FDI in Retail

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amit
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Re: FDI in Retail

Postby amit » 13 Jan 2012 17:36

Supratik wrote:You are assuming I am not well read.


My bad. Didn't mean it that way. What I meant is I got a sense that you haven't read up on the subject of discussion. Anyway my apologies.

China also opened retail very conservatively. This for a country that has successfully diverted a significant proportion of the population towards manufacturing. I don't want to get into a wrangling match with you.


We are talking about export of farm produce. Again I would request you to read up Walmart's experience in China.

the cons are
1) livelihood of millions who depend on this trade in a country with chronic poverty and underemployment.


Sorry to say this but again empirical evidence which I've cited proves this assertion to be false. The ICRIER study clearly states: "There was no evidence of a decline in overall employment in the unorganised sector as a result of the entry of organised retailers".

If you think the ICRIER assertion is false then you'll have to say why.

Meanwhile retail and supply chain are labor intensive. Thousands, nay millions would get employment.


Lying to the public by you know who that it will create millions of jobs when actually due to better efficiency it will reduce the number of people employed in this trade.


This is a political statement and I'm not interested in a political discussion on the Economy thread. I'm willing to listen if you can provide empirical and technical data to back up your claims.

So to create a balance FDI in retail should be limited to the Metros for the first 5-10 years.


Again studies of have shown that organised retail will remain a urban phenomenon for the foreseeable future. So I don't understand your concern.

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Re: FDI in Retail

Postby Supratik » 13 Jan 2012 17:54

Gathered from TV discussion. Walmart has about 21 lakh employees with around 8000 stores worldwide.
Last edited by Supratik on 13 Jan 2012 18:13, edited 1 time in total.

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Re: FDI in Retail

Postby Supratik » 13 Jan 2012 18:04

amit wrote:
China also opened retail very conservatively. This for a country that has successfully diverted a significant proportion of the population towards manufacturing. I don't want to get into a wrangling match with you.


We are talking about export of farm produce. Again I would request you to read up Walmart's experience in China.

So to create a balance FDI in retail should be limited to the Metros for the first 5-10 years.


Again studies of have shown that organised retail will remain a urban phenomenon for the foreseeable future. So I don't understand your concern.



I am talking about the whole retail business. We are talking about multi-brand retail. AFAIK the food export model of
Bharti did not work out very well.

When I say limited to metros I mean the opportunities in smaller cities are even less. So if there is job loss the chances of getting re-employed is more in metros than in smaller cities. The idea is to bring about change with minimum dislocation.

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Re: FDI in Retail

Postby harbans » 13 Jan 2012 19:16

Amit Ji, take Walmart China's example. China opened upto FDI in retail 92. And 100% when it was India's GDP as of now. This is the retail story of china..

Almost two decades after China opened up retail fully, starting with allowing 26 per cent FDI in 1992, the sector has seen rapid growth, against the backdrop of increased market consolidation, higher production efficiency enabled by rising investments in rural infrastructure, and booming exports made possible by the setting up of new supply chains.

Many of these changes, according to Chinese analysts, were made possible by the entry of foreign retail giants such as Walmart and Carrefour, who changed the way Chinese companies managed their businesses, from farm procurement to logistics. Yet, 20 years on, it is Chinese local retailers — and not their foreign competitors — who dominate the retail market, with initial fears of a foreign invasion ultimately appearing unfounded as local companies learned quickly to out-compete their foreign rivals.

The country's biggest retail firms today are all Chinese companies — the Shanghai Bailian group, Suning, Gome and Dashang — all have bigger sales than Walmart in China, according to several research studies.

...

“In terms of logistics, procurement and management, we have clearly seen the benefits,” he said. “Prices have fallen, and efficiency has increased. Initially, we had fears of the coming of foreign companies, but now we are no longer concerned as local companies have been able to learn from them, and compete with them.”


http://www.thehindu.com/business/Econom ... 681679.ece

You are also correct being a part of the organized global supply chain will hold many benefits for India. India doesn't have all the time in the world to pick and choose. We have a growing population and existing inefficiencies in each sector. Retail is one of them that we know has massive wastage and inefficiencies that can be addressed with much needed expertise and capital infusion. Delay of such policy implementation is already costing India dearly..much more than the corruption scandals we see. That is a loss no one seems to address. We need money to invest in power, agriculture, industry, infrastructure. 20 million people pass out of colleges and schools in India every year seeking employment. It's not just that Walmart or Bharti have X front end employee's. Cold storage's will require reefer engineers, mechanics, transportation fleets all of which employ people. Land acquisition drives for facilities will drive up demand and value all that will benefit. Land holdings with each generation get smaller, these opportunities allow people to move away from subsistence level to gaining capital and employment. Just like computers increased employment and employability options by opening scores of Institutes and software expertise that propels India's IT industry today, the same will happen with retail related reform. Doing it too late and too little will not help. Our indices in health, education and defence will keep being under pressure if we keep delaying these essential reforms.

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Re: FDI in Retail

Postby Supratik » 13 Jan 2012 20:20

From
http://www.thomaswhite.com

Unleashing the retail dragon through reforms and foreign investment
While by now most prominent global retailers have forged an entry into the thriving retail industry in China, the framework of rules and regulations governing this sector have remained largely ambiguous and fraught with contradictions. Prior to 1992, foreign retailers were prohibited from setting up joint ventures or wholly-owned subsidiaries for wholesale or retail trade in China. Loosening its tight regulations somewhat, in July 1992 the State Council permitted foreign investment in retailing on a trial basis in Beijing, Shanghai, Tianjin, Guangzhou, Dalian, Qingdao, as well as the five Special Economic Zones (Shenzhen, Zhuhai, Shantou, Xiamen, and Hainan). By 1997, about two dozen foreign-invested stores in China had been approved by the central government to conduct business. However, hundreds of foreign-invested retailing as well as wholesaling enterprises had already established themselves in Chinese cities, having sought approval from the provincial or municipal authorities.

In order to curb the mushrooming of foreign-invested retail enterprises, the central government ordered a moratorium on local approvals, revoking many approvals made in 1997 and 1998 as well. The ownership structure of many of these enterprises was also restructured, making them Chinese majority-owned. Despite these interventions, the tussle between the local and the central government persisted, as many foreign-invested retail enterprises continued to be approved by local authorities.

WTO accession powers foreign investment in retail
China’s accession to the World Trade organization (WTO) in 2001 marked a new, liberalized era for foreign investment in retail. Under the WTO’s Accession Protocol, the opening up of the retail sector was phased over a period of five years to December 2006. The framework of rules however, left much to be desired in terms of clarity and transparency. On the issue of equal ownership between the domestic retailer and the foreign investor, the Commercial Sector Measures brought out in April 2004 by the Chinese government were in contradiction with the Accession Protocol as well as the 2007 FDI Guidance Catalogue. While the Commercial Sector Measures restricted foreign investment to 49% equity for foreign-invested retail chains with more than 30 outlets, the Accession Protocol as well as the FDI Guidance Catalogue of 2007 allowed for equal ownership. However, providing some clarity, the Chinese government’s Administrative Measures for Foreign Enterprises or Individuals Establishing Partnership Enterprises, brought out in 2009, now permits foreign investors or individuals to set up retail enterprises in partnership with domestic entities in China.

The Chinese Ministry of Commerce has also been gradually delegating the authority to approve all foreign-invested retail businesses to provincial commerce branches, facilitating the expansion of foreign retail players within the country. However, the authority to approve retail businesses involving items controlled by the state, as well as enterprises using the channels of direct selling, including, mail order, the internet, franchises, commissioned operations or commercial management, remains centralized.

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Re: FDI in Retail

Postby Supratik » 13 Jan 2012 20:33


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Re: FDI in Retail

Postby SBajwa » 13 Jan 2012 21:21

Slightly OT! Here is anecdote that I will probably remember for rest of my life. My uncles at Karnal (Haryana) were farmers. They grew vegetables too. It was not possible to transport vegetables from Karnal to Delhi (120 kms) away due to "chungi Tax", "Transportation", garbage rules and regulations and tomatoes become 25 paisa per 100KG (not worth to even transport them to local mandi at Karnal).

so every year what they would do is let us children know that in one week this field of tomatoes will be plowed and thus you kids can play with them to your heart content.

For one week we had

1. Tomatoes fights.
2. Tomatoes eating contest (don't ask for after effects)

and so forth.

Even though these things do not happen anymore as poverty has increased and poor people (once they know that farmer do not care about crop) just take them.

