Organized retailing in India: upstream channel structure and management

Research articles

Organized retailing in India: upstream channelstructure and management

Chitra Srivastava Dabas and Brenda Sternquist

Advertising, Public Relations and Retailing Department, Michigan State University, East Lansing, Michigan, USA

Humaira MahiDepartment of International Business, San Francisco State University, San Francisco, California, USA

AbstractPurpose – This paper’s aim is to identify structural and relational factors influencing the upstream channel management of organized retailers in India.Design/methodology/approach – In-depth interviews were conducted with 15 organized retailers and two manufacturers in India. Data wereanalyzed using the thematic network analysis technique from qualitative research. The authors use the framework of institutional theory to guide thediscussion.Findings – The findings suggest that government regulations influence the supply chain structure in India. Relational bonds offset the uncertaintyborne of weak institutions. Informational transparency and long-term orientation foster trust between channel partners. This trust, in turn, leads tocollaborative partnerships.Research limitations/implications – The findings have implications for multinationals planning to enter the Indian retail industry. There is a need tounderstand complex regulatory and social institutions in India. The uniqueness of these institutions calls for adaptive strategies toward channelmanagement.Originality/value – The paper contributes to the literature on the supply chain structure in India. Despite growing interest in the Indian retailingindustry, not many studies reflect on the specific B2B exchange structure in India. The paper fills this gap and also provides several marketingimplications for multinational retailers planning to enter the Indian market.

Keywords Organized retailing, Upstream channel relationship, Supply chain structure, Transparency, Trust, India, Retailing

Paper type Research paper

An executive summary for managers and executive

readers can be found at the end of this article.

1. Introduction

. . . it is a cultural thing if you ask me. We Indians would like to deal on a verypersonal level (Manager, Supermarket chain, India).

This is India. Dominated by socially driven embedded

markets, multifarious tax regulations and poor infrastructure,

it is intriguing how relational and marketing variables

influence channel dynamics for organized retailers in India.In 2009, the Indian retail market reinstated its leadership

position on the global retail development index (GRDI)

(ATKearney, 2009). Organized retail in India is popularly

referred to as “modern retail” in business-to-business (B2B)

exchanges. Although organized retailing only accounts for 3-5

percent of sales (Sternquist, 2007), the total “modern” retail

market is estimated to be $220bn by 2018, accounting for 26

percent of the total retail spending in India (Technopak,

2008). Marked by a highly fragmented retail sector, 4 percent

of organized retail in India is minuscule as compared to 85

percent in USA or 40 percent and 55 percent in the

neighboring markets of Thailand and Malaysia, respectively

(Tata Strategic Management Group, 2006). However the

projected annual growth of 30-35 percent has set the eyes of

major global retailers like Wal-Mart, Tesco and Office Depot

on the Indian market.Recent channel literature has explored some supply chain

practices in India (Sahay and Mohan, 2003), barriers to

efficiency in supply chain (Sahay et al., 2003), channel

support activities in the industrial and consumer goods

manufacturing sector (Paswan, 2003), and the importance of

relational norms in business exchanges (Singh et al., 2006;

Varman and Costa, 2009). Most of these studies focus on

industrial organizations, small and medium-sized enterprises

(SMEs) or traditional Indian retail formats. Despite

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0885-8624.htm

Journal of Business & Industrial Marketing

27/3 (2012) 176–195

q Emerald Group Publishing Limited [ISSN 0885-8624]

[DOI 10.1108/08858621211207216]

Received: June 2010Revised: November 2010March 2011Accepted: May 2010

176

increasing global interest in Indian retailing, not much

literature exists to provide valuable insights into upstream

channel structure and management in India. Sengupta (2008)

provides a brief background on the evolution of Indian

retailing and discusses case studies of four food retailers in

India, but the complexity of Indian retailing, reliance on social

norms and challenging infrastructure calls for further insights

into business practices that are unique to the Indian market.We provide a deeper insight into the upstream retail channel

structure, B2B buying decision processes and economic

exchanges in organized retailing in India. We do this by using

thematic network analysis to draw inferences from in-depth

interviews with senior management (CEOs/founders) in

organized retail in India. This study is unique because the

data come from the pioneers of modern Indian retailing,

whose actions set the stage for future development in the

industry. Trade statistics can paint a picture of the retail trade,

but the in-depth interviews with the founders of the newly

emerging organized retail chains give greater perspective on

the evolving Indian retail environment. Based on the findings

we suggest that the existing channel structure in India can be

best explained by institutional theory. This is elaborated

further in the theoretical implication section. This study

contributes to an understanding of channel management in

India and provides valuable insights for multinational retailers

seeking entry.We begin by reviewing relevant channel literature and

institutional theory literature then present themes that emerge

from the depth interviews that highlight the unique features of

the Indian channel structure. This is followed by a discussion

of findings and relevance for theory and practice.

2. Literature review

2.1 Upstream channel management

Upstream channel perspectives can be divided into two broad

areas, one concerning the operational structure of supply

chains and the other focusing on buyer-supplier relationships

(Mills et al., 2004). Both areas are critical for understanding

the functional behavior of any industry. The retail literature

suggests that structural and relational channel characteristics

influence the retail buying decision process (Pellegrini and

Zanderighi, 1991; Skytte and Blunch, 2001; Sternquist,

2007). The buyer-supplier relationship literature focuses on

the buying process (Sheth, 1981; Sternquist and Chen,

2006), vendor development policies (Wilson, 1995),

relational factors (Dwyer et al., 1987; Sternquist et al.,

2008), specific investments (Wilson, 1995) and on

information exchange and partnering (Sheth and Sharma,

1997; Johansson, 2001). Research on distribution structure,

on the other hand, focuses on order processing and fulfillment

(Sahay and Mohan, 2003), warehousing and transportation,

integration and process re-engineering, and on the evolution

of channel structure (Huddleston, 1993; Lorentz et al., 2007).

Mills et al. (2004) suggest that most of the upstream channel

literature is concentrated around the buyer’s perspective of

the supply chain.We next review relevant work in two broad areas of

upstream channel management (Mills et al., 2004):1 channel structure; and2 buyer-supplier relationships.

2.1.1 Channel structureThe literature suggests that high transaction costs associated

with an uncertain business environment, underdeveloped

infrastructure and insufficient systems amplify supply chain

issues in emerging markets (North, 1990). Rapid growth andindustrialization make these markets a popular investment

destination for multinational enterprises (MNEs), but these

markets may not be cost-efficient. Distribution systems also

differ widely as they are influenced by level of economic

development within nations (Mallen, 1996; Lorentz et al.,2007). Economic variables, competitive conditions and the

relative bargaining power of sectors may determine the

evolution of distribution systems within a nation. Hence,understanding these fundamental differences between

national markets is an important determinant of retailer

performance in foreign countries (Burt et al., 2008).

International retailers’ failures are often attributed to their

inability to understand cross-cultural business nuances (Burt

et al., 2003). For instance, Sternquist et al. (2008) found

significant differences in the buyer-supplier relationshipstructure between Japanese and US retailers. The

multilayered, fragmented Japanese retail structure was found

to be structured around frequent interaction and support

functions, as opposed to infrequent and discrete exchanges in

the USA. This channel structure influenced differences in the

use of coercion in the buyer-supplier relationship between two

countries. Pirog and Lancioni (1997) found Japanese channel

structures to be more costly as compared to US channelstructures.In sharp contrast to the efficient supply chain strategies of

US firms, Sahay et al. (2003) found that almost one third of

the Indian companies had no supply chain strategy. Issues

relating to statutory requirements and complex legalstructures were rated as the most time-consuming supply

chain issues. In a ten-country study conducted by Mishra

(1999), India scored lowest on product quality, design and

on-time delivery, and was only second to Brazil on after-sales

service and distribution management. Indian organizations

focus on improving customer service rather than on achieving

operational efficiencies (Sahay and Mohan, 2003).

Uncontrollable factors, transportation difficulties andregulatory structure are significant reasons for determining

supply chain objectives in India. Sahay and Mohan (2003)

concluded that there is a gap between the supply chain

strategies and the business objectives of Indian firms. Lack of

cross-functional team integration and lack of technology

deployment within firms exacerbates the negative effect of

these structural inefficiencies in India. While past literaturehas broadly looked at the supply chain upstream channels in

India, there is no work that has examined the specific

structures used by retailers.

2.1.2 The retail buying processRetail buying literature focuses on two broad areas:1 the retail buying decision process; and2 buyer-supplier relationship management.

We expand on both of these areas next.

2.1.2.1 The retail buying decision process. Webster and Wind

(1972) suggested that individual, social, organizational and

environmental level factors influence organizational buying

decisions. Lewin and Donthu (2005) used meta-analysis of

organizational buying decision studies for two decades and

Organized retailing in India: upstream channel structure

Chitra Srivastava Dabas, Brenda Sternquist and Humaira Mahi


Volume 27 · Number 3 · 2012 · 176–195

177

found that purchase complexity, uncertainty and

characteristics of the product purchase process influenced

the level of involvement. Literature on the retail buying

decision process revolves around factors that are market-

specific (Sternquist et al., 2008), firm-specific (Sheth, 1981;

Pellegrini and Zanderighi, 1991), buyer-specific (Sternquist,

1994), product-specific (Skytte and Blunch, 2001; Bruce and

Daly, 2006) and context-specific (Hansen and Skytte, 1998;

Skytte and Blunch, 2001). In his seminal work on the retail

buying decision model, Sheth (1981) suggested that industrial

buying models cannot be applied directly to the retail

industry. Following Sheth, several models of retail buying

have been proposed in the literature (McLaughlin and Rao,

1991; Pellegrini and Zanderighi, 1991, Hansen and Skytte,

1998). Electronic data interchange (EDI), degree of

centralization and formalization of the buying process,

relational factors between the buyer and the supplier and

the business climate of the country are important

determinants of the retail buying process (Hansen and

Skytte, 1998). Based on findings from 16 European countries,

Skytte and Blunch (2001) suggested that food buyers are

increasingly evaluating factors like traceability, quantity, long-

term relationships and the organizational set-up of suppliers

in making buying decisions. With the growth of technology

and new buying techniques, retail buying decision models are

evolving from a static to a more dynamic process (Hansen and

Skytte, 1998; Cannon and Perreault, 1999). The retail

literature suggests that buying decisions are not only

situation-specific but are also country-specific (Huddleston,

1993; Sternquist and Chen, 2006; Sternquist et al., 2008). Ina Chinese retail firm sample, Sternquist et al. (2008) found

that the country environment and firm strategy influenced the

use of buying committees in China. Sternquist and Chen

(2006) found that retailers in China seldom moved out of

their current business networks to look for new suppliers.

