1

CONTENTChapter 1 Introduction

Chapter 2 Industry Profile

Chapter 3 Company Profile

Chapter 4 Literature Review

Chapter 5 Objectives

Chapter 6 Research Methodology

Chapter 7 Analysis Part

Chapter 8 Interpretation & Findings

Chapter 9 Limitations

Chapter 10 Suggestions & Recommendation

Chapter 11 Conclusion

Chapter 12 References

2

Abstract

International Retail industry has got a tremendous consumer pull since

globalization. Many Retail Stores evolved in a very different way from the

traditional Stores. Many multinational companies are transforming themselves to

become global companies. When it comes to selling in foreign lands, the

strategies of retailers don't always simply translate from one country to another.

This research discusses about whether the efforts of Retail Stores can hold

the customers and which factor will influence customer by Retail strategies.

3

Industry Profile

4

Concept of RETAIL

The distribution of consumer products begins with the producer and ends at the

ultimate consumer. Between the producer and the consumer there is a middleman the

retailer,who links the producers and the ultimate consumers?

Retailing is defined as a conclusive set of activities or steps used to sell a product

or a service to consumers for their personal or family use. It is responsible for matching

individual demands of the consumer with supplies of all the manufacturers. The word

‘retail’ is derived from the French work retailer, meaning ‘to cut a piece off’ or ‘to break

bulk’.

It is defined as all activities involved in selling goods or services directly to the

final consumer for their personal, non-business use via shops, market, door-to-door

selling, and mail-order or over the internet where the buyer intends to consume the

product.

The retail industry can be divided into

1. organized large,

2. unorganized and

3. Informal sector enterprises.

The first category retailers comprise traders who possess legal permissions or

licenses to undertake the activity, are registered with sales tax/VAT etc. Such

enterprises are supermarkets, hypermarkets, retail chains, and also the privately-owned

large retail businesses.

Their presence on scene, though of a recent origin, is gradually gaining in

importance, and slowly eating into the business of second category of retailers. By

unorganized retail trade enterprises, we mean all those local kirana &general shops,

family managed –Own Account trade enterprises (Mom-Pop shops), registered under

the Shops and Establishment Act (s), administered by the local authorities.

5

The third category of retailers include small shops such as tiny grocery and vegetable

shops run from a room of a house, paan/beedi kiosks (often selling a variety of items,

like small toothpaste tubes, tooth brushes, soaps, pouches of shampoo, etc.), way-side

vendors, and hand carts operating without any licenses.

Indian retail sector

The retailing sector in India has undergone a significant transformation. Traditionally,

Indian retail sector has been characterized by the presence of a large number of small

unorganized retailers. However, in the past decade there has been development of

organized retailing, which has encouraged large private sector players to invest in this

sector.

The Indian trading sector, as it has developed over centuries, is very different

from that of the developed countries. In the developed countries, products and services

normally reach consumers from the manufacturer/producers through two different

channels: (a) via independent retailers (‘vertical separation’) and (b) directly from the

producer.

In India, however, the above two modes of operation are not very common.

Small and medium enterprises dominate the Indian retail scene. The trading sector is

highly fragmented, with a large number of intermediaries. So also, wholesale trade in

India is marked by the presence of thousands of small commission agents, stockiest and

distributors who operate at a strictly local level.

Most Indian shopping takes place in open markets or millions of small,

independent grocery and retail shops. Shoppers typically stand outside the retail shop,

ask for what they want, and cannot pick or examine a product from the shelf. Access to

the shelf or product storage area is limited. Once the shopper requests the food staple

or household product they are looking for, the shopkeeper goes to the container or

6

shelf or to the back of the store, brings it out and offers it for sale to the shopper. Often

the shopkeeper may substitute the product, claiming that it is similar or equivalent to

the product the consumer is asking for. The product typically has no price label in these

small retail shops; although some products do have a manufactured suggested retail

price (MSRP) pre-printed on the packaging. The shopkeeper prices the food staple and

household products arbitrarily, and two consumers may pay different prices for the

same product on the same day. Price is sometimes negotiated between the shopper and

shopkeeper. The shoppers do not have time to examine the product label, and do not

have a choice to make an informed decision between competitive products.

