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  • AbstractInternational Retail industry has got a tremendous consumer pull since globalization.Many Retail Stores evolved in a very different way from the traditional Stores. Manymultinational companies are transforming themselves to become global companies.When it comes to selling in foreign lands, the strategies of retailers dont always simplytranslate from one country to another. This research discusses about whether the efforts of Retail Stores can hold thecustomers and which factor will influence customer by Retail strategies.Concept of RETAILThe distribution of consumer products begins with the producer and ends at theultimate consumer. Between the producer and the consumer there is a middleman theretailer,who links the producers and the ultimate consumers? Retailing is defined as a conclusive set of activities or steps used to sell a productor a service to consumers for their personal or family use. It is responsible for matchingindividual demands of the consumer with supplies of all the manufacturers. The word‘retail’ is derived from the French work retailer, meaning ‘to cut a piece off’ or ‘to breakbulk’. It is defined as all activities involved in selling goods or services directly to thefinal consumer for their personal, non-business use via shops, market, door-to-doorselling, and mail-order or over the internet where the buyer intends to consume theproduct.The retail industry can be divided into1. organized large,2. unorganized and3. Informal sector enterprises.
  • The first category retailers comprise traders who possess legal permissions orlicenses to undertake the activity, are registered with sales tax/VAT etc. Suchenterprises are supermarkets, hypermarkets, retail chains, and also the privately-ownedlarge retail businesses. Their presence on scene, though of a recent origin, is gradually gaining inimportance, and slowly eating into the business of second category of retailers. Byunorganized retail trade enterprises, we mean all those local kirana &general shops,family managed –Own Account trade enterprises (Mom-Pop shops), registered underthe Shops and Establishment Act (s), administered by the local authorities. The third category of retailers include small shops such as tiny grocery and vegetableshops run from a room of a house, paan/beedi kiosks (often selling a variety of items,like small toothpaste tubes, tooth brushes, soaps, pouches of shampoo, etc.), way-sidevendors, and hand carts operating without any licenses.Indian retail sectorThe retailing sector in India has undergone a significant transformation. Traditionally,Indian retail sector has been characterized by the presence of a large number of smallunorganized retailers. However, in the past decade there has been development oforganized retailing, which has encouraged large private sector players to invest in thissector. The Indian trading sector, as it has developed over centuries, is very differentfrom that of the developed countries. In the developed countries, products and servicesnormally reach consumers from the manufacturer/producers through two differentchannels: (a) via independent retailers (‘vertical separation’) and (b) directly from theproducer.
  • In India, however, the above two modes of operation are not very common.Small and medium enterprises dominate the Indian retail scene. The trading sector ishighly fragmented, with a large number of intermediaries. So also, wholesale trade inIndia is marked by the presence of thousands of small commission agents, stockiest anddistributors who operate at a strictly local level. Most Indian shopping takes place in open markets or millions of small,independent grocery and retail shops. Shoppers typically stand outside the retail shop,ask for what they want, and cannot pick or examine a product from the shelf. Access tothe shelf or product storage area is limited. Once the shopper requests the food stapleor household product they are looking for, the shopkeeper goes to the container orshelf or to the back of the store, brings it out and offers it for sale to the shopper. Oftenthe shopkeeper may substitute the product, claiming that it is similar or equivalent tothe product the consumer is asking for. The product typically has no price label in thesesmall retail shops; although some products do have a manufactured suggested retailprice (MSRP) pre-printed on the packaging. The shopkeeper prices the food staple andhousehold products arbitrarily, and two consumers may pay different prices for thesame product on the same day. Price is sometimes negotiated between the shopper andshopkeeper. The shoppers do not have time to examine the product label, and do nothave a choice to make an informed decision between competitive products. Indian market has high complexities in terms of a wide geographic spread anddistinct consumer preferences varying by each region necessitating a need forlocalization even within the geographic zones. India has highest number of outlets perperson (7 per thousand) Indian retail space per capita at 2 sq ft (0.19 m2)/ person islowest in the world Indian retail density of 6 percent is highest in the world.1.8 millionhouseholds in India have an annual income of over 45 lakh (US$81,900). View slide
  • For Indian retailing, things started to change slowly in the 1980s, when India firstbegan opening its economy. Textiles sector (which companies like Bombay Dyeing,Raymonds, S Kumars and Grasim) was the first to see the emergence of retail chains. India is a land of retail democracy- hundreds of thousands of weekly haats andbazaars are located across the length and breadth of our country by people‘s own self-organizational capacities and interests. India has the shop density of 11 outlets per 1000 people and number around 15million, giving India the highest retail outlet density in the world. But only four per centof them have larger than 500 square feet area. India is one of the fastest growing retailmarkets in the world, with 1.2 billion people.Our retail democracy is characterized by1. High levels of livelihood in retail with nearly 40 million employed which accounts for8% of the employment and 4% of the entire population.2. High levels of self - organization.3. Low capital input4. High levels of decentralization The most noteworthy phase of the growth of the sector was between 2000-2006,when the revenues increased by about 93.5 per cent. The estimated size of the retailindustry in our nation is approximately $470 billion with an annual compounded growthrate of 11 per cent. Incidentally, the share of organized retail is relatively small at $26billion which is just 6 per cent of the total market compared to a typical share of 70-80per cent in North America and Western Europe and 20-30 per cent in the Far-East AsianMarkets.AT Kearney, a global management consulting firm, rates India as the most attractivenation for retail investment. The study, presented in the Global Retail Development View slide
  • Index of 2009, is carried out annually for 30 emerging markets, and has rated Indiahighest four times in the last five years. This report expresses even more optimism, and estimates that suggest thatIndias retail market is expected to be about US$535 billion by 2013, with around 10 percent coming from organized retail. Other estimates are more conservative, though stillimpressive. According to McKinsey, a research and consulting firm, organized retail inIndia is expected to increase from 5 per cent of the total market in 2008 to 14-18 percent of the total retail market and reach US$ 450 billion by 2015. Even if growth is more conservative than estimated, the spill-over effects of thisrapid expansion could be felt by many other sectors of the economy. A report publishedby Knight Frank India in May 2010 looks at the question of land and available retailspace. It estimates that, during 2010-12, around 55 million square feet of retail spacewill be ready in the major cities like Mumbai, the national capital region (NCR),Bengaluru, Kolkata, Chennai, Hyderabad and Pune. Furthermore, between 2010 and2012, the organized retail real estate stock is expected to grow from the existing 41million square feet to 95 million square feet. Arguably, this could drive up real estateprices, with consequent knock-on effects. India is the second largest producer of fruits and vegetables in the world, but almost30 per cent of these go waste for want of storage and processing facilities.It is generallyagreed that the bulk of the Indian economy would gain, significantly, from theemergence of a well-capitalized retail industry. The organized retail industry is one ofthe sunrise sectors with huge growth potential.Total retail market in India which currently stood at USD 400 billion in 2009-10, isestimated to attain USD 573 billion by 2012-13. Organized retail industry accounts foronly 5% of total retail industry but is expected to reach 10% by 2012. An ASSOCHAM report states that Indias overall retail sector is expected to rise toUSD 833 billion by 2013 and to USD 1.3 trillion by 2018, at a compounded annual
