FDI in retail: Tracing the footprints

Recently, as the Indian government opened its gates for 51% FDI in multi-brand retail, the decision has opened up the Indian retail market and its untapped potential for more foreign players. While foreign players like Walmart, Carrefour, TESCO, IKEA, et al, welcome the move, small traders and kirana format shopkeepers are quite anxious about the decision.

The retail sector contributes to 8% of the total employment in India and accounts for 22% of the GDP. According to a report by KPMG, retail sales in India is expected to grow to $804.06 billion by 2015, which in 2011 remains at $411.28. Tracing back the times, where several economies have opened their gates for FDI in retail, it can be viewed as a risk and a value creating initiative simultaneously.

Taking the examples of a few south-east Asian countries, the FDI in retail has resulted in unemployment and marginalization of the domestic retailers. At the same time, talk about China and a different scenario comes up. In China, having set environs of high competition, the domestic players were forced to improve product quality and customer service while reducing costs. Retail FDI in China has contributed to greater benefits for the consumer, and greater efficiency in distribution and streamlining of supply chains.

The emergence of the retail brands in Germany established their sovereignty and eventually transformed the way small-format retail stores used to function, manage and operate their businesses. The individually-owned and less-adaptive small stores, taking business lessons from the big brands, built their own areas of strength and acquired many key advantages from the retail giants.

These changes in the retail sector enforced the manufacturers to cut down costs, eliminating the middlemen, thereby raising the product quality and efficiency of the supply chain.

While the foreign retail brands claim to bring an upsurge in many areas, a report by UNI Global brings to the fore the adverse impact of retail sector in markets like Mexico, South Africa and United States.

Another research by University of California has found that Walmart workers earn an estimated 12.4% less than retail workers as a whole and each Walmart worker takes the place of 1.4 retail workers.

United States Census Bureau has found that the entry of and growth of hypermarkets has a substantial negative impact on employment growth and survival of single unit and smaller chain stores. In a review of Walmart’s Mexican operations, it has been noted that Walmart has driven many suppliers out of business.

While a risk of unemployment, predatory pricing by the global retailers, import imbalance, exploitation of labour rights, and threat to the domestic retailers could be there, value creation can be seen in terms of efficiency and improved standards of living, greater quality, efficient supply chains, lower prices, improved productivity, and modernization of the retail sector. While FDI in retail has both the positive and negative elements, the Indian government should take it further with a considerable checkpoint list to safeguard the retailers and consumers' rights. It should be in tune with the country’s needs and rights.

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