Wal-Mart In India

1
Wal-Mart In India

• Whats the Impact of Giant Retailers?

2
Back Ground Key Points

• India is the Second Largest Retail Market
• India is Slowly Opening its Retail Sector for FDI
• Huge Opportunities exist for Global Retailing
  Giants in India
• Population gt 1.1 Billion!!
• GDP gt 800 Billion in 2003
• GDP gt 1.5 Trillion by 2012!! (Estimate)
• Economy Growth Rate 8.2

3
Back Ground Retail Sector

• Highly Fragmented Retail sector!!
• India has 30 Million Retailers!
• Retail sector is the Second Largest Employer
• Organized Retail trade is 247 Billion
• Unorganized Retail trade is estimated at 600
  billion

4
Retail Sector Analysis

• Most Retailers are Mom-Pop operation
• Large Retail Chains are few and mainly
  Concentrated in 6 Cities Delhi, Mumbai,
  Bangalore, Kolkotta, Chennai Hyderabad.
• In addition to small retailers, there are Street
  Vendors, Push cart vendors
• Retail sector employs about 40 Million people

5
Government Rules Regulation

• Foreign Investment Promotion Board in 1997 set up
  rules that govern Foreign Investments in Retail
  Sector which categorized foreign companies into 3
  broad types
• Companies that set up domestic manufacturing
  facilities and sold products manufactured
  domestically.
• Companies that came in to trade prior to the 1997
  norms.
• Companies that came in to trade after the 1997
  norms were adopted.

6
Policy Favors Domestic Manufacturing

• No restrictions on the sale of products made in
  India.
• Sony, LG, Samsung Phillips etc, manufacture and
  sell products in India.
• They also import and sell other high-tech
  products like laser printers and photocopiers etc
  
• Provided that current manufacturing techniques
  and costs do not yet permit them to manufacture
  these items domestically.
• And they undertake to do so in the near future.

7
Rules for Global Retailers

• Global Retailers planning to setup shop in India
  need to
• Setup Wholly Owned Subsidiaries in India
• Sell only to Whole Sellers
• Cannot sell to Retail Customers
• Whole Sellers are defined as Government
  certified Whole Seller who holds a Sales Tax
  registration Number

8
Regional Government Rules

• In Addition to the Federal Rules, there are Local
  rules which govern the location size of Retail
  Stores.
• Retail Stores cannot be in City Centers
• Land Availability conditions imply that New Mega
  retail stores to be setup at the outskirts of the
  city.
• Must get permission from Local municipality or
  City Corporations

9
Current Scenario

• German Retail Giant Metro GmbH set up operations
  in 2003
• Metro GmbH entry was cleared by Late Cabinet
  Minister for Industry and Commerce Murasoli
  Maran.
• Metro GmbH was permitted to
• Setting up of state-of-the-art cash and carry
  wholesale complexes
• Sell only to Whole Sellers
• Not permitted to have retail outlets or sell
  products to consumers directly.

10
Metros Experience

• Metro GmbH was a huge success in the very first
  year of operation.
• Metro instituted a Costco style Membership
  program
• Has over 250,000 members in 9 months!!
• Local Retailers are upset Setting a stage for
  Political Backlash

11
Controversy

• Local Retailers allege Metro GmbH has violated
  its terms of entry by
• Issuing membership cards to other businessmen and
  professionals like Doctors, Architects,
  Consultants etc.
• Issued membership cards to those without a
  registered sales tax certificate.
• Sold Items in single numbers, like in retail
  trade and not in large volumes like in a whole
  sale trade
• Metro did not specify a minimum value for purchase

12
Political Battle

• India had been a closed Socialist Society for
  last 50 years
• India has a Strong Vibrant Democracy
• Year 2004 is an Election year!!
• India has about 40 million people employed in
  retail sector, Most of them are registered voters!

13
Political Battle Contd.

• Foreign Retailers is now an Election Issue!
• Federation of Associations of Maharashtra state
  (FAM), a state-level organization of small
  traders, Communist Party of India (Marxist) and
  Swadeshi Jagaran Manch (SJM) wing of the ruling
  party are opposed to Foreign Retailers
• Confederation of Indian Industry (CII) supports
  FAM on this issue

14
Battle Lines

• FAM, SJM, CPI(M) others have a strong political
  lobby A key factor in an election year
• Metro GmbH has hired former Minister for Commerce
  Mr. P Chidambaram as its chief consol
• Final outcome will be decided in Courts
• Election Results will not affect Metro

15
Learning for Wal-Mart Others

• Metros court case will decide on the nature of
  Foreign Retail business
• Companies cannot afford to ignore regional
  governments Political groups
• Socialists might force a unionized labor
• India has very liberal union laws
• Federal Rules for Foreign Retailer might change
  Depending on Courts decision

16
Long Term Outlook

• India is an attractive Market
• Retail giants cannot afford to Ignore
• Rules Regulations will change with time to
  level the playing field
• Wal-Marts No Union policy may be challenged
• Indian Retailers will be tough competitors
• Current opposition is similar to those faced by
  Wal-Mart in many US towns and Cities
• Companies must not read too much about Metros
  woes, These are part of business environment

17
Competitive Landscape

• Small retailer may look unsophisticated and cash
  strapped but
• Small retailers will be tough competition
• Small Independent retailers are a part of Indian
  Culture
• Have better relationships with customers
• Often offer better service than giant retailers
• Unorganized retail sector has hidden tax benefits
  (many evade taxes or pay minimum taxes)

18
Global Retailers in China

• As on December 1st 2004, China will open its
  retail sector for foreign investment
• Foreign firms can setup wholly owned distribution
  retail operations without central government
  approval
• Any foreign wholesaler or retailer can import or
  export goods
• Stores can be set up anywhere but with approval
  from municipal government
• Setting the stage for rapid domestic growth,
  increasing local consumption modernization of
  retail sector