MFM

LEB Assignment
1.The required documents for a small/large retail firm/chain. 2. Current FDI Policy. 3. Example of Joint venture, Merger and acquisition, Licensing, Franchising, Strategic Alliance.
Submitted to:Ms. Jagriti Mishra

Submitted by:Anamika Sachan Jasleen Sardar Manali Thakkar Palak Agrawal Rutu Patel Upasana Singh

FDI Policy in India:India is without doubt a growth economy and many consider it an attractive country to invest in, particularly in its rapidly growing and changing retail market. However, Foreign Direct Investment (FDI) is restricted in the retail sector, and despite many years of debate, the regulations are still only changing very slowly and there are still lots of uncertainties. Foreign Investors are watching India, ready for a piece of the action in the retail market, but there are still plenty of uncertainties, restrictions and potential socio-economic risks. From street/cart retailers working on pavements/roadsides and small family run businesses to international brands such as Rolex and Nike, the retail market in India is vibrant, colourful and highly fragmented. As retailing in India is attracting the attention of many global players, the Indian Government is paying increased attention to the countrys retail environment. FDI in retailing remains a widely debated and heated issue in Indias economic and political environment. However, the Government is gradually taking steps to open the sector. That India should be well on the radar for foreign retailers was recently supported by A.T. Kearney, whose 2011 Global Retail Development Index ranks the nation as fourth globally. Indias retail industry is estimated to be worth approximately US$411.28 billion and is still growing, expected to reach US$804.06 billion in 2015. As part of the economic liberalization process set in place by the Industrial Policy of 1991, the Indian government has opened the retail sector to FDI slowly through a series of steps. the Indian market place and review current policy and regulations with a viewpoint of foreign investors so as to gain an understanding of the current position on FDI:The three key questions asked frequently by foreign investors are: 1. What methods of FDI in retail are currently permitted in India and what is the policy? 2. What are the key issues concerning FDI policy change in Indias retail sector? 3. How can policy help to reduce the risk of FDI in retail for India and its domestic markets?

The following sections provide answers to these questions. RETAIL SECTOR IN INDIA - OVERVIEW It has been said that India has one foot grounded in time-honoured traditions and the other fervently striding into the entrepreneurial e-age. India truly does embrace diversity with a passion like very few places in the world. Retailing in India is slightly different than in developed markets, in that it is divided in to organized and unorganized retail. Organized retail could be described as when trading is taking place under a license or through people that are registered for sales tax or income tax. Unorganized retail is Indias more traditional style of low-cost retailing, for example, the local kirana shops, owner-manned general stores, convenience stores, hand carts and pavement vendors. This division of the retail sector, which has a very heavy weighting towards, unorganized, is just one of the issues contributing to the sensitive debate on FDI in India at the moment. Each time FDI reforms are announced in the retail sector, the following questions are most often raised and debated. What are the potential risks to the unorganized retail sector, and of course to the wider Indian economy? Could FDI in retail be a disaster for the sector and the Indian economy? What reforms are necessary, if any, to protect the subcontinents domestic retail sector and national interests? There are arguments that support and question FDI reforms in the retail sector. However the following benefits are being increasingly acknowledged as a function of introducing FDI reforms in retail. 1. Increased speed of development in modern formats 2. Improved productivity and efficiency of the retail sector 3. Enhanced sourcing 4. Improved quality of employment no negative impact on employment if the economy is growing. 5. Encouraged investment in supply chain 6. Led to integration of suppliers, logistic service providers and retailers reduction in the number of intermediaries 7. Linked local suppliers, farmers, manufactures to global markets