This is in contrast to the USA, where buyers are considered as

profit centers and they constantly seek new suppliers to

increase gross margin (Sternquist et al., 2008). Trade

assistance and price were two important determinants of the

buying decision in China (Sternquist and Chen, 2006).

Huddleston (1993) found that buying decisions in Russia

were influenced by economic factors. For example Russia’s

lack of convertible currency restricted the inflow of imported

goods. In an industrial buying study on India, Karande et al.(1999) suggested that risk profiles of private and public sector

buyers in India influenced the supplier selection process.

Private-sector buyers valued economic criteria and post-sales

support higher than public-sector buyers when selecting

industrial goods suppliers in India. However, relational

aspects like familiarity and reliability of suppliers were found

to be equally important for buyers in both sectors.

2.1.3 Buyer seller relationships2.1.3.1 Relationship marketing and its effects on channeleffectiveness. The retail buyer-supplier relationship has been

examined extensively in the literature. Theoretical and

empirical work suggests that relational structures between

channel members can enhance performance, improve trust

and reduce perceived risk and opportunism. It has been found

that retail exchange models are shifting from a transaction

focus to a relationship focus (Kaufman et al., 2006; Hansen,

2009). The channel management literature is also increasingly

focusing on the influence of relational structures between

buyers and suppliers on long-term performance (Ganesan,1994; Kaufman et al., 2006). Wilson (1995) proposed amodel of buyer-seller relationships that suggests that the valuecreated by relational behavior also enhances thecompetitiveness of partners. Relational behavior between thebuyer and supplier reduces transactional cost, increaseseffectiveness, increases the firm’s competitiveness and alsoenables technology use (Sheth and Sharma, 1997). Therelational embeddedness of firm-specific transactions has alsobeen found to reduce perceived risk and opportunism byinducing trust between partners (Morgan and Hunt, 1994;Narasimhan et al., 2008). Mutuality, loyalty, customerorientation and political control influence relationshipsbetween channel partners (Campbell, 1997). Buyer-supplierand structural embeddedness influence the socializationprocess and relational capital formation between channelmembers (Choi and Kim, 2008).The Scandinavia-based research group Industrial

Marketing and Purchasing (IMP) and the Nordic Group ofServices examine relationship marketing extensively (Turnbullet al., 1996; Palmer et al., 2005). For two decades the IMPgroup has specifically examined business-to-business contextsand studied the nature of relational exchanges and theirperformance influences (Palmer et al., 2005). The IMP groupidentifies four conceptual cornerstones of relationshipmarketing (Palmer et al., 2005). The first cornerstone isthat relationships exist between buyers and sellers and thatthey are built from interaction processes focusing on severalissues (Hakansson, 1982). These issues are:. technical issues (technicians play an important role in the

contacts between companies; technical content is apparentthrough the products or services, as well as through specialprojects performed by either of the two parties);

. social issues (trust, commitment, and influence/power);and

. economic issues (since relationships are important interms of cost and revenue volume; there are reasons torationalize the handling of relationships).

The group’s second cornerstone is that business relationshipsare connected through a wider economic organization calledthe network form. The third cornerstone is that a relationshipis a combination of individual adaptations and scale-effectiveproduction. The fourth cornerstone is that relationships areconfrontations through which different dimensions ofresources are identified and utilized by the two parties(Hakansson, 1982). Thus, this approach involves examiningvarious dimensions of the business relationship.Another perspective on relationship marketing is provided

by the commitment-trust theory forwarded by Morgan andHunt (1994). Relationship marketing is defined as “allmarketing activities directed toward establishing, developingand maintaining successful relational exchanges” (Morganand Hunt, 1994, p. 22). In their framework, trust exists whenone partner has confidence in an exchange partner’s reliabilityand integrity (p. 23) and commitment is defined as the beliefthat “the relationship is worth working on to ensure that itcontinues indefinitely” (p. 23). We draw on all of the aboveconceptualizations in this study.

2.1.3.2 Cultural differences in buyer-seller relationships. Culturalnorms define the structure of buyer supplier relationships(Chung et al., 2006; Pressey and Qiu, 2007). For instance,Sternquist et al. (2008) found differences between channel




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relationships for US and Japanese retailers. Conflicts between

partners are almost absent in Japanese culture because of

reinforced personal harmony and embedded cooperation in

Japanese culture (Sternquist et al., 2008). A long-term

orientation in Japan is an antecedent of trust and dependence,

not the outcome of the constructs as in the USA (Ganesan,

1994; Chung et al., 2006). Indian relational embeddedness

makes it a complex business environment to understand. The

relationship quality between a retail buyer and supplier

influences the new product buying decision in India

(Kaufman et al., 2006). In a study on embedded markets in

India, Varman and Costa (2009) found institutional norms,

collective welfare and cooperation to be unique characteristics

of Indian bazaars. Competitive clashes are avoided and

retailers work in harmony to maintain the social institutional

fabric of embedded markets. Fairness is respected and is

critical for relational dealings. Though Varman and Costa

(2009) investigated unorganized small retailers in the

ethnographic study, values and norms can be assumed to be

embedded in Indian culture as a whole. They dictate business

practices across different contexts within the culture.

Organized retailing in India is new, and there is not much

knowledge of the process and interplay of relational norms in

determining economic exchanges. Our aim with this study is

to provide a first look at this context.

2.2 Institutional theory

Relationships within organizations are structured by societal

factors. We use institutional theory from organizational

sociology to understand the structure of the Indian retail

environment.Institutional theory has been used within the field of

organizational sociology to explain the effect of various factors

on the structure of organizations (for a detailed review see

Scott, 2008a, b). Scott (1995, 2005, 2008a, b) defines the key

tenets of institutional theory by identifying three factors that

underlie institutional order:1 regulative factors;2 normative factors; and3 cultural-cognitive factors.

He defines regulative factors as those that focus on rule-

setting, monitoring and sanctioning activities. Normative

factors are those that “introduce a prescriptive, evaluative,

and obligatory dimension into social life” (Scott, 2008a,

p. 54). Cultural-cognitive factors are those that focus on the

“shared conceptions that constitute the nature of social reality

and the frames though which meaning is made” (Scott,

2008a, p. 57). According to Scott (2008b), each of these

“three elements vary substantially in the type of institutional

order they support [. . .] Each offers a different rationale for

claiming legitimacy, whether by virtue of being legally

sanctioned, morally authorized, or culturally supported”

(Scott, 2008a, p. 51; 2008b, pp. 428-9).Institutional theory scholars believe that these three factors

exist in different combinations in different settings and also

that the effect of one factor or another might change over time

for the same institution (Scott 2008a, b; Whitley 1992a, b).

Thus, regulations may be more relevant during one period in

time, for example with an evolving system such as with a

market that is liberalizing, but norms and beliefs may shape it

more once the rules have been defined. Scott (2008b, p. 429)

argues that “cultural cognitive frameworks provide the deeper

foundations of institutional forms. In formulating the

classificatory systems, assumptions, and premises that

underlie institutional logics, they provide the infrastructureon which not only beliefs, but norms and rules rest”.Institutional theory has been applied to various levels of

analysis, from micro interpersonal systems to transnational orworld systems. Whitley (1992a, b), for example, has examined

what he calls distinctive business recipes in various

institutional settings that he then argues become establishedas the dominant forms of business organization in different

societies.We follow Whitley (1992a, b) in examining the effect of

regulatory, normative and cultural-cognitive factors on the

evolution of one particular business structure, i.e. the retailstructure in India as India shifts from a Socialist agrarian-

based economy to a liberalized, global economy.Also relevant to our context is that recent shifts in the

application of institutional theory acknowledge that

institutions do undergo change. This change can be brought

about by factors that may be internal or external. The factorscan be as big political shifts, such as when a country moves

from a closed economy to an open one – which can

completely change existing rules and modes of behavior. AsScott (2008b, p. 437) states, “frequently, carriers of ‘new’

institutional logics invade from ‘foreign’ realms and colonize

existing stable fields [. . .] Endogenous sources of changeinclude gaps or mismatches between more macro systems and

micro activities in response to local circumstances,

inconsistencies existing between institutional elements orcompeting frameworks, and persisting poor performance

levels in relation to expectations (Sewell, 1992; Dacin et al.,2002; Scott, 2008a)”.Given a rapidly increasing organized retail presence in the

Indian marketplace, Giddens’s (1979) theory of structurationis relevant. Giddens (1979) conceptualizes structures as

processes and argues that structures only exist if and to the

extent they are continually produced, reproduced andmodified by the actions of various social actors. Institutional

processes operate not only in a top-down, but also in a

bottom-up direction (Giddens, 1979; Scott, 2004). Wewonder if the evolving retail structure in India is also

changing the institutional environment in the Indian

marketplace? We next turn to our data and results before weassess these in the context of institutional theory.

3. Methodology

Before we expand on methodology, it is important to

understand the Indian retail context to explain the

reasoning behind the choice of cities and respondents chosen.

3.1 Contextual setting

In April 2006, the Indian government opened the market for

100 percent foreign direct investment (FDI) in wholesaleformats and 51 percent FDI for single-brand outlets. Even

with the restricted inflow, FDI in single-brand trading in India

accounted for $US46.60m in 2009 (India Brand EquityFoundation, 2009). FDI in multi-brand retailing is not

currently permitted. The Indian government has been holding

meetings with a range of stakeholders (includingrepresentatives of Walmart India and the French retailer

Carrefour) to evaluate India’s multi-brand retail FDI policy.