  • growth rate of 10% driven by the emergence of shopping centers and malls, and amiddle class of close to 300 million people that is growing at nearly 2% a year.The shareof organized retailing in India, at around 2%, is too low, compared to 80% in the USA,40% in Thailand, or 20% in China, thus leaving the huge market potential largelyunexploited. Mounting earning levels, education and an international revelation have contributedto the progression of the Indian middle class purchasing and shopping practices areburgeoning as an outcome. However, retailing through formats such as supermarkets,hypermarkets, department stores and other forte chains are escalating.Top businesshouses in the country are investing in the sector. This includes Food World, Shopper‘sStop, Crossroads, Globas, Pyramid and other such outlets. Retail Market Categories (2011) Category Estimates (in US $Bn) Food and Grocery 325 Apparel 35 Jewelry and Watches 25.6 Consumer Electronics & IT 22.7 Pharmacy 13.9 Furnishings and Furniture 9.1 Restaurants & Food Joints 8.8 Footwear 4.5 Beauty Services 1.3 Health/Fitness Services 1 Others 23 Total (US $ Bn) 470
  • Major Indian RetailersThe low-intensity entry of the diversified Mahindra Group into retail is unique because it plansto focus on lifestyle products. The Mahindra Group is the fourth largest Indian business groupto enter the business of retail after Reliance Industries Ltd, the Aditya Birla Group, and BhartiEnterprises Ltd. The other three groups are focusing either on perishables and groceries, or arange of products, or both.Top 10 Retailers in India Pantaloon RetailIt is headquartered in Mumbai with 450 stores across the country employing more than18,000 people. It can boast of launching the first hypermarket Big Bazaar in India in2001. An all-India retail space of 5 million sq. ft. which is expected to reach 30 MN by2010. It is not only the largest retailer in India with a turnover of over Rs. 20 billion but ispresent across most retail segments - Food & grocery (Big bazaar, Food bazaar), Homesolutions (Hometown, furniture bazaar, collection-i), consumer electronics (e-zone),shoes (shoe factory), Books: music & gifts (Depot), Health & Beauty care services,entertainment (Bowling co.) K Raheja GroupThey forayed into retail with Shopper’s Stop, India’s first departmental store in 2001. Itis the only retailer from India to become a member of the prestigious IntercontinentalGroup of Departmental Stores (IGDS). They have signed a 50:50 joint venture with theNuance Group for Airport Retailing. Shoppers Stop has 7, 52, 00 sq.ft. of retail spacewith a turnover of Rs 6.75 billion.The first Hypercity opened in Mumbai in 2006 with anarea of 1, 20,000 sq. ft. clocking gross sales of Rs. 1 bn in its first year.
  •  Tata groupEstablished in 1998, Trent - one of the subsidiaries of Tata Group - operates Westside, alifestyle retail chain and Star India Bazaar - a hypermarket with a large assortment ofproducts at the lowest prices. In 2005, it acquired Landmark, Indias largest book andmusic retailer. Trent has more than 4 lakh sq. ft. space across the country. Westsideregistered a turnover of Rs 3.58 mn in 2006.Tata’s has also formed a subsidiary named Infiniti retail which consists of Croma, aconsumer electronics chain. It is a 15000-17000 sq. ft. format with 8 stores as ofSeptember 2007.Another subsidiary, Titan Industries, owns brands like “Titan”, thewatch of India has 200 exclusive outlets the country and Tanishq, the jewellery brand,has 87 exclusive outlets. Their combined turnover is Rs 6.55 billion.Trent plans to open 27 more stores across its retail formats adding 1.5 mn sq ft of spacein the next 12 DLF malls. RPG groupOne of the first entrants into organised food & grocery retail with Foodworld stores in1996 and then formed an alliance with Dairy farm International and launched health &glow (pharmacy & beauty care) outlets. Now the alliance has dissolved and RPG hasSpencer’s Hyper, Super, Daily and Express formats and Music World stores across thecountry.RPG has 6 lakh sq. ft. of retail space and has registered a turnover of Rs 4.5billion in 2006.It is planning to venture into books retail, with the launch of its own bookstores “Booksand Beyond” by the end of 2007. An IPO is also in the offering, with expansion to 450+MusicWorld, 50+ Spencers hyper outlets covering 4 million sq. ft. by 2010.
  •  Landmark groupwere launched in 1998 in India. Lifestyle is spread across six cities, covering 4.6 lakh sq.ft. with a turnover of Rs 3.5 billion in 2005. A new division named Lifestyle Internationalhas emerged for their international brands business comprising Bossino, Kappa andSpringfield in their portfolio.Their retail mix includes Home solutions (Home centre), fashion (lifestyle, landmarkInternational), value retailing (max retail), hypermarkets & supermarkets (Max), kidsentertainment (Funcity).They plan to invest Rs. 300 crores in the next two years to expand on Max chain, and Rs100 crores on Citymax 3 star hotel chain. They have already instituted a separatecompany christened Citymax Hotels (India). Piramal GroupIn September 1999, Piramal Enterprises announced their arrival into retail with thelaunch of three retail concepts: Indias first true shopping mall of internationalstandards, called Crossroads; a lifestyle department store named Piramyd Megastore;and a family entertainment centre known as Jammin. Piramyd Megastore and Jamminwere anchor tenants for Crossroads (recently sold to Pantaloon for Rs 4 billion). In 2001,the group entered the business of food & grocery retail with the launch of TruMartsupermarkets in Pune.They have around 18 TruMart stores covering 1.90 lakh sq. ft. registering a turnover ofRs 37.6 mn in 2005. Piraymd Megatsore’s contributes more than 70 % to their retail mix
  • with a turnover of Rs 112.8 mn. They plan to open 150 stores covering 75 mn sq ft ofretail space in the next 5 years. SubhikshaSubhiksha is a Chennai-based, decade old, no frills, food, grocery, pharma and telecom,discount retail chain. ICICI Venture Capital holds 24% in the equity capital of Subhiksha.It has more than 500 stores across the country covering a retail space of more than 1million sq ft with a registered turnover of Rs 3.34 bn in 2006. It has a plannedinvestment of Rs.300 crores to ramp up its operations to 1200 stores by 2008. Bharti-Wal-MartTheir plans include US$ 7 bn investment in creating retail network in the countryincluding 100 hypermarkets and several hundred small stores. They have signed a 50:50percent joint venture agreement with Wal-Mart. Wal-Mart will do the cash & carrywhile Bharti will do the front-end. RelianceIndia’s most ambitious retail plans are by reliance, with investments to the tune of Rs.30,000 cr ($ 6.67 bn) to set up multiple formats with expected sales of Rs 90,000 crores($20 bn) by 2009-10.There are already more than 300 Reliance Fresh stores and the first Reliance MartHypermart has opened in Ahmedabad. The next ones are slated to open at Jamnagar,followed by marts in Delhi / NCR, Hyderabad, Vijaywada, Pune and Ludhiana.
