For people who have been bothering their brawls upon FDI… take a look here at the future of it incase the govt gets into place - 51% holdings to FDI...
Get ready for a pretty long read...
The major players who are expected to sow their seeds in the Indian soil are Walmart, Carrefour & Tesco.. among many others..
Key points on FDI bill:
• 51% stake in multi-brand retail routed through government approval
• These stores to be rolled-out in cities with more than 1 million population (there may be some 50 odd cities in India with such population)
• Minimum investment of $100 million is required
• Around half of that should be into backend infrastructure like – cold storage, transportation, etc.
• Have to source a minimum of 30% from small- and micro- Indian industries with a capital of less than $1 million dollars
Why FDI on multi-brand is good?
Walmart & its likes, can partner with an Indian company and sell their goods in India. Already Walmart and Bharti have been in talks and going about deals on the same.
High inflation in the country and the recent Euro mess have a lot to do with this decision. FDI can bring about reduced prices in the market with more supply and monetary inflow.
As such India is not the first country to do this policy update. Many emerging markets like Brazil, China, South Africa, Mexico, Thailand, Russia, Indonesia, etc. have more liberal policies than India on this front.
Let's take a look at the Chinese FDI success story:
China too started the same way as India – allowing 51% foreign equity and restricting to major cities, as early as 1995. They have now - only removed these restrictions after a decade of its running by 2005.
China gave enough time (1995-2005) for the domestic players to grow up and compete with foreign competition and embrace the foreign model and now allow free competition in the multi-brand retail market.
Most of the top 10 retail companies in China, are domestic players from China amongst other foreign players. This shows that Chinese players didnt allow foreign players who are much bigger than what they are to compete them out of the market.
This has been proved even in India, in the telecom sector – Vodafone, Uninor & Aircel – exist with the homegrown Airtel, Idea & BSNL.
Bigger players don’t have a magic wand to drive out local competition from the market. Also their biggest strength of infrastructure and transportation in foreign markets is not something what they would get in India till date nor in China way back in 1995.
IBM earns more than the top 3 Indian IT companies in a year – yet they give IBM a run for their money during various contracts and bids.
FDI will help in organizing the domestic retail sector in a major way . Their investments might bring in mammoth changes in infrastructure, supply chain and logistics, better quality, money inflow to the country and employment of course.
This money is not for sure, the one that goes out of the stock market everytime someone sneezes in the Wall street or Europe!
FDI is expected to be lot more stable than FII money inflows..
Do you remember the time when taking a landline connection used to be such a hassle and look these days… how great the competition is.. telephone and internet providers guyz are queuing up offers and discounts for anything in the telecom sector.. this change is what FDI brought.. it’s a tested and tried method…
Hopefully this can be possible in the retail too.. it might spur competition and improve customer experience too..
If you see the ruckus going in the Parliament..its not about whether the policy is good for the consumers/customers or not at all…
How much low can Walmart go in a country known for its cheap labour and products that beat competition??!!(lolz..)
So from a customer point of view… FDI is a boon in the making!
Why FDI is bad?
India is the second largest producer of fruits and vegetables in the world and even then our food grains rot in the government warehouses.
The main topic of contention is that these bigger chains will drive the small outlets out…
Before we discuss on pros & cons of the FDI policy.. lets take a sneak peek into these companies first who may be entrants to our retail chain…
Walmart
Walmart is the world’s largest retail chain marker in terms of both revenue and profits. It is also the biggest private employer in the world.
Walmart does not charge a fee to its suppliers for their products to appear in their stores. It focuses on selling more popular products and gives incentives to its store managers to drop less-moving or unpopular products.
Walmart faces stiff competition in its homeland and Canada from other hypermarket chains. Their journey in foreign lands have not been easy too.
They entered Germany in 1997 and took the second place in market share. But due to stiff competiotion withdrew their operations from the country in 2006, selling all of its stores.
They entered Korea in 1998 and sold all of their 16 Korean stores too.
There have been several economic studies around Walmart and its operations in the US and outside. A 2007 study on Walmart mentioned – It was in the process of driving everyone else out of business but, to do that, they cut their prices to the bone, very, very low. Another study mentions – ‘They had successfully destroyed the local economy. In a community with a Walmart, astonishingly the price of commodities were 17% higher. They had carved an economic crater’.
Labor unions and environment patrons have criticized Walmart for its policies and business practices. Several labor unions blame Walmart’s anti-union stance. Others disapprove of the corporation’s extensive foreign product sourcing, treatment of employees and product suppliers, environmental practices, usage of public subsidies, and impact of their stores on local economies in which they operate.
After years of fierce fighting. Walmart has accepted labor union in China.
In 2007, a gender discrimination suit was filed against the giant in the US - in matters regarding pay and promotions to woman employees.