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Re: FDI in Retail

Postby SBajwa » 14 Jan 2012 05:49

The biggest problem in india is FCI (food corporation of India) who regulate the grain prices. Most often the IAS officer that controls FCI is from a traders community and thus corruption.

On top of not maintaining the cold storage or simple storage to protect the food from air,water or mice/animals they are directly responsible for the suicides of farmers all over India.

What needs to be done right away is

1. FCI needs to be disbanded.
2. More power to Panchayats at village level.
3. No more subsidies to rich farmers (free electric power or income tax).
4. No more Restriction on food, milk products, poultry, fish and meat items to transport across the tehsil, district and state lines.

and in 10 years 55% of the indian people who depend upon the farming will move on to do better things and farmers will lift the nation of India out of poverty.

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Re: FDI in Retail

Postby amit » 14 Jan 2012 09:26

harbans wrote:You are also correct being a part of the organized global supply chain will hold many benefits for India. India doesn't have all the time in the world to pick and choose. We have a growing population and existing inefficiencies in each sector. Retail is one of them that we know has massive wastage and inefficiencies that can be addressed with much needed expertise and capital infusion. Delay of such policy implementation is already costing India dearly..much more than the corruption scandals we see. That is a loss no one seems to address. We need money to invest in power, agriculture, industry, infrastructure. 20 million people pass out of colleges and schools in India every year seeking employment. It's not just that Walmart or Bharti have X front end employee's. Cold storage's will require reefer engineers, mechanics, transportation fleets all of which employ people. Land acquisition drives for facilities will drive up demand and value all that will benefit. Land holdings with each generation get smaller, these opportunities allow people to move away from subsistence level to gaining capital and employment. Just like computers increased employment and employability options by opening scores of Institutes and software expertise that propels India's IT industry today, the same will happen with retail related reform. Doing it too late and too little will not help. Our indices in health, education and defence will keep being under pressure if we keep delaying these essential reforms.


My home in Calcutta is next door to a Big Bazar outlet. So when I'm there I love to go and browse around. The one thing that always strikes me is the sales assistants - both boys and girls. These are semi-educated young people who have been left behind by the BPO wave. In normal circumstance they would be blue collar workers in huge factories making toys, hard disk drives and electronics or textiles. However, thanks to our wonderful labor laws low cost manufacturing has never taken off like it did in the tiger economies.

So my point is retail - since its by very nature labor intensive - offers very good employment opportunities for this class of people, young by not well enough educated to be in a call centre. Mind you I doubt that if these folks - that is the ones I see in places like Big Bazar, Spencer's, Metro cash and carry etc - would get decent jobs anywhere else, lower division clerks in govt departments is a thing of the past.

Also do note it is this class of folks who, when frustrated and jobless, are usually at the sharp end of social unrest.

JMT

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Re: FDI in Retail

Postby amit » 14 Jan 2012 09:42

Supratik wrote:I am talking about the whole retail business. We are talking about multi-brand retail.


Yes I understand that. Look, I don't think its going to be easy. And rules must be framed very carefully, especially to ensure that a maximum percentage of shelf space is reserved for Indian made goods so that big retail does not become a dumping ground for China made maal. There is a big difference between badly drafted policy and the viability/feasibility of the policy itself. FDI in retail is IMO sound policy but the devil is in the details. But don't throw out the baby with the bath water.

For non-food items, I think the worry is less because FMCG manufacturers in India are very savvy and they will cut deals with big retail which IMO would be win-win for both. And even today if you look at where most Indians get their FMCG stuff, it's from relatively well-established shops which are higher up in the food chain than local saabji wallas. And higher up the food chain they are the better chance off adapting to new circumstances.

However, IMO the immediate benefit would be to agriculture and I think big retail can kick start the food processing industry in India. Also, I feel the Indian market is big enough to accommodate both the mandis as well as the fork to farm model. In fact I remember reading that Reliance, when it was aggressively expanding a couple of years ago, before all those politically motivated agitations, was cutting deals with farmers for contract farming.

I personally think that contract farming could be a boon for marginal farmers with tiny plots of land. For example, a retail chain could cut a deal with say a dozen marginal farmers with contiguous land holdings to grow a crop of, say tomatoes, with the assurance of picking up the entire stock. They could conceivably provide the seed, fertilizers and farming expertise as well. These things have happened in other parts of the world. There's no reason to think they can't be replicated in India.

AFAIK the food export model of Bharti did not work out very well.


That's more because the supply chain is not yet fully integrated into the Walmart global supply chain. As of yet Walmart still has no incentive to invest in the integration. Nobody is in it for charity. What you need to look for in win-win situations.

When I say limited to metros I mean the opportunities in smaller cities are even less. So if there is job loss the chances of getting re-employed is more in metros than in smaller cities. The idea is to bring about change with minimum dislocation.


As I've written before big retail will be an urban phenomenon. One reason for this is that the cost food, especially vegetables, is much cheaper and they are fresher in smaller towns - which tend to be closer to the places that grow the food - than bigger cities. And, again, as I've written before your fear of largescale job losses is unfounded according to empirical evidence as shown by various studies. Please do not extrapolate the American experience with Walmart on to the Indian context.

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Re: FDI in Retail

Postby Dhiman » 14 Jan 2012 13:27

amit wrote:Well I suppose this article written by an associate professor of the Institute of Financial Management and Research (IFMR) is hogwash because he thinks FDI in retail is about supply chains. What rubbish right?

FDI in retail will bring down inflation by investing in supply chain logistics, that is, by investing in transport and refrigerated storage necessary for perishable items. Typically, if a farmer were to sell his produce, he needs to bring it to the local market where he usually auctions it to the retailer, who, in turn, will sell to the final consumers.



Amit ji,

I am a selfish person and Walmart isn't coming to India for charity, so If the problem is cold storage supply chain, then invite FDI in cold storage supply chain companies, don't make it an excuse for inviting FDI in retail. For example, this company might be more helpful than Walmart:

http://henningsen.com/ wrote:Henningsen Cold Storage
As one of the largest public refrigerated warehousing companies in the U.S., Henningsen Cold Storage delivers award-winning refrigerated logistics through a national warehouse network totaling more than 42 million cubic feet of multi-temperature controlled storage (-20 to +60). Our network, together with our transportation management services, translates to coast-to-coast reliability as we serve the production and distribution needs of local, regional, national and international clients.


But giving incentives to and inviting FDI in cold storage supply chain would make sense, if this was some sort of a rare commodity or high tech item not present in the country. However, looking at the stats below hardly gives this picture.

Image

i.e, the cold storage industry is coming up nicely in India without any foreign FDI and without any foreign technology. But let's go a bit deeper and see what is going on:

http://ninadjog.com/krishna/ColdStoragesIndia.pdf wrote:A large number of cold storages have come up with heavy subsidies, loans and help from the cooperatives and the Government. The old ones have been revamped, generators added to take care of power cuts and the availability of foods by storages / cold storages / CA and MA storages are on the increase.


So where is the FDI? In retail obviously and the excuse being given to bring FDI to retail is that it will setup cold storage, when the fact is that in the shadows the cold storage industry in India is being built on top of domestic sweat equity without a peep of FDI.

So excuse me, but this whole link between FDI in retail to cold storage is starting to smell like a croc full of sh** to me.

Some more info here if you have time:
http://www.climatecontrolme.com/en/2011 ... -in-store/
http://agmarknet.nic.in/klcsmp.pdf
http://www.acrconsultants.net/pdf/Cold% ... a%20R3.pdf

But then, without FDI, the stupid desis MUST be doing something wrong:

http://www.indiaenews.com/pdf/140234.pdf wrote:Tamil Nadu's transporters, fishermen, cold storage operators and vegetable and food grain growers could lose at least Rs.250 million a day because of an acute diesel crisis triggered by an unending electricity shortage. While green and dry grocers said their cumulative losses would cross at least Rs.100 million, transporters pointed to bigger shortfalls in income.


and (read it completely if you have time):

http://indiacoldchainexpo.com/images/horticulture/8.pdf wrote:Evaluating Existing Cold Stores In India And Applying Technical Standards For Enhancing Energy Efficiency And Performance
Mostly constructed with Large/single chamber to stock potatoes – the
key product, and then remain idle for about 6 months.

Erratic power supply permits only 8 to 10 hrs operation per day - usually no power back-up is available


Which brings us back to my original point: no electricity means No cold storage means food wastage continues. So besides cold storage, is FDI in retail going to trickle down into power generation sector as well?

