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Foreign Direct Investment in retailing

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Nike, Reebok, Zodiac etc. Multi-brand outlets. Vasanth ... Case Study: Chinese Retailing. FDI permitted in 1992. 40 foreign retailers have secured approval ... – PowerPoint PPT presentation

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Title: Foreign Direct Investment in retailing


1
Foreign Direct Investment in retailing
  • By
  • Peer Mohamed. S
  • Shyam Sunder. P

Sri Sai Ram Institute Of Management
Studies Chennai- 44
2
The minds of the Indian consumers is changing
along with their lifestyle
3
Evolution Of Indian Retail
Exclusive Brand Outlets Hyper/Super
Markets Department Stores Shopping Malls
PDS Outlets Khadi Stores Cooperatives
Convenience Stores Mom and Pop/Kiranas
Modern Format Shopping Experience/ Efficiency
Weekly Markets Village Fairs Melas
Govt.Supported Low costs
Pervasive Reach Neighborhood/ Convenience stores
Rural Reach Source of entertainment
4
Categories of Indian Retail
  • Corporate Houses
  • Tata Tata Trent, westside,
    Landmark
  • RPG group Spencers daily,Health and Glow,
    music world etc
  • ITC Wills Life Style
  • Dedicated brand outlets
  • Nike, Reebok, Zodiac etc
  • Multi-brand outlets
  • Vasanth co, Viveks etc
  • Manufacturers/ Exporters
  • Pantaloons, Bata, Weekender

5
Differentiation
  • Unorganized Retailers
  • Typically small Retailers
  • Evasion of taxes
  • No monitoring of labour laws
  • Organized Retailers
  • Typically Large Retailers
  • Must pay Tax
  • High level of labour mechanism

Organized Retailers 2
Unorganised Retailers 98
6
Growing Middle Class
  • Indian middle class has grown 57 mn by 2001-02
    since 1995-96.
  • It is expected to cross 92 mn by 2005-06 153 mn
    by 2009-10.
  • The younger population translated into higher
    propensity to spend.
  • This growth in middle class will fuel the growth
    in retail.

7
Pitfalls in Indian retail
  • Low domestic competition
  • Lack of exposure to global best practices
  • Low entry barriers for unorganized retailers
  • Moderate entry barriers for organized retailers
  • Wide difference in treatments of small large
    retailers

8
Entry of FDI in retail
  • India allowed to own up to 49 of retail ventures
    time frame of 3-5 years
  • India has ranked no.1 in 2005 global retail
    development, index released by AT Kearney
    recently
  • Giants such as Wal-Mart and Tesco are keen in
    expanding their business in India
  • Entry of FDI through joint ventures with local
    players

9
Benefits from FDI in retail
  • Improve competition
  • Best practices in retailing
  • More choice for the customers
  • Global market for Indian producers
  • Employment opportunity
  • Better infrastructure and customer Facilities

10
Standing challenges
  • Government Regulations
  • Lack of trained manpower
  • Availability of quality real estate
  • Logistical support
  • Competition of local players
  • The format does not suit rural India
  • Purchasing patterns not very conducive

11
Case Study Chinese Retailing
  • FDI permitted in 1992. 40 foreign retailers have
    secured approval
  • Retail sales have grown_at_13.5 CAGR since FDI was
    permitted
  • FDI initially restricted to 6 major cities
    (including Beijing, Shanghai and Guangzhou) and
    SEZs
  • Foreign ownership initially restricted to 49
  • US 22 bn of FDI attracted, 3.6 of total FDI
  • In 2003, FDI in wholesale and retail was US 1.1
    bn (Around 30 of our total FDI in 2003)
  • Current restrictions on FDI will be phased out
    over 5 years as condition of WTO entry

12
China after FDI
375
300
225
150
75
9 2
7 8
8 0
8 5
9 0
9 1
9 3
9 4
9 5
9 6
9 7
9 8
9 9
0 0
0 1
0 2
Years
  • Retail sales grew _at_ 19.6 CAGR for the next 4
    years after the introduction of FDI in 1992

13
Lessons from china
  • FDI improves the entire size of the industry
  • Retailing in China has grown at a compound rate
    of 15 per annum after FDI inflow
  • Local players can survive and even beat foreign
    competition
  • Employment growth
  • Evolution of modern formats

14
Conclusion
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