While national players like RPG Group, Reliance Fresh and




Volume 27 · Number 3 · 2012 · 176–195

179

the Pantaloon group are aligning supply chains and

strengthening backend systems, international players likeWal-Mart, Tesco and Staples are testing the waters by

entering into strategic alliances with Indian firms.On the one hand, the availability of skilled labor, increasing

consumer demand and high disposable income are fueling thegrowth of organized retail; on the other hand, factors like low

productivity, poor infrastructure and a complex tax structureare raising barriers to realizing full market potential. Logistics

costs are as high as 12-15 percent of the total revenue forsome industries in India (Sahay et al., 2006). The structure of

retail supply chains and existing pricing and tax policies weredeveloped to complement the 96 percent of the fragmented or

unorganized retail market in India. Certain embedded

practices influence the strategies of organized retailers andat times raise barriers to growth as well. For example, the

“maximum retail price” (MRP) system, which legally bindsmanufacturers to specify the final selling price of products

before they enter the supply chain, ensures price uniformityfor urban and rural consumers alike. This fixed price

structure contributes to price transparency and influencesthe structure of bargaining between channel members in

India. Similarly, the extensive distribution network enablesthe inflow of products to 12 million small retailers in India,

but it also impedes supply chain effectiveness for organizedretail players.

3.2 Data collection

Data were collected in three cities in India – Mumbai,Hyderabad and Chennai. Mumbai was chosen because it is

the main hub of business activity in India, and since SouthIndia has seen faster growth in organized retailing as

compared to the North, the two Southern cities ofHyderabad and Chennai were selected for this study

(Sreejith and Jagathy, 2007). We contacted all the majorplayers in the organized retail sector in these three cities and

almost all retailers were willing to participate. Fifteen chiefexecutive officers (CEOs) and generally the company

founders were interviewed. Given that organized retail isnew and unorganized retail sectors put up stiff competition,

we selected senior management for our interviews as being thebest respondents for our study. We found that mid-level

managers were unwilling to share information because of theuncertainty they faced in determining what information was

confidential and what was not. CEOs had the authority to callon the appropriate employees to provide specific information

that we were seeking if they did not have the answers. Also,the CEOs and founders were very hands-on and

knowledgeable of the entire process, given that their chieffocus at this firm-building moment was to understand the

issues within the supply chain.While our study is not dyadic, we also interviewed two

senior managers representing manufacturers to get aperspective on what they saw as key issues in the selling

process. Since English is the business language in India(Huang and Palvia, 2001), the interviews were conducted in

English and were transcribed directly. Since our aim was touncover and understand the nuances to the upstream channel

structure in the Indian context, our questions were open-ended and were designed to be exploratory. The senior author

of this paper conducted all the interviews. This author hasconducted similar studies throughout the world. This is

important because in the long interview data collection

process the researcher’s knowledge about the subject directs

the flow of questions. McCracken (1998, p. 18) notes that

“the investigator serves as a kind of instrument in the

collection and analysis of data”.Thematic network analysis was used to analyze the data and

to identify important themes in Indian upstream channel

management. A thematic analytical technique is similar to a

grounded theory approach in terms of its application of basic

tenets of qualitative data analysis (Attride-Stirling, 2001;

Corbin and Strauss, 2008). This technique is based on the

structured methodology of data analysis as proposed by

Toulmin (1958) in augmentation theory (Attride-Stirling,

2001). Unlike the grounded theory approach, where datacollection and analysis is a reiterative process, pre-collected

data can be analyzed systematically for evolving themes in

thematic analysis. Attride-Stirling (2001) provides a six-step

approach for conducting thematic analysis. Research analysis

starts with lowest order themes (basic themes) and evolves

through more abstract themes (organized themes) to final

stories (global themes). Several schemes of identifying initialcodes exist in qualitative methods literature (Miles and

Huberman, 1994; Corbin and Strauss, 2008). In thematic

analysis, the coding scheme can be determined a priori (based

on the literature) or/and a posteriori based on the

understanding of accumulated evidence. In this study, while

we identified broad overarching themes such as the channel

structure, the buying process and buyer supplier relationships,

a priori based on the channel literature, the final codes wereall discovered from our interviews because of the new and

evolving nature of the Indian organized retail context. For

example, we identified channel length as an a priori theme

from the literature but discovered that in the Indian context,

taxation has an impact on channel length decisions. Given the

new and evolving nature of organized Indian retail and the

lack of literature examining the internal channel structure in

the Indian organized retail sector, all of our final themes werea posteriori or discovered themes.Tables I and II provide important details on the size, type,

sales, ownership, etc., of the respondents.

4. Results and discussion

Organized retail in India is popularly referred to as ‘modernretail’ in B2B exchanges. Also, organized retailers are

increasingly gaining the status of ‘key accounts’ from their

upstream channel partners. Next we describe the important

themes related to upstream retail channel structure as found

in our analysis.

4.1 Upstream channel management: channel structure4.1.1 Channel length and sales tax regulationsFood retail supply chain structure in India involves three to

four intermediaries between the manufacturer and the final

retailer (Figure 1a-c). This complex channel structure evolved

to suit and sustain the highly fragmented retail market in

India. Fast-moving consumer goods (FMCGs) move from

manufacturers to clearing and forwarding agents (C&FAs)

then to distributors, to wholesalers, and finally to retailers.Tax regulations are partially responsible for the extended

supply chain channel in India.Two types of taxes govern B2B product sales:

1 central excise tax (governed by federal laws); and2 state tax (governed by state laws).




Volume 27 · Number 3 · 2012 · 176–195

180

Table

IR

espo

nden

tde

tails

:re

taile

rs

Case

no.

City(of

interview)

Ownership

type

Expan

sion

strategy

Type

Number

ofstores

(yea

r)

Presence

incities

(yea

r)

Sales($US,

millions)

Averagesize

(squarefeet,

thousands)

Key

categories

Private

label

Case1

Mum

bai

Publ

icO

wn

stor

esD

epar

tmen

t

stor

e

16(2

004)

28(2

009)

10(2

004)

12(2

009)

66.2

5(2

004)

55-6

0A

ppar

el(6

0pe

rcen

t)an

dno

n-ap

pare

l

(40

perc

ent)

Mod

erat

e

Case2

As

Cas

e1

(sec

ond

resp

onde

nt)

Case3

Mum

bai

Publ

icO

wn

stor

esH

yper

mar

ket

1(2

004)

5(2

009)

1(2

004)

3(2

009)

N/A

50-7

5Fo

od,

groc

ery,

gene

ral

mer

chan

dise

,

clot

hing

Mod

erat

e

Case4

Mum

bai

Priv

ate

Ow

nst

ores

Con

veni

ence

stor

e

N/A

42(2

009)

N/A

3(2

009)

N/A

2Fo

odan

dgr

ocer

yN

/A

Case5

Mum

bai

Publ

icO

wn

stor

esD

epar

tmen

t

stor

e

13(2

005)

45(2

009)

11(2

005)

26(2

009)

Not

avai

labl

e

for

indi

vidu

al

form

at

30A

ppar

el(6

0pe

rcen

t)an

dno

nap

pare

l

(40

perc

ent)

mer

chan

dise

Hig

h

Case6

Mum

bai

Priv

ate

Fran

chis

ing

Spec

ialty

stor

e

1(2

004)

2(2

009)

1(2

004)

2(2

009)

N/A

Art

san

dcr

afts

NA

Case7

Che

nnai

Priv

ate

Fran

chis

ing

Food

supe

rmar

ket

50(2

004)

90(2

009)

N/A

18(2

009)

5.1

(200

4)2-

2.5

Dai

ry,

bake

ry,

groc

ery

Hig

h

Case8

Che

nnai

Priv

ate

Ow

nst

ores

Dis

coun

t

groc

ery

chai

n

164

(200

4)1,

500

(200

9)N

/A10

0(2

009)

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Volume 27 · Number 3 · 2012 · 176–195

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Volume 27 · Number 3 · 2012 · 176–195

182

State taxes vary between states, and therefore there are

additional regulations associated with sales made between

states.If a sale is made between two entities in two different states,

then a central as well as local sales tax is levied on the product.

But if a manufacturer has an office in the other state and

transfers goods from one unit to the other, then this transfer

of goods has central excise exempted on the goods. Therefore,

to save on the landing cost of goods, C&FAs are appointed by

manufacturers in every focal state. These agents are either

operated by manufacturers or appointed on a commission

basis. The decision to establish an office versus direct selling

to distributors depends on the associated transaction cost with

each strategy. Most of the respondents mentioned this

influence of the complex tax structure on their business

strategy. The C&FA of a large MNE with manufacturing

operations in India indicated that manufacturers choose to

open offices in every state because the cost of maintaining an

office is less than the taxes paid otherwise.

Case 16 (C&FA in Hyderabad): They [C&FA] can transfer the goods fromthe manufacturing location or from any other branches free of tax to that

particular location. They will become the first seller in the state, [and] they

will make the sale without suffering the 4 percent, the [goods] will become 4percent cheaper to the customer [. . .] if I have to hold the office my

administrative cost will be somewhere around 2 percent. [. . .] I will be paying

only 2 percent and the other 2 percent will be savings for me instead ofpaying the entire 4 percent.

Indian logistics suffers from poor infrastructure and longer

lead times (Sahay and Mohan, 2003). Since C&FAs also

provide warehousing functions and stock goods for future

sales, delivery time is reduced in an otherwise time-

consuming transportation process in India. It provides

relatively faster replenishments and also reduces the

inventory holding cost for downstream channel members.

Also, these agents provide a horizontal support function for

other offices in nearby states.

Case 16 (C&FA in Hyderabad): I can transfer the goods from amanufacturing location to the user location. I can hold it for an eventual

sale [. . .] there is a proximity level to the customer [and] you can penetrate

the market more deeply [. . .] Suppose I am holding stock here, Bangaloredoesn’t have the stocks. I can transfer stocks to the other branch which is alsofree of tax.

