In 1997, it was decided that FDI would not be allowed for mere trading since it will lead to outflow of foreign exchange , drive out the domestic unorganized retailers from business and increase unemployment. Although FDI is not allowed in retailing , many international players are operating in India if they set up domestic manufacturing facilities or source the product locally or enter into the market with franchising arrangements. India has been a hotbed for test marketing by global MNC’s with biggies like Nokia, entering India through that route. Foreign Investment Promotion Board allows foreign companies to test market their products for two years by the end of which they are required to set up their manufacturing facilities. The primary purpose certainly is risk mitigation-especially for new products or new variants before investment.
Another route through which large international retailers such as Germany’s Metro Cash and Carry and Shoprite Checkers of South Africa has entered the Indian market. Wholesale cash and carry operations are trading outlets where goods are sold at wholesale rates for retailing and business purposes. While there is protest at one end , different state government departments such as Punjab Agro-Industries corporation has signed a memorandum of understanding with the Metro Cash & Carry International for sourcing of food products for its international operations. It will bring in the required efficiencies in the supply chain for distribution of food within the country and also provide access to world markets. They have also made substantial investment in training up Indian farmers, fisherman etc. in the state of art technology. Over 90 per cent of the products sold are sourced locally even as each wholesale centre helps create, on an average, 300 direct jobs and another 150 indirect jobs. Although wholesale cash and carry is meant for purchase but there needs to be greater clarity in this definition and non-transparent policy as bulk trading does not clearly states the minimum quantity requirements.
Lets discuss more on these entry routes in the comments of the post.
2 comments:
The retail FDI bugbear:
The major issues of FDI in retail are
1) The major issue is of employment
2) The fear of multinational retail chains charging lower prices.
3) It is a pity that the real choice between Organised, large-scale, chain shops and the round-the-corner Mom and Pop stores has been covered up in rhetoric
Still at present the scope of FDI is more then the cost analysis which is stated by PWC "SEVEN countries — China, India, Turkey, Vietnam, Russia, Romania and Bulgaria offer the strongest investment opportunities for retail and consumer companies, according to the fourth edition of PricewaterhouseCoopers' Retail and Consumer study titled From Beijing to Budapest: Winning Brands, Winning Formats."
Foreign players Eying INDIA:
Retailers such as Guess, Esprit, Chanel, Clarks, Mango, Aigner, Bvlgari, Hugo Boss, Mark & Spencers and Tommy Hilfiger have already built a retail presence in the country, while market watchers point out that several more such as Versace, FCUK, Zara, Mother Care, Ikea, Fendi, NEXT, Debenhams, Trussardi, and DKNY have charted out a strategy to enter the Indian market.
very useful blog post!!!
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