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WHITE PAPER WHITE PAPER ON ON

IMPACT OF FOREIGN DIRECT IMPACT OF FOREIGN DIRECT INVESTMENT & INVESTMENT &

BIG CORPORATE HOUSES INBIG CORPORATE HOUSES INRETAIL TRADE OFRETAIL TRADE OF

CONFEDERATION OF ALL INDIA TRADERSCONFEDERATION OF ALL INDIA TRADERS1317, D.B.Gupta Road, Karol Bagh1317, D.B.Gupta Road, Karol Bagh

New Delhi-110005(India)New Delhi-110005(India)

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What is Retailing“Retailing is one of the world’s oldest business dating back to the pre historic period when it all started with the barter system of exchange”.

“Retailing consists of those business activities, which are involved, in the sale of goods or services to consumers for their personal, family or household use.”

Retail is the world’s largest industry with an annual turnover of over Retail is the world’s largest industry with an annual turnover of over $6.6 trillion in 2000, which is Rs 31,02,00,00 Crores.$6.6 trillion in 2000, which is Rs 31,02,00,00 Crores.

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Retail EvolutionIt was in the 1960’s that retail chains began the journey that was to eventually take them to their current remarkable size.

Today Wal-Mart, Tesco, Carrefour and many other such global retailers have turnovers the size of GDP for many countries. In India, Big Corporate Houses have taken advantage and now establishing their chain of stores to capture Retail trade giving a feel of heat & disappear to small retailers. They are facilating the passage of entry to global retailers, who at present owing to restriction in FDI are not allowed to operate in India. A typical example of this in present is the Bharti-Wal-Mart deal. This deal has undoubtedly led to the back door entry of Retail giant ie. Wal-Mart in Indian retailing.

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Demise of the small retailer in US & Europe

Current share of organized retail as a % of total retail

Current Share of Organized Retailing (%)

USA 80

UK 80

Western European Countries 70

Brazil 40

Thailand 40

Korea 35

China 20

Malaysia 20

India 03

Country

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Fate of the small retailers in Europe

• During the years 1981-99, the number of small retailers decreased from 56,862 to 25,800 in U.K. (A.C.Nielson).

• In Europe, 4 lakh retailers had to close down their establishments during 1970 –80.

• The number of Indian corner retailers in U.K. have come very substantially down in the last ten years.

• This clearly shows that there is no scope for ‘all’, as claimed by the Chief Executive of Wal-Mart in his recent press statement in Delhi. There will be large scale closure of small retail outlets.

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The hunt for greener pastures

• By 1995 there were 19 sq. ft. of retail space available per person in US as opposed to just 2 sq. ft. in India.

• Most multinational retailers are operating in saturated markets, most are barely growing, some even de-

growing. The race is on to conquer newer territories.

• Asia, with its untouched virgin markets provides the best long term investment opportunity for large

retailers. The region has been steadily drawing the attention of most multinational retail chains.

• These multinationals repatriate profits to the country of their origin leading the huge outflow of funds.

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Operation Philosophy of multinational retailers

The modus operendi is:

Utilize Deep Pocket size – These retailers use their deep pockets and indulge in ‘Predatory pricing’ in order to starve competitors of funds. Wal-Mart has an annual turnover of US $ 285 billion, almost half of India’s GDP. This is currently more than the entire retail market in India.

Global Sourcing – Given their global outsourcing skills, multinational retailers initially leverage this advantage to provide products at cheaper rates than the small retailer. When competition is driven away, prices are jacked up.

Wal-Mart was able to replicate this move to perfection in UK. The company acquired the British retailer ASDA and then used its outsourcing power to annihilate Kingfisher, a domestic retail chain in UK.

“The sole aim of giant retailers is to dominate the markets they enter with the objective of eliminating the existing retailers.”

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Impact of The Big Retailers on

Impact on Consumers

Impact on Competitors

Impact on Suppliers

Impact on Employees/Employment

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Impact on ConsumersThe gradual squeeze• These big companies, in order to crush competitors sell goods cheap.

Later on effective prices of goods are increased.• Consumers land up paying more for the products supplied by the multinational retailers in the long run.

• Once these retailers achieve a position of dominance, prices are hiked.

• Competition is being whittled down to a select few players.

• Smaller players have either been acquired by the majors or have been forced to play a restricted regional role in a limited area.

• According to M+M Euro data top 20 food retailers have a market share of over 59% food sales in Europe.

• It further states that in 2000, the top 5 food retailers had over:

• 99% market share in Norway • 94% in Sweden

• 88% in Switzerland • 64% in UK

• 57% in Portugal

Impact on Competitors

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Impact of The Big Retailers on

Impact on Consumers

Impact on Competitors

Impact on Suppliers

Impact on Employees/Employment

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Impact on Suppliers• With large market share, multinational retailers have large volumes enabling

them to dictate terms to most suppliers as these suppliers are heavily dependent on the retail giants.

• Wal-Mart is about 3 times the size of Unilever worldwide and 4 times than that of P&G.