Now here is what is happening in retail supply chain:
http://www.business-standard.com/india/ ... ps/461547/
Shrugging off the stonewalled foreign direct investment (FDI) proposal, several domestic retailers are in talks to collaborate for a consolidated back-end, which, when established, will help them reduce costs and improve margins.


That tells me that the retail supply chain the country will improve with or without FDI. Supply chain isn't some arcane technology that India won't get without FDI. It may take a few more years extra, but is there a particular reason you are in a big hurry?

P.S: More later as my daily quota of BRF is done for today :)

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Re: FDI in Retail

Postby amit » 14 Jan 2012 16:42

Sigh! Dhiman babu we are talking about supply chains - Indian ones linked seamlessly to global ones. Plenty of literature has been posted on that. And here you are just fixated with a small component of a supply chain, a cold storage. What can I say?
:roll:

If supply chains which can cut wastage and get Indian produce on shelves all around the world were that simple we'd have seen it already. You grossly underestimate the complexity of supply chains, like those which Walmart ru[color=#808000]runs

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Re: FDI in Retail

Postby Dhiman » 15 Jan 2012 14:04

amit wrote:Sigh! Dhiman babu we are talking about supply chains - Indian ones linked seamlessly to global ones. Plenty of literature has been posted on that. And here you are just fixated with a small component of a supply chain, a cold storage. What can I say?
:roll:

.
Amit ji,

The devil is always in details. So reading media articles is good, but if you want to understand the real picture you will need to dig into the details. I hope its clear to you by now that FDI in retail is not going to solve the food wastage problem - a lie that is paraded in media day after day by the very government that is criminally responsible for most of the supply chain problems and now wants to bring in FDI without fixing the supply chain bottlenecks that it has created in the first place.

For example: all mandis in India are essentially government created and sactioned. Not only that the middlemen who operate in these mandis are also government sanctioned and licensed and hence enjoy monopoly power. So their high rate of commission and profits should not come as a surprise.

Until very recently a vegetable seller in the city was not allowed by law to buy produce directly from the farmer in the village. So how is FDI in retail going to improve the supply chain when the government that essentially runs and controls this mandi business has not shown any inclination to reform the mandis? All large retails need government sanction to buy directly from the farmers.

Moral of the story: India needs comprehensive domestic reforms, not FDI in retail.

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Re: FDI in Retail

Postby Dhiman » 15 Jan 2012 14:53

http://www.thehindu.com/business/Indust ... 801712.ece
Representatives of major farmers' organisations who participated in a consultation with the Department of Industrial Policy and Promotion (DIPP) on foreign direct investment (FDI) in multi-brand retail said on Saturday that they were “opposed'' to the entry of foreign players in the domestic sector.

They charged the government with “misquoting'' them in the media.

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Re: FDI in Retail

Postby Kakkaji » 16 Jan 2012 04:45

amit wrote:My home in Calcutta is next door to a Big Bazar outlet. So when I'm there I love to go and browse around. The one thing that always strikes me is the sales assistants - both boys and girls. These are semi-educated young people who have been left behind by the BPO wave. In normal circumstance they would be blue collar workers in huge factories making toys, hard disk drives and electronics or textiles. However, thanks to our wonderful labor laws low cost manufacturing has never taken off like it did in the tiger economies.

So my point is retail - since its by very nature labor intensive - offers very good employment opportunities for this class of people, young by not well enough educated to be in a call centre. Mind you I doubt that if these folks - that is the ones I see in places like Big Bazar, Spencer's, Metro cash and carry etc - would get decent jobs anywhere else, lower division clerks in govt departments is a thing of the past.

Also do note it is this class of folks who, when frustrated and jobless, are usually at the sharp end of social unrest.

JMT


amit ji:

++1

This is exactly what I thought when I went to one of these outlets.

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Re: FDI in Retail

Postby Virupaksha » 16 Jan 2012 05:35

I think that the success of the 91 reforms was not at all about foreign investment. It was about freeing the domestic one. That it had to take that route was to blind side the babudom.

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Re: FDI in Retail

Postby amit » 16 Jan 2012 08:34

Dhiman wrote:Amit ji,

The devil is always in details. So reading media articles is good, but if you want to understand the real picture you will need to dig into the details.


Dhiman Babu,

Please don't take offense but increasingly I'm being amazed by how you're looking at the problem in a siloed manner as if its a question of FDI in retail versus much-needed domestic reforms as some sort of an either/or choice.

I've written this before and so have others, FDI in retail is only a small part of the larger problems that afflict our agri sector, things like unviable sized land holdings, stupid taxes, bad supply chain, middlemen you name it. I don't know if are aware but India has more arable land than China and that land is one of the most fertile in the world. Yet China's agri production is more than double that of India and it is a major source of vegetable and fruits across the entire Southeast Asia region. I think both of us can agree that this is, to put it mildly, due to criminal negligence and something needs to be done to rectify this.

Coming back to the topic, it's not my intention to give the impression that FDI in retail is a silver bullet. However, it's an essential step.

For example: all mandis in India are essentially government created and sactioned. Not only that the middlemen who operate in these mandis are also government sanctioned and licensed and hence enjoy monopoly power. So their high rate of commission and profits should not come as a surprise.


Of course you're right. However, the only way you can dismantle this system is by putting up an alternative system that is essentially private sector driven. Organised retail (please note my choice words and the absense of the word FDI) has shown that an alternative model can be set up by the private sector which is far more efficient and which results in farmers getting 60-70 per cent better pricing for their produce (refer to a study I linked in an earlier post) while the end customer pays either the same or less. Also supply chains can result in cutting down the 30 per cent waste that is criminal whichever way you look at.

The point is FDI in retail will just hasten the process of setting up worldclass supply chains which will be linked to the global supply chains of large multinationals. This can facilitate largescale agri exports - again look at the China example

It's my intention not to talk about politics on the Technology thread, however, one point you made needs a response for completeness.

I hope its clear to you by now that FDI in retail is not going to solve the food wastage problem - a lie that is paraded in media day after day by the very government that is criminally responsible for most of the supply chain problems and now wants to bring in FDI without fixing the supply chain bottlenecks that it has created in the first place.


It is certainly not clear, on the contrary the more we dig into this issue, including you, I think it's becoming clearer to any reader on this thread that FDI in retail can indeed improve matters. This thread started with a poll, I've been watching the numbers, IMO, it's no coincidence that the third choice is ramping up in terms of the percentage of votes. I'm sure 51+18 vs 31 gives a very good idea what most BFRites who read this thread thinks. :-)

You blame this Govt, maybe you're right. But it remains a fact that this government that is criminally responsible as you say, is the one that tried to bring in legislation to fix things. Now I wonder what you'd call all the politically parties which shot down the legislation instead of debating about it and offering constructive suggestions to improve on the legislation. The party in power is not the only one on whose shoulders the responsibility of good governance rests. So don't let you're personal political prejudices cloud your judgment.

Instead I would postulate that the political opposition to FDI in retail (which after all is not something that is vital to our national security, like say for example the Nuclear agreement) is testament to the political clout that the rich and powerful middle men who control the argi market have. Otherwise how many issues can you find where Gadkari, Jayalalitha, D Raja, Sitaram Yechery and (drum rolls please) Mamata Banerjee speak the same language?

Instead of the Govt manipulating the media, it's this politically well-connected trader class which has, IMO, manipulated the narrative in the media, as a result of which both Leftwing as well as Rightwing "intellectuals" as well as the usual complement of "useful idiots" have been parading the idea:

FDI in retail=Walmart=evil empire=modern day East India Company=us poor In'juns will be fleeced by the evil Goras.

There are many variations of this narrative. It would be fun to read them if it weren't for the fact that one realises the amount of harm it does.

Until very recently a vegetable seller in the city was not allowed by law to buy produce directly from the farmer in the village. So how is FDI in retail going to improve the supply chain when the government that essentially runs and controls this mandi business has not shown any inclination to reform the mandis? All large retails need government sanction to buy directly from the farmers.

Moral of the story: India needs comprehensive domestic reforms, not FDI in retail.


SBajwa ji gave an even more poignant anecdotal evidence. Due to some stupid tax, Delhi walas either paid more for tomatoes or went without them, when 120 km away children indulged in tomato fights because they were going to waste.

This just goes to show that the entire agricultural sector requires reforms and so I agree with you 100 per cent that India needs comprehensive domestic reforms - things like GST, market pricing, less handouts, doing away with the politics of patronage etc.

However, I still fail to see how domestic reforms and FDI in retail can be an either/or situation. I mean why can't you have both? Why do you give impression that you think that FDI in retail would stall domestic reforms?

