Muppalla wrote:I have a fundmental question - Why India needs FDI in retail?
As always, the reasons supporting FDI are the same. FDI gives investors enough confidence to deploy their technology and expertise. Eventually, this is absorbed by local businesses, but without FDI, the learning cycle is very long.
Let me beat this dead horse one more time and hope to clarify some questions...
First, I'm glad that this question has been put to rest, hopefully for good.
India does not need foreign FDI in Retail, and going forward never will. Folks who have favored it have used hollow arguments to push an agenda that will only favor certain foreign business interests.
Let's take each segment at a time...
1) The Farmers: The producers of commodities range from subsistence level to industrial scale level. In this spectrum, the only ones to benefit from a "Walmart" would be the very large producers, those that would be able to provide the large quantities required by these retailers. The small and medium producers would not be benefited at all.
Experience in the US has shown that the small farmer has become obsolete. Agriculture has gone on an industrial scale and the small guy has his local farm stand and caters to the "locavore" phenomena. Those curious can check out Food Inc. to clarify their doubts. Over the long term the farmer becomes a disposable commodity that is under the thumb of the big corporations.
The much vaunted "supply chain" - A "Walmart" is going to allocate it's resources for a supply chain that serves it, not the rest of the Indian economy.
2) The Consumers: Let me turn the argument around... What will a big box store sell to the consumer that they currently do not get elsewhere? Does India need a "Walmart" to cater to the Indian consumer? I don't think so. Any Indian retailer can scale up - as required by the economy - and provide the same economies of scale.
3) The Big Box Corporation: The history of the big box store is an open book. They by no way are a sure fire success story everywhere. The failure of "Walmart" in Germany and South Korea are pointers in that regard.
Lessons from Carrefour Korea and Wal-Mart Korea:
http://www.nytimes.com/2006/08/02/busin ... wanted=all
Chinese media has recently reported that Wal-Mart may add yet another country to it’s growing list of international failures. In 2008 Wal-Mart has 208 stores throughout China. Within the past 12 years of trying, Wal-Mart has not only failed to become profitable, but it even had to accept a loss in market share. According to data from the Chinese Department of Trade, it has dropped from rank 17 in 2004/2005 to rank 30 this year. Before the background of previous failures, e. g. the one in Germany, it’s time to think about the reasons for Wal-Mart’s repeated problems in foreign markets.
Three days after Wal-Mart Stores announced that it would pull out of Germany, Roland Kögel was wandering through the aisles of a somewhat threadbare Wal-Mart in a strip mall in this western German city.
In South Korea, Wal-Mart had only 16 stores — a small presence that contributed to its decision in May to sell out to a Korean discount chain.
“Why are they giving up now?” he asked. “They have good prices and a good variety of products.”
Yet Mr. Kögel, 54, confessed that he never bought groceries at Wal-Mart. Food is cheaper at German discount chains. He also does not visit this store often, because it is on the edge of town and he does not own a car. His one purchase for the day was tucked under his arm: a neck pillow.
Shoppers like Roland Kögel help explain why Wal-Mart raised the white flag in Germany, the site of the company’s first foray into Europe.
After nearly a decade of trying, Wal-Mart never cracked the country — failing to become the all-in-one shopping destination for Germans that it is for so many millions of Americans. Wal-Mart’s problems are not limited to Germany. The retail giant has struggled in countries like South Korea and Japan as it discovered that its formula for success — low prices, zealous inventory control and a large array of merchandise — did not translate to markets with their own discount chains and shoppers with different habits.
Some of Wal-Mart’s missteps — selling golf clubs in Brazil, where the game is unfamiliar, or ice skates in Mexico — are so frequently mentioned, they have become the stuff of urban legend. But even more subtle differences in shopping habits have tripped up the company.
In Korea, Wal-Mart’s stores originally had taller racks than those of local rivals, forcing shoppers to use ladders or stretch for items on high shelves. Wal-Mart’s utilitarian design — ceilings with exposed pipes — put off shoppers used to the decorated ceilings in E-Mart stores.
Beyond the ambience, Wal-Mart’s shoes-to-sausage product line does not suit the shopping habits of many non-American shoppers. They prefer daily outings to a variety of local stores that specialize in groceries, drugs or household goods, rather than shopping once a week at Wal-Mart.
“They have stacks of goods in boxes,” said Lee Jin Sook, 46, a housewife sitting on a subway in Seoul. “That may be good for some American housewives who drive out in their own cars.” But Koreans, she said, prefer smaller packages: “Why would you buy a box of shampoo bottles?”
“I heard Wal-Mart later tried to change their style,” Ms. Lee added, “but I guess it was too late.”
Another aspect of Big Box retailing, something that the government used to tout as safeguards - why would a big box retailer start a store in let's say Aurangabad over Pune or Bombay? It would just not be viable in any small city/town.
Added Later: The technological inflow that will come into India from the Offset clauses of the MMRCA deal is what India needs at this stage in it's development, not FDI in Retail. There is nothing that International Retail chains bring to the table that the Indians cannot do efficiently themselves.