• In the US, the footwear industry has ceased to exist since the retail chains started sourcing footwear from the 3rd world countries.

• Similarly Coats Viella of UK had to close down its garment- manufacturing units and had to retrench about 14,000 workers when Marks & Spencer shifted its garment sourcing to S.E.Asia.

• These companies buy in material from International market putting local producers at a huge losses.

• These companies buy in bulk quantities directly from manufacturers, leaving manufacturers vulnerable to their monopolistic price demands.

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Fall out on Thailand• Since their entry in 1997, TESCO, Carrefour, Makro have been successful in capturing more than 10% of the entire retail market.

• Due to the ‘predatory pricing’ tactics, the profit margins for foreign retailers range from –1 % to – 3 %.

• The pricing war has already started impacting the smaller traditional retailers who have begun to close shop.

• While the share of organized retail has jumped to more than 40%, many traditional retailers have been rendered unemployed.

• 60,000 small retailers have been adversely impacted due to ‘predatory pricing’.

• Nopporn Suwanprueksaschart, died after firing an anti-tank rocket at a TESCO owned Hypermarket reflecting the frustration of the small retailers.

• The Thai PM agreed that that the impact on the local retailers were negative.

The Thai Government, which very magnanimously opened its door to invite the large retailers, now has created a

separate fund to provide financial assistance to the local retailers

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Fall out on China

• The race to carve out the Chinese market has been so severe that foreign retailers have not hesitated to cut corners. Carrefour, the French retail giant was publicly castigated in 2000 for violating the Federal Government’s norms for regional

expansion

• Inspired by Carrefour, other foreign retailers followed suit and today several such retailers have managed to circumvent the license conditions

• With many foreign retailers jostling for space the race is on to capture as much of the retail space as possible.

• Meanwhile, the public criticism of foreign retailers has been gaining ground in China

• The Chinese media is full of stories of small traditional retailers being edged out of the market by foreign chains

• The suppliers are also being squeezed out, The China Daily has quoted a Wall Street Journal report that mentions a Chinese supplier being forced to lay off staff because

Wal-Mart has been ruthlessly pressing down on the supplier’s margin.

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On other parts of Asia……

• Other Asian countries are also feeling the whiplash of the multinational retailers. Most countries are now on

precautionary mode:

• Indonesia & Malaysia have specified zones within which foreign retailers may operate.

• In Japan, such retailers need to seek the views of small local stores regarding their proposed new locations. Additionally,

zoning laws have been imposed, this compels the foreign retailers to go outside the city limits etc.

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A full circle

• Even in their own country, multinational retail companies are facing hurdles to further expansion.

• City councils in California and Chicago have vetoed the opening of new Wal- Mart stores.

• “Major concerns are there even in developed markets (eg. US, France, and Germany) on allowing unrestrained growth of large format big box discounters. Most of them are not allowed to operate in city centers and have to take local permissions from local counties and districts before they can open new stores”

India remains one of the few markets untouched by this frenzy.

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Indian Retail is about 10-11% of the Country’s GDP. The estimated size is about USD 180-200 billion which comes to Rs. 875,000 Cr. With 12 million retail outlets, India has the maximum number of retail stores in the World.

Ethos of Indian Retail Trade• Retailing is a way of life for certain communities – subsistence

activity. • Family owned small retailers serve local needs• Limited Resources • Largest employment opportunity after agriculture. Employs

10% of the labour force. 12 Million outlets employ over 4 crore people.

Indian Retail Market

The efficiency with which the small traditional retailers have served India are indicated in a RBI study which stated that Indian trade margins were the lowest in

the World

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• During Pre-independence days the traders not only participated in freedom movement but also extended full assistance to the leaders in all forms like manpower and money.

• In all social activities by establishment of Schools, Colleges, Hospitals, Mandir, Masjid etc. traders have made significant contribution.

• Throughout the year, 24 hours a day, traders render services to meet daily requirements of customer.

• Even during the days of acute shortages, the traders somehow manage to arrange supply of goods for customers.

• Indian traders maintain cordial relations with customers just like family members.

• Indian traders have always seen customer satisfaction above personal profit.

HISTORIC CONTRIBUTION BY TRADERS :

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SUPPORT AND HELP TO GOVERNMENT

• Traders are self-employed and also provide employment to entire family and others.

• Traders give employment even to the neglected section of society.

• Traders take care of entire family of his employees.

• All direct and indirect taxes levied by Central, State and Local govt. are deposited by trader in Govt. treasury without any remuneration. Thus they are making substantial contribution to exchequer.

• During national calamities like famine, floods, earthquakes Tsunami and other natural calamities, the traders have never lagged behind to extend full help to Government.

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TRADERS BEING IGNORED BY GOVT• In order to gain political mileage, traders are cursed off and on.

• After independence, multiple laws concerning trade were enacted which adversely affected Traders.

• Traders have been made targets of disgrace and hardships under Inspector Raj.

• All the traders will be rendered jobless. India is very different country where the markets have evolved over hundred’s of years. The traders made redundant will struggle to find alternate employment.