Heck folks want to invest millions in India to build up infrastructure that stays in India and you are howling in protest? If I didn't know better I would have mistaken such reaction for Xenophobia.

JMT
Last edited by amit on 16 Jan 2012 10:24, edited 2 times in total.

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Re: FDI in Retail

Postby amit » 16 Jan 2012 09:11

Kakkaji wrote:amit ji:

++1

This is exactly what I thought when I went to one of these outlets.


Thank you Kakkaji. :-)

I think the employment generation potential of organised retail is something that is totally overlooked. As far as I know, as a rule of thumb more people work behind the shop front in the supply chain than those in the shop.

As regards employment generation, according to WiKi chacha outside the US, our favourite store Walmart [ :-) ] has 4,263 stores and 660,000 workers in 15 countries outside the United States. A back of the envelope calculation shows that's 155 workers per store. WiKi chacha also says that Walmart is the largest private employer in the US and Mexico, and one of the largest in Canada.

In 2010, Walmart was the world's biggest company in terms of revenue with $422 billion. Exxon Mobile was No2 with $370 billion. Now worldwide Walmart has around 2.1 million employees. Exxon mobile with just 12 per cent less revenue than Walmart has around 84,000 employees. The point to note is that Walmart employs around 25 times more people than Exxon. I'll come to this point a bit later in my post. [Oh incidentally all this data is from WiKi chacha].

Why am I writing all this trivia? It is to show just how labor intensive organised retail is - be in global chains like Walmart, Tesco, Carrefoure or Indian ones like Big Bazar, Spencers, Reliance etc. The nature of the beast is such.

Now coming back to the Exxon Mobile Walmart comparison. In 2011 Exxon's net income was in the region US$30 billion. Walmart net income was around US$15.5 billion. There's two ways of looking at this number. One, from a shareholder point of view, Exxon is a far more profitable company than Walmart. And their respective share prices reflect that.

However, I'd urge folks reading this to look at these numbers from different perspective.

Despite employing 25 times more people than Exxon, in sheer dollar terms (econ gurus note this point and don't question my balance sheet reading! :-) ) Walmart made as much as half the profits that Exxon made.

Again what does that tell us? It tells us many things at many levels but I'm just interested in one point. It tells us that the average income of a plain vanilla Walmart employee is much less than that of a vanilla Exxon employee. From this we can certainly deduce that the qualification levels of the Walmart employee is much less than that of the Exxon employee.

All this verbal diarrhea on my part (please excuse!) leads to the one point that I want to reiterate. Organised retail is a very good avenue for employment of India's undereducated lower middle class generation who are desperate for jobs. Their earlier generations used to work as lower division clerks and peons in Govt offices, now that avenue is virtually closed, largescale organised retail can provide an alternate avenue for employment.

FDI in retail is a sure fire way of achieving scale in a much shorter time span.

This is in addition to the other benefits which I feel can accrue from this move.

JMT

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Re: FDI in Retail

Postby amit » 16 Jan 2012 09:41

I'd like to make one more point. A lot of folks think developing supply chain is a piece of cake and it only entails setting up cold storages and so let's get cold storage experts to invest in India rather than global retail chains.

I've been urging folks to look up supply chains and how difficult they are to set and manage on Gogal Chacha. Here's an interesting primer on the Walmart Supply Chain and how it gives the company an advantage over peers. I know a lot of folks think Walmart is the epitome of evil, however, I would urge everyone who's interested to go through the report without prejudice to understand why I think India needs world class expertise in setting up world class supply chains.

It doesn't necessarily have to be Walmart (though frankly I don't see the harm if it is, provided legislation is properly framed), there are plenty of large global retail chains who are interested in the Indian market both as a place to do business and as a sourcing destination.

Note: The other Bric countries have benefited immensely from the infusion of such technology (again plse refer to Gogal chacha). Last I heard the're still independent countries deciding on their own policies. I don't see why India can't benefit from the same.

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Re: FDI in Retail

Postby amit » 16 Jan 2012 13:26

Here's some more reading material, this one from Standford Technology Ventures Program.

I'll post some highlights but first I'd like to point to a chart that the pdf has.

Image

I think its criminal that even Vietnam has a 22 per cent penetration of organised retail while India has a measly 6 per cent.

Some highlights:

Supermarkets in India have to operate in face of productivity hassles which can be attributed to some of the
following operational aspects of this sector: 1. Scattered and inefficient supply chain which inflates
procurement costs (lack of focus in having a few nation wide suppliers and instead having up to 400 per
region needs a huge sourcing and quality control team raising costs of procurement).
2. The supply chain
for food in India has two or three additional intermediaries on an average compared with supply chains in
the US.
This can, in part, be attributed to the market regulations such as constraints in food grain movement
across states, inability to purchase directly from farmers, etc. This in turn slows down the growth of large
processors.



For those fixated with "evil" Walmart:

Experts feel that even with the pricing, Wal-Mart may not have significant advantages in China over
Carrefour and other established players.
Another key aspect of the Wal-Mart way of retail is that Wal-Mart
sources products directly from the manufacturer to control the costs, but in China the manufacturers are
scattered all over the nation and infrastructure (for example, transport logistics) are still under developed.
Another fact, almost laughable, is that in China, Sam’s club has its customers confused by requiring
membership. “Why”, the Chinese customers ask, “should I have membership just to buy some eggs?”
The above problems in China provide for a perfect crystal-ball vision into what problems the big organized
retailers could face in India.
When Wal-Mart enters India, it would have to leverage every bit of its
expertise in global retail marketing and supply chain management. Most importantly, it will have to
leverage the country-specific experience of its Indian partners.


Elsewhere in Asia, Wal-Mart has been at the receiving end as well. In 2006, Wal-Mart put an end to its
misery in South Korea by shutting down operations in that country.
According to reports, Wal-Mart put off its customers trying to apply its western markets’ marketing strategy by concentrating on the non-food dry
goods market (electronics, clothing, etc), while rivals laughed their way to the bank focusing on food and
beverages, which is the segments which attracts South Koreans to hypermarkets. An interesting contrast
could be drawn in the way Wal-Mart sold its goods and the methodology used by its rivals. Wal-Mart stuck
to its old school way of selling products by the box, where as rivals stole the show by hawking away their
goods using megaphones and hand-clapping.


I'm still quaking in my dhoti on the prospect of Walmart coming to India and fleecing us SDREs. Meanwhile, I'm waiting for all those reports about how Walmart has impoverished people in the markets it operates in outside the US. I guess it's going to be a long wait. :cry:

For major retailers like Pantaloon especially, that have established a name and market presence through
multi-format experimentation, the next step is the improvement of the supply-chain and behind-the-scene
operations. These factors serve as the backbone of a successful organized retail chain in the long-run.
Pantaloon cleverly ignored these aspects due to the unique inadequacies of Indian infrastructure and rightly
favored experimentation over organization. But, to continue to grow at the pace it has over the last fiveyears it needs to pay attention to its sourcing network, transportation system and other logistics.


The highlighted portion again, shows why worldclass supply chains are so important and why Indian companies with deep pockets are looking for foreign collaboration. If it had just been a question of opening hyper-markets why would they bother, they have enough money.

Anyone interested in further reading, here's a CII study.

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Re: FDI in Retail

Postby chaanakya » 16 Jan 2012 13:43

Image

How do you explain high contribution to GDP by organized retail sector in India despite low penetration vis a vis US.? Thats quite interesting.

posted later
Thanx any way got it.
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Re: FDI in Retail

Postby Dhiman » 16 Jan 2012 13:53

Virupaksha wrote:I think that the success of the 91 reforms was not at all about foreign investment. It was about freeing the domestic one. That it had to take that route was to blind side the babudom.


Correct sir and bulk of India's growth continues to be domestic driven as opposed to China's growth that is export driven. So if we are to continue to grow at 8% for the next 20 years, domestic reforms are essential and necessary; however, I doubt that any significant steps will be taken without sustained public pressure.

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Re: FDI in Retail

Postby Dhiman » 16 Jan 2012 14:18

amit wrote:However, I still fail to see how domestic reforms and FDI in retail can be an either/or situation. I mean why can't you have both? Why do you give impression that you think that FDI in retail would stall domestic reforms?

Heck folks want to invest millions in India to build up infrastructure that stays in India and you are howling in protest? If I didn't know better I would have mistaken such reaction for Xenophobia.