  •  AV Birla GroupThey have a strong presence in apparel retailing through Madura garments which issubsidiary of Aditya Birla Nuvo Ltd. They own brands like Louis Phillipe, Van Heusen,Allen Solly, Peter England, Trouser town.In other segments of retail, AV Birla Group has announced investment plans of Rs 8000 -9000 crores in the first 3 years till 2010.The acquisition of Trinethra (food & grocery) chain in the south has moved their tally to400 stores in the country. Their “More” range of 15 supermarkets are slated to open atNashik, Pune and other tier II cities in Western India in 2007.Foreign Direct Investment (FDI)The most important channel through which foreign capital flows into the country isForeign Direct Investment (FDI). FDI as defined in Dictionary of Economics (GrahamBannock is “investment in a foreign country through the acquisition of a localcompany or the establishment there of an operation on a new (Greenfield) site.International Monetary Organization (IMF) and Organization for Economic Cooperationand Development (OECD) define FDI as a category of cross border investment made bya resident in one economy (the direct investor) with the objective of establishing a‘lasting interest’ in an enterprise (the direct investment enterprise) that is resident in aneconomy other than that of the direct investor. The motive of the direct investor is astrategic long term relationship with the direct investment enterprise to ensuresignificant degree of influence in the management of the direct investment enterprise.Besides, International Bank for Reconstruction and Development (IBRD) and UnitedNations Conference on Trade and Development (UNCTAD) also provide definition of
  • Foreign Direct Investment. To put in simple words, FDI refers to capital inflows fromabroad that is invested in or to enhance the production capacity of the economy. It ispreferred over other source of foreign capital because it is non-volatile, non-debtcreating and results in economic development, modernization and employmentgeneration in the economy.Foreign Direct Investment under the Industrial Policy 1991 and thereafter underdifferent Foreign Trade Policies is being allowed in different sectors of the economy indifferent proportion under either the Government route or Automatic Route. InRetailing, presently 51 per cent FDI is allowed in single brand retail through theGovernment Approval route while 100 per cent FDI is allowed in the cash-and-carry(wholesale) formats under the Automatic route. Under the Government Approval route,proposal for FDI in ‘Single Brand Product Retailing’ are received in the Department ofIndustrial Policy and Promotion, Ministry of Commerce & Industry. Automatic routedispenses with the need of multiple approvals from Government and/or regulatoryagencies (Government of India or the RBI). Investors are required only to notify theconcerned Regional offices of RBI within 30 days of receipt of inward remittances andfile required documents with that office within 30 days of the issue of shares to foreigninvestors. The legal regimes that controls FDI in India and to that extent FDI in retailingincludes Press Notes by Department of Industrial Policy and Promotion, ForeignExchange Management Act 1999, Guidelines of Reserve Bank of India(RBI) and Securityand Exchange Board of India, besides, of course, the Constitution of India. One needs to be holistic in his assessment of the outcome of introducing FDI inRetailing. One of the reasons as to why a vast swath of India’s population is sufferingpoverty and depravation is that Agricultural sector of the country has not developed
  • appropriately, and the main stumbling block in this regard has been that of inadequatelogistics and direct access for farmers to vast markets. FDI in retailing can to a largeextent ameliorate these deficiencies. If FDI in front end retailing is allowed, theinternational retailing giants will be motivated to invest capital, bring in knowhow andglobal capacity on a colossal scale and as a result a world class back end infrastructurewould be built the like of which may take the government years to make (Though FDI ispermitted in backend infrastructure to the extent of 100% through the automatic route,in the absence of FDI in retailing, investment in backend infrastructure has not been soforthcoming) . The foremost beneficiary of such a development would be the farmers,especially those engaged in Horticulture. Though India is the second largest producer offruits and vegetables, lack of storage facilities cause heavy losses to farmers. Availabilityof adequate post-harvest and cold chain infrastructure would enable the farmers toavoid wastage and distress sales. The retailers would engage the farmers directlythrough the contract farming programmers as also resort to direct buying from thefarmers which will dilute the role of profit siphoning intermediaries, enhance theincome of the farmers and give them direct access to markets. The resultant ruralprosperity may open up market for other industrial goods and help bring about a morebalanced regional development.The Medium and Small Enterprise that plays a critical role in country’s overallmanufacturing scenario has lagged and suffered due to lack of branding and avenues toreach out to the vast world market. The international retailers can buy from them notonly for the domestic market but for their stores outside the country also and in theprocess provide the small and medium enterprises of the country a brand name and awindow to the international market. In fact, it is estimated that FDI in retailing cansignificantly increase export from the country. If the domestic organized retailers areallowed to grow to the exclusion of FDI, it may bring about other above mentioned
  • developments but not increase the exports.FDI can, in fact, spur competition among theorganized retailers. The ultimate beneficiary of these competitions would be theconsumers. An example of how the consumer benefit from the competition is theautomobile industry in India. The intense competition among the automobile industrieshas resulted in a situation where the consumer has been able to purchase cars for aslow a price as rupees one lakh. CRIER in its research has found that all income groupssave through organized retail purchase, but the lower income groups save more. Thus,organized retail is relatively more beneficial to the less well-off consumers.A growing and mushrooming retail sector means that its contribution to GDP wouldgrow. It would thus help in expanding the economy, generate employment and result inmore tax income.In the light of all that have been discussed above it can be said without any dispute thatthe time for allowing FDI in Multi –Brand Retailing has come and as Victor Hugo has said“Nothing can stop an idea whose time has come”. FDI in Retailing started with FDI incash and carry wholesale trading first permitted in 1997 to the extent of 100% under theGovernment approval route and thereafter in 2006 brought under the automatic route.In 2006 again FDI in Single Brand Retailing was permitted to the extent of 51%. Fromhere it is but natural and logical that FDI would now proliferate to multi-brand retailing.But the progression to FDI in multi-brand retailing cannot take place at the cost of vitalconcerns raised in connection with this possible change by different groups; viz, thequestion of adaptability of the retailers in the unorganized sector, the question as tohow the FDI in retailing can be harnessed for the benefits of Indian agriculture andMedium and Small Enterprise and above all how to impart into the economy a degree ofresilience to withstand the changes that would be ushered in the wake of introductionof FDI in retailing. All these concerns have to be addressed not because the Left wingpolitical parties and the media through their campaign have necessitated such attention
  • but because we are constitutionally bound to do so .The Preamble of the Constitutionresolves to constitute India into a Sovereign, Socialist, Secular, Democratic, Republic andto secure to all its citizens JUSTICE, social, economic and political EQUALITY of status andopportunity.Directive Principles ofState Policy similarly exhorts the state to establishjust, equitable and fair order. Article 39(c) states that the state should ensure that theoperation of the economic system does not result in the concentration of wealth andmeans of production to the common detriment. Though both these features are notenforceable, the Executive and the Apex Court in particular have time and againreiterated the sacrosanct nature of these features. Unlike FDI in single brand retailing which pertains to brand loyal and a relativelysmall high income clientele, FDI in multi-brand retailing would have direct impact on avast spectrum of population and thus a sensitive issue. Left alone foreign capital willseek ways through which it can only multiply itself, and unthinking application of capitalfor profit, given our peculiar socio-economic conditions, may spell doom and deepenthe hiatus between the rich and the poor. Thus the proliferation of foreign capital intomulti-brand retailing needs to be anchored in such a way that it results in a win-winsituation for India. This can be done by integrating into the rules and regulations for FDIin multi-brand retailing certain inbuilt safety valves. For example FDI in multi –brandretailing can be allowed in a calibrated manner with social safeguards so that the effectof possible labor dislocation can be analyzed and policy fine tuned accordingly. Toensure that the foreign investors make a genuine contribution to the development ofinfrastructure and logistics, it can be stipulated that a percentage of FDI should be spenttowards building up of back end infrastructure, logistics or agro processing units. One ofthe justifications for introducing FDI in multi-brand retailing is to transform the povertystricken and stagnating rural sphere into a forward moving and prosperous rural sphere.To actualize this goal it can be stipulated that at least 50% of the jobs in the retail outlet
  • should be reserved for rural youth and that a certain amount of farm produce beprocured from the poor farmers. Similarly to develop our small and medium enterprise,it can also be stipulated that a minimum percentage of manufactured products besourced from the SME sector in India. Public Distribution System is still in many ways thelife line of the people living below the poverty line. To ensure that the system is notweakened the government may reserve the right to procure a certain amount of foodgrains for replenishing the buffer. The government may also put in place an exclusiveregulatory framework to protect the interest of small retailers. It will ensure that theretailing giants do resort to predatory pricing or acquire monopolistic tendencies.Besides, the government and RBI need to evolve suitable policies to enable the retailersin the unorganized sector to expand and improve their efficienciesThe Industrial policy 1991 had crafted a trajectory of change whereby every sectors ofIndian economy at one point of time or the other would be embraced by liberalization,privatization and globalization.FDI in multi-brand retailing is in that sense a steadyprogression of that trajectory. But the government has by far cushioned the adverseimpact of the change that has ensued in the wake of the implementation of IndustrialPolicy 1991 through safety nets and social safeguards. But the change that themovement of retailing sector into the FDI regime would bring about will require moreinvolved and informed support from the government. One hopes that the governmentwould stand up to its responsibility, because what is at stake is the stability of the vitalpillars of the economy- retailing, agriculture, and manufacturing. In short, the socioeconomic equilibrium of the entire country.The Initial research revealed four major bodies that have been constituted and couldprovide data pertaining to FDI1991 Foreign Investment Promotion Board FIPB
  • • consider and recommend Foreign Direct Investment (FDI) proposals, which do notcome under the automatic route. It is chaired by Secretary Industry (Department ofIndustrial Policy & Promotion).1996 Foreign Investment Promotion Council FIPC• constituted under the chairmanship of Chairman ICICI, to undertake vigorousinvestment promotion and marketing activities. The Presidents of the three apexbusiness associations such as ASSOCHAM, CII and FICCI are members of the Council.1999 Foreign Investment Implementation Authority FIIA• Functions for assisting the FDI approval holders in obtaining various approvals andresolving their operational difficulties. FIIA has been interacting periodically with the FDIapproval holders and following up their difficulties for resolution with the concernedAdministrative Ministries and State Governments.2004 Investment Commission• Headed by Ratan Tata, this commission seeks meetings and visits industrial groups andhouses in India and large companies abroad in sectors where there was dire need forinvestment.Attempting to research directives and results of the above bodies resulted in no directcontact but instead a list of various other sub bodies.• Project Approval Board (PAB) for approving foreign technology transfer proposals notfalling under the automatic route.
