Fdi in retail sector
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•FDI in Retail – Policy Perspectives.
•Retail Sector – An Overview.
•FDI Policy in Retail - Opportunities & Challenges.
•Emerging Human Resource Challenges.
•What lies ahead ?
The commitment of money or
capital to purchase financial
instruments or assets in order to
gain profitable returns.
Investment done by citizens and government of one country (home country) invest in industries of another country (host country).
Foreign Investme
nt through
Foreign Direct
Investments
Foreign Institutional Investors
Automatic Route Automatic Route GovernmentGovernment
No permission requiredNo permission required Approval /License required. Approval /License required.
• 1991- FDI allowed selectively up to 51% in priority
sectors.
• 1997-FDI allowed up to 100% in sectors like mining,
manufacturing.
• 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.
Incentives attract FDI.
Market size and potential are sufficient inducers.
Tax breaks, import duty exemptions, land and power
subsidies, and other enticements.
GRDI Position : 3rd
Size : $ 600 billion
Growth Rate : 13%
GDP contribution : 12%
Major sector : Food and Grocery
Employment : 2nd largest industry
(40 million)
Types: Organized ( 7%)
Unorganized ( 93%)
• 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.
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
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,
• One of the world's largest industries exceeding US$ 12
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.
• 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.
US Taiwan
Malaysia
Thailand
Indonesia
China
India
Unorganised
15%
19% 45% 60% 70% 80% 93%
Organised 85%
81% 55% 40% 30% 20% 7%
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
•A large emerging market .
Increase in disposable income of a family.
70 mn Indians – salary of $18,000.
Rise to 180 mn by 2013.
Consumer spending power increased by 80% in
last 3 years.
The per capita income in 2011–2012 has more
than doubled to US$ 950 from US$ 348 in 2000–01.
INDIA
Characteristics of Indian Market
•Increase in consumer class.
Consumer class will grow
from 60 million at present to
583 million by 2025.
With more than 23 million
people taking their place
among the world’s
wealthiest citizens.
•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
•Easy consumer credit.
EMI & loan via credit cards
-- -easy for Indian consumers
to afford expensive products.
•Employment generation.
Second-largest employer after
agriculture.
Retail trade employing 40 million.
Wholesale trade generating an
additional employment of 5.48 million.
Additional 1.6 mn jobs .
•Technology Better use of resources and
goods.
Wastage and Storage problems will be
resolved.
Efficient logistics, production, and
distribution channels.
Digital records. SCM
•Rural market.
Robust Consumption.
70% Indian households.
2/5 of the country’s total consumption pie.
Accounts to 45% of GDP.
•FDI in Retail sector will resolve problems regarding foreign exchange in India.
•The life-long basic needs will keep on driving the Retail Industry.
Let the liberalisation be in steps rather than
being a leap.
• 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
• 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.
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
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
• Market power is in hands of unorganized retail.
• Potential of Indian Market is US$ 250 billion whereas India is just earning its 3%.
Due to lack of proper storage infrastructure post-
harvest losses of farm produce is Rs. 1 trillion cr.
annually.
In terms of corruption India stands at top 50 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.
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.
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.
• Taxation laws in India favors only small retail businesses.
• Implementation of non-uniform VAT across states.
• Octroi and entry tax in some states.
• 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.
• Indian retail sector :
Employs 8% (40 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.
Front End OperationsFront End
Operations Back End OperationsBack End Operations
Store Operations
Store Operations
MerchandisingLogistics &
DistributionsMarketing
Procurement/ Purchase
Corporate Services
MBA Graduates with 5-10years of Experience
Graduates with 2-5years of Experience
Graduates/ 12th Pass/ 10th Pass
Graduates/ 12th Pass/ 10th Pass
Associates&
Executives
Associates&
Executives
Level Skills Required Skill Gaps
TransactionprocessingAssociate/Billing associate
• Computer Skills• Transactions
• Knowledge• Soft Skills
Customerservicerepresentative/SalesAssociate/Salesperson
• Selling Skills• Promotional Schemes• Product Knowledge
•Comm. Skills• Knowledge• Cross Selling
MerchandisingAssociate/Executive
• Responsibility• Routine Visits
• Customize
Purchaseexecutive
• New Vendors• Communicate
• Delivery of merchandise during peak demand season
Executive/MarketingAssociate
•Marketing Strategies• Feedback• Knowledge
• Communication
Senior Manager & Manager
Senior Manager & Manager
Level Skills Required Skill Gaps
Store Manager/DepartmentManager
•Management • Proficient Tools•Sales Promotion Programms
•CrossFunctional Activities•Man Management Skills•knowledge.
MerchandisingManager/Sr.MerchandisingManager
• Current Market Trends• Product Knowledge• Visual Merchandising Concepts
• Understanding• Soft Skills
PurchaseManager/CategoryManager
• Sourcing Alternatives• Track Inventory Level
• Negotiation Skills• Soft Skills
Level Skills Required Skills Gap
Senior Manager/Manager
•Availabilityof merchandise.•Maintenance •Design/modify the logistic schemes.• Negotiation with warehouse owners.
•Availability ofexperienced Logisticspersonnel is a keychallenge
MarketingManager/Sr.MarketingManger/MarketingOfficer
• Knowledge of data analysis.•Understand customer behavior.•Coordinate with media agencies.
• Ability to understand•Communication
Complexity/Technical Nature of ProductComplexity/Technical Nature of Product
Nature of Supply ChainNature of Supply Chain
Changes in the Product Nature/ TypeChanges in the Product Nature/ Type
Level of Customer
Involvement
Level of Customer
Involvement
Store Characteristics
Store Characteristics
Price Segment(Luxury, Mass market etc.
Price Segment(Luxury, Mass market etc.
Intensity of Skill RequirementIntensity of Skill Requirement
Demand• Communication Skills
• Multi Tasking
Supply• Limited Retail Training
Opportunities
• Higher Level Skills
• The Retailers Association of India (RAI)
- Diploma and Degree Programs in Retailing
- Bharti Retail and Vishal Retail
- 5,000 trained persons
Level 3
Level 2
Level 1
Level 4
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
• 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.
• 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 of 40%.
• The total number of shopping malls is expected to expand at a of over 18.9 per cent by 2015.
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.
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?
?????
Urban migration
Opportunity to urban and rural unemployed
Alternative incentive schemes
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)
What additional steps should be taken to protect small retailers?
Should an exclusive legal and regulatory framework be established to protect their interests?
?????
National legal framework cannot be effective.
Hamper growth in retail sector.
Incentives directly to benefit small retailers.
Restrict the number of stores that can be operated in a city.
Allow access to the small retailers to the stores through special windows.