This agent also reported that maintaining offices in each statealso brings down the inventory levels at each distributioncenter. Proximity to customers and shorter lead time inducessystem efficiency for these manufacturers. Thus, maintainingoffices in each state makes business sense in India rather thana central distribution model.Goods move from C&FAs to regional distributors.

Distributors are responsible for the sales of product in theirpre-defined zones. Cross-selling out of their zones is prohibited.Though respondents did not suggest any written policies,regional distributions were indicated to be implicit in the supplychain structure. Although they cannot encourage distributormonopoly by appointing only one distributor in every region, itis common practice in India to expect distributors to sell only intheir defined regions. C&FAs monitor distributor opportunismand may use coercion if needed.

Case 16 (C&FA in Hyderabad): I come to know as a company you arecrossing the boundaries [. . .] what I’ll do is I’ll offer more discounts to aHyderabad dealer and cut you totally. I have the method of correcting thesituation.

At times, manufacturers also appoint sales people fordistributors in addition to the sales people appointed by thedistributor himself. Case 17, a C&FA of a large India-basedconfectionary manufacturing firm, suggested that theyappointed a territory supervisor instead of providingcompany salespeople to the distributors. Each territorysupervisor monitors multiple distributors within a region.Both company sales people and territory supervisors providesales support to distributors as well as monitoring thedistributor’s role performance. They ensure that products aredistributed well within the region and that the promotionsoffered by the company are reaching end consumers. They arethe gatekeepers for consumers and market scanners for themanufacturer. Case 14, a Hyderabad-based specialty foodretailer also provided evidence of this role function.

Figure 1 Retailing in India: supply chain channel structure




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Case 14 (Specialty food store in Hyderabad): So that’s where this guy[company-appointed sales person] plays a key role. He has to ensure that thescheme is going to the end user, otherwise the distributor is going to playhavoc.

Case 17 (C&FA in Chennai): Company appointed person is called TS –Territory Supervisor, who is appointed by the company. And who isappointed by the C&FA is called SR – Sales Representative, so these salesrepresentatives are lower paid people. TS are very highly paid, directly by thecompany, they are on the rolls of the company.

Organized retailers reduce the number of intermediaries and

procure directly from manufacturers or C&FAs or distributors

depending on the store capacity (Figure 1b). Manufacturers

may also appoint key account managers in different regions to

handle the big accounts of organized retail chains. Apparel

and accessories channels may or may not involve

intermediaries. Department stores generally source these

products directly from the manufacturers. Also, apparel

manufacturing belongs to the small-scale industry (SSI)

category in India, and therefore it has a larger supplier base of

small-capacity manufacturing units. Figure 1c shows the

channel structure for imported food products. Imported food

products are in short supply and follow an erratic distribution

structure. In general, there is a fairly low presence of imported

products in India because of high import duties. In addition

to import duties, imported products are subject to central

excise taxes and contravening duties that further inflate the

product price.

Case 1 (Department store chain): Because the country has huge duties, wehave to pay import duties at between 67 percent-120 percent, so therefore Ican’t expose my customers to the best products in the world.

4.1.2 Maximum retail price (MRP) structureAccording to India’s Standards of Weights and Measures Act

(1956), all packaged goods are required to have essential

information about the product on the package, including the

maximum retail price (Department of Consumer Affairs,

India, n.d.). Products cannot be sold above MRP; however,

according to recent amendments in the Act, they may be sold

below MRP. MRP is pre-determined and printed on all

packaged goods by the manufacturer. Margins for each

channel intermediary and taxes along the supply chain are

calculated on the basis of product MRP.

Case 3 (Hypermarket chain): Because it was fragmented retail and thegovernment insisted on MRP, the margin structure evolved [in India] isbased on MRP – rather than on a costþ value structure.

MRP ensures price transparency and price uniformity for end

consumers irrespective of the region. It is the final selling

price inclusive of all taxes. Profits for channel intermediaries

are determined by how well they can negotiate margins on the

product. MRP-dependent cost structure promotes price

transparency, and that fosters trust between channel

members (Hultman and Axelsson, 2007). Sternquist and

Chen (2006) found that non-transparent prices lead to lack of

trust between buyers and suppliers in China.MRP also acts as a price benchmark for discount stores.

They can easily quantify the amount of discount offered to the

customers as a percentage of MRP. Customers trust MRP,

and therefore they are likely to hold positive perceptions about

price discounts.

Case 8 (Discount grocery store chain): Discounts are used to get thecustomer away from the corner store, some distance away that is importantfor us. Now, what is the differentiating factor that a consumer has to comeaway from that store and come to my store?

4.1.3 Evolution of distribution systemThe economic development of a nation influences the

emergence of vertical integration, and direct distribution

channels emerge to support the organized trade (Mallen,1996). The Indian distribution channel is following a similar

evolution towards shorter supply chain channels (Figure 1).

Retailers are integrating vertically to internalize distributionand warehousing facilities. Department stores in our sample

had their own distribution centers and so did bigger foodretail chains. Control over distribution systems leads to better

inventory management. Western principles of inventory

management are increasingly being adopted by Indianretailers to offset the barriers to centrally organized trade in

India.

Case 1 (Department store chain): Tax is definitely a complication, but like Isaid today, actually we have one of the most advanced distribution logisticssystems [. . .] our logistic costs are less than 1 percent.

Case 3 (Hypermarket chain): People have started going back up the chain[vertically integrating] [. . .] but for that you have to learn the tax laws thatare very different in India.

Case 9 (Supermarket chain): We have, we have three hubs, three stateswhich are in a triangle of 300-700 kilometers from each other [. . .] there is noreason to have three hubs if you want sales in three hundred kilometers [. . .]but road conditions are not so great that you can have a long haul.

Case 15 (Discount grocery store chain): We have multiple warehouses. Thisis the central godown [warehouse] [. . .] inside districts we have hubs atdifferent levels.

Also, increasing information technology (IT) use is facilitatingefficiencies in distribution systems. Retailers are using focused

distribution and category management practices. However,

mostly technological systems are currently used only formanaging within firm-integration. Case 1, a large department

store chain, was the only one that mentioned the use of ITsystems across channel members. This may be because

technology-based information exchange requires

standardization of information and exchanges (Johansson,2001). Inventory management and supply chain processes are

still evolving in India and are not yet standardized. Case 1

(a large department chain), Case 9 (a supermarket chain) andCase 15 (a discount grocery chain) were the only three

retailers that mentioned extensive use of IT systems in supplychain management.

Case 1 (Department store chain): Today 100s of my suppliers are connectedto B2B [. . .] And they see their SKUs on a store level basis online across ourchain.

Case 15 (Discount grocery store chain]: [Our] system also generates reportsand support us based on the past experience [available data on inventorylevels of the previous seasons] [. . .] it [takes into account] the material weordered and distributed to our outlets.

Case 9 (Supermarket chain): So the way we structure data we call it CRL –Category Role Management [. . .] I use at the core of everything [. . .] Thematrix is patented by us we use it like a copyright, and our whole IT systemshows up that data. We analyze it and we put it inside the company.

4.2 Upstream channel management: the retail buying

process4.2.1 Buying centre structure: size, formalization andcentralizationThe buying centre structure of department chains as well as

food retailers is evolving towards a centralized buying system.A high percentage of the merchandise was bought at the

central level. Decentralized buying (up to 20 percent for




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Case 4) is used to accommodate local tastes but may require

approval from the central buying office. There is relativelyhigh flexibility in the department store buying structure dueto high product seasonality and high demand uncertainty.Uncertainty is offset by encouraging teamwork and lateralinvolvement. Cross-functional teams work in unison to ensurecategory profitability.

Case 1 (Department store chain): They work as a team, the buyer andmerchandiser work more or less together [. . .] so my buyer andmerchandisers do not have individual targets. They have combined a target.

Case 8 (Discount grocery chain): The buyers travel extensively tounderstand local tastes, and on that basis, do buying [. . .] there is a lot ofback and forth flow of information, between the guys who manage the storeand the buyers.

Case 3 (Hypermarket chain): We give some power to the local store to buythe merchandise. But with the permission of the category head in the centraloffice [. . .] category managers develop buying expertise by making mistakes.

Also, ownership type influences the buying centre structure indepartment stores. Case 10, a family owned apparel storechain, lacked buying structure. Buying responsibilities were

handled by the owners of the company and family membersworked together to handle buying for different departments.In contrast, Case 1 and 4 were corporate chains with acentralized buying system consisting of buying committees.Owners were responsible for the buying function in specialtystores (Case 5 and 14) as well. This could be because of thefewer number of stores and higher concentration of authorityat the top management level.

4.2.2 Role of buyers and buying center involvementDepartment stores revealed a higher degree of lateralinvolvement and food retailers showed a higher degree ofvertical involvement in the buying decision. This can beexplained by the higher degree of complexity involved withthe purchase process of private labels than manufacturerbrands (Johansson, 2001). Department stores in India carry ahigher percentage of private labels than food retailers.

Department store buyers work with design, marketing andmanagement teams to ensure consistency in products,promotions and image of private labels. The buying processin food retailing involves more re-buys than new buys. Thebuying and category management function is carried out bythe same person. Products are divided into several categoriesand these managers are responsible for generating benchmarkmargins for the complete category.

Case 5 (Department store chain): The buyer is reviewed on the totalearnings generated from that particular category [. . .] ultimately the key ismargin followed by the sales.

Case 15 (Discount grocery store chain): We are looking at category analysis.Whatever category margin we keep, we put up a target margin for the buyers[. . .] buyers can look at the gaps in the category and introduce new productsto achieve the targets.

With the evolution of the industry, more specialized functionsevolve in the procurement process (Lorentz et al., 2007). Thebuying process in food retailing is evolving into specializedfunctions. One food retailer (Case 9), who reported the use ofvery sophisticated IT processes, product replenishmentprocesses and data driven buying, also indicated the use ofbuying and category management as two different functionshandled by two different people.