  • • Licensing Committee (LC) for considering and recommending proposals for grant ofindustrial license.• In addition, concerned Ministries/ Departments issue various approvals as per theallocation of business and various Acts being administered by them.• At the State level, State Investment Promotion Agency and, at the district level,• District Industries Centers generally look after projects.• Concerned departments of the State Government handle sectoral projects.• Fast Track Committees (FTCs) have been set up in 30 Ministries/Departments for closemonitoring of projects with estimated investment of Rs. 100 crores and above and forresolution of issues hampering implementation.• “Investment Promotion and Infrastructure Development Cell” gives further impetus tofacilitation and monitoring of investment, as well as for better coordination ofinfrastructural requirements for industry• SIA has been set up by the Government of India in the Department of Industrial Policyand Promotion in the Ministry of Commerce and Industry to provide a single window forentrepreneurial assistance, investor facilitation, receiving and processing all applicationswhich require Government approval, conveying Government decisions on applicationsfiled, assisting entrepreneurs and investors in setting up projects, (including liaison withother organizations and State Governments) and in monitoring implementation ofprojects.
  • • CCFI Cabinet Committee on Foreign Investment- meets at the ministerial level and isguided by the prime Minister, considers foreign investment exceeding Rs 3 billion asrequiring special political attention.• Indian Missions Abroad- can also receive project proposal and will forward tem to theinstitutions in New Delhi.• Indian Investment Centre- (This was supposed to be closed after the PlanningCommission was established but still continues to operate) established as anautonomous organization in 1960 with the objective of doing promotional work abroadto attract foreign private investment into India and establishment of joint ventures,technical collaborations and third country ventures between Indian and foreignentrepreneurs. The major competitors of Wal-Mart include Costco, Target Corp., and K-Mart.Wal-Mart leads the industry and sector in market cap, employees, revenue, EBITDA, netincome, and earnings per share. Target and Costco have surpassed Wal-Mart in RevenueGrowth by quite a margin. Target also leads Wal-Mart in gross margin. K-Mart hasshown a decline over the past years and is dropping out of the major competitorcategory.Impact of Wal-Mart on Small retailerIn global business world, only larger size cannot imply that Wal-Mart is better andsuccessful. In fact, Wal-Mart also came under criticism for its impact on small retailbusinesses. Independent small shops have to went out of business after this giant chainstores come into play. Some research said that after Wal-Mart has been in town foreight to ten years, that town is just a ghost town. This phenomenon is not happeningonly in the United States, but it also has the same consequence in everywhere that this
  • giant chain store comes into play. In some countries, Wal-Mart has banned from localcommunities because it obliterates local business. In short run Wal-Mart is like acustodian but when look cautiously, it is a killer.Though Wal-Mart is the worlds largest retailer and consumer center and a principlesource in boosting up the American economy but it is resulting into negative impactsover the local small business economies. The very policies of Wal-Mart from controllingtheir suppliers to managing the working environment and low wages strategy along apolicy to provide products related to every filed of life under one single roof with acheaper rate then any other shopping center. This is affecting the local markettremendously. Basically Wal-Mart is a very large business company, which primarily focuses ondeveloping and expanding Wal-Mart while maintaining its standard of products andpresenting a healthy shopping environment. Therefore, it offers incentives likepartnership to the suppliers, sharing profits with the staff as well as assuring a friendlycustomer care service with everyday low prices. However, the small local business companies cannot earn a large amountof profit from a minimum cost of production as compared to big shopping centers andspecifically Wal-Mart, which is the worlds largest chain of shopping centers. Anotheraspect that affects the small town business companies is the low wages labors withextra facilities. Since small town business companies do not have ample potential andcapacity to earn maximum profits with minimum cost production and minimum lose,workers are also not interested to work with these companies as they find no charm andattraction in the working environment. The small local business merchants lose economic strength and diversityofvarious products, as they do not have the potential to compete the giant retailers likeWal-Mart.
