WHITE PAPER
ON
IMPACT OF FOREIGN DIRECT
INVESTMENT &
BIG CORPORATE HOUSES IN
RETAIL TRADE OF
CONFEDERATION OF ALL INDIA TRADERS
1317, D.B.Gupta Road, Karol Bagh
New Delhi-110005(India)
1
What is Retailing
“Retailing is one of the world’s oldest business dating
back to the pre historic period when it all started with
the barter system of exchange”.
“Retailing consists of those business activities, which
are involved, in the sale of goods or services to
consumers for their personal, family or household
use.”
Retail is the world’s largest industry with an annual turnover of over
$6.6 trillion in 2000, which is Rs 31,02,00,00 Crores.
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Retail Evolution
It was in the 1960’s that retail chains began the journey that was
to eventually take them to their current remarkable size.
Today Wal-Mart, Tesco, Carrefour and many other such global
retailers have turnovers the size of GDP for many countries. In
India, Big Corporate Houses have taken advantage and now
establishing their chain of stores to capture Retail trade giving a
feel of heat & disappear to small retailers. They are facilating the
passage of entry to global retailers, who at present owing to
restriction in FDI are not allowed to operate in India. A typical
example of this in present is the Bharti-Wal-Mart deal. This deal
has undoubtedly led to the back door entry of Retail giant ie.
Wal-Mart in Indian retailing.
3
Demise of the small retailer in US &
Europe
Current share of organized retail as a % of total retail
Country
Current Share of Organized Retailing (%)
USA
80
UK
80
Western European Countries
70
Brazil
40
Thailand
40
Korea
35
China
20
Malaysia
20
India
03
4
Fate of the small retailers in Europe
• During the years 1981-99, the number of small retailers
decreased from 56,862 to 25,800 in U.K. (A.C.Nielson).
• In Europe, 4 lakh retailers had
establishments during 1970 –80.
to
close
down
their
• The number of Indian corner retailers in U.K. have come very
substantially down in the last ten years.
• This clearly shows that there is no scope for ‘all’, as claimed by
the Chief Executive of Wal-Mart in his recent press statement
in Delhi. There will be large scale closure of small retail
outlets.
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The hunt for greener pastures
•
By 1995 there were 19 sq. ft. of retail space available
per person in US as opposed to just 2 sq. ft. in India.
•
Most multinational retailers are operating in saturated
markets, most are barely growing, some even degrowing. The race is on to conquer newer territories.
•
Asia, with its untouched virgin markets provides the
best long term investment opportunity for large
retailers. The region has been steadily drawing the
attention of most multinational retail chains.
•
These multinationals repatriate profits to the country of
their origin leading the huge outflow of funds.
6
Operation Philosophy of
multinational retailers
“The sole aim of giant retailers is to dominate the markets they enter with the
objective of eliminating the existing retailers.”
The modus operendi is:
Utilize Deep Pocket size – These retailers use their deep pockets and indulge in
‘Predatory pricing’ in order to starve competitors of funds. Wal-Mart has an annual
turnover of US $ 285 billion, almost half of India’s GDP. This is currently more than
the entire retail market in India.
Global Sourcing – Given their global outsourcing skills, multinational retailers
initially leverage this advantage to provide products at cheaper rates than the
small retailer. When competition is driven away, prices are jacked up.
Wal-Mart was able to replicate this move to perfection in UK. The company
acquired the British retailer ASDA and then used its outsourcing power to
annihilate Kingfisher, a domestic retail chain in UK.
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Impact of The Big Retailers on
Impact on Consumers
Impact on Competitors
Impact on Suppliers
Impact on Employees/Employment
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Impact on Consumers
The gradual squeeze
•
These big companies, in order to crush competitors sell goods cheap.
Later on effective prices of goods are increased.
•
Consumers land up paying more for the products supplied by the
multinational retailers in the long run.
•
Once these retailers achieve a position of dominance, prices are hiked.
Impact on Competitors
•
Competition is being whittled down to a select few players.
•
Smaller players have either been acquired by the majors or have been
forced to play a restricted regional role in a limited area.
•
According to M+M Euro data top 20 food retailers have a market
share of over 59% food sales in Europe.
•
It further states that in 2000, the top 5 food retailers had over:
•
99% market share in Norway
•
94% in Sweden
•
88% in Switzerland
•
64% in UK
•
57% in Portugal
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Impact of The Big Retailers on
Impact on Consumers
Impact on Competitors
Impact on Suppliers
Impact on Employees/Employment
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Impact on Suppliers
•
With large market share, multinational retailers have large volumes enabling
them to dictate terms to most suppliers as these suppliers are heavily
dependent on the retail giants.
•
Wal-Mart is about 3 times the size of Unilever worldwide and 4 times than
that of P&G.
•
In the US, the footwear industry has ceased to exist since the retail chains
started sourcing footwear from the 3rd world countries.
•
Similarly Coats Viella of UK had to close down its garment- manufacturing
units and had to retrench about 14,000 workers when Marks & Spencer
shifted its garment sourcing to S.E.Asia.
•
These companies buy in material from International market putting local
producers at a huge losses.