8. Low cost global retailers likely to lower prices 9. Consumers are assured of product quality, better service & shopping experience. The arguments against FDI in retail focus particularly on regarding the potential risk of displacing labour in the retail sector. Retail employs a huge number of people in the unorganised sector, the majority of whom do not have any skills. This has made retail a major political issue as there is pressure on the government to compensate the people who are displaced and provide alternative employment options. FDI IN RETAIL - A HISTORICAL PERSPECTIVE 60+ years after independence Indias government is now starting to take a closer look at liberalizing its foreign investment policies. In 2006 the Government of India promoted limited FDI in single-brand retailing and considered opening up further in a phased system with emphasis on joint ventures with domestic players, as evidenced by the highly controversial joint venture between Wal-Mart with Bharti Group. Studying other countries such as China, where restrictions were initially imposed on the locations and formats in which foreign retailers could operate, was also on the agenda of the Indian Government. Organized retail in 2005 accounted for a meager 2% per cent of the total market as against 20% in China and 40% in Thailand and there is a growing demand for modern retailing formats in India. This created significant debate for allowing FDI regulations to open up, with different progress achieved for single and multi-brand retailing formats. In 2005, the move by the Indian Government to allow FDI in real estate integrated townships had been an opportune move and although multi-brand retailing was still not allowed, FDI in single-brand retailing elicited heightened interest. The government created a specific Board to deal with promotion of FDI in India and to be the sole agency to handle matters related to FDI. The Foreign Investment Promotion Board (FIPB) as it is known, is chaired by the Secretary Industry (Department of Industrial Policy & Promotion or DIPP) within the office of the Prime Minister. Its key objectives are to promote FDI in India with investment promotion activities both domestically and internationally by facilitating

investment in the country via international companies, NRIs (non-resident Indians) and other forms of foreign investors. The FIPB today is responsible for reviewing policy and puts appropriate institutional arrangements in place with transparent rules, guidelines, and procedures for investment promotion and approval. The FIPB meets every week, ensuring that the cases that are pending are dealt with quickly. It is there to ensure that the investors applying with FDI proposals receive a response on the Governments decision within six weeks. FDI proposals deposited with the boards secretariat are put in front of the Board within 15 days. The Administrative Ministries also provide their comments either before and/or in the FIPB meeting. The overall aim is to provide a transparent, effective and investor-friendly system that facilitates single-window providing clearance for investment proposals. Until 2011, Indian central government denied 100% FDI in single and multi-brand retail, forbidding foreign groups from full ownership in supermarkets, convenience stores or any retail outlets. Single-brand retail was limited to 51% ownership and involved a bureaucratic process. In November 2011, Indias central government announced retail reforms for both multi-brand stores and single-brand stores. These market reforms paved the way for retail innovation and competition with multi-brand retailers such as Wal-Mart, Carrefour and Tesco, as well single brand majors such as IKEA, Nike, and Apple. The announcement sparked intense activism, both in opposition and in support of the reforms. In December 2011, under pressure from the opposition, the Indian government placed the retail reforms on hold till it reached a consensus. However in January 2012, India approved reforms for single-brand stores welcoming anyone in the world to enter the Indian retail market with 100% ownership, but imposing the requirement that the single brand retailer source 30% of its goods from SMEs in India. The Indian government withdrew the announced retail reforms for multibrand stores and put reforms in this area on hold. In September 2012, Indias central Government announced its policy that allows for 51% FDI in multi-brand retail, with some pre-conditions. It now involves a 2step approval once from the Central Government & another from the local State Government. The minimum FDI limit is set to USD 100 million and it also

mandates that retail outlets may be set up only in cities with a population of more than 1 million as per 2011 Census and may also cover an area of 10 kms. (~ 6 miles). The policy also states that 50% of total FDI should be towards development of infrastructure (processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, and warehouse development) within 3 years of introduction of FDI. Soon after the policy was announced, the States of Delhi, Assam, Maharashtra, Andhra Pradesh, Rajasthan, Uttarakhand, Haryana, Manipur and some Union Territories, expressed support for the policy in writing. The State Governments of Bihar, Karnataka, Kerala, Madhya Pradesh, Tripura and Orissa have expressed reservations in supporting FDI reforms in retail. For single-brand retail, the Government of India announced a waiver of the mandatory 30% local sourcing norms while suggesting that firms must now be encouraged to setup local manufacturing facilities in the country and that the sourcing no longer has to be from small- and medium-sized industries. POLICY AND REGULATORY ENVIRONMENT Alongside the Foreign Investment Promotion Board (FIPB) previously mentioned, there is also the Investment Commission which was established in December 2004 as part of the Ministry of Finance to facilitate and enhance investment in India. They make recommendations on policy and procedure to the Government and recommend projects that should be fast tracked through the approval process. They also assist in promoting India as an investment destination. The Investment Commission believes the Foreign Investment regime in India is one of the most transparent and liberal among emerging and developing countries. Foreign investment can be approved via one of two different routes: 1. Automatic Approval route requires no prior approval, and filing of the investment details to the Reserve Bank of India (RBI) post-facto is for data records only. The automatic route is appropriate for a few sectors where there is no sector cap i.e. sectors where 100% foreign ownership is allowed. 2. FIPB Approval route is for proposals where the shareholding is intended to be above a prescribed sector cap, or where the activity is one where FDI is currently not allowed, or where it is mandatory for the application to be approved by the FIPB (for example, sectors requiring an industrial licence.)