  • Nature of retailing in chinaChina’s retail industry has extensive room for market growth. Favorable macro conditions,changes in consumption patterns and the new demographic structure will be the driving forcesof the growth of the retail industry. Favorable macro conditions to the retail industry include China’s relatively lowpercentage of consumption / GDP compared with other developed countries, rapidurbanization, a bigger middle class, supportive government policies and inflation pressures.Micro changes include the teens and 20s become the dominant group in the retail markets.These consumers have higher tendency for consumption and more aggressive consumptionpatterns. China’s retail market is more fragmented than that of other developed countries orother industries in China. There will be more opportunities for investors to look for futureleaders with strong growth potential in the retail industry. Sales channel plays a significant role in the selling process of the retail industries. It alsohas a big impact on the investment returns of consumer products manufacturers. However,sales channel resources (such as supermarketsand department stores) are scarce and scatteredin China. The characteristics of sales channels also bring risks andlimitations to thedevelopment of the retail industry. The risks and limitations brought by different sales channels to the consumer goodsmanufacturers explain the fragmented nature of China’s retail industry.The growth rate of consumption ofChina is 6.9% from 1998‐2006 which is the highest in theworld.The following factors will continue to contribute to the growth of the retail industry in China:1.) Rapid urbanization and increasing disposable income2.) A bigger middle‐class and an improving social security system3.) Inflation pressure is beneficial to retail sales growth4.) Supportive government policies to boost internal consumption
  • Wal-Mart in chinaLocal adaption is a key reason for Carrefour’s success, and Wal-Mart has also adapted itsmodal to the Chinese Market. In the grocery section of its stores, Wal-Mart originallyoffered meat and seafood American-style, in plastic wrapped, freshness-datedcontainers. To Chinese consumers, however, “fresh” means that you can pick it outyourself and watch it wriggle so they took a pass. In response, Wal-Mart broughtChinese wet markets indoors, allowing consumer to pick out their own dinner. Nowwhen opening stores in a new city, Wal-Mart teams arrive five months early in order toresearch local consumption habits and to fine-tune store merchandise.In China, Wal-Mart executives have their eyes squarely on the growing middle class, noton China’s large poor population who cannot afford Wal-Mart good As a result, Wal-Mart merchandise is more upscale and aligned with middle class materialism then in theUnited States. Prices in China are high, in part, because there is a VAT of 13% on most things.More important, retailing in China is not nearly as efficient as it is in the US. While Wal-Mart is successful in China, it doesn’t enjoy anything like the market share it does in theUS. Smaller, but my guess is, far more profitable. Wal-Mart faces very limited low-pricecompetition in China. Most stores are of the Mom-and-Pop variety, which keeps overallprices high. Urban real estate is also expensive, and that also has an underlying impacton consumer prices. According to a recent McKinsey study, China currently boasts more than onemillion wealthy urban households and more ten 42 million middle class households areexpected by 2015,which will give China a more sizeable middle class than found in eitherAmerica or Europe.
  • China remains a crucial location for sourcing the good that Wal-Mart sellsworldwide. Wal-Mart Global procurement Center moved from Hong Kong to Shenzhenin 2002, and the retailer’s supplier networks are heavily concentrated in China. Wal-Mart’s global sourcing strategies are forcing changes in the way that Chines suppliersoperate. Logistics and distribution are serious problems for Wal-Mart too. In China,however, Wal-Mart faces several difficulties. The first is China’s infrastructure whilemore efficient than most developing countries; there are still plenty of bottlenecks.Some of these are physical, relating to roads, ports, and so on. Wal-Mart operations inChina are not yet large enough to reap efficiencies from its logistics system. In China, however, labor unions are vastly different from their westerncounterparts, both in structure and in practice. Unions are officially run by theGovernment and tend to be more pro management than in other country, whilefinancially supporting the community party structure and helping to secure social order.
  • Factor Affecting FDI In Retailing (CHINA)factor Impact Advantage DisadvantageCulture To Chinese consumers, It cerate customer believe however, “fresh” means on store. that you can pick it out yourself and watch it wriggle so they took a passPrice policy Prices in China are high, in Wal-Mart faces very it can’t enjoy part, because there is a VAT limited low-price anything like the of 13% on most things. competition in China. market share.Government and Labor Unions are officially Wal-Mart tread unions Government canlabor issue run by the Government compete with interfere in government trade union. management practicesSupply chain and China’s infrastructure while It can provide competitive It creates new anddistribution more efficient than most and long term advantage costly distribution developing countries; there in market. systems Which are still plenty of influence to price of bottlenecks. product.Income group China a more sizeable Demand and Sale will be middle class than found in improved with the either America or Europe growth of middle class. and its par capita income of person will be grow in a future
  • Nature of U S A Retail IndustryThe retail industry business has been around for centuries in the United States. It allstartedwith a community general shop where people of the community would shop foritems ofnecessity. Single general stores by local residents were the most common because specialtystores were not really necessary due to limited population within the city and dissconnectivityof people. As societies advanced with population increase leading to expanded cities, and newadvanced technologies gave rise to interconnectivity as well easy communication betweendistanced cities or societies, opportunity for specialty stores was formed. But before thespecialty stores formed into a business the function of the general store was most essentialbecause they provided the varied needs of the local community. Also the reason for the striving success of these general stores then was "necessity".People around had no other options but to go for the general store. In the current scenario, theUS retail industry is thriving and booming. With the exponential growth of the retail businessacross the whole of the United States, it is more likely to predict that this industry will very sooncome in to the category of the infrastructure industry. Managing customer relations andattending their needs is a very important issue in business-to-business markets Customer is theprime focus in retail business and only they matter because they are the ones who buy theretailer products. Retail chainsin the U.S. are publicly traded on the stock exchange and privately owned.An estimatedtwo-thirds of the U.S. gross domestic product (GDP) comes from retailconsumption.Retail industry is a good indicator of the well-being of the U.S. economy.According to thelatest annual report from the U.S. Census Bureau (2009), the total amount ofsales for theU.S. Retail Industry (including food service and automotive) was $4.13 trillion. Oftheworld’s 10 largest retail companies in the world, five of them are from the US and five arefrom Europe. The top ten global retailers had combined sales of $1.15 trillion in 2008,accordingto international consulting group, Deloitte. According to the U.S. Bureau ofLabor Statistics,around 14.4 million people were employed in the U.S. Retail Industry asof April, 2010. Althoughretail employment was increasing every month at the beginningof 2010, due to the recentrecession of the economy, the retail employment numbers werestill the lowest theyve been for
  • the past decade. Due to the decline in retail jobs and theincrease in overall unemployment, theretail job market in 2010 is extremely competitive atall levels.Wal-Mart in U S AWal-Mart is primarily a discount retailer because they sell their products at the lowestpossible prices.Byselling at the lowest price.The essence of successful discount retailingto cut the price on an item as much as possible, lowering the markup, and earn profit onthe increased volume of sales.Wal-Mart’s key slogan was around offering the lowestprices in the market all year around, making an emphasis on cutting down anycompetitors’ offer, averaging around 20% less than their competition.The company has three "Basic Beliefs" or core philosophies Sam Walton built thecompany on. Those beliefs are: (1) Respect for the Individual, (2) Service to OurCustomers, and (3) to Strive for Excellence. Other beliefs include, exceeding customerexpectations with "aggressive hospitality" such as using door greeters. The store alsofeatures patriotic display and themes in its US stores. Another goal for the company is to support efforts in the local community viacharitable contributions. Wal-Mart identifies several affiliations with charities such asthe United Way and the Childrens Miracle Network. In all, the company strategy is that of growth, expansion, and diversification byfinding new areas to expand into within retail and the service industry. It is the numberone retailer in the US and in the World as a result. There have been several disagreements between the Union and Wal-Mart, asWal-Mart will not allow its workers to unionize. Several battles have been fought incourt and in the U.S. Congress over Wal-Marts questionable labor practices. Wal-Marts policy has been one of delay and "terror" in the words of one unionrepresentative who has accused the company of old-fashioned union-busting tactics. All
  • of Wal-Marts competitors are unionized. They simply decided to avoid all the trouble.Wal-Mart has decided to go up against labor laws to keep its overhead lower(Bernstein). Wal-Mart awarded its employees differently, shifting the focus from salaries andinto profit-sharing stock based rewards, working to improve the employees skills, trustand involvement by doing constant job shifts and sharing the corporate informationwith them. The reputation of companies is not driven just by customer experience.Highly public events can have a significant impact on customer and stakeholderperceptions. Such events might be a “corporate crisis” or a natural disaster, but eithercan be opportunities for companies to leave a positive lasting impression. Reputationmanagement requires a tight connection with the core identity and strategy of acompany. It also requires an ability to think strategically from the point of view of anincreasingly skeptical public. Wal-Mart embraced its success in responding to theKatrina challenge as an opportunity to demonstrate the positive social value of its corebusiness model. Other retailers have a stake in how well Wal-Mart is doing and how much theyare expanding. If a Wal-Mart moves into a community, changes are the other retailersin that community, especially if they are privately owned are going to lose money andmay even be forced to close down. Because Wal-Mart is the largest retailer in theUnited States and number 1 on the Fortune 500 list, they have the ability to lower theirprices and therefore can force other retailers out of business because they cannotmatch Wal-Marts low prices. Wal-Mart’s technological edge is in its logistics, distribution, and inventorycontrol having installed a computer in its first distribution center in 1969, it had, by the
  • late 1970s, connected all Wal-Mart stores and distribution centers, along with companyheadquarters, to a computer network. Wal-Mart was an early adopter of bar-codetechnology. Wal-Mart is currently at the forefront of efforts to integrate RadioFrequency Identification — a technology in which each individual item receives a tagthat can be read by a radio signal, thus facilitating tracking shipments, inventory, andsales. Wal-Mart’s investment in information technology does appear to have increasedits own productivity over the last several decades. Computations from Basker and Van(2007) indicate that improvement in Wal-Mart’s technology have reduced its cost ofoperating alarge chain. Wal-Mart has managed to build one of the most efficient distribution systems inthe US. Distribution centers were constructed so that any Wal-Mart’s stores will alwayshave a distribution center less than a day’s drive away and operating its own truck fleethas led to 99.5% on time delivery record.Wal-Mart was able to build a win-winpartnership with their suppliers while still acting as a very strong negotiator. Insisting onlower prices, Wal-Mart was also working with suppliers to help them achieve thoseprices by providing them with support and consultancy and going into details to achieveefficiency for their businesses. The United States has well-established distribution channels for all types of retailcompanies. The retail services industry provides an openly competitive environment thatfosters strong business operations and spurs innovations that increase efficiency and reliability. Numerous opportunities for growth exist in the U.S. retail market for retail providers ofall sizes, including individual direct marketers or direct sellers, small- to medium-sized franchiseunit owners, and large “big-box” store operators. New distribution companies are openingstores and units daily to serve a large, affluent consumer base.