•
These companies buy in bulk quantities directly from manufacturers,
leaving manufacturers vulnerable to their monopolistic price demands.
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Fall out on Thailand
•
•
•
•
•
•
•
Since their entry in 1997, TESCO, Carrefour, Makro have been
successful in capturing more than 10% of the entire retail market.
Due to the ‘predatory pricing’ tactics, the profit margins for foreign
retailers range from –1 % to – 3 %.
The pricing war has already started impacting the smaller traditional
retailers who have begun to close shop.
While the share of organized retail has jumped to more than 40%,
many traditional retailers have been rendered unemployed.
60,000 small retailers have been adversely impacted due to
‘predatory pricing’.
Nopporn Suwanprueksaschart, died after firing an anti-tank rocket at
a TESCO owned Hypermarket reflecting the frustration of the small
retailers.
The Thai PM agreed that that the impact on the local retailers were
negative.
The Thai Government, which very magnanimously opened its
door to invite the large retailers, now has created a
separate fund to provide financial assistance to the local retailers
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Fall out on China
•
The race to carve out the Chinese market has been so severe that foreign retailers
have not hesitated to cut corners. Carrefour, the French retail giant was publicly
castigated in 2000 for violating the Federal Government’s norms for regional
expansion
•
Inspired by Carrefour, other foreign retailers followed suit and today
retailers have managed to circumvent the license conditions
•
With many foreign retailers jostling for space the race is on to capture as much of the
retail space as possible.
•
Meanwhile, the public criticism of foreign retailers has been gaining ground in China
•
The Chinese media is full of stories of small traditional retailers being edged out of the
market by foreign chains
•
The suppliers are also being squeezed out, The China Daily has quoted a Wall Street
Journal report that mentions a Chinese supplier being forced to lay off staff because
Wal-Mart has been ruthlessly pressing down on the supplier’s margin.
several
such
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On other parts of Asia……
•
Other Asian countries are also feeling the whiplash of the
multinational retailers. Most countries are now on
precautionary mode:
•
Indonesia & Malaysia have specified zones within which
foreign retailers may operate.
•
In Japan, such retailers need to seek the views of small local
stores regarding their proposed new locations. Additionally,
zoning laws have been imposed, this compels the foreign
retailers to go outside the city limits etc.
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A full circle
•
Even in their own country, multinational retail companies are facing hurdles
to further expansion.
•
City councils in California and Chicago have vetoed the opening of new WalMart stores.
•
“Major concerns are there even in developed markets (eg.
Germany) on allowing unrestrained growth of large
discounters. Most of them are not allowed to operate in
have to take local permissions from local
counties and
they can open new stores”
US, France, and
format big box
city centers and
districts before
India remains one of the few markets untouched by this frenzy.
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Indian Retail Market
Indian Retail is about 10-11% of the Country’s GDP. The
estimated size is about USD 180-200 billion which comes to Rs.
875,000 Cr. With 12 million retail outlets, India has the
maximum number of retail stores in the World.
Ethos of Indian Retail Trade
•
•
•
•
Retailing is a way of life for certain communities – subsistence
activity.
Family owned small retailers serve local needs
Limited Resources
Largest employment opportunity after agriculture. Employs 10%
of the labour force. 12 Million outlets employ over 4 crore people.
The efficiency with which the small traditional retailers have served India are
indicated in a RBI study which stated that Indian trade margins were the lowest in the
World
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HISTORIC CONTRIBUTION BY TRADERS :
•
During Pre-independence days the traders not only participated in
freedom movement but also extended full assistance to the leaders
in all forms like manpower and money.
•
In all social activities by establishment of Schools, Colleges,
Hospitals, Mandir, Masjid etc. traders have made significant
contribution.
•
Throughout the year, 24 hours a day, traders render services to
meet daily requirements of customer.
•
Even during the days of acute shortages, the traders somehow
manage to arrange supply of goods for customers.
•
Indian traders maintain cordial relations with customers just like
family members.
•
Indian traders have always seen customer satisfaction above
personal profit.
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SUPPORT AND HELP TO GOVERNMENT
•
Traders are self-employed and also provide employment to entire
family and others.
•
Traders give employment even to the neglected section of society.
•
Traders take care of entire family of his employees.
•
All direct and indirect taxes levied by Central, State and Local
govt. are deposited by trader in Govt. treasury without any
remuneration. Thus they are making substantial contribution to
exchequer.
•
During national calamities like famine, floods, earthquakes
Tsunami and other natural calamities, the traders have never
lagged behind to extend full help to Government.
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TRADERS BEING IGNORED BY GOVT
•
In order to gain political mileage, traders are cursed off and on.
•
After independence, multiple laws concerning trade were
enacted which adversely affected Traders.
•
Traders have been made targets of disgrace and hardships
under Inspector Raj.
Implications of large Multinational &
Corporate Retailers in Retail Trade
•
All the traders will be rendered jobless. India is very different
country where the markets have evolved over hundred’s of years.
The traders made redundant will struggle to find alternate
employment.
•
Multinational companies are also known to get into contract
farming in order to exercise more control over their back end.
