FOREIGN DIRECT INVESTMENT IN RETAIL SECTOR BY SOP 5 ARJUN B RAJ ANISHA RAJAN DHANYA JILS ANTONY LINO JACOB SACHIN BENNY
INTRODUCTIONForeign direct investment: a firm invests directly inforeign facilitiesA firm that engages in FDI becomes a multinationalenterpriseCompanies invest in foreign countries in order to gaincontrol over the market and thereby increase salesInvestment in foreign securities, bonds and other non-voting portfolio investments do not form FDI
FORMS OF FDIPurchasing of assets in a foreign countryNew investment in property, plant and equipmentParticipation in a joint venture with a local partnerTransfer of many types of assets like human resource,systems, etcThrough trading in equity
ADVANTAGES OF FOREIGN INVESTMENTEconomic growthTradeEmployment and skill levelsTechnology diffusion and knowledge transfer
DISADVANTAGES OF FOREIGN INVESTMENTAdverse effects on competitionMake the host country lost the control over domesticpolicyThe defense of a country has faced risksEntail high travel and communications expenseWhen stream of FDI is negatively affected it will alwaysaffect the backward section of countryA company may lose out on its ownership to an overseascompanyInflation is increasedLocal market is affected badly
BEFORE INDEPENDENCEDebtor countryInvestment areasForeigners owned buildingsIndustrial development got initiated by foreign capitalWell built transportation system and huge irrigation projects
AFTER INDEPENDENCE1950-1980 - Strong centralized planning and governmentownershipExcessive regulationGDP was low(3.5%)In 1980 economic reforms were set in motion24 July 1991, Govt announced a new industrial policyLiberalization, Privatization and GlobalizationThird most favored industrial destination
Cheaper raw materials, Low cost of production andEasy marketing of goodsHuge inflow in service sector10% in 1990-1994Grown to 21% in 2008-2009Majority going to few sectors50% of the total FDI inflows comes from 4 sectors
Drugs & Pharmaceuticals and Sea TransportInfrastructureHigher infrastructure – Higher FDIUnequal distribution
Sector FDI Inflows(rs.million) % to total FDI inflowService sector 972347.08 21.94Computer s/w & h/w 416028.96 9.39Telecommunication 381822.18 8.61Housing & real estate 329754.77 7.44Construction 269912.97 6.09Power 198161.08 4.47Automobile 190964.51 4.31Metallurgy 127780.45 2.88Petroleum & natural gas 111962.43 2.53Chemicals other than 101846.04 2.30fertilizers
country FDI inflows Percentage to total inflows (Amt in million rupees)Mauritius 19,30,339.13 43.55Singapore 3,96,145.07 8.94USA 3,39,505.90 7.66UK 2,42,682.23 5.47Netherlands 1,86,136.46 4.20Japan 1,50,816.01 3.40Cyprus 1,39,203.78 3.14
FDI in Retail Industry 51% FDI in multi brand retail. 100% FDI in single brand retail from already existing 51%. a minimum of $100 million by the foreign investments. 50% of total to be invested in backend infrastructure. 30% of the products to be procured from small scaleindustries.
Factors for 100% FDI in single brand retail Products should be sold under same brand nameinternationally.Products retailing will cover only those products that arebranded during manufacturing.Foreign investor should be the owner of the brand.
AdvantagesIndia- 2nd most preferable destination for foreign investorsafter china create 10m jobs and billions of dollar in investment during thenext 3 years. Jobs in the agro and food processing industries. It would help Indian retailers to get much needed funds forbusiness expansion.