Amit ji,

No offense taken, but it would be nice if you could cut down on using words like "stalinist" and "Xenophobia" (I know you really don't mean it). By the way, if it is any consolation to you, I am all for FDI in power generation, but FDI in retail is a croc full of sh**. :lol:

Even the farmers (supposedly those who are supposed to receive higher prices from FDI in retail) are able to see through this crap :D So as far as I can see its game over for FDI in retail.

I wonder what would be the next excuse peddled in media to justify great benefits of FDI in retail?

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Re: FDI in Retail

Postby amit » 16 Jan 2012 15:15

chaanakya wrote:Image

How do you explain high contribution to GDP by organized retail sector in India despite low penetration vis a vis US.? Thats quite interesting.

posted later
Thanx any way got it.


Your welcome. I'm to blame for the confusion, should have deleted the first chart, which I'm sure you've guessed is about all retail (unorganised plus organised) whereas the second one is about organised retail.

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Re: FDI in Retail

Postby amit » 16 Jan 2012 15:19

Dhiman wrote:So as far as I can see its game over for FDI in retail.

I wonder what would be the next excuse peddled in media to justify great benefits of FDI in retail?


Yes you're probably right. Meanwhile, we'll continue our merry way with 30 per cent wastage, middlemen making all the moola with farmers receiving a small fraction of what we pay at the stores.

With entrenched vested interested that we have, there's even no need to shed crocodile tears for the "poor farmers". Meanwhile let's enjoy 10 per cent food inflation with production glut in one part of the country and scarcity in another. At least Walmart has been shown the middle finger, nah?

Yes I guess using the words "stalinist" and "xenophbia" was wrong - waste of time, as was taking the effort to link tomes data on organised retail in the hope that they would result in an informed debate. You can't educate the committed.

Meanwhile, I'm going back to my easy chair to enjoy my multinational cola bought in a hypermarket, which also sells Nagpur oranges. :-)

PS: Your comment about the farmers just goes to show who's winning the media battle.

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Re: FDI in Retail

Postby harbans » 17 Jan 2012 01:53

Amit Ji, all your posts here belong to the pantheon of Good Posts thread. We do have a big division here itself though. It's ideological. I doubt this will be resolved by logic. Some have convinced themselves that reforms and FDI are exclusive, little realizing that the entire edifice of the 91 reforms included inflows in FDI, FII's Euro/ Dollar equity inflows that led to a positive capital account in addition to remunerations. The balance of payments improved due to encouragement in FDI and rise in external commercial borrowings that were restricted. All part of the reform process. Isolationism and reform are exclusive. FDI and reform are not.

All Reform is Domestic. It is India which makes the laws. Isolationist or embracing skills, technology and money from outside to our benefit. If we exclude the latter then reform is isolationist, like the North Korean or Maoist ideology.

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Re: FDI in Retail

Postby SBajwa » 17 Jan 2012 03:29

Jaipur: A Food Corporation of India godown in Jaipur has thrown out wheat to keep liquor..... the FCI godown in Jaipur is storing liqour even as thousands of sacks of wheat have been lying out in the open for the last three months and could rot..... Sources say the FCI godown has been stacked with liquor for the last three years. While for three months, nearly 45000 metric tones of wheat meant for public distribution system supplies is lying at various places including the Kanakpura railway station near Jaipur. Rajasthan's Minister for Civil Supplies Babu Lal Nagar claims that it was the previous Bharatiya Janata Party government in the state which let out the FCI godown to Rajasthan Breweries Corporation. "It was the BJP government in the state which let out the FCI godown to Rajasthan Breweries Corporation Ltd since then it is being used to keep liquor," says Minister for Food and Civil Supplies Babu Lal Nagar. However, BJP is blaming the Ashok Gehlot government saying he used to attack the previous BJP government's liberal liquor policy into an issue in the Assembly elections but is no one silent on liquor being soted in a FCI godown..... The Rajasthan government is storing liquor cartons in an FCI godown here at a time when lakhs of tonnes of foodgrains were lying in the open, the opposition BJP today said in the state Assembly. Raising the issue during Zero Hour, Hanuman Beniwaln (BJP) alleged that an FCI godown in the Gandhinagar locality had reportedly

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Re: FDI in Retail

Postby SBajwa » 17 Jan 2012 03:30

https://www.sarcajc.com/Malnutrition_in_India.html

The Food Corporation of India (FCI) is certainly not in best of the books of the millions who hardly eat a full meal everyday. Last year, Supreme Court of India had directed the government to ensure free distribution of food grains to the hungry and poor instead of allowing it to rot in godowns of FCI but the Union Agriculture Minister seemed unmoved- “Distribution of foodgrains will not be possible..”. This apathy forced the Supreme Court of India to again reiterate its order and directed Central Government to conduct a fresh survey to identify the number of families living below povery line. But who is poor? SARCAJC has been bringing to light the attempt to underestimate level of poverty. Before poor are correctly identified, FCI wants to export wheat and rice to ease pressure on godowns and has sought orders from the government. Pressure on godowns! Remember, last year, Headlines Today had found FCI store being rented to Liquor wholesalers in Jaipur, while wheat was left to rot in the open! Is this this case now too? Of the 25 newspapers scanned, only 3 carried this news of possible export of wheat & rice on their inner pages, but none asked-why export rice & wheat, when we have hungry & malnurished poor at home?

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Re: FDI in Retail

Postby SBajwa » 17 Jan 2012 03:32

Instead of reform Indian people need government to step outside of regulating the food. GOI should only regulate
"Safety standards of the food (temperature at which milk, meats, etc is to be stored) and regularly inspect them" and not the actual food itself. FCI storage facilities are probably the worst food storage facilities in world.

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Re: FDI in Retail

Postby amit » 17 Jan 2012 06:23

harbans wrote:We do have a big division here itself though. It's ideological. I doubt this will be resolved by logic. Some have convinced themselves that reforms and FDI are exclusive, little realizing that the entire edifice of the 91 reforms included inflows in FDI, FII's Euro/ Dollar equity inflows that led to a positive capital account in addition to remunerations. The balance of payments improved due to encouragement in FDI and rise in external commercial borrowings that were restricted. All part of the reform process. Isolationism and reform are exclusive. FDI and reform are not.

All Reform is Domestic. It is India which makes the laws. Isolationist or embracing skills, technology and money from outside to our benefit. If we exclude the latter then reform is isolationist, like the North Korean or Maoist ideology.


Spot on Harbans Ji.

Initially I didn't realise that I was banging my head against a brick wall because the opposition to organised retail was political in nature. As a result I was seriously looking to see if I could find data points which supported contentions like:

1) Studied have shown that Walmart has impoverished communities around the world in nations they operate in.

2) The Bharti-Walmart cash and carry shop in Jalandhar has resulted in 40 per cent business loss for small kiranas.

3) Millions of jobs would be lost if organised retail was allowed to absorb FDI.

However, my search led me to data which points to the exact opposite of the above. I've posted most of the stuff in the hope that readers will make their own conclusion on the basis of all the data.

At the end of it all I've come to one conclusion. There is very little you can do in the face of intellectual laziness which results in closed minds.

However, if others (like you) have found all the data I've posted on this thread useful then I feel a sense of satisfaction.

Also I must state that my mind is not made up. If folks can point me to data which contradicts my conclusion FDI in retail will be a major employment generator and a game changer for our moribund agriculture sector, I'm happy to revisit my convictions.

JMT.
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Re: FDI in Retail

Postby amit » 17 Jan 2012 06:25

SBajwa wrote:Instead of reform Indian people need government to step outside of regulating the food. GOI should only regulate
"Safety standards of the food (temperature at which milk, meats, etc is to be stored) and regularly inspect them" and not the actual food itself. FCI storage facilities are probably the worst food storage facilities in world.


+100

The only way to do that is to allow for the privatisation of the industry, which only organised retail can bring about.

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Re: FDI in Retail

Postby Dhiman » 17 Jan 2012 13:12

Wikipedia wrote:Klang Valley (Malay: Lembah Klang) is an area in Malaysia comprising Kuala Lumpur and its suburbs, and adjoining cities and towns in the state of Selangor.



http://econ.upm.edu.my/ijem/vol2no2/bab07.pdf wrote:Copying selected portions from http://econ.upm.edu.my/ijem/vol2no2/bab07.pdf

Int. Journal of Economics and Management 2(2): 323 – 342 (2008)
Liberalization of Retail Sector and the Economic Impact of the Entry of Foreign Hypermarkets on Local Retailers in Klang Valley, Malaysia


ABSTRACT
The primary purpose of this research is to investigate the impact of liberalization of retail sector via the presence of foreign hypermarkets in Malaysia on local retailers. Both quantitative and qualitative methods (survey and interviews) were used to collect and analyze the data.

