Foreign Direct Investment Foreign direct investment (FDI): a firm invests directly in foreign facilities. A firm that engages in FDI becomes a multinational enterprise (MNE). – Multinational = “more than five country” Involves ownership of entity abroad for: – production – Marketing/service – R&D – Access of raw materials or other resource.
Wal MartWall Mart started in semi - rural areas by Mr. Sam Walton in USA; the first retail store was opened on 12thJuly 1962 in Arkansas.Discounting Strategy & Everyday Low price applied by Wal- Mart to compete in the market.Wal Mart Model:lTen feet Rule: Greet every customer at distance of Ten feet.lSmall Town location: Saturated its market and effectively barred new competition from entrylRelentless cost control: Saving every penny in operating cost.lPartnership with Suppliers: Huge purchasing power help negotiations with suppliers.lUnrivalled distribution and logistics management: Created Central distribution, serving nearby storesand not taking more than 1 day’s travel. Keeping inventory rate at half of sales rate.lUse of technology : Use of barcode technology enabling market intelligence and analysis of itsinventory management.
Canada – Capitalist Economy Wal-Mart entered into Canada of due to high growth rate of Retail market (approx. 17%) Replicated US Model – Canada; Lead to Success5) Wal-Mart Canada was established in 1994 with the acquisition of the Woolco Canada chain of 122 stores.6) Wal-Mart Canada claims that nine out of 10 Canadians shop at its stores, with 1.1 million customers a day.7) Wal-Mart Canada also has been converting many of its outlets to "supercenters," which sell a wider array of grocery items than regular stores, along with general merchandise.8) Retail Units as of 29 Feb 2012: 3339) Wal-Mart Canada does business with more than 7,700 Canadian suppliers to whom they pay more than $14 billion CAD annually.10) Wal-Mart Canada continues to pursue the company’s three global sustainability goals: to be supplied 100 per cent by renewable energy, to create zero waste and to sell products that sustain people and the environment.
China – Socialist EconomyWal-Mart entered into china because of two imp features:- Largest population base in China (1.3 billion)- Relaxation on regulatory front allowed high FDI and general business environmentWal-Mart was unable to replicate its success model in China; lot many factors led to down fall of thisgiant retail sector. Reasons are:lRestrictions to Several areas: Not allowed to open stores in urban areas of Shanghai.lFragmented Market: Although China was highly populated , Real buyers far away.lIncome Disparity: Big gap between rich and poor, widely dispersed consumption pattern; Impossible todevelop uniformed national merchandising or marketing strategy.lLocal protectionism: Trucks were stopped at city borders.lInfrastructure deficiency: Lack of expressway or proper highways, high toll rates , not well connected rail &road network; resulting in delay & higher cost of products.lLack of IT network: China lacked IT services which hit Wal Mart the worst.
FDI History in India Protectionist Economy after independence Economic Liberalization in 1991 Telecom Sector has witnessed USD 12000 million in last 8 years. Telecom is the 3rd largest industry after Service and software industry in India as on today.
India – Mixed Economy In India, retailing industry is segregated into two classes- Organized retailing - Trading conducted by licensed retailer Unorganized retailing - Includes all types of low cost trading like local shops, small roadside stores and temporary shops. Wal-Mart has a joint venture with Bharti Enterprises for cash-and-carry (wholesale) business, which runs the ‘Best Price’ stores. Total units as of 29/2/12: 16 [Amritsar, Zirakpur (Near Chandigarh), Jalandhar, Kota, Bhopal, Ludhiana, Raipur, Indore, Vijayawada, Meerut, Agra, Lucknow, Jammu, Guntur and Aurangabad.] Had planned to expand aggressively due to the new policy of allowing 51% FDI in multi-brand retail. However this decision of the government is currently under suspension due to opposition from multiple political quarters.
India – Mixed Economy Advantages of FDI in retail sector in India: l Growth in economy: Due to coming of foreign companies, new infrastructure will be build, thus real estate sector will grow consequently banking sector, as money need to be required to build infrastructure would be provided by banks. l Job opportunities: Estimates shows that this will create about 80Lakh jobs. These career opportunities will be created mostly in retail, real estate. But it will create positive impact on others sectors as well. l Benefits to farmers: This issue can be resolved by FDI, as farmers might get contract farming where they will supply to a retailer based upon demand and will get good cash for that, they need not to search for buyers. l Benefits to consumers: Consumer will get variety of products at low prices compared to market rates, and will have more choice to get international brands at one place. Disadvantages of FDI in retail sector in India: l According to the non-government cult, FDI will drain out the country’s share of revenue to foreign countries which may cause negative impact on India’s overall economy. l Many of the small business owners and workers from other functional areas may lose their jobs, as lot of people are into unorganized retail business such as small shop.