FDI policy does not allow foreign companies to open multi-brandretail storesGlobal retailers have opted for the cash-and-carry route toestablish their presence. India currently allows 100 per cent foreign direct investment insingle-brand retail and 100 per cent in the cash-and-carrysegment, and 51 in multi brand
WAL-MART STORESBranded as Walmart since 2008 and Wal-Mart before then, is anAmerican multinational corporationThe biggest private employer and is the largest retailer in the world.8,500 stores in 15 countries, under 55 different names.In Mexico as WALMEX, in the U K as ASDA, in Japan as SEIYUu, ndiaas BEST PRICE. Walmarts investments outside North America have had mixed results,its operations in the U K, S A and China are highly successful,venturesin Germany and S K were unsuccessful
In 2007, Bharti Retail and Walmart set up a JV company, BhartiWalmart, to run supply chain and sourcing for Bhartis Easy Daystores. Walmart also runs 14 wholesale cash-and-carry storescalled Best Price in India
CARREFOURAn international hyper market chain from France.It is one of the largest hypermarket chainsThe second largest in revenueThird largest in profit after Wal-Mart and Tesco. Most stores being of smaller size than hypermarket or evensupermarket
French retailer Carrefour, which has been rather silent after its firstcash and carry outlet opened in India (in Delhi) in December 2010, hasa second store (in Jaipur) in the country now.India is the only country in Asia where Carrefour has cash and carryoutlets. The €90 billion group has around 150 cash and carry outlets,all — save the one in India — located outside Asia.
TESCOIs a global grocery and general merchandise retailerheadquartered in United KingdomIt is the third-largest retailer in the world measured by revenuesSecond-largest measured by profits (after Wal-Mart). It has stores in 14 countries across Asia, Europe and NorthAmerica and is the grocery market leader in the UK, Malaysia,the Republic of Ireland and Thailand.
Tesco has had a limited presence in India with a service centrein Bangalore, and outsourcing.However, in 2008 Tesco announced their intention to invest aninitial £60m ($115m) to open a wholesale cash-and-carry businessbased in Mumbai with the assistance of the Tata Group]
METROIs not keen on opening multi-brand retail storesIn india 8 stores nowMetro is looking at opening as many as 50 cash and carry storesacross the country in the next four to five years.Metro is likely to spend around Rs 3,500 crore over this periodon expansion, considering that its per store investment worksout to around Rs 60 crore to Rs 70 crore.
PANTALOON RETAIL:It is headquartered in Mumbai450 stores across the country employing more than 18,000people. It can boast of launching the first hypermarket Big Bazaar inIndia in 2001Future Groups-Formats: Big Bazaar, Food Bazaar, Pantaloons,Central, Fashion Station, Brand Factory, Depot, aLL, E-Zone etc.
K RAHEJA GROUPShopper’s Stop, India’s first departmental store in 2001.They have signed a 50:50 joint venture with the Nuance Group forAirport RetailingTATA GROUPTrent - one of the subsidiaries of tata group westside a lifestyle retail chain Star India Bazaar - a hypermarket with a large assortment ofproducts at the lowest pricesTrent plans to open 27 more stores across its retail formats adding1.5 mn sq ft of space in the next 12 DLF malls
RPG GROUP:One of the first entrants into organised food & grocery retail withFoodworld stores in 1996 and then formed an alliance with Dairyfarm International and launched health & glow) outlets.RPG has Spencer’s Hyper, Super, Daily and Express formats andMusic World stores across the country.
BHARTI-WALMARTThey have signed a 50:50 percent joint venture agreement withWalmart. Wal-Mart will do the cash & carry while Bharti will dothe front-end. RELIANCEIndia’s most ambitious retail plans are by reliance, withinvestments to the tune of Rs. 30,000 cr.There are already more than 300 Reliance Fresh stores and thefirst Reliance Mart Hypermart.Reliance MART, Reliance SUPER, Reliance FRESH, RelianceFootprint, Reliance Digital, Reliance Jewellery, RelianceTrends
AV BIRLA GROUPThey own brands like Louis Phillipe, Van Heusen, Allen Solly,Peter England,The acquisition of Trinethra (food & grocery) chain in the southhas moved their tally to 400 stores in the country.Their “More” range supermarkets are slated to open at India
The retail industry is divided into organised and unorganisedsectors.Rapid change with is being planned by several Indianand multinational companies in the next 5 years.Modern techniques for farmers
How Beneficial Is Foreign Direct Investment for Developing Countries?FDI provides an inflow of foreign capital and fundsForeign investment increases local productivity growthRegard it as the private capital inflow of choiceThe case for free capital flowsFDI allows the transfer of technologyRecipients of FDI often gain employee trainingContribute to corporate tax revenues in the host countryFDI versus other flows
CONCLUSIONBoth economic theory and recent empirical evidencesuggest that FDI has a beneficial impact on developinghost countries. But recent work also points to somepotential risks. Policy recommendations for developingcountries should focus on improving the investmentclimate for all kinds of capital, domestic as well asforeign.