4.2.3 Margins and private label strategyMRP structure in India does not give much leverage toretailers for extracting profits from the product cost itself.

Food retailers increase profits by negotiating with suppliers on

margins, decreasing the number of intermediaries or by

introducing private labels. Margins in food retailing vary

between 8 percent 14 percent depending upon the kind of

store format. Margins in department stores vary between 25

percent and 35 percent on branded products. Buying in

volume does not always provide discounts for retailers. This is

because the capacity of the retail chains is not very high and

volume purchases are not big enough for brand manufacturers

to give discounts. In addition, they do not want to upset

unorganized retailers by giving discounts to organized chains.

One retailer reported a manufacturer’s response on giving

better margins:

Case 8 (Discount grocery chain): Hey you are not doing anything great for

us, you are doing good volumes, but you are almost like the ration shop [. . .]

my brands are very powerful, my consumer comes and asks to show my

brands; they buy from you because you have them, if you don’t have them,

they’ll buy from your next store. So why should I give you better margins?

You are not adding any value to my systems.

Margins on strong FMCG brands like Hindustan Lever

Limited (an Indian subsidiary of Unilever), Nestle and

Procter & Gamble are very competitive compared to other

brands. Payments to suppliers are made after a credit period

of 7-21 days. Credit periods help in generating constant cash

flow for retailers, and longer periods are desired by retailers.

The credit terms of strong brands are also very competitive.

They may give working credit of 7-8 days, in contrast to other

brands providing up to 210day credit. Credits periods are

longer (up to 120 days) for department stores as compared to

food retailers. Early payments (short credit periods) and cash

payments can get additional 3-5 percent rebate or cash

discount, contributing to retail margins.Retailers perceive low control on the quality of consignment

goods, and therefore avoid buying such goods.

Case 5 (Department store chain): We don’t encourage consignment business

[. . .] one reason is fewer margins, second is you don’t always get the best of

merchandise in consignment. People try to give their unsaleable stocks to

you.

Private labels bring higher margins for both kinds of retailers

but are introduced to serve different purposes. Department

stores use private labels to increase product and brand

assortment, whereas food retailers use them to increase store

profitability. Private labels in food are not as well developed in

India as in mature markets such as the USA and the UK.

Most of the retailers repack raw food products like dairy

products, pulses, flour and spices and sell them under the

store name. Only one food retailer had extended the line to

processed food and the FMCG category, but the number of

such products offered was small. Processed food private labels

are typically positioned as low-price alternatives. Sometimes,

they are introduced in high-priced, low-margin categories.

Case 9 (Supermarket chain): [Our private labels are] a low price alternative

[. . .] we don’t believe our customer will pay.

Case 7 started as a manufacturer of dairy products and

entered into retailing later. As a result it had a strong private

label brand in dairy products, contributing to 35 percent of

total sales. Also, Case 7 is the only food retailer in our sample

who used franchising for store expansion. They suggested that

such an expansion strategy was necessary for fast penetration

of their private label brand.




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4.2.4 Vendor selection, new product development and slotting feeQuality is, by far, the most important criteria for supplier

selection. For non-branded products, retailers look forconsistent suppliers; for branded products, better prices are

the decision factor. Future capabilities and vendor

performance are also important factors for vendor selectionfor Indian retailers.

Case 4 (Convenience store chain): Because [being] really commercial is notthe end all of everything, because we have to look at the long term horizon.We have to look at where that vendor can go [. . .[ Cost might be highertoday, but might get lower.

Case 9 (Supermarket chain): The rating of the vendors the performance ofthe vendors is recorded by the supply chain in terms of speed (of delivery), interms of order achievements.

Indian retailers are long-term oriented and prefer existing

vendors for new product development as well. This is

consistent with the findings in literature (Pellegrini andZanderighi, 1991). Department store retailers may use trade

shows for new product development. New food products are

bought in small consignments for trial. Depending upon theperformance of trial consignment, products are either re-

purchased or de-listed in subsequent procurement cycles.

Case 7 (Supermarket chain): Actually in the consignment system, till thestock is over we will keep this stock only after that we will make a payment.Only 1 or 2 times we will buy like that and after that it will be routine.

Case 9 (Supermarket chain): [Initially] we would take everything [number ofunits] he wants to put on shelves, as long as the product is good [. . .[ I willgive him three months’ time [. . .] I might not take a big slotting fee but Iwon’t sell shelves to him [new vendor] for sure [. . .] I won’t keep him if hedoesn’t sell [during the three month trial period] [. . .] My data should justify[retention].

Similar to China, the new food product trial period lasts forthree to six months (Sternquist and Chen, 2006). If the

product performs well, then it becomes a part of the

assortment; otherwise, it is de-listed from the store. In Japan,manufacturers determine what merchandise will be part of a

department store assortment, and manufacturers rather than

retailers determine what will be retained and what will beeliminated. Over 85 percent of the merchandise in a Japanese

department store is consignment merchandise (Sternquist,

2007).Although product de-listing is common, supplier de-listing

is uncommon in India. Suppliers are not de-listed based onrole performance. Rather, retailers discuss issues with the

suppliers and make efforts to improve the supplier’s role

performance. De-listing is only done because of productquality or product performance or unfair supplier behavior.

For new product procurement, existing vendors are given a

chance to develop new products in the market. New vendorsare sought only if the existing vendors are not able to develop

the products.

Case 4 (Convenience store chain): We believe it’s a collaborative partnership,where in we have to discuss every issue.

Case 5 (Department store chain): If anything new comes to the market,they’ll definitely experiment, but the first preference again goes to existingvendors if you can make it, well and good, but if you can’t make it, then theywill buy from a known source [new vendor].

Case 5 (Department store chain): It [lower price] is definitely an importantconsideration but instead of immediately de-listing him, he [the buyer] willput pressure on this existing supplier.

Buyers typically have high autonomy for selecting new

vendors. However, these decisions need validation from

category managers or supply chain officials or senior

managers. When a new vendor is recommended in thesystem a complete background check along with any historicaldata available on the supplier is evaluated before selecting thesupplier.In the USA and China, manufacturers pay slotting fees to

introduce new products on the shelf (Sternquist and Chen,2006). However, this system is not prevalent in India. TheFMCG market in India is characterized by low brandproliferation and a high number of stock keeping units(SKUs) on shelves. Sengupta (2008) suggest that high growthin SKUs has led to an increased pressure on retailers to storemore items of the same brand. Retailers have to stock thesebrands because of high consumer demand but do not get anyslotting fees in return. Some retailers charge a small fee foradministrative expenses, but it is minimal. Instead, retailerslook for promotional and advertising support frommanufacturers.

Case 4 (Convenience store chain): So I don’t think people feel the need forgiving all these slotting fees [. . .] they will give some promotional offers.

Case 9 [Supermarket chain): They may give us bigger margins, yes but notslotting fees. The smaller ones don’t have that kind of money [. . .] the localfast moving goods they are really small companies.To grow, if we charge ahuge slotting fee, none of the smaller guys will be able to sell in my store andI have to depend on the bigger suppliers. Bigger guys won’t pay [slottingfees] anyways. Therefore no one pays slotting fees here. We won’t get theslotting fees for another five years [It will not be a prevalent practice].I docharge a slotting fee [from company XXX] but it’s a one-time pay I call it theadministration pay, I don’t call it the slotting pay, I say look I’ve got a lot ofpaperwork to do when I introduce the product therefore you got to pay methe administration fee.

4.3 Upstream channel management: buyer-supplier

relationships

Businesses in India thrive on interpersonal relationships.Social bonds are critical and influence business strategies.Repeated use of phrases like collaboration, trust, honesty andknown sources, in the interviews, reflect the influence of socialnetworks and relational behavior on B2B exchanges in India.

4.3.1 Trust and commitmentIn the literature, trust is defined to exist when one partner hasconfidence in an exchange partner’s reliability and integrityand commitment is defined as the belief that “the relationshipis worth working on to ensure that it continues indefinitely”(Morgan and Hunt, 1994, p. 23).Trust is grounded in the social fabric and is suggested to be

mutual. Campbell (1997) suggests that when inter-firmdependence is low and there is a higher emphasis on jointvalue creation between partners then mutuality exists betweenexchange partners. Business communities in India are boundby social networks; they support each other and make surethat community members respect social norms of honesty andintegrity. High social risk prevents opportunistic behavioramong channel members. Channel members make an effortto maintain trust in relational exchanges. Procedural fairnessand honesty is expected and reciprocated. A high level ofinformational transparency is expected to lead to higher levelsof trust. These findings are consistent with existing literaturethat reciprocity and transparency creates trust (Dion et al.,1995; Hultman and Axelsson, 2007). Social embeddedness ofchannel members protects against partner opportunism.Lower opportunism is likely to lead to higher trust andcooperation (Morgan and Hunt, 1994). Trust is positivelyrelated to performance because partners do not spend timeand energy monitoring (Katsikeas et al., 2009).




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Case 5 (Department store chain): One of the reasons is social pressures tomake sure that within their own community they don’t misbehave.

Case 8 (Discount grocery chain): The main interest is what are you going togive me and what are you going to take from me, so it is a constantly ongoingrelationship.

Case 10 (Department store chain): Definitely 100 percent. Without trust itwill not continue, basically we must have trust with each other.

Case 14 (Specialty food store): [For] example, none of my ordering is onpaper. I just pick up the phone and order.

Case 4 (Convenience store chain): I think it is our job to make them honest.it is our job to create a process in which we work in an open system [. . .] wewant transparencies, we have to move towards that but we believe if you trustsomebody he will trust you.

Trust also influences long-term commitment in India.Retailers work with suppliers to improve existing exchangesinstead of switching suppliers for better prices or better deals.Long-term relationships are considered important and it isbelieved that performance will follow. Confrontations areavoided unless absolutely necessary. Unfair behavior is likelyto lead to termination of the partnership. Commitment isimplicit and is not guided by explicit contracts. This preventsrelational lock-ins between buyers and suppliers.Commitment is a function of hybrid stability and is basedon the outcomes of previous exchanges. Wilson (1995)suggests that better performance on key variables in the pastleads to higher commitment between buyer and supplier.