Indian market has high complexities in terms of a wide geographic spread and

distinct consumer preferences varying by each region necessitating a need for

localization even within the geographic zones. India has highest number of outlets per

person (7 per thousand) Indian retail space per capita at 2 sq ft (0.19 m2)/ person is

lowest in the world Indian retail density of 6 percent is highest in the world.1.8 million

households in India have an annual income of over 45 lakh (US$81,900).

For Indian retailing, things started to change slowly in the 1980s, when India first

began opening its economy. Textiles sector (which companies like Bombay Dyeing,

Raymond's, S Kumar's and Grasim) was the first to see the emergence of retail chains.

India is a land of retail democracy- hundreds of thousands of weekly haats and

bazaars are located across the length and breadth of our country by people‘s own self-

organizational capacities and interests.

India has the shop density of 11 outlets per 1000 people and number around 15

million, giving India the highest retail outlet density in the world. But only four per cent

of them have larger than 500 square feet area. India is one of the fastest growing retail

markets in the world, with 1.2 billion people.

7

Our retail democracy is characterized by

1. High levels of livelihood in retail with nearly 40 million employed which accounts for

8% of the employment and 4% of the entire population.

2. High levels of self - organization.

3. Low capital input

4. High levels of decentralization

The most noteworthy phase of the growth of the sector was between 2000-2006,

when the revenues increased by about 93.5 per cent. The estimated size of the retail

industry in our nation is approximately $470 billion with an annual compounded growth

rate of 11 per cent. Incidentally, the share of organized retail is relatively small at $26

billion which is just 6 per cent of the total market compared to a typical share of 70-80

per cent in North America and Western Europe and 20-30 per cent in the Far-East Asian

Markets.

AT Kearney, a global management consulting firm, rates India as the most attractive

nation for retail investment. The study, presented in the Global Retail Development

Index of 2009, is carried out annually for 30 emerging markets, and has rated India

highest four times in the last five years.

This report expresses even more optimism, and estimates that suggest that

India's retail market is expected to be about US$535 billion by 2013, with around 10 per

cent coming from organized retail. Other estimates are more conservative, though still

impressive. According to McKinsey, a research and consulting firm, organized retail in

India is expected to increase from 5 per cent of the total market in 2008 to 14-18 per

cent of the total retail market and reach US$ 450 billion by 2015.

Even if growth is more conservative than estimated, the spill-over effects of this

rapid expansion could be felt by many other sectors of the economy. A report published

by Knight Frank India in May 2010 looks at the question of land and available retail

space. It estimates that, during 2010-12, around 55 million square feet of retail space

8

will be ready in the major cities like Mumbai, the national capital region (NCR),

Bengaluru, Kolkata, Chennai, Hyderabad and Pune. Furthermore, between 2010 and

2012, the organized retail real estate stock is expected to grow from the existing 41

million square feet to 95 million square feet. Arguably, this could drive up real estate

prices, with consequent knock-on effects.

India is the second largest producer of fruits and vegetables in the world, but almost

30 per cent of these go waste for want of storage and processing facilities.It is generally

agreed that the bulk of the Indian economy would gain, significantly, from the

emergence of a well-capitalized retail industry. The organized retail industry is one of

the sunrise sectors with huge growth potential.

Total retail market in India which currently stood at USD 400 billion in 2009-10, is

estimated to attain USD 573 billion by 2012-13. Organized retail industry accounts for

only 5% of total retail industry but is expected to reach 10% by 2012.

An ASSOCHAM report states that India's overall retail sector is expected to rise to

USD 833 billion by 2013 and to USD 1.3 trillion by 2018, at a compounded annual

growth rate of 10% driven by the emergence of shopping centers and malls, and a

middle class of close to 300 million people that is growing at nearly 2% a year.The share

of organized retailing in India, at around 2%, is too low, compared to 80% in the USA,

40% in Thailand, or 20% in China, thus leaving the huge market potential largely

unexploited.