Today in the Retail sector, foreign investment is currently limited to 51% in multibrand retail stores and allows for 100% FDI in single-format and wholesale cash and carry formats. Subject to these equity conditions, a foreign investor can set up a registered company and operate under the same rules and regulations as an Indian company. Foreign investments are freely repatriable, and are regulated under the Foreign Exchange Management Act (1999) (FEMA), administered by the Reserve Bank of Indias Exchange Control Department. The Government of India today is progressively undertaking reforms and liberalising the retail sector; thereby attracting significant foreign investment. The regulatory and supervisory policies are being reshaped and reoriented to meet the new challenges and opportunities in this sector. To facilitate easier flow of Foreign Direct Investments in-flow, instead of having to seek Foreign Investment Promotion Board (FIPB) approval, FDI up to 100 per cent is allowed under the automatic route for cash and carry wholesale trading and export trading. FDI up to 51 per cent is allowed, with prior Government approval for retail trade in multibrand stores with the objective of attracting investment, technology and global best practices and catering to the demand for such branded goods in India. This implies that foreign companies can now sell goods sold globally under a single brand, such as in the case of Reebok, Nokia and Adidas. Further relaxation of FDI restrictions is being vigorously pursued by the business and trade coalitions and are expected to fall in place over the next 3-5 years. As it stands today, there are a number of market entry methods available for retailers under current FDI policy, for which the most common methods are: Strategic license agreements (agreement with domestic player) Cash and carry wholesale trading (100% ownership) Joint ventures Franchising Distribution Manufacturing Cash and carry and single-brand retail are attractive options for foreign investors as complete ownership (100%) is allowed in these formats. Several

global players including Wal-Mart and Metro have entered the Indian market through the cash and carry (wholesale) format and are currently considering multi-brand retail entry. Some of the key legislation that could have a potential impact on foreign investors setting up in India, are listed as below: Companies Act, 1956 Income Tax Act, 1961 Payment of Bonus Act 1965 Minimum Wages Act 1948 Shops & Establishment Act Contract Labour (Regulation and Abolition) Act 1970 Industrial Disputes Act 1947 Workmans Compensation Act Profession Tax Maternity Benefit Act 1961 Employees Provident Fund and Miscellaneous Provisions Act 1952 The Employees State Insurance Act 1948 Goods & Services Tax (GST) CURRENT STATUS OF FDI REFORMS As of September 2012, the Government of India allowed FDI in the following sectors: Up to 100% in Single Brand Retail Trading By only one non-resident entity whether owner or the brand or otherwise 30% domestic sourcing requirement eased to preferable sourcing rather compulsory 305 domestic sourcing computation further clarified Further clarification on FDI companies that cannot engage in B2C ecommerce Up to 51% in Multi-Brand Retail Trading At least US$100m as equity into Indian company At least 50% of the total FDI is to be invested in back end infrastructure within 3 years

 At least 30% of the value of procurement of processed product shall be sourced from Indian Small Industries Fresh agricultural produce is permitted to be sold unbranded Indian states have been given the discretion to accept or refuse to implement FDI. More than 8 states have already given their consent Retail outlets can be set up in cities having a population of at least 1 million Application needs to be approved by two levels at Department of Industrial Policy (DIPP) and Foreign Investment Promotion Board (FIPB) Documents required while starting a business For both foreign owned companies in India as well as local businesses, there are certain documents that are required to be kept for company operations. These documents could be required for simple processes like opening a bank account to getting electric connections. They are also required when dealing with government agencies as a government officer may want to review company identity and address proof from time to time. Some of these documents are as follows: 1) Certificate of Incorporation: This is of course one of the most important documents. The certificate of incorporation is the main identity of the company in India and would be required when opening a corporate bank account and also when applying for various registrations such as service tax, sales tax etc. This is the first document that is received when incorporating a business in the country and must be provided whenever any government officer wants to check the company identity. 2) Professional Tax Registration: Proprietorship companies in India do not have a certificate of incorporation. In this case, for purpose of opening company bank accounts or applying for other registrations, the professional tax registration certificate can be provided. However, it depends upon the state in which you are operating for rules regarding professional tax.