Case 7 (Supermarket chain): There is no [explicit] agreement with thecompany. It depends on the supply and depends on the quality. There is nolong-term agreement with them [suppliers] but we always buy from them.

Case 10 (Department store chain): No, even they won’t leave, because Iwon’t also leave [. . .] There’s a bond between [us].

4.3.2 Power and dependenceThe channel literature argues that power and dependenceprovide a potential safeguard against opportunism,neutralizing relational risk. The ownership and control ofcritical assets creates power, which is important in achievingcoordination and cooperation among exchange partners. Thesign of the net dependence between the two parties indicatesthe relative power of one organization over the other. If partyX depends on party Y more than party Y depends on party X,then party Y has power over party X (Pfeffer, 1981). Ingeneral, a dominant power position of the buyer is associatedwith fewer possibilities for supplier opportunism (Andersonand Narus, 1990).In our context, we found that power is unbalanced and is

dependent upon the market share of manufacturers. Power isvested in the hands of manufacturers for strong brands andshifts towards retailers for weak brands. High demand for topbrands in India works in the favor of manufacturers. Asexplained in the section on margins, manufacturers dictateterms and are hesitant in creating mutually beneficial tradingterms. However, this is likely to change as the Indian marketopens up and far more brands and retailers grow morepowerful. There is also a high level of respect for hierarchyamong channel members.

Case 1 (Department store chain): Currently I would say [it] is still tiltedtowards manufacturer in this country, but the way things are shifting, inabout a year’s time or two years’ time, it will be 50-50, and about five years’time it will shift to the retailer.

Case 4 (Convenience store chain): We might have outgrown our very bigvendors in terms of size. Now the equations are different, but still wemaintain that they are bigger than us [. . .] we believe in the principal agentrelationship [. . .] A supplier is a principal so we will have to maintain that.

Organized retailers are dependent on strong brands because

of high demand. However, they have started exploring

possibilities of working with manufacturers who provide

them with better prices. This has meant restricted stocking.

Discount retailers are transferring cost advantages to

customers, thus promoting brand switching.

4.3.3 Long-term orientation, collaboration and supportRetailers and suppliers engage in collaborative efforts to

enhance relationship performance. Retailers are increasingly

engaging in vendor development programs like vendor

meetings and executive workshops. They are foreseeing the

need for partnership and uniform goals to support rigorous

organizational expansion plans. Long-term orientation of

retailers is found to influence buyer-supplier collaboration.

Case 1 (Department store chain): We called the top hundred partners[suppliers] and exposed them to our plans. Not only exposed [them to] ourplans, but we brought probably two of the best speakers from within thecountry [for training and explaining future vision].

Case 9 (Supermarket chain): In December we are [bringing] twoprofessionals from X college to actually come and teach a five day course[. . .] we are sponsoring them and getting the FMCG companies to attendbecause we know that the more they understand organized retail the morebeneficial it is for us.

Information sharing is prevalent between exchange partners.

Long-term orientation influences information sharing as well.

Retailers share customer information with suppliers for better

inventory management. They also suggested information

transparency between partners. There is a high variability in

consumer tastes and buying behavior across different regions

in India. When a retailer plans to set up stores in another

region, suppliers use their distribution network to provide

valuable market information to the retailer. Collaboration and

information sharing are suggested to mitigate supply chain

risk (Faisal et al., 2006). Henriott (1999) suggested that

information-sharing builds trust between channel members.

Also, information sharing offsets the risk related to market

uncertainty and reduces the bullwhip effect (Yu et al., 2001).The bullwhip effect is often caused by the information

asymmetry across supply chain members. Due to this

information asymmetry, a small fluctuation in demand at

the customer level leads to amplified variability in demand

forecasting at every node of upstream supply chain (Paik and

Bagchi, 2007). Safety stocks and long lead times can also

contribute to this demand amplification or bullwhip effect

(Lee et al., 1997). Long lead times due to length of supply

chain and poor infrastructure poses a higher threat of

bullwhip effect in the Indian supply chain. Information

sharing and transparency, prevalent among channel members,

safeguards channel members from the potential threat of

demand fluctuation and market uncertainty in India.Suppliers also provide support in marketing activities, such

as providing promotional and advertising support. Once sold,

merchandise cannot be returned to the suppliers, but

suppliers help in liquidating blocked stock by offering

promotional schemes to retailers.

Case 15 (Discount grocery store chain): They try to liquidate it [the stock]by giving support instead of taking it back. They give all sorts of support asthey try to liquidate it.

Relational exchanges between channel members are an

important source of upstream channel information. High

trust in supplier’s representatives and lower trust towards

suppliers itself leads to collaboration between partners




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(Hansen, 2009). This is also something that we found in our

interviews. Suppliers’ representatives help retailers by

providing valuable information about company promotions

or link them to the right people for discounts. Given the lower

level of cooperation by strong brands, as suggested by earlier

findings, collaborative partnerships between channel partners

can be assumed to be a function of individual-level trust. The

structure of the buyer-supplier relationship in India is long-

term oriented and reciprocal. Such strong ties suggest strong

implications for new players entering the Indian market.

Relational embeddedness and commitment reduce the

propensity to leave (Morgan and Hunt, 1994).Table III provides a summary of the results.

5. Implications and conclusion

5.1 Implications for theory

The purpose of this study was to identify and understand

factors influencing the upstream channel structure in

organized retailing in India so that it can add to theory on

channel building and evolution in a transitional economy. Our

results highlight several unique issues in the Indian organized

retail sector that can best be explained by the Industrial

Marketing and Purchasing (IMP) framework and the three

pillars of contemporary institutional theory as proposed by

Scott (1995).As suggested by the IMP group, buyer-supplier

relationships in India are characterized by the interaction of

social and economic issues. Social structures of trust and

commitment are integral to the relational exchange process,

but economic issues like vendor performance and post-sales

support are also critical for relationship continuance. The

network perspective of business relationships is also found in

the Indian supply chain. Buyers and suppliers are embedded

in networks of business communities, and these wider

networks protect actors from the opportunistic behavior of

business partners. The results of this research also suggest

that organized retailers are increasingly investing in resource

enhancement practices like supplier training and

development. This can also be explained by the IMP

perspective, which suggests that a firm’s ability to manage

its array of network relationships can significantly influence its

competitive advantage. Organized retailers have understood it

well and are strengthening their network capabilities to

enhance their competitiveness in Indian market.As reviewed earlier, institutional theory suggests that

institutions within nations evolve as a result of three kinds

of environmental pressures:1 regulative (legal and political environment);2 normative (social norms); and3 cognitive (collective knowledge of members within

organizational field) (Scott, 1995; Scott and

Christensen, 1995; Hoffman, 1999).

These three kinds of pressures co-exist at the local and

national level and are inter-connected (Hirsch, 1997). In

order to survive, organizations conform to the three kinds of

pressures that lead to the formation of similar structures and

procedures within the organization. The findings of our study

suggest that the existing and evolving aspects of channel

structure in India are also a result of these three kinds of

environmental pressure.

The regulative environment includes country-specific laws,

regulations and government policies that shape the businessenvironment (Busenitz et al., 2000). Governments impose

restrictions and regulation in order to reduce risk anduncertainty and to encourage entrepreneurial activities

(Rondinelli and Kasarda, 1992). These regulations alsoshape up organizational actions by the threat of legal sanctions(Hoffman, 1999). Compliance with these regulations further

influences other industry practices as well. India’s ban onforeign direct investment, high tariffs and MRP structure

create a highly regulated environment, and this in turninfluences how buyer-supplier relationships will operate. The

results of our study also suggest a strong influence ofregulations on channel structure in India. Price regulationsencourage cost transparency between channel members that

in turn contributes to relational trust. Governmentregulations (such as with the sales tax structure) also

influence the traditional retail supply chain channel length.Cost structures are largely static and dependent upon

maximum retail price. Thus a strong antecedent effect ofregulations is seen on key constructs such as trust and in theevolution of the supply chain and its length. This adds to

literature on how trust is built in channels based on contextualantecedents such as the regulatory environment in the Indian

market that force partners to work together.The normative dimension in institutional context refers to

culture, values, beliefs and norms (Scott, 1995, 2008a, b).These provide the basis of appropriate behavior for groupmembers (Hirsch, 1997). Organizations comply with existing

norms due to moral obligation and to attain social sanction(Hoffman, 1999). Existing social networks can be a significant

source of normative pressures faced by the organizations(Granovetter, 1973). Therefore, organizations functioning in

highly embedded environments are likely to be stronglyinfluenced by local norms and values. The embeddedness ofIndian markets produces a willingness to use norms of

reciprocity and social capital to maintain buyer-supplierrelationships. Business communities are bound together in

strong networks that foster compliance to cultural norms.Relational factors like collaboration, cooperation, mutual goal

fulfillment and trust drives the buyer-supplier relationship inIndia. For example, we found that retailers have higherchannel power over their small-scale suppliers but they

(retailers) do not exploit this power imbalance. They insteadrespect the principal-agent relationship and encourage mutual

goal fulfillment. Though supplier role performance factorslike quality, price and supply consistency are important,relational performance is considered to be critical to an

exchange process. Existing vendors are seen as the preferredsource of new product development. They are consulted

before approaching outside network suppliers. Heide andJohn (1992) suggest that flexibility, reciprocity and

information sharing are the three norms of cooperativeexchange between partners. We found the presence of allthree norms between upstream channel partners in India thus

providing support for existing literature.Collaboration and cooperation to reduce supply chain risk

and literature suggests that a collaborative partnershiprequires trust and commitment (Faisal et al., 2006).

