bhavin wrote:Amit - Based on your above post, I had a few questions:
1. I think that if Wal-Mart is allowed, other international retailers would not be far behind and most of them would have deeper pockets than any Indian retailer where they might just buy out the Indian retailers ? What are your thoughts on that...
2. I feel that the negatives about Wal-Mart is not just cannibalizing the retailers within a certain radius based on size but the fact that they compete ruthlessly on price. While I would say that this good for the consumer, it might have long term negative effects overall. I have a friend who was a buyer with Wal-Mart ("Buyers" are Wal-Mart employees, responsible for contracting & acquiring items for Wal-Mart) who told me how they negotiate multi-year deals with suppliers where each year the prices have to go down by a certain percentage and Wal-Mart will pay well below the market price and generally behave according to its monopolist nature. Suppliers have to go along with it to get access but are squeezed extremely hard with cost cutting, layoffs etc. Another strategy is when they open in a new market, they undersell items by a big margin till the local competitors are driven out of business (For new competitors: an unstated but oft implemented threat of Wal-Mart is that we will initiate a price war till you are out of business).
Now since Wal-Mart competes on prices, it may or may not provide Indian manufactured or grown items if it can find it cheaper elsewhere. This means that apart from retail, manufacturing and agriculture sectors might also be hard hit. This could have a cascading effects on jobs or local economics for India and could be a net negative for overall job generation. Best possible goods at lowest possible price is the right thing but how the lowest possible price is achieved might also need more study. I feel that in such a price war, the consumer will ultimately be the loser because the options and jobs may shrink over time.
These are just my thoughts and I do not want to butt into the discussion that you are having but I had thought along these lines and wanted to know what others think.
Sorry for the late response, was away.
Let me clarify first by saying that I’m not big fan of Wal Mart and neither do I salivate at the prospect of that company coming into the Indian retail market. You can see my posts above for confirmation.
However, I do believe that Indian retail should be allowed to grow as fast as possible. And I’m sure there are Indian companies out there with the resources and wherewithal to grow and change the market, particularly the supply chain.
I read somewhere recently, sorry don’t have the link, that more than 10-20 per cent of fresh vegetable/fruits produce in India is wasted due to lack of storage and transport (air conditioned trucks) facilities in India. I think that’s criminal. However, only integrated chains will cough up the necessary money to build cold storages all over the country and organised retail is the key to that.
Now coming back to the Wal Mart case. Frankly I think your fears are over blown regarding the ability of the company to replicate what they’ve done in the US in India an elsewhere.
The best confirmation of that is if you look at Wal Mart International. The international arm of the company has not been even a fraction as successful as the US entity. Have you paused to think why?
Because the point you raise, deeper pockets, being able to source the cheapest goods from around the world etc equally apply all around the world as they do in India. After all Wal Mart is much bigger than its rivals.
The reason I think they have not been so successful is due to a variety of factors, the most important of which IMO is the fact that the situation/environment prevalent in the US is in many ways unique. I think only in Australia do you have a similar environment – that is vast country, vast space and a sparse (in relation to geographical area) population with good purchasing power. That allows Wal Mart to build mega stores.
The other point is about local regulations. Do you seriously think that if Wal Mart was allowed to operate in India and it decided that it would import fresh vegetables (say, just as an example) from China instead of taking from Indian producers, since their margins were better, they would be able to do so? More importantly would the GoI and their competitors allow them to do so? I don’t think so. Wal Mart would have to follow the import, export regulations and rules of the country just like everyone else. And that would cover what they can import into India (after paying the necessary duties) and then sell at its stores.
What your friend said could be applicable to the US but I don’t think that would be applicable to India. Sure some stuff would get imported but don’t they already? In a previous post I mentioned the fact that I bought a beautiful Ganesha statute from a small curio shop in Kolkata only find out that it was made in China!
This is a problem which I’m sure the local industry would learn to cope and get around with. Allowing Wal Mart to operate is not going to have any effect on this problem IMO.
Regarding your point about best possible at lowest price turning into a price war with the Consumers becoming a loser and jobs shrinking over time is something I really don’s understand. Perhaps you’d care to elaborate with some hypothetical scenarios?
Bottomline, is while I don’t think the entry or not of Wal Mart in the Indian retail space would have much effect on the growth of this sector as long as our politicians don’t hobble the growth, I disagree that a Wal Mart can influence the way this sector grows.
Take the case of the automobile sector. We’ve got one player who controls more than 50 per cent of the market, which is majority foreign owned. We’ve got another foreign company, Hyundai, which is the second biggest player.
Now in this scenario have the local car companies like the Tatas and Mahindras faded away? Or are they much stronger and more world class today, due to competition in their home market than they were in the good old days of protectionism – remember the time when HM and Premier used to be the titans? They perished due to bad management and refusal to change.
The other stakeholder of the automotive sector: the customers and the ancillary suppliers (you could think of them as the primary goods producers whose products are sold by the retailers), are they better off today than when the market was protected?
I think the answer is obvious. Competition has been good in the automotive sector and there’s really no reason to think the same wouldn’t be the case in retail.
I would really like to see how a foreign company can outsmart an operator like Reliance in its home market!