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F.D.I in Retail Sector ppt

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F.D.I in Retail Sector ppt

  1. 1. •FDI in Retail – Policy Perspectives. •Retail Sector – An Overview. •FDI Policy in Retail - Opportunities & Challenges. •Emerging Human Resource Challenges. •What lies ahead ? Issues for Discussion
  2. 2. The commitment of money or capital to purchase financial instruments or assets in order to gain profitable returns.
  3. 3. Investment done by citizens and government of one country (home country) invest in industries of another country (host country). Foreign Investment through Foreign Direct Investments Foreign Institutional Investors
  4. 4. Automatic Route No permission required Government Approval /License required.
  5. 5. • 1991- FDI allowed selectively up to 51% in priority sectors. • 1997-FDI allowed up to 100% in sectors like mining, manufacturing.
  6. 6. • 2000-06 FDI allowed up to 100% in specified sectors. FDI limits increased. Procedures further simplified • The top 3 Indian Regions attracting the highest FDI.  Mumbai, Delhi and Karnataka.  Account for nearly 62% of the total FDI.
  7. 7. By Target • Mergers and Acquisitions • Horizontal FDI • Vertical FDI. *Backward Vertical FDI *Forward Vertical FDI By Motive • • • • Resource-Seeking Market-Seeking Efficiency-Seeking Strategic-Asset-Seeking
  8. 8. Barter system Weekly market Village melas Kirana Stores Conveni ence store Government Stores Super markets Hyper markets Malls Brand outlets
  9. 9. Single Brand Retailing • 51% Cash and Carry Model • 100%
  10. 10. Incentives attract FDI. Market size and potential are sufficient inducers.  Tax breaks, import duty exemptions, land and power subsidies, and other enticements.
  11. 11. FDI inflows from 2000-10 crossed $300 billion FDI inflows from August 1991 to April2010 were $134.6 billion.
  12. 12. GRDI Position : 3rd Size : $ 400 billion Growth Rate : 13% GDP contribution : 12% Major sector : Food and Grocery Employment : 2nd largest industry (35.06 million) Types: Organized ( 5%) Unorganized ( 95%)
  13. 13. • Corporates are increasingly coming into this sector. • Demand of branded goods on a large scale. • Demand of new and varied products. • High quality product is preferred . • Varied window display. • E-tailers increase the presence.
  14. 14. Format Description Retailers Hypermarkets Offering basket of product Spencers, Big bazaar Cash and Carry Bulk-buying requirement Bharti-wal-mart Departmental stores Large layout, Wide merchandise mix Lifestyle , Globus Supermarkets Household product as well as food as integral part of the service Apna bazaar , food bazaar Shop-in-shop Shops located in shopping malls Navras ( big bazaar) Specialty stores Focus on individual product type Brand Factory Category killers Particular segment The LOFT Discount stores Branded product at discounted prices Subhiksha, levi’s outlet Convenience stores Small Retail stores In and out
  15. 15. Retail Segment Percentage holding in sector Major retailers Food and grocery 63% Reliance fresh, Café brio, food bazaar Clothing, textile and fashion 9% Westside, shoppers stop, globus jewellery 5% Tanishq Catering services 5% IRCTC Consumer durable 4% Viveks, vijay sales, Croma pharmaceuticals 4% Piramal group Entertainment 3% Bowling co., Furnishing, utensils 3% Hometown, Tangent Concept Mobile handsets 2% The mobile store,
  16. 16. • One of the world's largest industries exceeding US$ 9 trillion. • Dominated by developed countries. • 47 global fortune companies & 25 of Asia's top 200 companies are retailers. • US, EU & Japan constitute 80% of world retail sales.
  17. 17. • Retail trade in Europe employs 15% of the European workforce (3 million firms and 13 million workers). • The world’s population is poised to expand 50% by 2050. The world currently comprises of 78% poor, 11% middle income and 11% rich.
  18. 18. Contribution Respective to GDP 12% India 6% 14% Japan 8% 20% Brazil China USA
  19. 19. US France UK Germany US Sales: $374.5 bn Sales: $130 bn Sales: $102.6 billion Sales: $101 billion Sales: $77.3 bn Earnings: $12.9 billion Earnings: $5.2 billion Earnings: $5.5 billion Earnings: $1.5 billion Earnings: $4.2 billion Stores: 6,800 worldwide Stores: 87,422 worldwide Stores: 3,729 worldwide Stores: 2,221 Stores: 2,258
  20. 20. US Taiwan Malaysia Thailand Organised Indonesia Unorganised China India 0 US 20 40 60 80 100 Taiwan Malaysia Thailand Indonesia China India Unorganised 15% 19% 45% 60% 70% 80% 95% Organised 81% 55% 40% 30% 20% 5% 85%
  21. 21. India China Focus on Services Focus on Industry High labor cost Low Labor Cost Home grown Capital FDI Old technology Adaptability to Latest technology Democratic Government Communist Government
  22. 22. INDIA •A large emerging market . Increase in disposable income of a family. 70 mn Indians – salary of $18,000. Rise to 140 mn by 2011. Consumer spending power increased by 75% in last 3 years. The per capita income in 2009–2010 has more than doubled to US$ 849 from US$ 348 in 2000–01.