Upstream channel relationships in India are built oncollaborative partnerships that foster trust. Retailers in India

believe that trust is mutual and reciprocal. We found that theretailers engage in activities like information sharing and




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Table III Summary of results: upstream channel management

4.1 Channel structure

4.1.1 Channel length and sales tax

regulations

Sales tax structure: If a sale is made between two entities in two different states, then central as well as local

sales tax are levied on the product. But, if a manufacturer has an office in the other state and transfers goods

from one unit to the other, then this transfer of goods has central excise tax exempted on the goods. Therefore,

to save on the landing cost of goods, carrying and forwarding agents (C&FA) are appointed by manufacturers in

every focal state

Non-centralized distribution model: Indian logistic suffers from poor infrastructure and longer lead times (Sahay

and Mohan, 2003). Since C&FAs also act as a warehouse and stock goods for future sales, this warehousing

function of C&FAs reduces the delivery time in an otherwise time-consuming transportation process in India.

Proximity to customers and shorter lead times induce system efficiency for these manufacturers. Thus,

maintaining offices in each state makes business sense in India rather than having a central distribution model

Regional cross-selling: Goods move from C&FAs to regional distributors. Distributors are responsible for the

sales of product in their pre-defined zones. Cross-selling out of their zones is prohibited

Territory monitoring: At times, manufacturers also appoint sales people for distributors in addition to the sales

people appointed by the distributor himself. They are the gatekeepers for consumers and market scanners for the

manufacturer. Case 14, a Hyderabad based specialty food retailer, also provided evidence of this role function

Reduced channel length: Organized retailers reduce the number of intermediaries and procure directly from

manufacturers or C&FAs or distributors, depending upon the store capacity (Figure 1b). Manufacturers may also

appoint key account managers in different regions to handle the big accounts of organized retail chains

4.1.2 Maximum retail price (MRP) structure MRP: According to the Indian Standards of Weights and Measures Act (1956), all packaged goods are required

to have essential information about the product on the package, including the maximum retail price

(Department of Consumers Affairs, India, n.d.). Products cannot be sold above MRP; however, according to

recent amendments to the Act, they may be sold below MRP. MRP is pre-determined and printed on all

packaged goods by the manufacturer. Margins for each channel intermediary and taxes along the supply chain

are calculated on the basis of product MRP

MRP and discounting: MRP ensures price transparency and price uniformity for end consumers irrespective of

the region. MRP also acts as a price benchmark for discount stores. They can easily quantify the amount of

discount offered to customers as a percentage of MRP. Customers trust MRP, and therefore they are likely to

hold positive perceptions about price discounts

4.1.3 Evolution of distribution

system

Vertical integration: The Indian distribution channel is following an evolution towards shorter supply chain

channels. Retailers are integrating vertically to internalize distribution and warehousing facilities

Use of information technology: Increasing information technology (IT) use is facilitating efficiencies in

distribution systems. Retailers are using focused distribution and category management practices

4.2 The retail buying process

4.2.1 Buying centre structure:

size, formalization and centralization

Moving towards a centralized buying process: Buying centre structure of department chains as well as food

retailers is evolving towards a centralized buying system. A high percentage of the merchandise was bought at

the central level. De-centralized buying is used to accommodate local tastes but may require approval from the

central buying office

Ownership type and the buying process: Also, ownership type influences the buying centre structure in

department stores. Case 10, a family-owned apparel store chain, lacked buying structure. Buying responsibilities

were handled by the owners of the company and family members worked together to handle buying for different

departments. In contrast, Cases 1 and 4 were corporate chains with a centralized buying system consisting of

buying committees. Owners were responsible for the buying function in specialty stores (Case 5 and 14) as well.

This could be because of the fewer number of stores and higher concentration of authority at the top

management level

4.2.2 Role of buyers and buying center

involvement

Involvement in the buying process: Department stores revealed a higher degree of lateral involvement and food

retailers showed a higher degree of vertical involvement in the buying decision. The buying process in food

retailing involves more re-buys than new buys. The buying and category management function is carried out by

the same person. Products are divided into several categories and these managers are responsible for

generating benchmark margins for the complete category

Moving towards specialized functions: With evolution of the industry, more specialized functions evolve in the

procurement process (Lorentz et al., 2007). The buying process in food retailing is evolving into specialized

functions. One food retailer (Case 9), who reported the use of the most sophisticated IT processes, product

replenishment processes and data driven buying, also indicated the use of buying and category management as

two different functions handled by two different people

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4.2.3 Margins and private label strategy Margins: The MRP structure in India does not give much leverage to retailers for extracting profits from the

product cost itself. Food retailers increase profits by negotiating with suppliers on margins, decreasing the

number of intermediaries or by introducing private labels. Margins in food retailing vary between 8 percent and

14 percent depending upon the kind of store format. Margins in department stores vary between 25 percent and

35 percent on branded products

Margins, credit terms and discounts: On strong FMCG brands like Hindustan Lever Limited (an Indian subsidiary of

Unilever), Nestle and Procter & Gamble are very competitive compared to other brands. Payments to suppliers are

made after a credit period of 7-21 days. Credit periods help in generating constant cash flow for retailers, and

longer periods are desired by retailers. Credit terms of strong brands are also very competitive. They may give

working credit of 7-8 days in contrast to other brands providing up to 21-day credit. Credits periods are longer (up

to 120 days) for department stores as compared to food retailers. Early payments (short credit periods) and cash

payments can get additional a 3-5 percent rebate or cash discount contributing to retail margins

Private labels: Private labels carry higher margins for both kinds of retailers but are introduced to serve different

purposes. Department stores use private labels to increase product and brand assortment whereas food retailers

use them to increase store profitability

4.2.4 Vendor selection, new product

development and slotting fees

Supplier selection criteria: Quality is, by far, the most important criteria for supplier selection. For non-branded

products, retailers look for consistent suppliers and for branded products, better prices are the decision factor.

Future capabilities and vendor performance are also important factors for vendor selection for Indian retailers

New product development: Indian retailers are long-term oriented and prefer existing vendors for new product

development as well. This is consistent with the findings in the literature (Pellegrini and Zanderighi, 1991)

New product testing and de-listing: Similar to China, the new food product trial period lasts for three to six

months (Sternquist and Chen, 2006). If the product performs well, then it becomes a part of assortment;

otherwise, it is de-listed from the store. Supplier de-listing is uncommon in India. Suppliers are not de-listed

based on role performance. Rather, retailers discuss issues with suppliers and make efforts to improve suppliers’

role performance. De-listing is only done because of product quality or product performance or unfair supplier

behavior

Slotting fees: US and Chinese manufacturers pay retailers slotting fees to introduce new products onto the

shelves (Sternquist and Chen, 2006). However, this system is not prevalent in India. The FMCG market in India is

characterized by low brand proliferation and a high number of stock keeping units (SKUs). Sengupta (2008)

suggest that high growth in SKUs has led to increased pressure on retailers to store more items of the same

brand. Retailers have to stock these brands because of high consumer demand but do not get any slotting fees

in return

4.3 Buyer-seller relationships

4.3.1 Trust and commitment Reciprocity, transparency and trust: Trust is grounded in the social fabric and is suggested to be mutual.

Campbell (1997) suggests that when inter-firm dependence is low and there is a higher emphasis on joint value

creation between partners, then mutuality exists between exchange partners. Business communities in India are

bound by social networks working in cohesion. They support each other and make sure that community

members respect social norms of honesty and integrity. High social risk prevents opportunistic behavior among

channel members. Channel members make efforts to maintain trust in relational exchanges. Procedural fairness

and honesty is expected and reciprocated. A high level of informational transparency is expected to lead to

higher levels of trust. These findings are consistent with the existing literature indicating that reciprocity and

transparency increase trust between buyers and suppliers (Dion et al., 1995; Hultman and Axelsson, 2007). The

social embeddedness of channel members protects against partner opportunism. Lower opportunism is likely to

lead to higher trust and cooperation, as suggested in the relationship literature (Morgan and Hunt, 1994)

Trust and long-term commitment: Trust also influences long term commitment in India. Retailers work with the

suppliers to improve existing exchanges instead of switching suppliers for better prices or better deals. Long

term relationships are considered important and it is believed that performance will follow. Confrontations are

avoided unless extremely necessary. Unfair behavior is likely to lead to termination of a partnership.

Commitment is implicit and is not guided by explicit contracts. This prevents relational lock-ins between buyers

and suppliers. Commitment is a function of hybrid stability and is based on the outcomes of previous exchanges.

Wilson (1995) suggests that better performance on key variables in the past leads to higher commitment

between buyer and suppliers

4.3.2 Power and dependence Power: Power is unbalanced and is dependent upon the market share of manufacturers. Power is vested in the

hands of manufacturers for strong brands and shifts towards retailers for weak brands. High demand for top

brands in India works in the favor of manufacturers

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vendor support that enables trust. Thus, trust and long-term

orientation leads to collaborative behavior between channel

partners.Harris (2002) suggests that norms of trust are strongly

embedded among business partners in India. We further

suggest that weak institutionalized sanctions are responsible

for the structure of selective trust. Business communities are

bound together in networks where they reflect high resistance

towards trusting outsiders. Our results also suggest that trust

plays a critical role in upstream relationship management.

The challenge for multinational retailers entering India would

be to become a part of social networks in India. Our findings

also suggest that trust is reciprocated in lieu of trust shown by

others. Information sharing is one tool that “modern”

retailers use to enable trust from upstream members. Also,

partner welfare and support is likely to lead to high trust.Thus, these findings suggest that the normative

environment which is influenced by the presence of strong

social networks has shaped the existing buyer-supplier

relationship structure in the Indian market.The cognitive dimension of institutional theory hinges on

knowledge and learning. Knowledge and skills possessed by

the group members within organizational fields influence the

adoption of new businesses and practices as well (Busenitz

et al., 2000). Business practices within countries are often a

reflection of shared social knowledge that becomes

institutionalized (Busenitz and Barney, 1997). Also, new

information shared by group members leads to evolution of

institutions within countries. The evolution of the Indian

supply chain is also a reflection of economic development as

suggested in the literature (Mallen, 1996). Organized retailers

are reducing the number of intermediaries by vertically

integrating and re-strategizing the procurement process. They

are implementing central buying systems and with greater

volume eventually giving them power over the manufacturers.The low penetration of organized retailing in India means

retailers still do not have the volume that can influence

discounts from big FMCG brands. A large percentage of

market share in FMCG is dominated by three or four strong

players. Exposure to international retailers will accelerate the

rate of Indian retailing change. Organized retailers are

learning from their international counterparts and adopting

innovative strategies as a result of this new knowledge. The

cognitive pillar of institutional theory explains the evolving

power shifts in supply chain channel in a transitional economy

like India.

