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Marketing management fdi

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    Marketing management fdi Marketing management fdi Presentation Transcript

    • Foreign Direct Investment in Retail February 23, 2004
    • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
    • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
      • Retailing
        • World’s largest private industry
          • US$ 6.6 trillion sales annually
      • Indian retailing
        • Largest employer after agriculture - 8%* of population
        • Highest outlet density in world
          • Around 12 mn outlets
        • Still evolving as an industry
          • Long way to go
      An overview Retailing: An overview *www.etretailbiz.com/dec2002
      • Wal-Mart
        • Topmost global Fortune 500 company(3 Consecutive Years)
        • Annual Sales of over US$ 250 bn
        • India’s two largest retail player turnover around US$ 158 mn (Bata) and US$ 102 mn (Shoppers Stop)
      • Fortune 100
        • 9 Retailers
        • Carrefour, Ahold, Home Depot, Kroger, Metro, Kmart-Sears, Target, Albertsons’
      An overview Retailing: An overview *Fortune List of world’s top companies **Euromonitor India Retail Survey
    • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
    • Weekly Markets Village Fairs Melas Convenience Stores Mom and Pop/Kiranas PDS Outlets Khadi Stores Cooperatives Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls Traditional/Pervasive Reach Government Supported Historic/Rural Reach Modern Formats/ International Evolution of Indian retail Source of Entertainment Neighborhood Stores/Convenience Availability/ Low Costs / Distribution Shopping Experience/Efficiency
      • Informal retailing Sector
        • Typically small retailers.
        • Evasion of taxes
          • Difficulty in enforcing tax collection mechanisms
        • No monitoring of labor laws
      • Formal Retailing Sector
        • Typically large retailers
        • Greater enforcement of taxation mechanisms
        • High level of labor usage monitoring
      Indian retail Evolution of Indian retail
      • Corporate Houses
          • Tatas: Tata Trent
          • RPG group: Food World, Health and Glow, etc
          • ITC: Wills Life Style
          • Rahejas(ShoppersStop), Hiranandani(Haiko), DLF(DT cinemas) etc.
      • Dedicated brand outlets
        • Nike, Reebok, Zodiac etc
      • Multi-brand outlets
        • Vijay Sales, Viveks etc
      • Manufacturers/ Exporters
          • Pantaloons, Bata, Weekender
      Indian retail Categories of Indian retail
      • Modern Format retailers
        • Supermarkets (Foodworld)
        • Hypermarkets (Big Bazaar)
        • Department Stores (S Stop)
        • Specialty Chains (Ikea)
        • Company Owned Company Operated
      • Traditional Format Retailers
        • Kiranas: Traditional Mom and Pop Stores
        • Kiosks
        • Street Markets
        • Exclusive /Multiple Brand Outlets
      Indian retail Classifying Indian retail
      • Hypermarket
        • Big Bazaar
        • Giants
        • Shoprite
        • Star
      • Department store
        • Lifestyle
        • Pantaloons
        • Piramyds
        • Shoppers Stop
        • Trent
      • Entertainment
        • Fame Adlabs
        • Fun Republic
        • Inox
        • PVR
      Indian retailers Large Indian retailers
    • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
      • Greater per capita income
        • Increase in disposable income of middle class households
        • 20.9%* growth in real disposable income in ’99-’03.
      • Growing high and middle income population
        • Growing at a pace of over 10%* per annum over last decade
      • Affordability growth
        • Falling interest rates
        • Easier consumer credit
        • Greater variety and quality at all price points
      Indian consumer The changing Indian consumer † From Euromonitor Retail Survey
      • The urban consumer
        • Getting exposed to international lifestyles
        • Inclined to acquiring asset
        • More discerning and demanding than ever
      • No longer need-based shopping
        • Shopping is a family experience
      • Changing Mindset
        • Increasing tendency to spend
        • Post Liberalization children coming of age
          • 100 mn 17-21 year olds*. Tend to spend freely.
      • Greater levels of education
      Indian consumer The changing Indian consumer *Data from NCAER
      • Market size
        • Current market size is roughly US$ 286 bn*
        • 96% of the 12 Million stores are less than 500 Sq. ft.
