FDI Retail in India - A Boon or Bane !!!

 

Dear Participants,

Before we delve deep into present raging issue of  FDI retail that has stalled Indian parliament for days and has gained undue political mileage all across the country , we will discuss the retail formats & CoS (Company of Secretaries) proposal for allowing FDI in retail sector.

Retail Formats in India-

1.  Cash & Carry format -Businesses accept only cash for their product or services .Company has no Credit & Recievables .This format affects the Wholesale dealers in the supply chain of retail .

     2.   Single Brand FDI - Proposal to raise it from present 51 % to 100 %

.

      3. Multi Brand FDI - To raise to 51 %.   

CoS ( Company of Secretaries) criteria for allowing FDI in Retail Sector of India :

1)  Stores should be opened in the cities with population of over 1 million. As per 2011 Census ,45 

Cities in India satisfy this condition.

2) Minimum capital required for FDI is $100 million out of which 50% should go for back-end infrastructure development.Thus ,Thus, the retail chain will have minimum $50 million for core business, i.e. to set up retail chain across India.

3) 30% of goods and commodities should be purchased from local suppliers.Presently,our current retail chains purchase around 65%-70% of their supplies from local suppliers.

Advantages :

1)  Efficiency -Improves Supply chain efficiency by introduction of modern & globally competitive supply chain in Indian retail sector ,therby reducing wastages & inefficiencies from Producer end to Consumer end.

2)  Pricing -   Retailers will provide competitively lower priced products of higher quality in market.

3) CRM - It will improve the customer relationship & feedback network with retailers which in turn will help to better profile customers .It enables companies to  launch future  products & services in alignment with consumer behaviour.

4) Economies of Scale - Reductions in average costs attributable to production volume increases resulting in overall cost advantages & operational efficiencies  of businesses.

5) Assortment -  It ensures the right product in the right store at the right time and at the right price. It implies anticipating what your customers are looking for and building a product mix that attracts the customers. 

Disadvantages :

1) Small traders and store owners (called Kiranas in India) don’t have enough capital and expertise to compete with big retail chains like Wal-Mart and Carrefour.They will not able to buy goods and commodities at lower price from vendors and suppliers contrast to big retail chains who have strong supply chain network all across the world thus have a high bargaining power to buy goods at lowest price.

2)With high working capital in big retail chains .They do have a capacity to sustain losses for a longer period therefore able to undercut prices of goods and commodities which eventually lead to desertion of small stores and traders at initial stages.

3) Multibrand is customer-centric  rather than vendor centric . As a retailer you have to first decide your business strategy .

In the bottomline,taking all factors into consideration , the benefits associated with Multibrand retail outweighs the disadvantages attached to it if implemented & regulated in a standard synchronised manner.