  • FACTOR AFFECTING FDI IN RETAILING(U S A)Factor Impact Advantage DisadvantageEmployment Improve the employee’s skills, trust Allow employee’s Several battles have and involvement. ability to grow with the been fought in court and company and be in the U.S. Congress over promoted into higher Wal-Marts questionable positions. labor practices.Price policy However, as the economy faced a It fulfills budgetary These price segments do downturn, people wanted low price needs of their target not target all population stores. customers. of that area.Technology Flexible systems provide retailers with While this industry is Technology change is a competitive advantage that can very technical, one dynamic process. improve shopping experience and thing that has not, and increase profitability. will not ever change is that consumers want and demand superb customer service.Companies Significant impact on customer andServices stakeholder perceptions.Supply chain Wal-Mart’s stores will always have aand distribution center less than a day’sdistribution drive away and operating its own truck fleet has led to 99.5% on time delivery record.
  • Nature of retailing in BrazilDespite its wealth Brazil is a country in which 26% of the population lives below the povertyline. The good news for businesses, however, is that this percentage is shrinking, meaning thatmore and more people have disposable income. The emerging middle class – a significantproportion of a total population of more than 190 million – presents a wealth of opportunity topotential retail entrepreneurs. Indeed, Brazil has just overtaken the UK as the sixth-largesteconomy in the world and is expected to carry on growing at a healthy rate for the foreseeablefuture. Brazil has falling unemployment (very rare in the current economic climate), fallinginflation, and a rising population of working women – just a few of the positive attributes thatbode well for a robust and fertile retail economy.Brazil’s consumers are classed into four main categories: A, B, C and D. Classes A and B occupythe higher end of the personal income scale. Class C, containing those with low tomiddleincomes, is growing the fastest. New opportunities are constantly arising for astuteretailbusinesses as Brazil takes on characteristics usually associated only with the mostadvanced western economies:• More working women• Growing class of Double Income No Kids couples (‘DINKS’)• Longer life expectancy• Greater consumption of health related productsAs a result of these developments the consumer market in Brazil is evolving. Although still arelatively young population, the average age is set to rise, which along with the generalincrease in affluence will create new desires for consumer goods.Among the distinctive traits highlighted during the seminar was the concentration of wealth ina few regions of Brazil, 18 in total, which together account for approximately 48% of all retailtrade. Of these regions, the Northeast, with the largest proportion of people below the povertyline, is also changing quickly, with the fastest growth in class C consumers. Interestingly, 70% of
  • point of sale stores, around 400,000, are small independent stores, not large chains, and ingeographical terms are spread out thinly. This clearly presents a challenge to retailersattempting to reach the consumers.Important considerations for businesses when planning on entering the Brazilian retail marketinclude• Identifying the consumer• Understanding their unique desires• How to communicate with the consumer to meet these desires• How to meet the geographical challenges of the Brazilian landscapeEven in the late 1990s, Brazil was just like any other emerging economy, characterized byextremes of wealth and abject poverty with no social class dividing the bridge between. Adecade and more down the line, the effervescence in the middle cannot be missed. Yes, thegreat Brazilian middle class – defined as those who earn between $690 and $2,970 a month –has arrived and is here to stay. If Brazil has made a name in the global retail sector, it had betterthank these late comers, empowered with good purchasing power and access to credit. For the eighth consecutive year, the Brazilian retail industry has grown. While Brazil’sGDP increased 2.7 percent in 2011, the retail sector expanded 4.4 percent, demonstratingresilience against an economic downturn. According to the Brazilian Supermarket Association(ABRAS), the retail industry was estimated to be worth about R$224.3 billion (approximatelyUS$119.31 billion) in 2011. Ongoing macroeconomic stability and social inclusion policies thathave put more credit in the hands of consumers have played an important role in maintainingthis positive result. The industry has also adopted aggressive strategies as the market becomesmore competitive. These are all factors impacting the sector’s improved profile compared to2010: the number of stores increased from 81,100 to 82,000 (1.1 percent); the number ofemployees also went up from 919,900 to 967,700 (5.2 percent); sales floor size expanded from19,700 thousand square meters to 20,600 square meters (4.4 percent); and the number ofcheck-outs increased from 199,300 to 206,600 thousand (3.6 percent).