RESEARCH FRAMEWORK
The presence of large-scale foreign retailers has a significant economic and social impact on local retailers; especially on traditional small businesses such as ‘momand- pop’ stores (Dawson, 2003; Harris, 2006; Suryadarma et al., 2007). There are positive and negative impacts on local retailers. However, studies on this specific issue have provided evidence that the impact on local retailers is mostly negative (e.g. Farhangmehr et al., 2001; Da Rocha and Dib, 2002; Tonsoboon, 2003; Hitoshi, 2003; Sang, 2003; Seong, 2003; Wang, 2003; Bianchi and Mena, 2004).

The ability of these large-scale retailers to offer a wide range of goods and services at much lower prices under-one-roof exerts a profound effect on nearby local retail businesses. In this context, small local businesses will be either forced out of the business or forced to downsize as their consumer base declines when a new large-scale retailer opens its operations in a domestic town (Renkow, 2005; Jia, 2005; Irwin and Clark, 2006).

Thailand has been cited as one of the countries in which the expansion of international retailers has caused dislocating effects on traditional retail businesses. It is claimed that the number of local retailers has declined by 2 to 3 per cent per annum during the period of 1997 – 2001 (Tosonboon, 2003).

There is widespread belief that different types of retail businesses will be affected differently by the presence of large-scale retail outlets (Stone, 1988, 1995 and 1997; Peterson and McGee, 2000; Brennan and Lundsten, 2000; Artz and Stone 2006). Small retail businesses that sell different products from the large-scale retailers will be positively affected; meanwhile, small retail businesses that sell similar products (especially those selling groceries) to the foreign retailers tend to suffer more losses due to their lack of competitiveness.

Even though most studies have focused on the negative effects of international retailers on domestic retail businesses, there are positive effects as well. The positive impact of large-scale foreign retailers on local retailers is largely in the form of the introduction of new retail channels or modern outlets, the introduction of new marketing and merchandising methods, improved information management methods, and larger investment in the modernization of the sector as a whole (Dawson, 2003). Despite some positive effects, it is generally contended that the increasing presence of international retailers in the host countries may have a depressing effect on the well-being of small local retail businesses in which the negative impact generally outweighs the positive effects mentioned above.

LITERATURE REVIEW
The best known research on Wal-Mart impacts was pioneered by Stone (1988, 1995, 1997 and 1999). Thereafter a number of studies was conducted on the similar issue by a number of scholars namely; Peterson and McGee 2000; Seiders and Tigert 2000; Davidson and Rummel 2000; Artz and McConnon 2001; Farhangmehr, Marques and Silva 2001; Da Rocha and Dib 2002; Tosonboon 2003, Bianchi and Mena 2004; Uusitalo 2004. Generally most of these studies used the same Liberalization of Retail Sector and the Economic Impact of the Entry of Foreign Hypermarkets methodology with slight variation in the scope of analysis. Nevertheless, the main theme was to examine the impact of the expansion of large retailers such as Wal- Mart, Target, K-Mart, etc. on surrounding retail establishments. The results seemed to be consistent in most studies which suggest that there is a link between the entry of large retailers and the deterioration of the local businesses. Stone (1988) undertook first study to address Wal-Mart’s impact on local small merchants in 17 rural Iowa towns. Using census data, he concludes that per capita sales increased faster in towns with Wal-Mart stores than in the average towns across the State. It also reported that the retail sales in Iowa towns within 20-mile radius declined by nearly 10 per cent after five years. The author also stressed that the impact of Wal-Mart was more ominous for Iowa’s smallest town whereby newly opened Wal-Mart stores drained as much as $200,000 a year from towns under 1000 people. It is also argued that certain type of retail outlets tend to suffer severe market share losses such as clothing, drug, jewellery, auto-part and hardware stores. This finding is supported by another similar study conducted by Stone et al. (1999) on the changes in the sales of existing businesses in local trade areas in Mississippi. The results of this study show strong evidence that the gains for Wal-Mart supercenters were matched by corresponding losses for existing businesses in the trade area.

In slightly different perspective, Artz (1999) analyzed the short-term and longterm impacts of Wal-Mart on the retail market structure in Maine. The finding suggest that there are significant changes in retail market structure in the Wal- Mart host towns as well as surrounding communities in Maine. It is argued that some businesses benefited from the presence of Wal-Mart while other businesses do not gain substantial benefit. The study revealed that Wal-Mart host towns experienced greatly increased rates of growth in their general merchandise sector after Wal-Mart arrived. Meanwhile, the retail centres of surrounding communities were also impacted by Wal-Mart, whereby the general merchandise sector in this area declined or grew at a slower rate than did the general merchandise sector in Wal-Mart host towns in Maine.

A similar study was conducted by Peterson and McGee (2000). They surveyed small retailers in several towns in Midwestern US communities three years after Wal-Mart’s arrival in order to identify how they responded to the entry. It is found that almost 52 per cent of the small retailers reported that their business was affected negatively with the arrival of Wal-Mart. Meanwhile, 48 per cent indicated that the impact was either neutral or positive. In terms of the degree of Wal-Mart’s impact on incumbent retailers (stores sales), 30 per cent of the respondents reported that sales dropped more than 10 percent, while 14 per cent of respondents claimed that their sales increased up to 10 per cent. On the other hand, Seiders and Tigert (2000) examined the impact of the entry of supercenter (Meijer, Wal-Mart, Kmart and Target) on traditional food retailer in four markets (Victoria, Texas; Gainesville, Georgia; Columbus, Ohio; International Journal of Economics and Management Omaha, Nebraska) and found that the supercenter had captured 15 to 20 per cent of the retail food business in three of the four markets studied. This study also explored the changes in consumer preference structures (store choice attributes), consumers’ willingness to make tradeoffs in choosing new formats that entered the markets, and the ability of the new formats to win on key store attributes. It is found that the supercenters did change consumer preference structures for about 20 per cent of the households. It is argued that consumers primarily chose traditional supermarkets for convenience, quality, and service, and chose supercenters for lower price and assortment, including both food and non-food one-stop shopping. Davidson and Rummel (2000) provided additional evidence that the arrival of Wal-Mart store disrupts the retailing patterns in the domestic markets. The findings suggest that Wal-Mart host towns and Wal-Mart neighbouring towns (within 15 miles) reacted differently to the emergence of a Wal-Mart. It is claimed that Wal-Mart host towns experienced significant increases in nearly all categories of retail trade after Wal-Mart presence in the town for four years, while Wal-Mart neighbouring towns experienced a decline of only a marginal increases in retail trade during the same time period. It is argued that the overall increase in all retail sales categories experienced by Wal-Mart host towns is at the expense of some local retailers/merchants.

The above discussion largely focused on the impact of Wal-Mart. Farhangmehr et al. (2001) took the first initiative to examine the impact of different retail format than Wal-Mart, which is hypermarket, on consumers and local retailers in Braga, Portugal. Generally the findings are consistent with the studies presented above. The study reveals that most local retailers perceived that the hypermarkets have affected them negatively. Meanwhile, consumers generally prefer hypermarket due to its convenience and lower prices. Recently, Tosonboon (2003) described the impact of world class distributors on the retail industry in Thailand especially on the distribution system which consists of three main parties namely; consumers, distributors and suppliers/producers. According to Tosonboon, the arrival of world class distributors such as Big C, Lotus (Tesco), Carrefour and Makro has led to closure of department stores and half of local supermarkets. Only the larger and stronger firms were able to survive. It is claimed that between the year 2000 and 2001 about half of the department stores in Thailand closed. Generally most studies on this issue have focused on evaluating the impact of the entry of large format retailers on local retail businesses. Some studies extend the scope of the issue by looking at the issue of competitive strategies and suggested some strategies that could be used by small local retailers to effectively withstand the fierce competition created by large format retailers (e.g. Da Rocha and Dib 2002; Bianchi and Mena 2004; Uusitalo 2004). For instance, Da Rocha and Dib (2002) examined the entry of Wal-Mart into Brazil and the subsequent competitive moves by local retailers’ as a foreign entrant challenged the established rules in the industry during the pre-entry and entry phases. Liberalization of Retail Sector and the Economic Impact of the Entry of Foreign Hypermarkets

A similar study was conducted by Bianchi and Mena (2004) focusing on the actions taken by Chilean retailers to defend themselves effectively against the attempts of foreign retailers to operate in their market. Chilean retailers have consistently and fiercely defended their local market from competitors and this strong competition has hindered the internationalization attempts of large multinational retailers, which have not performed well in Chile. The finding is supported by a study conducted by Uusitalo (2004) on the entry of hard-discount chain Lidl in Finland market.