•
With control over both supply (the farmers & producers) as well as
demand (customers), multinational retailers will be able to exert
the pressure of price
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EMPLOYMENT GENERATION UNDER
EXISTING SYSTEM
•
FARM LABOURS
•
HAMALS
•
COMMISSION AGENTS
•
BROKERS
•
TRANSPORTERS
•
TEA SHOP OWNERS
•
HOTELS
•
DHABAS
•
SHOP KEEPERS
•
HAWKERS
•
CONSUMER COOPERATIVE SOCIETIES
•
SMALL SCALE-INDUSTRIES & MANUFACTURERES
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Implications of large Multinational & Corporate
Retailers in Retail Trade
•
All the traders will be rendered jobless. India is very different
country where the markets have evolved over hundred’s of years.
The traders made redundant will struggle to find alternate
employment.
•
Multinational companies are also known to get into contract farming
in order to exercise more control over their back end.
•
With control over both supply (the farmers & producers) as well as
demand (customers), multinational retailers will be able to exert
the pressure of price.
Reduction in employment
• Indian Retail Labour productivity is 6 to 8 % of U.S. – Mckinsey Study
• This means Indian Retail employs 100 people when U.S. Retail employs
6 – 8 people.
• A study conducted in USA revealed that for every one job created
by Wal-mart, the community loose 2 jobs.
So, if multinational retailers were to recruit 1,000 people, close to 15,000
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currently employed personnel would land up losing their jobs.
FDI Policy in India
•
Prior to 1997 there was no clear Policy regarding FDI in to
retail trade.
•
Certain approvals were given for FDI in to Retail Trade.
•
After 1997 the Govt. has taken a policy decision not to
allow FDI in to Retail Trade.
•
However, the present Policy allows 100% FDI in case of
cash and carry wholesale trading and through the
franchisee route.
•
Recently the present government giving impetus to FDI in
retail allowed 51% FDI in single brand retailing.
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The terms & spirit of the policy
are already being flouted !!
Metro GmbH a German retailer and Shoprite Holdings Ltd., from South
Africa are two prominent multinational retailers that are currently operating
in India. Under the guise of conducting wholesale trade, Metro GmbH was
indulging in retail trade. Shoprite Holdings on the other hand was
contravening the rule of the APMC by carrying out wholesale from outside
the ‘designated market yard’.
These activities are just an indicator of the aggressive attitude of the
multinational retailers, which is already being felt in other Asian countries
that have recently opened up retail to foreign direct investment.
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The guiding principles of FDI
The criteria for Foreign Direct Investment as laid down by
Dr. Manmohan Singh in early 1990s:
•
Establishment of basic Industries requiring huge capital &
sophisticated technology.
•
Infrastructure projects like electricity production, road-building,
activities etc.
•
Projects which would generate employment.
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Does FDI in Retail fulfill any of these
guiding principles ?
•
Retail trade the world over is not capital intensive, because
purchases are on credit and sales on cash. Except for
infrastructure,no substantial investments are required.
•
No sophisticated technology is necessary in retail.
•
On employment generation, it is evident that with the entry
of multinational retailers there will be large scale elimination
rather than creation of jobs.
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Retail is nothing but the last leg of the value chain, why should
we offer this on a platter to outsiders and in the process create
unemployment for crore of our people?
The size of the large retailers, their growth pattern, modus
operandi, method of capturing markets and their past history is
all available to us.
India should pay heed to the situation of other Asian countries
rather than, take corrective action later when the situation gets
out of hand.
There is enough evidence to suggest that countries like Thailand,
China and Malaysia have suffered. Should small Indian retailers
also be made to suffer in order to fulfill the ruthless quest for
growth of multinational retail chains??
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WHAT SHOULD GOVT. DO
Govt. should identify the weakness of present retail trade.
Govt. should specify the areas where customers are not being served
properly.
Govt. should specify what it expects from retail trade that is not
being met presently.
Govt. should spell out merits of FDI in Retail Trade.
Govt. should come out with White paper on FDI in Retail Trade
specifying the picture after 25 years and 50 years.
Zoning laws should be implemented in India, no MNC be allowed to
open malls within city limits, but in the outskirts.
Govt. may consider runing pilot projects in India. A city or two
should be identified where global retailers may be allowed to open
stores. After proper study of their impact on local retailers, a future
course of action can be decided upon.
The big global retailers should not be allowed to run small retails
shops in India. Rather, they should have restrictions on the operating
area so that they operate only in large scales for e.g. Limitation may
be imposed that MNC may not operate below say 3000 sq. feet of
shop area.
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INDIA : MY COUNTRY
•
Don’t see India as population of One Hundred crore &
mouths
to feed.
•
See it as a Market of One Hundred crore consumers with two
hundred crore eyes to watch your prodcuts and two hundred
crores hands to buy your products.
•
World largest Emerging Retail Market: Who will Conquor it:
WE OR THEY?
DO NOT MAKE MY GOVEREMENT AS,
GOVEREMENT BY MNC & Corporate Houses
GOVEREMENT OF MNC & Corporate Houses
GOVEREMENT FOR MNC’S & Corporate Houses
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