Here is a thoughtful article on entry of MNCs in Retail space of India. It has been written by some one who matters because he may rightly be regarded as father of the multi format, multi branded, retail in India. Welcome, Kishore Biyani- the owner-promoter of the Future Group, which manages such well-known and leading retail brands as Pantaloon, Big Bazaar, Central, Food Bazaar, etc. Kishore Biyani has penned his thoughts on a subject that is agitating all, irrespective of whether one is a liberal, a nationalist, or a die hard communist.
We are reproducing the article published in the Sunday Times (Times of India) dated 17th December, 2006.
Boom or doom?
India’s GDP — $600 billion. Size of Walmart — $285 billion. Size of Indian retail — $250 billion. That the likes of Walmart are so eager to enter India and dominate retail cannot be emphasised more.
But should we allow them to dominate us? Remember, this is not automobile or oil and gas or power or metal sector that we are talking about.
It’s the most precious end of the value-chain — retail — and hence, owning the last mile customer. Should the power to own millions of Indian customers be given away so early on? We have suffered once by offering our ‘trade’ to outsiders. This time we need to be careful.
What is so glamorous about these foreign retail companies that we are gift wrapping our 1.2 billion consumers to them? What is it that a Walmart can do that an Indian retail company cannot?
Retail is an infrastructure business. Organised retail is growing at 40% in India. Walmart cannot grow it faster, for if it were possible, Indian retailers would have grown it. So, what is the BIG attraction? Is it: Investment?
Today capital is no constraint. With 1.2 billion consumers, of which 60% are the young, and the industry growing at 40%, Indian retail companies, if allowed to access foreign capital, can bring in more money than Walmart and the likes.
And also, retail is not a capital-intensive business. Indian retailers will invest faster than foreign retailers because they understand India.
We are looking at 100% square feet addition in the next two years on a base of 2.5 million. That’s not small.
Efficiency? Indian retailers, if allowed to gain size, will also become equally efficient. Nowhere in the world can you buy potatoes and tomatoes at Rs 6 and Rs 12/kg.
Indian retail has been serving 1.2 billion people, half of them at the bottom of the pyramid. If the likes of Walmart invest $500 million in supply chain management, as they claim, the prices cannot remain at this level.
At Walmart’s return of investment (ROI) of 18%, they will expect $90 million annually. Either the Indian customer or the Indian vendor will suffer, or both.
Employment? If Walmart stores will employ people, they will also wipe out the ‘father and son’ stores. The question that needs to be asked is whether ‘incremental’ employment will be created?
Outsourcing? It’s a business need and an ‘economic’ decision. If Indian companies are cost competitive, the US has no choice but to outsource.
That outsourcing is linked to opening retail surprises me. Infact, that they are linking the two, questions their intent. They need an alternate to China and that is India.
I strongly feel that we are proceeding with undue haste. There could be pressures on the government from the US, Indian corporate houses, like telecom and insurance, and, foreign consultants.
The government knows the importance of ‘trade’ (buying and selling). Giving up retail means giving up the power of owning customers. Should this be done so early on? Will this be a ‘boom’?
At 3% organised share if India is attractive, at 10% it will be more so! If there is a hurry, then open up lifestyle retail first.
Let them expand the consumption in the upper end of the market by bringing luxury and home goods. This way they can demonstrate all that they are saying.
Also, the Indian government will save foreign exchange as this set of Indian customers won’t travel abroad to shop.
And if they need to open value retail, let foreign companies be allowed to develop second tier cities and smaller towns and create the ‘infrastructure’ that they have been talking about. Let their demonstration be an indication of the next step for opening up.
Source: “View from the top,” The Sunday Times