5.2 Implications for practice

The findings of this study have several implications for

multinational retailers planning to enter India or for foreign

suppliers who want to enter the Indian market. One, the

complex regulatory system needs to be understood well to

enjoy profit points in the supply system. The Indian supply

chain also suffers from poor infrastructure, which is beyond

the control of individual players. Therefore, unlike in Western

countries where it is possible to focus on improving

efficiencies by managing the infrastructure and resources, in

Indian markets, supply chain strategies have to incorporate

alternative solutions that take into account the inability to

control infrastructure issues. Two, labor is inexpensive and

available in abundance in India, and thus distribution systems

in India are labor-intensive instead of technology-driven. In

our sample, for instance, we saw only a few of our

respondents using extensive technology This finding may

Brand switching: Organized retailers are dependent on strong brands because of high demand. However, they

have started exploring possibilities of working with manufacturers who provide them with better prices. This has

meant restricted stocking. Discount retailers are transferring cost advantages to customers thus promoting

brand switching

4.3.3 Long-term orientation, collaboration

and support

Long term collaboration – vendor development programs: Retailers and suppliers engage in collaborative

efforts to enhance relationship performance. Retailers are increasingly engaging in vendor development

programs like vendor meetings and executive workshops. They are foreseeing the need for partnership and

uniform goals to support rigorous organizational expansion plans. Long term orientation of retailers is found to

influence buyer supplier collaboration

Long term collaboration – information sharing: “Information sharing” is prevalent between exchange partners.

Long-term orientation influences information sharing as well. Retailers share customer information with

suppliers for better inventory management. When a retailer plans to set up stores in another region, suppliers

use their distribution network to provide valuable market information to the retailer. Collaboration and

information sharing are suggested to mitigate supply chain risk (Faisal et al., 2006)

Long term collaboration – marketing support: Suppliers also provide support in marketing activities like

providing promotional and advertising support. Merchandise once sold cannot be returned to the suppliers but

suppliers help in liquidating blocked stock by offering promotional schemes to retailers

Long term collaboration – collaborative partnerships: Relational exchanges between channel members are an

important source of upstream channel information. High trust in supplier’s representatives and lower trust

towards suppliers itself leads to collaboration between partners (Hansen, 2009). Given the lower level of

cooperation by strong brands, as suggested by earlier findings, collaborative partnerships between channel

partners can be assumed to be a function of individual level trust. The structure of the buyer-supplier

relationship in India is long-term oriented and reciprocal. Such strong ties suggest strong implications for new

players entering the Indian market. Relational embeddedness and commitment reduce the propensity to leave

(Morgan and Hunt, 1994)




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lead to other critical management issues around labor and

influence the dynamics of distribution centers. Strong reliance

on relational norms may also further intensify the importance

of labor management. Three, we found that economic

exchanges are strongly driven by relational norms in India.

Buyer-supplier relationships are built on trust and honesty.

These relational values may supersede the importance of role

performance depending upon the strength of bonds.

Relationships are marked by transparency, cooperation,

support and mutual welfare. Thus, international retailers

entering India can benefit from vendor development

programs, information sharing and perception of

transparency in upstream exchanges.Foreign manufacturers might select a strategy of prying

Indian retailers away from their local manufacturers with

price. In an empirical study it was found that even in

embedded markets, price was the greatest motivator for

switching suppliers (Wathne et al., 2001). Likewise foreign

manufacturers could consider introducing slotting fees to the

market place. Currently slotting fees are not used and they

could be a powerful incentive for switching suppliers. There

are two theoretical explanations for the use of slotting fees

(Bloom et al., 2000; Rao and Mahi, 2003). One is that

slotting fees represent market power, manufacturers use

them to prevent other manufacturers from obtaining shelf

space. The other is market efficiency, manufacturers use

slotting fees as a signal to channel partners that they have

faith in the product. If manufacturers use slotting fees for the

market efficiency reason it shifts the risk of new product

introductions and helps even out the demand and supply of

new products.The institutional environment in India has had a major

influence on distribution. It is likely that this is about to

change as rules are relaxed to encourage more trade. The

governmental environment has not been friendly to foreign

retailers, but India joined the WTO in 1995 and is still

working on the requirements to bring market access to all

foreign companies. For instance, average tariffs have

decreased from 92.3 percent in 1990 to about 30 percent

currently, and India now allows FDI in single-brand retailing

and is discussing allowing FDI in multiple-brand retailing.

5.3 Limitations and conclusions

This study provides valuable information about buyer

supplier relationships in India. Despite the rich sample, this

research may have several limitations. First, our interviews

were representative of firm-level factors and not individual-

level factors, and individual buyer characteristics play an

important role in determining buyer-supplier relationships.

Thus, further research with individual buyers may enrich the

understanding of relational and economic factors better in

these exchange relationships in India. Second, individual

retailers or manufacturers were interviewed for this study.

Though it provided the big picture of supply chain channel in

India, more information may be obtained by using buyer-

supplier dyads in future research. Also, as reflected in the

theoretical implications section, institutional theory may be

used as an effective framework in future empirical research for

testing the current research findings.

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Corresponding author

Chitra Srivastava Dabas can be contacted at: [email protected]

Executive summary and implications formanagers and executives

This summary has been provided to allow managers and executivesa rapid appreciation of the content of the article. Those with aparticular interest in the topic covered may then read the article intoto to take advantage of the more comprehensive description of theresearch undertaken and its results to get the full benefit of thematerial present.

The institutional environment in India has had a majorinfluence on distribution. It is likely that this is about tochange as rules are relaxed to encourage more trade. Thegovernmental environment has not been friendly to foreignretailers, but India joined the WTO in 1995 and is stillworking on the requirements to bring market access to allforeign companies. For instance, average tariffs havedecreased from 92.3 percent in 1990 to about 30 percentcurrently, and India now allows foreign direct investment(FDI) in single-brand retailing and is discussing allowing FDIin multiple-brand retailing, which is currently not permitted.The eyes of major global retailers like Wal-Mart, Tesco and

Office Depot are on the Indian market. However, in sharpcontrast to efficient supply chain strategies of US firms,almost one third of the Indian companies in a study had nosupply chain strategy. Issues relating to statutoryrequirements and complex legal structures were rated as themost time-consuming supply chain issues. In a ten-countrystudy conducted in 1999, India scored lowest on productquality, design and on-time delivery and was only second toBrazil on after-sales service and distribution management.Indian organizations focus on improving customer servicerather than on achieving operational efficiencies.Uncontrollable factors, transportation difficulties andregulatory structure are significant reasons for determiningsupply chain objectives in India, and there is a gap betweensupply chain strategies and business objectives of Indianfirms. Lack of cross-functional team integration and lack oftechnology deployment within firms exacerbates the negativeeffect of these structural inefficiencies. While the pastliterature has broadly looked at the supply chain upstreamchannels, there is no work that has examined the specificstructures used by retailers.The Indian supply chain also suffers from poor

infrastructure, which is beyond the control of individualplayers. Therefore, unlike in Western countries, where it ispossible to focus on improving efficiencies by managing theinfrastructure and resources, in Indian markets, supply chainstrategies have to incorporate alternative solutions that takeinto account the inability to control infrastructure issues.In “Organized retailing in India: upstream channel

structure and management” Chitra Srivastava Dabas et al.seek deeper insight into the upstream retail channel structure,B2B buying decision processes and economic exchanges in

organized retailing in India They do this by talking to senior

management (CEO/founders) - the pioneers of modern

Indian retailing, whose actions set the stage for future

development in the industry.Their findings have several implications for multinational

retailers planning to enter India or for foreign suppliers who

want to enter the Indian market. For instance, the complex

regulatory system needs to be well understood. Also, labor is

inexpensive and available in abundance, and thus distribution

systems are labor-intensive instead of technology-driven. In

this study’s sample, for instance, only a few of the respondents

were using extensive technology. This finding may lead to

other critical management issues around labor and influence

the dynamics of distribution centers. Strong reliance on

relational norms may also further intensify the importance of

labor management.It was found that economic exchanges are strongly driven

by relational norms in India. Buyer-supplier relationships are

built on trust and honesty. These relational values may

supersede the importance of role performance depending

upon the strength of bonds. Relationships are marked by

transparency, cooperation, support and mutual welfare.

Consequently, international retailers entering India can

benefit from vendor development programs, information

sharing and perception of transparency in upstream

exchanges.Foreign manufacturers might select a strategy of prying

Indian retailers away from their local manufacturers with

price. It was found that even in embedded markets, price was

the greatest motivator for switching suppliers. Likewise

foreign manufacturers could consider introducing slotting

fees to the market place. Currently such fees are not used and

they could be a powerful incentive for switching suppliers.

There are two theoretical explanations for the use of slotting

fees. One is that they represent market power as

manufacturers use them to prevent other manufacturers

from obtaining shelf space. The other is market efficiency.

Manufacturers use them as a signal to channel partners that

they have faith in the product. If manufacturers use slotting

fees for the market efficiency reason it shifts the risk of new

product introductions and helps even out the demand and

supply of new products.The embeddedness of Indian markets produces a

willingness to use norms of reciprocity and social capital to

maintain buyer-supplier relationships. Business communities

are bound together in strong networks that foster compliance

to cultural norms. Relational factors like collaboration,

cooperation, mutual goal fulfillment and trust drives the

buyer-supplier relationship in India. For example, it was

found that retailers have higher channel power over their

small-scale suppliers but they (retailers) do not exploit this

power imbalance. They instead respect the principal-agent

relationship and encourage mutual goal fulfillment.

(A precis of the article “Organized retailing in India: upstream

channel structure and management”. Supplied by Marketing

Consultants for Emerald.)




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