  23. 23. Characteristics of Indian Market Source: McKinsey&Company
  24. 24. •Increase in consumer class. Consumer class will grow from 50 million at present to 583 million by 2025. With more than 23 million people taking their place among the world’s wealthiest citizens. Upper class Middle class Lower class
  25. 25. •Wide demographics -- average age of 25 yrs. •Brand consciousness. 60 % of population below age of 30. Awareness through World Wide Web. •Changing consumer mindset. Focus shifting from low price to convenience, value and a superior shopping experience. •Small Basket Size Shaping of Consumption
  26. 26. Source: McKinsey&Company
  27. 27. •Easy consumer credit. EMI & loan via credit cards -easy for Indian consumers to afford expensive products. For instance, Casas Bahia’sBrazil. Note: BOP C.K.Prahalad. Upper class Middle class Lower class
  28. 28. •Employment generation. Second-largest employer after agriculture. Retail trade employing 35.06 million. Wholesale trade generating an additional employment of 5.48 million. Additional 1.6 mn jobs .
  29. 29. •Technology Better use of resources and goods. Wastage and Storage problems will be resolved. Efficient logistics, production, and distribution channels. Digital records.
  30. 30. •Rural market. Robust Consumption. 70% Indian households. 2/5 of the country’s total consumption pie. Accounts to 45% of GDP.
  31. 31. •FDI in Retail sector will resolve problems regarding foreign exchange in India. •The life-long basic needs will keep on driving the Retail Industry.
  32. 32. Let the liberalisation be in steps rather than being a leap.
  33. 33. SKILLED WORKERS INFLATION COMPETITION REAL ESTATE PROBLEM TAXATION POLICIES PROBLEM IN RAISING FUNDS MARKET POWER SUPPLY CHAIN MANAGEMENT
  34. 34. • Major challenge faced by Organized retail sector: In Retail, over 70 per cent of the labor force in both sectors combined (organized and unorganized) is either illiterate or educated below the primary level. • Labor Laws
  35. 35. • A strong competition from mom and pop shops:- Easily accessible & approachable. Provide services like Free home delivery and goods on credit. They change consumer focus.
  36. 36. Pantaloons Reliance Bharti retail RPG Lifestyle K raheja Subhiksha Piramyd Trent Vishal group GLOBAL INDIAN • • • • • • • • • • • • • • • • Tesco Walmart Metro Carrefour B&Q Target
  37. 37. Clustering of outlets. Highest Stamp Duty.
  38. 38. FORMAT AVERAGE SIZE Convenience Stores 800 sq. feet Discount Stores 1000 sq. feet Category Killers 8000 sq. feet Specialty Stores Single-category Shop-in-Shop Within Large malls
  39. 39. FORMAT AVERAGE SIZE Supermarket Large in Size Typical in layout Department Stores 10,000 – 60,000 sq. feet Cash and Carry 75,000 Sq. feet Hypermarkets 50,000 – 1,00,000 sq. feet
  40. 40. • Market power is in hands of unorganized retail. Unorganized Organized •95% •5% • Potential of Indian Market is US$ 200 billion whereas India is just earning its 3%.
  41. 41. Shrinkage Lack of logistic Infra. Corruption Additional Intermediaries Technology Hurdles
  42. 42. In India every year there is pilferage of US$ 65 billion whereas in USA it is just 1-2%. Due to lack of proper storage infrastructure postharvest losses of farm produce is Rs. 1 trillion cr. annually.
  43. 43. In terms of corruption India stands at 85th position. Because of paper work, corruption is present along the entire supply chain. In India, there are additional 2-3 intermediaries as compared to USA. i. They dominate the value chain. ii. They flout mandi norms & their pricing lacks transparency.
  44. 44. India is still in developing stage in installing and managing an effective IT system especially in rural areas which hampers the overall growth of organized retail sector.
  45. 45. Banks are reluctant to finance retailers because of falling demand of organized retailers in India as it has witnessed failure of many stores like Spencer's, Subhiksha, etc.
  46. 46. • Taxation laws in India favors only small retail businesses. • Implementation of non-uniform VAT across states. • Octroi and entry tax in some states.
  47. 47. • No Automatic Approval for FDI- Only 51% FDI is allowed to one brand shops in Indian retail sector. • Complications in issuance of licenses like a hypermarket in Mumbai must apply for 29 unique licenses & then when it has to come up with second store it has to apply for same 29 licenses all over again.
  48. 48. Disturbed economic status. Challenge to get more customers at low cost. Liquidity pressure
  49. 49. • Indian retail sector : Employs 8% (35 million)of the working population. Could yield 12 to 15 million retail jobs in the coming five years. • Out of which organized segment is about 0.3 million. • Retail sector grew at 9.4% on real terms & 15.4% on nominal terms.