In sum, even though there are not many comprehensive studies on the issue of impact of large retailers on local retailers, there is clear evidence that the entry and expansion of large foreign retailers will ultimately exert impacts on the existing small businesses. Whether the impact of this large foreign retailer on local retailers is positive or negative, it depends on various aspects as discussed in the above literature such as the type of local retail businesses, the proximity of existing business and the new entrant, the size and competitiveness of local retail businesses and whether the local business are willing to take competitive measures to withstand the strong competition from new entrant.

FINDINGS AND DISCUSSION
...
The Impact of Hypermarket on Local Retailers’ Businesses Based on Table 4, most of the retailers (64.4 percent) have reported that their
business was affected by the presence of hypermarkets in their business area while remaining 35.6 per cent reported that they were not affected by the presence of hypermarkets. Within the different type of retail businesses in the sample, provision shops and minimarkets are the most affected kind of stores which accounted for 42.2 per cent. This is followed by restaurant and bakery (10.4 per cent), clothing/apparel (3.0 per cent), telecommunications (2.2 per cent), bookstores and stationary (3.7 per cent) and electrical/household appliances (1.5 per cent).

Even though 64.4 per cent of the retailers in the sample claimed that they were largely affected by the presence of hypermarkets, in terms of the extent of the effect, the responses were generally mixed (refer Table 5). Thirty seven percent of the retailers responded that the extent of the impact of hypermarkets on their business is moderate, while 32 per cent of the retailers claimed that effect was very intense or competitive. The remaining 30.4 per cent of the retailers claimed that the effect was very little or marginal.

Within the type of retail businesses in the sample, provision shops and minimarkets seemed to face a very stiff competition, as 23 per cent of them claimed that they cannot compete with the hypermarkets because hypermarkets are literally very competitive due to their ability to provide wide range of products at much lower prices. Some of the provision shops and minimarket said that their business was severely affected by the presence of hypermarkets in their business area which is reflected in the fall of sales and number of customers to almost 50 per cent.

Some shop owners who previously had two or three shop lots, had to close down one of their shops as they could not compete with the hypermarkets.

More than 50 per cent of the retailers claimed that number of customer; sales volume and profit did not change much with the presence of hypermarkets, while about 40 per cent reported that it has decreased. Based on Table 6 it is observed that the reductions in the number of employees are substantial (85.9 per cent). Collectively, while a small group of retailers appears to have benefited from the establishment of hypermarkets, but majority of the retailers in the sample reported negative impact especially those in groceries business.

CONCLUDING REMARKS
The findings from the survey reveal that the entry of foreign hypermarkets in a town often affects the business environment for many existing local retailers since the newly established hypermarkets, in most of the cases, take market share from the existing businesses. The survey found that some businesses benefited from the presence of foreign hypermarkets (especially complementary type of retail businesses) while others do not (specifically those retail businesses that are related to groceries). The responses of retailers in selected hypermarket host towns provided evidence of its impact on local retail businesses especially on provision shops and minimarkets.

Many smaller local provision shops unable to compete with large foreign hypermarkets have been forced to close down, however there is no statistical data available to proof this claim. In this regards, majority of provision shop and minimarkets owners have expressed their dissatisfaction on the presence of large-scale foreign hypermarkets in their business area. They claimed that there are already too many hypermarkets at the moment and asserted that the government should stop giving approval on opening new foreign hypermarkets especially near residential areas. Even though some of them have made significant changes in their businesses in response to changes in retail market structure brought about by the foreign hypermarkets, it was not known whether the changes made in the business practice has lead to improvement in sales, profit or number of customers. Nevertheless it is argued that the changes made in the business practices were not sufficient to increase their competitiveness in the marketplace. This is because there are significant differences between local retailers
and foreign hypermarkets in terms of size, economies of scale, product assortments, prices and customer services.

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Re: FDI in Retail

Postby Dhiman » 17 Jan 2012 13:22

Public Advocate for City of New York
January 11, 2011
NEW STUDY: WAL-MART MEANS FEWER JOBS, LESS SMALL BUSINESSES, MORE BURDEN ON TAXPAYERS

NEW YORK – Public Advocate Bill de Blasio and the Hunter College Center for Community Planning and Development today released “Wal-Mart’s Economic Footprint” a comprehensive review of over fifty studies on Wal-Mart’s economic impact across the country.

The joint review of key research papers from the past seven years indicates that the opening of a Wal-Mart in New York City would likely eliminate more jobs than it creates, result in the loss of independently owned small businesses, and create an increased burden on taxpayers.

“Studies from all across the country show that Wal-Mart's arrival does not bring the increase in jobs and retail spending that the company promises,” said Brian Paul, Center Fellow and Masters of Urban Planning Candidate at Hunter College. “Instead, Wal-Mart captures spending from existing stores, driving them out of business and replacing existing retail jobs with lower-paying Wal-Mart jobs. This is not only about one store in East New York. Wal-Mart is planning a massive expansion into urban markets. Allowing one Wal-Mart to enter New York may open the floodgates and devastate small businesses in neighborhood retail districts throughout the city.”

The findings from this review include the following:

1. Wal-Mart’s Economic Impacts: Net Loss of Jobs, Fewer Small Businesses

• Wal-Mart store openings kill three local jobs for every two they create by reducing retail employment by an average of 2.7 percent in every county they enter.

• Wal-Mart’s entry into a new market does not increase overall retail activity or employment opportunities. Research from Chicago shows retail employment did not increase in Wal-Mart’s zip code, and fell significantly in those adjacent.

• Wal-Mart’s entry into a new market has a strongly negative effect on existing retailers. Supermarkets and discount variety stores are the most adversely effected sectors, suffering sales declines of 10 to 40% after Wal-Mart moves in.

• Stores near a new Wal-Mart are at increased risk of going out of business. After a single Wal-Mart opened in Chicago in September 2006, 82 of the 306 small businesses in the surrounding neighborhood had gone out of business by March 2008.

• The value of Wal-Mart to the economy will likely be less than the value of the jobs and businesses it replaces. A study looking at the estimating the future impact of Wal-Mart on the grocery industry in California found that, “the full economic impact of those lost wages and benefits throughout southern California could approach $2.8 billion per year.”

• Chain stores, like Wal-Mart send most of their revenues out of the community, while local businesses keep more consumer dollars in local economy: for every $100 spent in locally owned businesses, $68 stayed in the local economy while chain stores only left $43 to re-circulate locally.

2. Wal-Mart’s Costs to Taxpayers

• Wal-Mart has thousands of associates who qualify for Medicaid and other publicly subsidized care, leaving taxpayers to foot the bill. For instance in Ohio Wal-Mart has more associates and associate dependents on Medicaid than any other employer, costing taxpayers $44.8 million in 2009.

• According to estimates, Wal-Mart likely avoided paying $245 million in taxes 2008 by paying rent to itself and then deducting that rent from its taxable income.

• Wal-Mart has admitted a failure to pay $2.95 billion in taxes for fiscal year 2009.

3. Wal-Mart’s low paying jobs contribute to the decline of the Middle Class
• Median household income declined by 1.8% nationally and 4.1% in New York City in 2009. This decline will be exacerbated by low paying Wal-Mart jobs.

• Wal-Mart’s average annual pay of $20,774 is below the Federal Poverty Level for a family of four.

• A Wal-Mart spokesperson publicly acknowledged in 2004 that, "More than two thirds of our people... are not trying to support a family. That’s who our jobs are designed for.”

• Wal-Mart’s 2010 health care offerings have a high annual deductible of $4,400 which means a family would have to spend $5,102 of their own money on health care before Wal-Mart’s insurance pays anything. Based on the average salary of a Wal-Mart employee this payment represents almost 25% of their annual income.

The full report is available at: http://advocate.nyc.gov/files/Walmart.pdf

Dhiman
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Re: FDI in Retail

Postby Dhiman » 17 Jan 2012 13:48

amit wrote:2) The Bharti-Walmart cash and carry shop in Jalandhar has resulted in 40 per cent business loss for small kiranas.


Let's clear the basics first: based on present terms of agreement with GoI, Bhart-Walmart in Jalandhar is not a retail outlet, its a whole-sale outlet with Bharti having majority stake. Only someone with a valid business license can shop there (even though there is some fudging involved where people still purchase for their personal needs and walmart looks the other way), so the impact is on whole-salers not on kirana shops.