        • Forecast Growth rate for the retailing industry is roughly 8.3% for 2003-2008
        • Sales from large format stores would rise by 24-49%**
        • Formal and modern format retailing would enjoy rapid growth
      Anticipated growth Anticipated growth *From ICICI Retail Report **From Euromonitor Retail Survey
      • Low domestic competition
        • Because of fragmented nature of industry
      • Lack of exposure to global best practices
        • Low entry barriers for unorganized retailing
        • Moderate entry barriers for organized retailing
      • Wholesale system under-invested leading to 20-40% wastage
      • Non level playing field issues
        • Wide differences in treatment of small and large retailers
      Industry dynamics Industry dynamics
      • Highly distorted real estate market
        • Pro-tenant laws
        • Zoning laws
          • Zoning laws also vary from state to state
        • Non-availability of government land, and fragmented private holdings makes it difficult for retailers to acquire land
          • Government is largest property owner in country
          • Urban Land Ceiling act is archaic
        • Stamp Duty and registration charges at high levels. Also vary from state to state
      RE issues Real estate issues
      • Growth determining factors
        • Government Policy
        • Infrastructure development
        • GDP growth
        • Employment generation and job creation
          • In several new sunrise industries
          • Implies greater purchasing power
      Growth factors Growth factors
      • India ranked 5th in the Global A.T Kearney Retail Development Index
        • Second only to China in Asia
        • Least saturated of all global markets studied
        • The least competitive of all global markets studied
          • Implies lower barriers of entry for global players
          • Considering tremendous market size, excellent potential for foreign players
      • India ranked 3 rd in the Global A T Kearney FDI Confidence Index in 2004
        • Improved from Rank 6 in Year 2003
      Advantage India The Indian advantage
    • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
      • Current Indian FDI Regime
        • FDI not permitted in retail trade sector, except in:
          • Private labels
          • Hi-Tech items / items requiring specialized after sales service
          • Medical and diagnostic items
          • Items sourced from the Indian small sector (manufactured with technology provided by the foreign collaborator)
          • For 2 year test marketing (simultaneous commencement of investment in manufacturing facility required)
      FDI in Retail not permitted FDI in Indian retailing
      • Metro Group of Germany
        • Cash-and-carry wholesale trading
        • Proposal faced strong opposition
      • Entities established prior to 1997
        • Allowed to continue with their existing foreign equity components.
        • No FDI restrictions in the retail sector pre-1997
        • Foodworld
          • 51:49 JV between RPG and Dairy Farm International,
          • Leading food retailer in India now
        • Mc Donalds
      Current FDI FDI in Indian retailing
      • Franchise
        • International company gives name and technology to local partner. Gets royalty in return
        • In case master franchise is appointed for region or country, he has right to appoint local franchisees
          • Nike, Pizza Hut, Tommy Hilfiger, Marks and Spencer, Mango
      • Manufacturing
        • Company sets up Indian arm for production
          • Bata India. It also has right to retail in India
      How they are present International retailers in India: Strategies
      • Distribution
        • International company sets up local distribution office
        • Supply products to Indian retailers to sell
        • Also set up franchised outlets for brand
          • Swarovski, Hugo Boss
      • Wholesale trading
        • Cash and Carry operations
        • 100% FDI permitted
          • Metro Cash n Carry
      How they are present International retailers in India: Strategies
    • Agenda Retailing : An overview Indian retail FDI in Indian retailing Why FDI ? How FDI ? Incentives for FDI Case study : Chinese retail Recommendations
      • Improve competition
      • Develop the market
      • Greater level of exports due to increased sourcing by major players
        • Sourcing by Wal-Mart from China improved multifold after FDI permitted in China
        • Similar increase in sourcing observed for Metro in India
        • Provides access to global markets for Indian producers
      Benefits of FDI Why FDI?
