Chowdhury, Assistant Professor, Jindal Global Business School

Academic Council
Chairman Professor C. Raj Kumar, Professor and Vice Chancellor, O.P. Jindal Global University Members Dr. Sanjeev P. Sahni, Professor, Jindal Global Business School Dr. A. Francis Julian, Senior Advocate, Supreme Court of India Professor N.R. Madhava Menon, Member, Centre State Relations Commission Mr. D.R. Kaarthikeyan, Former Director, Central Bureau of Investigation Professor Padmanabha Ramanujam, Assistant Professor & Assistant Dean, Jindal Global Law School Mr. Buddhi Prakash Chauhan, Director of Global Library, O.P. Jindal Global University Professor Y.S.R. Murthy, Registrar, O.P. Jindal Global University Dr. Swagato Sarkar, Associate Professor and Assistant Dean, Jindal School of Government and Public Policy Dr. Shounak Roy Chowdhury, Assistant Professor, Jindal Global Business School Dr. Sreeram Sundar Chaulia, Professor and Dean, Jindal School of International Affairs Professor Mohsin Raza Khan, Assistant Professor and Assistant Dean, Jindal School of International Affairs Mr. Manoj Vajpayee, Deputy Registrar & Controller of Examinations

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Author Profile
Dwarika Prasad Uniyal B.S (Mohan Lal Sukhadia University, Rajasthan), MBA (Mohan Lal Sukhadia University, Rajasthan), Ph.D. (Dharmsinh Desai University, Gujarat ) Associate Professor (Marketing and Retailing), Executive Director, Centre for Consumer Research Jindal Global Business School Email: duniyal@jgu.edu.in Dr. Uniyal started his career as a manager in a retail firm and learnt the basics of the business. After his corporate stint, he has been teaching at premier business schools in India and the Middle East in various academic capacities. He was the founding Assistant Dean (Academic) of Jindal Global Business School, O. P. Jindal Global University. In an academic career spanning over a decade and half, he has served as faculty member in premier Business Schools like S P Jain Institute of Management and Research (SPJIMR), Mumbai; S P Jain Global School of Management (SPJGSM), DubaiSingapore and Mudra Institute of Communications Ahmedabad (MICA), Ahmedabad. He was also nominated by the Government of India as national expert in retailing in the Asian Productivity Organisation, Tokyo. He has co-authored the bestselling textbook titled Managing Retailing, which was published by Oxford University Press (OUP). For his research work, he has been honoured as Distinguished Research Fellow and also been awarded with the Young Global Scholar award in the past. He has published widely in international journals and is a member of the editorial and review boards of various academic journals. Over the years, he has been invited to deliver keynote lectures and conduct workshops across the US, UK, Middle East, Japan, China, South-east Asia and India.

Dr. Swagato Sarkar B.Sc. (University of Calcutta), M.A. (Tata Institute of Social Sciences), M.Phil. and Ph.D. (University of Oxford) Associate Professor and Assistant Dean (Academic Affairs) Executive Director, JSGP Policy Action Lab Jindal School of Government and Public Policy Email: ssarkar@jgu.edu.in Dr. Sarkar obtained his Masters in Social Work from the Tata institute of Social Sciences (TISS), Mumbai. He received his M.Phil and D.Phil. degrees in Development Studies from the University of Oxford, UK. He is broadly interested in the politics of development and anthropology of democracy, focusing on local political economy, power relationships and decentralised governance. He has also studied labour conditions, and done archival work on the conditions prevalent in the nineteenth century Assam tea gardens, along with an ethnography of child labour in West Bengal, and a study of commercial sex workers. Dr. Sarkar has worked in the NGO sector as a food policy analyst and managed a community food security programme in Orissa. He is currently pursuing three sets of research interests, viz. governmentalisation of the State and the emergence of technology-mediated governance; urbanisation of agrarian societies during the last 25 years; and the ethical foundation of Indian democracy.

O.P. Jindal Global University

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