Fdi in retail - Managing Finance | Online Mini MBA (Free)


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Fdi in retail - Managing Finance
- Shekar Kupperi
Online MBA - Managing Finance - http://www.myBskool.com

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Fdi in retail - Managing Finance | Online Mini MBA (Free)

  1. 1. FDI in RetailKey milestones in FDI history1997(January)2011(November)2012(January)2012(September)51% MBRT &51% to 100% SBRT51% MBRT(9 St/ 2 Ut)& 100% SBRT100%SBRT2006(February)WholesaleSo what isDifference51%SBRT
  2. 2. Where is the consensus?State & Union Territories PopulationThat have agreed to retail FDI (in million)Maharastra 112AP 85Rajasthan 69Assam 31Haryana 25Delhi 17J&K 13Uttarakhand 10Manipur 3Dadra Nagar Havell 1Deman & Diu 1Total 367All India 1,210Those agreeing to total population 30%
  3. 3. SBRT and MBRT ConditionsOnly one NRentity (owneror otherwise)Franchisee/Licensee/Sub-LicenseeProducts to bebrandedduringmanufacturingprocessGloballyproductsshould besold under“samebrand”Products tobe “singlebrand” onlyE-Commerceis notpermissible30% sourcingfrom India,preferablysmallIndustries50% to beinvested inbackendinfrastructurewithin 3 yrs30%sourcingfrom IndiansmallIndustriesOutlets incities withpopulationmore than1mnMinimum FDIinvestment ofUSD 100 mnE-Commerceis notpermissiblePolicyimplementationat thediscriminationof State GovtMBRTConditionsSBRTConditionsMBRTConditionsSBRTConditions
  4. 4. Are foreign brands or retailers not inIndia?
  5. 5. WhollyOwnedSubsidiariesLicensingCash & CarryFranchiseWhat have been the modes to enterIndia?Alliances/Joint Ventures4 stores in India14 stores in IndiaJV with TatasJV with Tatas (Trent)JV with Reliance20 stores in India
  6. 6. FDI in Retail : Is it a boon or bane?A perspective!StakeholdersRetailers(Indian retailer,Small retailer,Foreign retailer)Aam aadmi(Consumers /WorkingCommunity)FarmersGovernment
  7. 7. Government - Pros Capital Infusion needed (Growth slowing down!) 50% of total FDI under MBRT will have to be re-invested in developing backend infrastructure(such as cold chains, refrigeration,transportation, packaging etc. will help reducepost-harvest losses i.e. food wastage) Agriculture contribution to GDP (Economistforecast 0.5% increase to GDP) Mitigate Inflation (will ease supply side pressuresby way of greater market access especially toSMEs leading to higher profits; more the supply,lesser the inflation) Increased tax from organized sector and tax fromsmall retailer is tiny and difficult to monitor (taxleakages can be avoided due to under-invoicing,non-reporting of sales etc.) Creates Employment (eg. PPP model)
  8. 8.  Retailers with deep pocket can expandfaster and create monopoly. Will also leadto explosion of real estate prices (4,000+Walmart stores in the US!) Offensive public opinion on politicalinconclusiveness of issues! (pressure torelax rules) Unequal growth across cities (will lead touneven growth in cities, causingdiscontent and social tension) Repatriation of profit in the long run (inthe long run taking back more than whatwas brought in as FDI inflows!) Distortion of Culture (foreign culture &lifestyles; inappropriate consumptionpattern! Altered food habits such ascanned food instead of fresh food)Government - Cons
  9. 9.  Farmers get fair price due to possibility ofreducing the middlemen (Indian farmersrealize only 1/3rd of total price paid by finalconsumer as against 2/3rd by farmers innations with higher share of organizedretail. For eg. 10% to 15% cost reduction,will lead to better profitability) Reduction in wastage of perishable fooditems (loss of nearly Rs. 10,000 croresannually due to wastage. 15% at farm leveland 25% during transportation) Bringing in the Technical know-how (eg.,PepsiCo India helping farmers improveyield on potatoes, and thereby income) Possibility of contract farming (eg.Walmart’s “Direct Farm Project” at HaiderNagar in Punjab, with 110 farmersconnected for sourcing fresh vegetablesdirectly)Farmers - Pros
  10. 10.  Monopsony power: ability to access cheapergoods from other countries (i.e. big retailersmay shift farm produce to outside countrieswith cheaper farm produce, putting inlandfamers in jeopardy) Withdrawal of Government policy onminimum support price for agriculturalproduce due to lobbying/international treaties Irrigation, technology and credit in agriculturenot addressed Supplying supermarkets require farmers tomake more up-front investments to meetgreater demands for quality, consistency, &volume compared with traditional markets(pressure to agree to fixed price or highdependency on retailer’s choice! Type & Size) No clear evidence on long-term benefit tofarmers (eg. in US or Europe)Farmers - Cons
  11. 11.  Franchising opportunities for Indian Retailers Small retailers will be able to source highquality produce at significantly lower pricesfrom wholesale cash and carry points To penetrate Indian market, foreign retailerswill be keen to partner with well establishedIndian retailers (eg. JV, related M&A etc) Foreign Retailers’ Process Excellence: globalbest practices, advanced technology, qualitystandards, cost competitiveness and bettercontrols. For eg. Reduction in Inventory days Control over shrinkage, which is a hugeissue in Indian Retail! Store expansion is allowed in areas withpopulation more than 1 Mn, which enablesconvenience stores & big retailers to co-existRetailers (Indian, Small, Foreign)- Pros
  12. 12. Small Retailers Threat that small retailers (kirana shops)and marginal organized traders may bethrown out with stiff competition (nearly 5crore small traders in the country!) Trade imbalance due to possibility of highimport of mass produced products (China)Indian Retailers Foreign players will implement new pricingstrategy (eg. Wal-Mart: ‘Every Day lowPrice’, Tesco: ‘Every Little Helps’,Carrefour: ‘Low in Price...But High in Trust’)Foreign Retailers Business threat to big retailers from strongE-tailing biggies as E-commerce is notallowed! (eg. Amazon, E-bay, Apple) Political risk! (political change, Centre orState level, puts investment at risk!)Retailers (Indian, Small, Foreign)- Cons
  13. 13.  Benefits of modern shopping like funfilled shopping experience Availability of wider range of products(“one stop” shop for all needs!) Better awareness of the content of theproduct due to proper labeling Availability of private label productswithout the premium pricing of brandedproduct in the same category Fresh and exotic vegetables, fruits andorganic produce all throughout the yeardue to efficient cold storage technologiesleading to easy availability of (eg. appleavailable throughout the year) Redemption of membership points leadsto savings (eg. loyalty cards)Aamaadmi (Consumer/Working Community) - Pros
  14. 14.  Propagating the habit of wastefulconsumerism / shopaholics (eg. volumediscounts attract more purchases!) Middle class may not find travel to distantshops affordable due to rising fuel costs Possibility of Predatory pricing to tacklecompetition initially & then price hike (eg.Pepsi & Coke in soft drinks segment) For working community, big Retailers maypush down wages or not provide adequatehealth benefits (eg. report on Walmartlooking for “low wages” countries to exploit) Possibility of unavailability of credit facility,queue in till/billing counters Home delivery of groceries with freshproduce like vegetables, fruits, bread etcmight be difficult (minimum bill for delivery)Aamaadmi (Consumer/Working Community) - Cons
  15. 15. Shekar Kupperi
  16. 16. For More details Visithttp://www.mybskool.comEmail us – support@mybskool.comCall us - +91-44 4269 199087545 99122