  • Brazil’s retail market is estimated to be worth about $230 billion, driven mostly by domesticdemand. Besides the 40% growth in GDP per capita during the last eight years or so, populationdistribution also plays a vital role in encouraging the growth of sectors such as retail. About 30%of the country’s population lives in the 10 principal metropolitan cities. Sao Paulo brims overwith a population of 18 million, while Rio de Janeiro has 10 million. Still, the consumption habits of this predominantly urban population are diverse. As aPwC report points out, the lower income sections tend to spend more on essentials such asfood and beverages, while those in the upper income bracket splurge on leisure, durable goods,as well as luxury items. The Brazilian market is also perhaps the most internationalized amongthe BRICs, as the top 10 retailers corner almost 60% market share among themselves. Foodretailers, apparel retailers, consumer goods makers, appliance retailers, and consumer staplescompanies form the backbone of the sector.Wal-Mart in BrazilThe original intention of Wal-Mart was to achieve the number one retailer position in theBrazilian retail market through a partnership with a local “player” in a very short period of time.In order to achieve this ambitious goal, Bentonville headquarters planned a logistics andcommunication infrastructure capable of supporting no less than 80 stores in the Brazilianmarket. In addition, the headquarters’ intention was to export its expertise and practices in theform of an extensive set of operational manuals that proved successful in the United States,including product assortment and internal space utilization as well as its product mix. Wal-Mart began its operation in Brazil in an absolutely fantastic way. The initial fivestores were opened in a few months and, through a very aggressive pricing strategy, attractedthousands of enthusiastic consumers ready to empty the shelves. Another attraction wasemployees disposition to help consumers, as well as wide product offering. Overall, during itsinitial periods of operation in the Brazilian market, Wal-Mart had captured a very favorable
  • image from consumers and, subsequently, had painted a dark picture for its competitorsfuture. The initially aggressive and promising entry strategy came to a halt after Wal-Martimmediately encountered severe unexpected operational problems. Long checkout lines, highstockout rate (40%), unreliable supply lines, faulty management-performance measures, trafficcongestion, competitors’ reactions, and governmental forces were responsible for Wal-Mart’sinitial failure in the Brazilian retail market. Following Wal-Mart’s disappointing performance in the Brazilian retail market, thecompany had to revise its originally aggressive strategy. To accomplish this, some valuablelessons learned from Wal-Mart’s international expansion into Mexico and Canada had to beincorporated into the redesigned strategy for Brazil. Consequently, Wal-Mart’s strategy revisionplanned for adoption of a more conservative and controlled expansion, consolidation ofdistribution lines, and improved assimilation into the Brazilian culture. An example of Wal-Mart’s revised strategy included for the opening of only 10 stores from 1995 to 1997, downfrom the initial 80 plus stores. Furthermore, Wal-Mart intended to acquire an existing retailchain instead of exploring other partnerships, as was originally planned. In addition, thecompany wanted to acquire experienced managers from other competitors. The challenges that Wal-Mart has experienced in Brazil may be grouped into six categories: stateof the economy, cultural differences, management, advertising, logistics & distribution, andcompetition.EconomySince Wal-Marts entry into the Brazilian retail market in 1994 until the end of 2001, Brazil’seconomy has been all but stable. The “Real Plan,” implemented in 1994 to curb the currencyhyperinflation, brought the inflation from 40% in the year it was instituted, to 3% in 1999.Thanks to appreciation of the U.S. dollar, the Asian financial crisis, and a resulting globaleconomic slowdown, Brazil floated its currency in 1999, as was the case prior to the Real Plan of1994. This caused the inflation to moderately increase to 8.9% in 1999, but was brought down
  • to 5.3% at the end of 2001. However, triggered by national currency depreciation, inflationincreased again in 2002 and was expected to cross 8%. The Brazilian economy was recently struck with the energy crisis. The crisis was causedby electricity consumption in Brazil being greater than its production, thus forcing the import ofelectricity from Paraguay. Although the current state of the Brazilian economy could becharacterized as somewhat stable as compared to that before 1994, the future outlook of theeconomy does not provide any guaranties on a long-term basis.Cultural DifferencesBrazilian retail consumers consider product quality the most important factor in the decision-making process of purchasing, followed by product price, customer service, store cleanliness,and store distance. Most Brazilians prefer shopping in small- to medium-size neighborhood stores.Nevertheless, they also enjoy the occasional shopping trip to a big discount supercenter. Thistrip, however, occurs only once a month, and thus making so-called “monthly purchases,”instead of once a week as in the United States. Yet the current energy crisis has forced mostBrazilians to turn off their freezers and to adjust their shopping habits accordingly. Namely,food-related trips to the store in Brazil have increased in frequency, but decreased in thequantity of food purchased, especially in perishable goods. Despite the unbelievably bad traffic jams, the average Sao Paulo resident is willing totake the long lasting trip to a specific supercenter if he/she perceives it as cost efficient andneed satisfying. Similarly, the notion of having to pay a membership fee in order to shop atSam’s Club is not greatly appreciated by Brazilian consumers, especially when shopping at“buyer’s club” is not perceived as providing greater savings and overall extra benefit to the end-consumer.
  • The product mix in Wal-Mart’s supercenters should be as close to reflecting the needsof Brazilian consumers as possible. Offering products popular in the United States such as golfequipment, vacuum cleaners for garden leaves, American footballs, and food grinders showscomplete ignorance to Brazilian consumers since they have little or no use for these items.Likewise, assigning 25% of supercenter space for food in a country where food represents 60%of supermarket sales is another example of Wal-Mart’s cultural ignorance.ManagementDue to dissimilarities in income and culture between U.S. and Brazilian markets, a greaterdegree of managerial autonomy may be desirable for Wal-Mart in Brazil. In addition, gettingback to the basics, or in other words, implementing Sam Walton’s “management by walkingaround” concept has not been used to its fullest extent by Wal-Mart in Brazil.A faulty productmix and store-space misallocation present examples of bad management policies. Moreover,the overall corporate grip that Wal-Mart has on its subsidiary in Brazil can best be exemplifiedby the fact that performance of the local managers in Brazil was based primarily on store salesvolume. Thus, mangers set prices below cost to artificially stimulate demand and inflate salesvolume numbers. Managers should have greater freedom in managing on a micro level. Wal-Mart has recognized the need to hire professionals, and has recently started a head-huntingcampaign to acquire proven professionals from local competitors. This move should reduceWal-Mart’s need to micromanage the Brazilian effort.AdvertisingMany Brazilian consumers, and housewives in particular, have the habit of listening to the radioduring the day, while cooking and/or cleaning the house. Radio advertisements, therefore,should be used to reach and attract potential shoppers. Contrary to logic, Wal-Mart did not useradio as a medium for communicating to its customers. Some television and newspaperadvertising is used by the company, but the resources allocated to the overall advertisingcampaign amount roughly to only 2% of Wal-Mart’s revenues. Although Wal-Mart has hired a
  • Brazilian advertising agency, the lack of autonomy given to the agency defeats the wholepurpose of “going local” through advertising.Logistics & DistributionInitially, Wal-Mart experienced an alarming 40% stock out rate in Brazil, as compared to 5% inthe United States. Although the stockout rate has decreased since, the problem is far frombeing completely eliminated. Namely, Brazilian suppliers are lagging behind their U.S.counterparts in logistics technology, thus making computerized inventory management systemsuseless. Additionally, constant traffic jams present another major obstacle to consistency andpredictability in supply of both Wal-Mart stores and distribution center(s).CompetitionSince Wal-Mart entered the Brazilian retail market in 1994, competition has been everincreasing, and all to the benefit of end-consumers. Many retailers are focused on expansioninto different retail formats with the purpose of targeting different customer segments.Increasing the number of stores across the country is another way retailers compete in Brazil.Thanks to Wal-Mart, “price wars” are the most visible effects of fierce competition. The 1995 data state that Brazil’s entire retail industry accounts for 6.6% of GNP, withtotal consolidated sales of U.S. $43.7 billion. The top 5 retailers in the Brazilian retail marketaccount for roughly U.S. $11.2 billion. The 1997 data show that Wal-Mart’s major competitorsare Carrefour, CompanhaBrasileira de Distrubuição, Royal Ahold, and MakroAtacadista. Inaddition, some smaller retail chains and a large number of individually owned stores accountfor the remaining portion of the Brazilian retail market.Wal-Mart NowSince originally entering the Brazilian retail market in 1995, Wal-Mart has revised its strategyand consequently gained a substantial share of the marketplace. Although Wal-Mart iscurrently the 6th largest retailer in Brazil, it still holds a relatively small share of the retail