• Multinational companies are also known to get into contract farming in order to exercise more control over their back end.

• With control over both supply (the farmers & producers) as well as demand (customers), multinational retailers will be able to exert the pressure of price

Implications of large Multinational & Corporate Retailers in Retail Trade

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EMPLOYMENT GENERATION UNDER EXISTING SYSTEM• FARM LABOURS

• HAMALS

• COMMISSION AGENTS

• BROKERS

• TRANSPORTERS

• TEA SHOP OWNERS

• HOTELS

• DHABAS

• SHOP KEEPERS

• HAWKERS

• CONSUMER COOPERATIVE SOCIETIES

• SMALL SCALE-INDUSTRIES & MANUFACTURERES

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Implications of large Multinational & Corporate Retailers in Retail Trade

• All the traders will be rendered jobless. India is very different country where the markets have evolved over hundred’s of years. The traders made redundant will struggle to find alternate employment.

• Multinational companies are also known to get into contract farming in order to exercise more control over their back end.

• With control over both supply (the farmers & producers) as well as demand (customers), multinational retailers will be able to exert

the pressure of price.

Reduction in employment

• Indian Retail Labour productivity is 6 to 8 % of U.S. – Mckinsey Study

• This means Indian Retail employs 100 people when U.S. Retail employs 6 – 8 people.

• A study conducted in USA revealed that for every one job created by Wal-mart, the community loose 2 jobs.

So, if multinational retailers were to recruit 1,000 people, close to 15,000 currently employed personnel would land up losing their jobs.

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FDI Policy in India• Prior to 1997 there was no clear Policy regarding FDI in to

retail trade.

• Certain approvals were given for FDI in to Retail Trade.

• After 1997 the Govt. has taken a policy decision not to allow FDI in to Retail Trade.

• However, the present Policy allows 100% FDI in case of cash and carry wholesale trading and through the franchisee route.

• Recently the present government giving impetus to FDI in retail allowed 51% FDI in single brand retailing.

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The terms & spirit of the policy are already being flouted !!

Metro GmbH a German retailer and Shoprite Holdings Ltd., from South Africa are two prominent multinational retailers that are currently operating in India. Under the guise of conducting wholesale trade, Metro GmbH was indulging in retail trade. Shoprite Holdings on the other hand was contravening the rule of the APMC by carrying out wholesale from outside the ‘designated market yard’.

These activities are just an indicator of the aggressive attitude of the multinational retailers, which is already being felt in other Asian countries that have recently opened up retail to foreign direct investment.

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• Establishment of basic Industries requiring huge capital & sophisticated technology.

• Infrastructure projects like electricity production, road-building, activities etc.

• Projects which would generate employment.

The guiding principles of FDI

The criteria for Foreign Direct Investment as laid down by Dr. Manmohan Singh in early 1990s:

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Does FDI in Retail fulfill any of these guiding principles ?

• Retail trade the world over is not capital intensive, because purchases are on credit and sales on cash. Except for

infrastructure,no substantial investments are required.

• No sophisticated technology is necessary in retail.

• On employment generation, it is evident that with the entry of multinational retailers there will be large scale

elimination rather than creation of jobs.

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Retail is nothing but the last leg of the value chain, why should we offer this on a platter to outsiders and in the process create unemployment for crore of our people?

The size of the large retailers, their growth pattern, modus operandi, method of capturing markets and their past history is all available to us.

India should pay heed to the situation of other Asian countries rather than, take corrective action later when the situation gets out of hand.

There is enough evidence to suggest that countries like Thailand, China and Malaysia have suffered. Should small Indian retailers also be made to suffer in order to fulfill the ruthless quest for growth of multinational retail chains??

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• Govt. should identify the weakness of present retail trade.• Govt. should specify the areas where customers are not being served

properly.• Govt. should specify what it expects from retail trade that is not

being met presently. • Govt. should spell out merits of FDI in Retail Trade.• Govt. should come out with White paper on FDI in Retail Trade specifying the picture after 25 years and 50 years.

• Zoning laws should be implemented in India, no MNC be allowed to open malls within city limits, but in the outskirts.

• Govt. may consider runing pilot projects in India. A city or two should be identified where global retailers may be allowed to open stores. After proper study of their impact on local retailers, a future course of action can be decided upon.

• The big global retailers should not be allowed to run small retails shops in India. Rather, they should have restrictions on the operating area so that they operate only in large scales for e.g. Limitation may be imposed that MNC may not operate below say 3000 sq. feet of shop area.

WHAT SHOULD GOVT. DO

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• Don’t see India as population of One Hundred crore & mouths to feed.

• See it as a Market of One Hundred crore consumers with two hundred crore eyes to watch your prodcuts and two hundred crores hands to buy your products.

• World largest Emerging Retail Market: Who will Conquor it:

INDIA : MY COUNTRY

WE OR THEY?

DO NOT MAKE MY GOVEREMENT AS,GOVEREMENT BY MNC & Corporate HousesGOVEREMENT OF MNC & Corporate Houses

GOVEREMENT FOR MNC’S & Corporate Houses