Mounting earning levels, education and an international revelation have contributed

to the progression of the Indian middle class purchasing and shopping practices are

burgeoning as an outcome. However, retailing through formats such as supermarkets,

hypermarkets, department stores and other forte chains are escalating.Top business

houses in the country are investing in the sector. This includes Food World, Shopper‘s

Stop, Crossroads, Globas, Pyramid and other such outlets.

9

Retail Market Categories (2011)

Category Estimates (in US $Bn)

Food and Grocery 325

Apparel 35

Jewelry and Watches 25.6

Consumer Electronics & IT 22.7

Pharmacy 13.9

Furnishings and Furniture 9.1

Restaurants & Food Joints 8.8

Footwear 4.5

Beauty Services 1.3

Health/Fitness Services 1

Others 23

Total (US $ Bn) 470

10

Major Indian Retailers

The low-intensity entry of the diversified Mahindra Group into retail is unique because it plans

to focus on lifestyle products. The Mahindra Group is the fourth largest Indian business group

to enter the business of retail after Reliance Industries Ltd, the Aditya Birla Group, and Bharti

Enterprises Ltd. The other three groups are focusing either on perishables and groceries, or a

range of products, or both.

Top 10 Retailers in India

Pantaloon Retail

It is headquartered in Mumbai with 450 stores across the country employing more than

18,000 people. It can boast of launching the first hypermarket Big Bazaar in India in

2001. An all-India retail space of 5 million sq. ft. which is expected to reach 30 MN by

2010. It is not only the largest retailer in India with a turnover of over Rs. 20 billion but is

present across most retail segments - Food & grocery (Big bazaar, Food bazaar), Home

solutions (Hometown, furniture bazaar, collection-i), consumer electronics (e-zone),

shoes (shoe factory), Books: music & gifts (Depot), Health & Beauty care

services ,entertainment (Bowling co.)

K Raheja Group

They forayed into retail with Shopper’s Stop, India’s first departmental store in 2001. It

is the only retailer from India to become a member of the prestigious Intercontinental

Group of Departmental Stores (IGDS). They have signed a 50:50 joint venture with the

Nuance Group for Airport Retailing. Shoppers Stop has 7, 52, 00 sq.ft. of retail space

with a turnover of Rs 6.75 billion.The first Hypercity opened in Mumbai in 2006 with an

area of 1, 20,000 sq. ft. clocking gross sales of Rs. 1 bn in its first year.

11

Tata group

Established in 1998, Trent - one of the subsidiaries of Tata Group - operates Westside, a

lifestyle retail chain and Star India Bazaar - a hypermarket with a large assortment of

products at the lowest prices. In 2005, it acquired Landmark, India's largest book and

music retailer. Trent has more than 4 lakh sq. ft. space across the country. Westside

registered a turnover of Rs 3.58 mn in 2006.

Tata’s has also formed a subsidiary named Infiniti retail which consists of Croma, a

consumer electronics chain. It is a 15000-17000 sq. ft. format with 8 stores as of

September 2007.Another subsidiary, Titan Industries, owns brands like “Titan”, the

watch of India has 200 exclusive outlets the country and Tanishq, the jewellery brand,

has 87 exclusive outlets. Their combined turnover is Rs 6.55 billion.

Trent plans to open 27 more stores across its retail formats adding 1.5 mn sq ft of space

in the next 12 DLF malls.

RPG group

One of the first entrants into organised food & grocery retail with Foodworld stores in

1996 and then formed an alliance with Dairy farm International and launched health &

glow (pharmacy & beauty care) outlets. Now the alliance has dissolved and RPG has

Spencer’s Hyper, Super, Daily and Express formats and Music World stores across the

country.RPG has 6 lakh sq. ft. of retail space and has registered a turnover of Rs 4.5

billion in 2006.

It is planning to venture into books retail, with the launch of its own bookstores “Books

and Beyond” by the end of 2007. An IPO is also in the offering, with expansion to 450+

MusicWorld, 50+ Spencer's hyper outlets covering 4 million sq. ft. by 2010.

12

Landmark group

were launched in 1998 in India. Lifestyle is spread across six cities, covering 4.6 lakh sq.

ft. with a turnover of Rs 3.5 billion in 2005. A new division named Lifestyle International

has emerged for their international brands business comprising Bossino, Kappa and

Springfield in their portfolio.