  • market, which is dominated by the French retailer Carrefour. Still, future prospects are lookinggood for Wal-Mart in Brazil. As of 2002, Wal-Mart has a total of 22 stores in operation and has 2% of the market.Out of 22 Wal-Mart stores in Brazil at the moment, it operates under three different formats,12 Supercenters, 8 Sam’s Clubs, and 2 Wal-Mart TodoDia stores in the states of Sao Paulo, Riode Janeiro, Minas Gerais and Parana (AOL Latin America Announces Marketing Alliance WithWal-Mart Brazil, 2001).As previously stated, Wal-Mart’s first revised strategy called for theopening of only 10 stores from 1995 to 1997, down from initial plans of over 80 stores. Lookingback, Wal-Mart actually opened only 3 stores over that same time period. Most of theexpansion occurred within the past two years until 2001 Wal-Mart revealed its revised plan forexpansion in Brazil in July 2002. According to the plan, the company would inaugurate 5 storesin Brazil. However, by the end of 2002, the total number of stores in operation continued to be22. In May of 2001, Wal-Mart opened the Barueri distribution center in São Paulo. Wal-Martpreviously had three rented, limited-capacity distribution centers. The new distribution centerhas 35,000 square meters of storage space and is built on a 200,000 square meter lot owned byWal-Mart. This new facility is designed to easily supply 20 local stores at its current size, givesWal-Mart better control over supply lines, and allows for future building expansion. In May of 2001, Wal-Mart opened its first “TodoDia” store in the eastern Sao Paulosection, Sapopemba. Since the Sapopemba section of São Paulo is mostly inhabited by a lowerincome segment of the population, this move signals that Wal-Mart is looking to increase itsmarket share through catering to different market segments. Another TodoDia store opened onOctober 10th, 2001 in Taboao de Serra region of Sao Paulo, with a third store scheduled foropening by the end of the fiscal year 2001. As opposed to Wal-Mart Supercenter that carries60,000 items, Wal-Mart’s TodoDia carries only 12,000 items. Besides being a smaller formatstore, TodoDia’s inventory is stored directly above display shelves. It is reasonable to suspectthat Wal-Mart’s introduction of the TodoDia store format is used to test the market in Brazil forfuture expansion into local, and extremely value-conscious neighborhoods. This strategy is
  • similar to that of Wal-Mart de Mexico where the company currently dominates the retailmarket with six retail formats. In line with Wal-Mart’s revised strategy that called for improved assimilation intoBrazilian culture, the company is currently involved with local communities, supporting socialprograms such as “Special Olympics Brazil” and “Mesa Sao Paulo”. Wal-Mart’s latest move is the announcement of the marketing alliance with AOL LatinAmerica whereby AOL Brazil will be promoted in all Wal-Mart and Sam’s Club units in Brazil.This marketing partnership is a logical strategic response to a current growth of the e-commerce sector. The value of business-to-consumer (B2C) e-commerce sales is forecasted toreach $4.3 billion in 2005. The number of Internet users in Brazil is expected to jump to 29million in 2005.
  • FACTOR AFFECTING FDI IN RETAILING(Brazil)Factor Impact Advantage DisadvantageCultural Differences Involved with many social Identify to consumer. programs.Price policy / Income Start Everyday low price Attract middle and This strategy does notgroup strategy. lower class segment improve market share. consumer.Competition To targeting consumer Open It fulfills demand of Existing competitor also different retail format store. different costumer follow that’s idea. segment.Marketing Alliance with AOL Latin Generate marketing It affect organization low America wealth for Organization. price strategy.Distribution Open new distribution Better control on Wal- This policy handle only policy. Mart supply chian. few number of store.
  • Literature ReviewLiterature review is a study involving a collection of literatures in the selected area ofresearch in which the researcher has limited experience, and critical examination andcomparison of them to have better understanding. It also helps the researchers toupdate with the past data, data sources and results and identify the gap for furtherresearch, if any.Wal-Mart is the largest Discount Store in the United States. Its magnitude is not onlyrecognized domestically but also expanded to International Market. The companybelieves that one day this one will replace the United States position when the trenddown (Molin, 2004). With this goal Wal-mart is encouraged to expanding stores intonine countries around the world and more in its plans (About Wal-Mart, 2001). Beingnumber one in the United States does not always guarantee for being number oneelsewhere in the world. There are many problems that Wal-Mart is now facing in thishighly competitive business world. Finally, many references illustrate various problemsand causes Wal-Mart faced while expanding into International market. The three basic belief and two keys rules that differentiated Wal-Mart from therivals were proposed in “The Wal-Mart Culture” (2004). Gilman, 2004; Jones, 1998 andMenzer, 2001 describe the reason why Wal-Mart expand its intensity to internationalmarket. They believe that in the future this division will replace the US market.However, expansion through world market does not seem easy to Wal-Mart, it alsofaced some problems both from external and internal. Sources tend to agree that Wal-Mart itself has less consideration in international market when compare withcompetitors (Groeber, 2002; Wal around…, 2001).
  • Another reference states that it was misreading the competitors (Molin, 2004).In addition, other sources state that culture difference is another problem that Wal-Mart was overlooked (Lewis, 1998; Anderson, 1994). Even though Wal-Mart has close relationships with American suppliers, it fails tomake connection with local suppliers (Bianco & Zellner, 2003; Lohr, 2003). Wal-Marttried to use the same standard and concept as in United States but unfortunately oneconcept does not fit all. Moreover, Gilman (2004) and Zellner, Schmidt, et al. (2001)agree that Wal-Mart is too concentrated in expanding their concept. Another external factor that comes into play is government regulations. BothGroeber (2002) and Molin (2004) agree that these restrict regulations lead monopolymarket in some countries. Although some source states that one of the biggest problems of Wal-Mart isHuman Resource Management (HRM) (Biddle, 2004), sex discrimination is the mostcontroversy topic not only in the United States but also in the international market aswell (Rock, 2001).
  • Research methodologyResearch in common parlance refers to a search for knowledge. Once can also defineresearch as a scientific and systematic search for pertinent information on a specifictopic. In fact, Research is an art of scientific investigation. The Advance learnerDictionary of current English laysdown the meaning of research as “A carefulinvestigation or inquiry especially through search for new facts in any branch ofknowledge”According to Cliffort and Woody Research comprises defining and redefining problems,formulating hypothesis or suggested solution, collecting, organizing and evaluating data, making deductions and reaching conclusions and testing conclusions whether they fitthe formulating hypothesis.Research DesigningAresearch design is master plan or modal for conduct formal investigation. Once theformal investigation is decided, the researcher must formulate the formal plan ofinvestigation. A research design is the specification of method and procedure foracquiring the information needed for solving the problem. the information needed forsolving the problem. The information needed for solving the problem. The formalinvestigation plan will concentrate on the three selection source of method andprocedures for gathering the data. Data gathering forms are prepared.There are three basic type of research: Exploratory Descriptive Casual
  • Exploratory:Designed to generate basic knowledge, clarify relevant issues, uncovervariables associated with a problem, uncover information needs, and/or definealternatives for addressing research objectives.Type of Exploratory studies Literature Search Analysis of Selected Cases Experience SurveysDescriptive: The Descriptive study Designed to provide further insight into the researchproblem by describing the variables of interest. It can be used for profiling, defining,segmentation, estimating, predicting, and examining associative relationships.Type of Descriptive studies Cross-Sectional Study Longitudinal StudyCausal:This type of research Designed to provide information on potential cause-and-effect relationships.Most practical in marketing to talk about associations or impact ofone variable on another.In this project report primary data collected by interview method and secondary datacollected by previous report and case study.