3) Company PAN: After the certificate of incorporation, the company PAN is the most important document. This is the companys tax identity and for most purposes is considered as a genuine company identification document. Without a PAN card, companies will not be able file their annual tax returns and they would not be able to maintain ongoing compliance requirements as well. 4) Government Provided Electricity and Phone Bills: In order to get an electricity and phone connection, you have to provide your company PAN and office lease or sale agreement. However, after that, if you need any other service such as obtaining a gas connection, an internet connection etc. you will need to show government provided electricity and phone bills. Even for individual passports, only government provided bills are accepted as genuine address proof. 5) Other Government Registrations: Since companies are required to register at multiple government agencies in India, all those registration documents need to be maintained and may be required for compliance as well as for review by government officers. This could include your service tax registration, sales tax registration and factory licenses amongst others. Certain companies may be required to maintain their shops and establishments act registration document as well. 6) Business Name Registration- To make sure no one else has the same company name as you, a business name has to be registered. You can register your business under a fictitious name license or a doing business as name. Corporation names and LLC names involve more paperwork than other business names. Depending on the type of business you are starting you may also want to register a domain name. 7) State Licenses - Each state requires businesses to register for their state tax agencies. Complete these documents before starting your business. Completing these documents may also help you find out about new business opportunities available through state run programs. 8) Industry Specific Licenses -Depending on the business you will be starting, a license may be required. Industries such as real estate, financial sector and health

care require licenses in order to operate within their country/state. This is for the safety of patients and protection of business owners. 9) Insurance Documents - Businesses are a large investment. It is hard to think of anything happening to that investment. However, if something does happen, it is important to have insurance. Make sure you have all the correct documentation filled out for your insurance when you start your business. 10) Tax Documents - Download and review all tax documents you will need for your business. You can also consult a accountant/tax advisor. Take note of all information that is needed to fill out these documents. Knowing what information is needed, youll be recording the right information from the first transaction.

11) Workers Compensation - If employees are, it would be important to consider having workers compensation. Make sure you fill out all necessary paperwork before hiring employees for your business. Fill out the right paperwork and file everything before you begin your business to ensure there are no legal or tax problems. These problems can shut the doors on your business before it begins. Other Documents required may be Employment Eligibility verification form Employer ID number application form Wage and Tax statement form Employees withholding allowance certificate form Miscellaneous income form

 Meaning of Joint Venture A joint venture (JV) is a project or enterprise in which multiple companies or individuals invest. Participants usually share equally in the project's direction and profits. If two or more parties think they can mutually benefit from an entrepreneurial opportunity, they may enter into a joint venture (JV). In a JV, all interested parties take a stake in the project by contributing capital. Example of joint venture Western companies moving into China usually did so through equity joint ventures, which were the predominant entry mode at least until China entry into the WTO in 2001. This entry mode also facilitates the development of personal relationships which is of great importance in conducting business in China. Profit, loss, and risk are shared to the contribution of registered capital of the joint venture partners. Those have been the premise for foreign car makers to participate in the market, while at the same time supporting Chinese companies with technology and process-knowledge transfer. The contract is set up in both, English and Chinese, equally being valid in accordance with the Law of the People Republic of China on Sino-Foreign Equity Joint Ventures. Herein the parties, the nature of business, as well as the nature of investment are detailed. The Chinese-German 50:50 partners BMW and Brilliance are a typical example The JV partners are BMW Holding BV (BMW), a 100 percent subsidiary of BMW AG which is located in the Netherlands and the Shenyang JinBei Automotive Industry Holdings Company Limited (BRILLIANCE) located in China, both holding a 50 percent stake. Established in 2003, the JV currently produces three models Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications

company Ericsson to make mobile phones. The stated reason for this venture is to combine Sony's consumer electronics expertise with Ericsson's technological leadership in the communications sector. Both companies have stopped making their own mobile phones. Virgin Mobile India Limited is a cellular telephone service provider company which is a joint venture between Tata Tele service and Richard Branson's Service Group. Currently, the company uses Tata's CDMA network to offer its services under the brand name Virgin Mobile, and it has also started GSM services in some states. About Ddamas Jewellery (India) Pvt. Ltd. D'damas is one of the most popular jewellery brand in the country today with a presence in over 159 towns and cities.A joint venture between Gitanjali Gems and the Dubai based Damas Group; D'damas is a sub-brand that combines international quality with Indian values Meaning of M&A Mergers & acquisitions (M&A) refer to the management, financing, and strategy involved with buying, selling, and combining companies. A merger is the combination of two similarly sized companies combined to form a new company. An acquisition occurs when one company clearly purchases another and becomes the new owner. A merger or an acquisition usually starts out with a series of informal discussions between the boards of the companies, followed by formal negotiation, a letter of intent, due diligence, a purchase or merger agreement, and finally, the execution of the deal and the transfer of payment. M&A Example Exxon-Mobil Big oil got even bigger in 1999, when Exxon and Mobil signed a $81 billion agreement to merge and form Exxon Mobil. Not only did Exxon Mobil become the largest company in the world, it reunited its 19th century former

selves, John D. Rockefellers Standard Oil Company of New Jersey (Exxon) and Standard Oil Company of New York (Mobil). The merger was so big, in fact, that the FTC required a massive restructuring of many of Exxon & Mobils gas stations, in order to avoid outright monopolization (despite the FTCs 4-0 approval of the merger). ExxonMobil remains the strongest leader in the oil market, with a huge hold on the international market and dramatic earnings. In 2008, ExxonMobil occupied all ten spots in the Top Ten Corporate Quarterly Earnings (earning more than $11 billion in one quarter) and it remains one of the worlds largest publicly held company (second only to Walmart) Franchising Meaning Franchises offer the opportunity to own a small business without reinventing the wheel. Small-business owners pay companies for the rights to use their trademarks, services and products in return for support and company guidelines on how to run their particular businesses. Many industries have companies using the franchise model, including food, lodging and business services. McDonalds Corporation At the time of publication, this international quick-service restaurant company has over 75 percent of its worldwide restaurants independently owned. Business owners can purchase a new or existing restaurant. An initial down payment is required, and the rest of the cost can be financed for up to seven years. During the terms of the franchise agreement, ongoing fees include rent and service fees. Some of the qualities the company is looking for in a franchisee are business experience, an acceptable credit history, willingness to complete the company's comprehensive training program and sufficient liquid assets to invest in the business.

Meaning of strategic alliance Strategic alliances are partnerships in which two or more companies work together to achieve objectives that are mutually beneficial. Companies may share resources, information, capabilities and risks to achieve this. According to Producer's eSource, a common reason for entering into a strategic alliance is to obtain the advantage of another company's innovations without having to invest in new research and development. While companies have used acquisition to accomplish some of these goals in the past, forming a strategic alliance is more cost-effective. Examples of Strategic Alliance Hewlett Packard and Disney Hewlett-Packard and Disney have a long-standing alliance, starting back in 1938, when Disney purchased eight oscillators to use in the sound design of Fantasia from HP founders Bill Hewlett and Dave Packard. When Disney wanted to develop a virtual attraction called Mission: SPACE, Disney Imagineers and HP engineers relied on HP's IT architecture, servers and workstations to create Disney's most technologically advanced attraction. Starbucks According to Rebecca Larson, assistant Professor of Business at Liberty University, Starbucks partnered with Barnes and Nobles bookstores in 1993 to provide in-house coffee shops, benefiting both retailers. In 1996, Starbucks partnered with Pepsico to bottle, distribute and sell the popular coffee-based drink, Frappacino. A Starbucks-United Airlines alliance has resulted in their coffee being offered on flights with the Starbucks logo on the cups and a partnership with Kraft foods has resulted in Starbucks coffee being marketed in grocery stores. In 2006, Starbucks formed an alliance with the NAACP, the sole purpose of which was to advance the company's and the NAACP's goals of social and economic justice.