Carrefour
Carrefour is an international hypermarked chain based out of France. Second largest retailer in terms of revenue and third largest in terms of profit after Walmart & Tesco.
Carrefour is French for ‘Crossroads’.
It operates across continents in stores of all sizes.
Carrefour has some interesting facts with India. It already has its presence in India in Delhi and Jaipur. The first was opened in the NCR – Carrefour Wholesale Cash & Carry store spread across 5200 sq.m. Its second in Jaipur is also of the same type and size as Delhi.
For those who might be wondering how Carrefour is already into India when FDI regulations are not in place, let me familiarize you all with the Indian FDI policy in a lucid manner.
FDI policy in India does not allow foreign companies to open multi-brand retail stores in the country. India currently allows 100% FDI in single brand retail and 100% in cash-and-carry mode too. Thus global retailers opt for the cash & carry route to establish their presence in India. 51% share in multi-brand retail is still pending approval at the Parliament and is the sole reason for all this ruckus happening out there.
The French company has already been taken to court in cases of stocking insufficient quantities of advertised products on sale and another case of selling products at very low cost and accepting kickbacks from wholesalers. It was ordered to pay a fine of EURO 2 million on this case in 2007.
When India doesn’t even have a law/policy to handle such cases in court.. how do we bring these cases to justice?
They have also been penalized for selling less quantity than mentioned in the product labels and products on sale past their expiration dates in 2009. Do you think we will be able to successfully penalize them in India for such actions?
Carrefour has already closed its retail chain of hypermarkets in various countries including – Chile, Czech, HongKong, Japan, Mexico, Portugal, Russia, South Korea, Switzerland, Thailand, UK and the big bro – US.
Reasons for closure of business and operations include selling products at far below prices than local competitors, licensing for commercial spaces, etc. They have re-entered some of the above markets under a different banner or with a local partnership now.
TESCO
Retail giant based out UK – third it terms of revenue and second in term of profits behind Walmart.
Its market share in UK is around 30% now.
They are into banking, electronics, telecom, mobiles, internet, VoIP, fuel , tech support, film making, gold exchange, tyres and beauty salon apart from retail!!!
Tesco has one of its service centres in Bangalore & some outsourcing to India too. They had announced a GBP 60 million investment in India partnering with the Tata Group to open a cash-and-carry store in Mumbai.
I myself have personally seen Tesco products on sale at Tata owned retail chains like Star Bazaar in Bangalore, marketing and selling TESCO personal care products.
Like any other company, Tesco too faced corporate law suits. Worth mentioning are one from Thailand where Tesco was accused of aggressively expanding at the expense of small, local retailers.
In 2007, it was revealed that Tesco moved its headquarters from UK to the tax haven Switzerland. It was believed that this move allowed them to sell electronics, CDs and DVDs without VAT. The Swiss government in 2008 announced that it was closing a tax loophole being used by Tesco.
The British magazine ‘Private Eye’ identified it mentioning – Tesco utilizes offshore holdings like Luxembourg and other partnership agreements to siphon out money avoiding a corporate tax to the tune of GBP 50 million a year.
It also did a sting and exposed that – Tesco was depositing GBP 1 billion with a Swiss partnership and then loaning out the money from it to Tesco stores overseas, thereby transferring profits through interest payments. This scheme is still in existence and is estimated to cost the UK exchequer GBP 20 million a year in corporation tax.
In 2008, Tesco was also traced to Cayman islands – where companies setup by Tesco deliberately. They planned to sell their UK stores to Cayman Island-owned companies and then they will lease it back to Tesco. Thus can evade corporation tax in UK, plus there is zero corp tax in Caymand islands.
People of UK themselves have been opposing Tesco stores opening in their counties citing various above reasons.
And we in India – are longing for one…!!!!
Other major retail market players include – Colruyt (based out of Belgium) which already has opened one of its office in the IT-borne area of Hyderabad.
Waitrose – another leading retailer sell their products over various Hypercity outlets throughout the country.
Major issues in India against FDI:
- Weak laws and loopholes
- Previous business/investments crimes not brought to justice yet
- Totally corrupted politics
- Lack of goodwill for the country/people from political leadership
- Few big honchos might benefit
- Rich and poor divide to get more larger
- More westernization in lifestyle
- Not enough law amendments or body to book malpractices
- Outdated labour laws
- Farmers are already not getting their due - FDI can worsen it
I am not taking any stance for or against FDI.. neither have I graduated from LSE.. :)
I m just trying to bring out facts so that people can form opinions and voice them in unison.. for a better India tomorrow..
So next time where are you shopping – Walmart or Roadside cart?
COURTESY: Wiki and various other Internet resources on FDI and economics.. my thanx to them!! :)
Cheers,
Revathy