Their retail mix includes Home solutions (Home centre), fashion (lifestyle, landmark

International), value retailing (max retail), hypermarkets & supermarkets (Max), kids

entertainment (Funcity).

They plan to invest Rs. 300 crores in the next two years to expand on Max chain, and Rs

100 crores on Citymax 3 star hotel chain. They have already instituted a separate

company christened Citymax Hotels (India).

Piramal Group

In September 1999, Piramal Enterprises announced their arrival into retail with the

launch of three retail concepts: India's first true shopping mall of international

standards, called Crossroads; a lifestyle department store named Piramyd Megastore;

and a family entertainment centre known as Jammin. Piramyd Megastore and Jammin

were anchor tenants for Crossroads (recently sold to Pantaloon for Rs 4 billion). In 2001,

the group entered the business of food & grocery retail with the launch of TruMart

supermarkets in Pune.

They have around 18 TruMart stores covering 1.90 lakh sq. ft. registering a turnover of

Rs 37.6 mn in 2005. Piraymd Megatsore’s contributes more than 70 % to their retail mix

with a turnover of Rs 112.8 mn. They plan to open 150 stores covering 75 mn sq ft of

retail space in the next 5 years.

13

Subhiksha

Subhiksha is a Chennai-based, decade old, no frills, food, grocery, pharma and telecom,

discount retail chain. ICICI Venture Capital holds 24% in the equity capital of Subhiksha.

It has more than 500 stores across the country covering a retail space of more than 1

million sq ft with a registered turnover of Rs 3.34 bn in 2006. It has a planned

investment of Rs.300 crores to ramp up its operations to 1200 stores by 2008.

Bharti-Wal-Mart

Their plans include US$ 7 bn investment in creating retail network in the country

including 100 hypermarkets and several hundred small stores. They have signed a 50:50

percent joint venture agreement with Wal-Mart. Wal-Mart will do the cash & carry

while Bharti will do the front-end.

Reliance

India’s most ambitious retail plans are by reliance, with investments to the tune of Rs.

30,000 cr ($ 6.67 bn) to set up multiple formats with expected sales of Rs 90,000 crores

($20 bn) by 2009-10.

There are already more than 300 Reliance Fresh stores and the first Reliance Mart

Hypermart has opened in Ahmedabad. The next ones are slated to open at Jamnagar,

followed by marts in Delhi / NCR, Hyderabad, Vijaywada, Pune and Ludhiana.

14

AV Birla Group

They have a strong presence in apparel retailing through Madura garments which is

subsidiary of Aditya Birla Nuvo Ltd. They own brands like Louis Phillipe, Van Heusen,

Allen Solly, Peter England, Trouser town.

In other segments of retail, AV Birla Group has announced investment plans of Rs 8000 -

9000 crores in the first 3 years till 2010.

The acquisition of Trinethra (food & grocery) chain in the south has moved their tally to

400 stores in the country. Their “More” range of 15 supermarkets are slated to open at

Nashik, Pune and other tier II cities in Western India in 2007.

Foreign Direct Investment (FDI)

The most important channel through which foreign capital flows into the country is

Foreign Direct Investment (FDI). FDI as defined in Dictionary of Economics (Graham

Bannock et.al) is “investment in a foreign country through the acquisition of a local

company or the establishment there of an operation on a new (Greenfield) site.

International Monetary Organization (IMF) and Organization for Economic Cooperation

and Development (OECD) define FDI as a category of cross border investment made by

a resident in one economy (the direct investor) with the objective of establishing a

‘lasting interest’ in an enterprise (the direct investment enterprise) that is resident in an

economy other than that of the direct investor. The motive of the direct investor is a

strategic long term relationship with the direct investment enterprise to ensure

significant degree of influence in the management of the direct investment

enterprise .Besides, International Bank for Reconstruction and Development (IBRD) and

United Nations Conference on Trade and Development (UNCTAD) also provide

definition of Foreign Direct Investment. To put in simple words, FDI refers to capital

15

inflows from abroad that is invested in or to enhance the production capacity of the

economy. It is preferred over other source of foreign capital because it is non-volatile,

non-debt creating and results in economic development, modernization and

employment generation in the economy.