Now coming back to your statement: There are no studies done on impact of Walmart in Jalandhar, the only thing that I have to go buy is anecdotal reports. I will try to see if I can find out some reference for you from somewhere.

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Re: FDI in Retail

Postby Dhiman » 17 Jan 2012 14:13

Nice. Bharti-Walmart certainly knows the "Walmart Way" :lol:

http://www.tribuneindia.com/2010/20101001/punjab.htm#2 wrote:30th Sept 2010
VAT ‘evasion’ detected in raid on Bharti Walmart Govt suffers losses in crores

Chandigarh, September 30
The Punjab Excise and Taxation Department has detected major irregularities in Best Price, a joint venture between Bharti and Walmart that is costing the state government losses to the tune of several crores of rupees in the form of Value Added Tax (VAT) refunds or VAT adjustments. In a raid conducted on the Best Price premises at Jalandhar today, the Excise Department found huge evasions of tax.

Based on a cash-and-carry model, Best Price is licensed to carry out only wholesale activity.

Sources in the Excise Department confirmed that the raiding team comprising Jalandhar’s Assistant Excise and Taxation Commissioners (AETCs) I and II, Harbir Singh and BK Birdi, raided the premises of the multinational and discovered that the outlet had issued membership cards, violating norms under the VAT Act.

Best Price has been issued a notice and asked to produce all records on Tuesday. It is estimated that in the sale of Rs 7 crore to 10 crore per month, Best Price was allegedly evading VAT payments to the tune of Rs 1 crore every month. Best Price, sources said, was detected to be indulging in retail sales for which it did not have a licence.

The Excise Department had decided to serve a notice on Best Price as well as all clients who have made a purchase of over Rs 5,000 in the recent past.

Allowed to interact on a “business to business model” that facilitates sale of goods to a person who has a valid VAT number, the raiding party found that Best Price had violated the clause of enrolling only those with a valid VAT number.

While the Jalandhar VAT Department has issued only 23,000 VAT numbers, Best Price has made 30,000 members and many who are not wholesalers and do not hold VAT numbers.

The business model provides for a VAT refund to Best Price as VAT on the products sold by them will be paid by their buyers from their sales. But since Best Price is making sales to individuals who do not pay VAT, the government will not receive any money from them in the form of VAT. Yet Best Price will claim a refund or adjustment of VAT from the government, thereby causing revenue loss to the government.

Sources in the Excise Department said that Best Price could sell only those items to a particular buyer which is specified in the buyer VAT number. But Best Price has been selling all commodities to all members.

Even many of those who were given add-on cards did not have VAT numbers. It was found that instead of wholesale, Best Price was indulging in 90 per cent retail sales.

Sources in the Excise Department said similar evasions were also suspected in the Amritsar and Zirakpur outlets of the company.

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Re: FDI in Retail

Postby amit » 17 Jan 2012 14:22

Dhiman wrote:Let's clear the basics first


Exactly, which is why I'm not interested in obscure studies done in Maine or the Klang Valley. To me the ICRIER study, which is by far the most comprehensive one undertaken in India, has more relevance - its the basic source material for Indian retail as far as I'm concerned. And I've given the highlights of what the study found out.

Oh yes I can see you've still not gotten over your Walmart fixation - as if that company is the be all, end all of Organised retail. Carry on, I'll be reading your posts with avid interest, though its unlikely I'll respond any more. :P

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Re: FDI in Retail

Postby Dhiman » 17 Jan 2012 14:50

amit wrote:
Dhiman wrote:Let's clear the basics first

Exactly, which is why I'm not interested in obscure studies done in Maine or the Klang Valley.


You didn't even bother to read it, did you? :D It cites around 30 to 40 other peer reviewed papers looking at impact of big retail on small shops all over the world and is itself a peer reviewed paper published in an international journal.

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Re: FDI in Retail

Postby amit » 17 Jan 2012 15:14

Dhiman wrote:You didn't even bother to read it, did you? :D It cites around 30 to 40 other peer reviewed papers looking at impact of big retail on small shops all over the world and is itself a peer reviewed paper published in an international journal.


I'm interested in the Indian situation. I can ask you the same question: Did you even bother to read the ICRIER study? Or the Crisil study? Or the CII one? And you didn't even bother to have a look at the Standford study which specifically gives a in-depth case study of Pantaloons?

All of them deal with the Indian situation and not what's happening in Malaysia or the US. I would have thought that they are more relevant to us - silly me, should have realised that they don't have the magic word: Walmart

Anyway enough of this childishness. Last post from me in response to whatever you post on this thread.
Last edited by amit on 17 Jan 2012 16:40, edited 1 time in total.

amit
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Re: FDI in Retail

Postby amit » 17 Jan 2012 16:34

Sometime ago Ashok Malik wrote what I consider to be a a very good article in Tehelka. Here's the link: http://www.tehelka.com/story_main51.asp?filename=Ne101211Coverstory.asp

IMO he gives a very balanced view on the issue and shows that none of the political parties - including Congress which bought the FDI legislation - are blameless for the current mess.

Meanwhile, here's an interesting extract which shows the powerful forces at work against organised retail.

THE RETAIL controversy has been frontloaded with the agriculture question. The real fears are those of the intermediaries. Farmers are likely to be more supportive of organised, even foreign-owned retail, than intermediaries. With its big-farmer base and its experience of the Bharti-Wal-Mart collaboration, Punjab’s Akali Dal government is welcoming of FDI in retail than, say, an intermediary in a mandi.

If the NDA finds itself at odds with its Akali constituents, there is a precedent to turn to. A few years ago, West Bengal saw a similar battle within the then ruling Left Front. Reliance, then making an ambitious foray into retail, sought to buy large quantities of potatoes and enter into multi-year agreements with farmers in Arambagh (Hooghly district). The local CPM leadership, which mobilised potato farmers, was ecstatic.

The proposal was thwarted by the Forward Bloc, a small partner of the CPM, which controlled the Agricultural Marketing Department and its oversight ministry, issued licences to an entire network of agricultural intermediaries and saw them as supporters, voters, and financiers.


There's some hyperbole too. Some of it compliments stuff we've seen here. :rotfl: :rotfl:

A particularly enthusiastic participant on Twitter compared the Manmohan Singh government’s decision to allow majority-owned foreign retail — 100 percent in case of single-brand retail such as Marks & Spencer and 51 percent in case of multi-brand retail such as Wal-Mart — to the Mughal emperor handing over the diwani (right to tax collection) of Bengal, Bihar and Orissa to the East India Company in 1765, after the Battle of Buxar.


:D This is what happens when useful idiots jump into the fray.

From the BJP to the CPM, from the Biju Janata Dal to the BSP, and even within the ruling Congress, the idea of foreigners coming to India and doing business, and allegedly taking away Indian jobs and rupee profits was all-consuming. Twenty years after economic reforms began, 17 years after India became a member of the World Trade Organisation, a decade of robust economic growth and globalisation notwithstanding, the ghost of the East India Company refuses to quit India.


Finally, there was that one overwhelming and compelling question: in a world more inter-connected and an economy more globalised than ever in history, why is it so easy to scare Indians by raising the bogey of the foreigner? Indira Gandhi spent a decade in the 1970s railing against the foreign hand. Just who embodies this creature? Who is the Big Bad Foreigner: Clive’s disciple, Macaulay’s grandchild, son of a CIA agent, now working at a Wal-Mart store near you? :rotfl: :rotfl: When even supposedly right-wing MPs start recommending conspiracy- theory books on how Wal-Mart is destroying America, one does wonder.{Sounds familiar?}


Ashok Malik in his usual style nails the issue beautifully IMO. I'm surprised we see echo of the same fear even on a cosmopolitan forum like BRF, comprising members who are at the top of their professions across the globe. I wonder why this is so? Why do we love to quake in our dhotis the moment we see a Gora? Why do we assume that they will outsmart us and fleece us?

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Re: FDI in Retail

Postby uddu » 17 Jan 2012 19:36

Amit, the FDI in retail has nothing to do with Gora Vs Kala. It's not in India's interest to allow FDI in retail in the Present form. Even with 100 percent sourcing from India, I don't think any Walmart will source from ordinary farmer who makes 10 kg of Banana, das kilo of tomato. Never. So it's loss loss of the nation and win win for corporates and the one who is investing. it's jut the companies and the politicians who are into agri business. That's all. No one else will gain. We'll just be opening up another way to import while killing the Indian economy.


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