  50. 50. Front End Operations Store Operations Back End Operations Merchandising Logistics & Distributions Marketing Procurement / Purchase Corporate Services
  51. 51. MBA Graduates with 510years of Experience Graduates with 2-5years of Experience Graduates/ 12th Pass/ 10th Pass Graduates/ 12th Pass/ 10th Pass
  52. 52. Level Associates & Executives Skills Required Skill Gaps Transaction processing Associate/ Billing associate • Computer Skills • Transactions • Knowledge • Soft Skills Customer service representative/ Sales Associate/Sales person • Selling Skills • Promotional Schemes • Product Knowledge •Comm. Skills • Knowledge • Cross Selling Merchandising Associate/ Executive • Responsibility • Routine Visits • Customize
  53. 53. Purchase executive Executive/ Marketing Associate • New Vendors • Communicate •Marketing Strategies • Feedback • Knowledge • Delivery of merchandise during peak demand season • Communication
  54. 54. Level Skills Required Skill Gaps Store Manager/ Department Manager Senior Manager & Manager •Management • Proficient Tools •Sales Promotion Programms •Cross Functional Activities •Man Management Skills •knowledge. Merchandising Manager/Sr. Merchandising Manager • Current Market Trends • Product Knowledge • Visual Merchandising Concepts • Understanding • Soft Skills Purchase Manager/ Category Manager • Sourcing Alternatives • Track Inventory Level • Negotiation Skills • Soft Skills
  55. 55. Level Skills Required Skills Gap Senior Manager/ Manager •Availability of merchandise. •Maintenance •Design/modify the logistic schemes. • Negotiation with warehouse owners. •Availability of experienced Logistics personnel is a key challenge Marketing Manager/Sr. Marketing Manger/ Marketing Officer • Knowledge of data analysis. •Understand customer behavior. •Coordinate with media agencies. • Ability to understand •Communication
  56. 56. Complexity/Technical Nature of Product Nature of Supply Chain Level of Customer Involvement Changes in the Product Nature/ Type Price Segment(Luxury, Mass market etc. Intensity of Skill Requirement Store Characteristics
  57. 57. Demand • Communication Skills • Multi Tasking Supply • Limited Retail Training Opportunities • Higher Level Skills
  58. 58. • The Retailers Association of India (RAI) - Diploma and Degree Programs in Retailing - Bharti Retail and Vishal Retail - 5,000 trained persons
  59. 59. Level 4 Level 3 Level 2 Level 1 4-5% 30-33% 10-15% 50-53%
  60. 60. • Employment. • Unfair competition. • Under-developed organized retail sector.
  61. 61. FDI can be a powerful catalyst to spur competition in the retail industry. It can bring about:  Supply Chain Improvement  Investment in Technology  Manpower and Skill development  Efficient Small and Medium Scale Industries  Increase in exports
  62. 62. Lifestyle plans to have more than 50 stores across India by 2012–13. Shoppers Stop has plans to invest Rs250 Crore to open 15 new supermarkets in the coming three years. Pantaloon Retail India (PRIL) plans to invest US$ 77.88 million to add up to existing 2.4 million sq ft retail space. . Timex India will open another 52 stores by March 2011 taking its total store count to 120
  63. 63. • Investment into warehouse and cold storage chain will result in significant efficiency on supply chain. • Farmers benefited through direct marketing and contract farming programme. • Improves farm production through modern techniques. • Increasing availability of low interest credit for farmers.
  64. 64. Expected Growth 1.4 1.3 CAGR 10% 1.2 1 0.83 0.8 0.6 0.4 0.59 0.35 0.2 0 2008 2011 2013 2018 • In the last four year, the consumer spending in India climbed up to 75%. • By the year 2013, the organized sector is also expected to grow at a CAGR of 40%. • The total number of shopping malls is expected to expand at a CAGR of over 18.9 per cent by 2015.
  65. 65.  The initial cap on investment could be pegged at 49%.  FDI should be leveraged to create back-end infrastructure.  FDI will be a powerful driver to curb inflation.
  66. 66. ?????  To develop our rural sector ,should conditionality’s be put on the FDI funded chains relating to employment? For example, should we stipulate that at least 35% of the jobs in the retail outlets should be reserved for the rural youth?
  67. 67.  Urban migration  Opportunity to urban and rural unemployed  Alternative incentive schemes
  68. 68.  Industry experts predict that the next phase of growth in the retail sector will emerge from the rural markets.  By 2012 the rural retail market is projected to have a total of more than 50 per cent market share.  Apparel, along with food and grocery, will lead organised retailing in India.(RNCOS)
  69. 69. ?????  What additional steps should be taken to protect small retailers? Should an exclusive legal and regulatory framework be established to protect their interests?
  70. 70.  National legal framework cannot be effective.  Hamper growth in retail sector.  Incentives directly to benefit small retailers.
  71. 71.  Restrict the number of stores that can be operated in a city.  Allow access to the small retailers to the stores through special windows.
  72. 72. Thank You

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