      • Investment in technology
        • Cold storage chains solve the perennial problem of wastage
        • Greater investment in the food processing sector technology
        • Better operations in production cycle and distribution
      • Better lifestyle
        • Greater level of wages paid by international players usually
        • More product variety
        • Newer product categories
        • Economies of scale to help lower consumer price
        • Increased purchasing capacity of consumers
      Benefits of FDI Why FDI?
      • Manpower and skill development
        • Through retail training and
        • Greater managerial talent inflow from other countries
      • Tourism Development
        • A strong retailing sector boosts tourism as seen from the experience of Singapore and Dubai
      • Investment in whole supply chain
        • Improved product basket from India for exports
      • Long term benefits
        • Up-gradation of agriculture
        • Development of efficient small and medium size industries
      Benefits of FDI Why FDI?
    • Benefits to the government
      • Increase employment levels
        • FDI would result in market growth and expansion
        • Employment generated at various levels
          • Increased consumer demand implies employment generation across the value chain
        • Does not need very high skill sets
          • Needs high school graduates and other similar skill levels
          • Currently this is a majorly unemployed demographic group
        • Boom in employment
          • Similar to job generation in ITES industry
          • On a much larger scale
          • But new jobs comparatively lower down the value chain
      Benefits to govt. Benefits to the government
    • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
      • FDI should be allowed in stages
        • Initial stages: 26% FDI
        • Establishment Phase: 49% FDI
        • Mature Phase: 100% FDI
      • FDI policy
        • No incentives needed to attract FDI
        • Market size and potential are sufficient inducers
        • No need for costly tax breaks, import duty exemptions, land and power subsidies, and other enticements
      How FDI ? How FDI ? 2 yrs 2 yrs 2 yrs
    • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why and why not FDI ? How FDI ? Case study : Chinese retailing Recommendations
      • FDI permitted in 1992. 40 foreign retailers have secured approval
        • Retail sales have grown@13.5% CAGR since FDI was permitted
      • FDI initially restricted to 6 major cities (including Beijing, Shanghai and Guangzhou) and SEZs
      • Foreign ownership initially restricted to 49%
      • US$ 22 bn of FDI attracted, 3.6% of total FDI
        • In 2003, FDI in wholesale and retail was US$ 1.1 bn (Around 30% of our total FDI in 2003)
      • Current restrictions on FDI will be phased out over 5 years as condition of WTO entry
      Chinese retailing Case study : Chinese retailing
    • 7 8 8 0 8 5 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 75 150 225 300 375 US$ bn Total wholesale and retail trade
      • Retail sales grew @ 19.6% CAGR for the next 4 years after the introduction of FDI in 1992
      Years FDI in retail allowed
    • China: The effect of FDI
      • Modern formats have grown after FDI
      • But so have traditional players
      593 Hypermarkets 18,091 Convenience 152,194 13,079 Supermarkets 2,565,028 1,920,604  Traditional No. of stores in 2001 No. of stores in 1996 Type
    • Employment in retailing is increasing Source : China Statistical Yearbook 2001
      • Walmart
        • Entered Chinese market in 1996
        • Has 43 stores in 19 cities as on date
        • Had sales of US$ 704 mn in 2003
        • Has employed more than 20,000 people
        • Has paid taxes of US$ 111 mn in total*
      • Carrefour
        • Has 54 stores as on date
        • Had sales of US$ 1.6 bn in 2003*
      Chinese retailing Case study : Chinese retailing Source : company websites
      • Strong evidence in favor of FDI
        • FDI improves the entire size of the industry
          • Retailing in China has grown at a compound rate of 15% per annum after FDI inflow
        • Employment growth
        • Evolution of modern formats
        • Local players can survive and even beat foreign competition
          • Need for a strong retailing industry in India
        • Scale is the key to success for local retailers
      Lessons from China Lessons from China
    • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
      • Grant industry status to retail
      • Permit FDI in Retail in phases
      • Invest in supply chain infrastructure
      • Ease distribution – infrastructure creation, octroi
      • Ensure single window clearance for retail chains
      • Organize market for real estate
        • Ensure proper rent laws
        • Enforce zoning laws and city development plan
        • Increase land supply
      • Ensure flexibility of labor laws
      Recommendations Recommendations
      • THANK YOU