Foreign Direct Investment under the Industrial Policy 1991 and thereafter under

different Foreign Trade Policies is being allowed in different sectors of the economy in

different proportion under either the Government route or Automatic Route. In

Retailing, presently 51 per cent FDI is allowed in single brand retail through the

Government Approval route while 100 per cent FDI is allowed in the cash-and-carry

(wholesale) formats under the Automatic route. Under the Government Approval route,

proposal for FDI in ‘Single Brand Product Retailing’ are received in the Department of

Industrial Policy and Promotion, Ministry of Commerce & Industry. Automatic route

dispenses with the need of multiple approvals from Government and/or regulatory

agencies (Government of India or the RBI). Investors are required only to notify the

concerned Regional offices of RBI within 30 days of receipt of inward remittances and

file required documents with that office within 30 days of the issue of shares to foreign

investors.

The legal regimes that controls FDI in India and to that extent FDI in retailing

includes Press Notes by Department of Industrial Policy and Promotion, Foreign

Exchange Management Act 1999, Guidelines of Reserve Bank of India(RBI) and Security

and Exchange Board of India, besides, of course, the Constitution of India.

One needs to be holistic in his assessment of the outcome of introducing FDI in

Retailing. One of the reasons as to why a vast swath of India’s population is suffering

poverty and depravation is that Agricultural sector of the country has not developed

appropriately, and the main stumbling block in this regard has been that of inadequate

16

logistics and direct access for farmers to vast markets. FDI in retailing can to a large

extent ameliorate these deficiencies. If FDI in front end retailing is allowed, the

international retailing giants will be motivated to invest capital, bring in knowhow and

global capacity on a colossal scale and as a result a world class back end infrastructure

would be built the like of which may take the government years to make (Though FDI is

permitted in backend infrastructure to the extent of 100% through the automatic route,

in the absence of FDI in retailing, investment in backend infrastructure has not been so

forthcoming) . The foremost beneficiary of such a development would be the farmers,

especially those engaged in Horticulture. Though India is the second largest producer of

fruits and vegetables, lack of storage facilities cause heavy losses to farmers. Availability

of adequate post-harvest and cold chain infrastructure would enable the farmers to

avoid wastage and distress sales. The retailers would engage the farmers directly

through the contract farming programmers as also resort to direct buying from the

farmers which will dilute the role of profit siphoning intermediaries, enhance the

income of the farmers and give them direct access to markets. The resultant rural

prosperity may open up market for other industrial goods and help bring about a more

balanced regional development.

The Medium and Small Enterprisethat plays a critical role in country’s overall

manufacturing scenario has lagged and suffered due to lack of branding and avenues to

reach out to the vast world market. The international retailers can buy from them not

only for the domestic market but for their stores outside the country also and in the

process provide the small and medium enterprises of the country a brand name and a

window to the international market. In fact, it is estimated that FDI in retailing can

significantly increase export from the country. If the domestic organized retailers are

allowed to grow to the exclusion of FDI, it may bring about other above mentioned

developments but not increase the exports.FDI can, in fact, spur competition among the

organized retailers. The ultimate beneficiary of these competitions would be the

17

consumers. An example of how the consumer benefit from the competition is the

automobile industry in India. The intense competition among the automobile industries

has resulted in a situation where the consumer has been able to purchase cars for as

low a price as rupees one lakh. CRIER in its research has found that all income groups

save through organized retail purchase, but the lower income groups save more. Thus,

organized retail is relatively more beneficial to the less well-off consumers.

A growing and mushrooming retail sector means that its contribution to GDP would

grow. It would thus help in expanding the economy, generate employment and result in

more tax income.

In the light of all that have been discussed above it can be said without any dispute that

the time for allowing FDI in Multi –Brand Retailing has come and as Victor Hugo has said

“Nothing can stop an idea whose time has come”. FDI in Retailing started with FDI in

cash and carry wholesale trading first permitted in 1997 to the extent of 100% under the

Government approval route and thereafter in 2006 brought under the automatic route.

In 2006 again FDI in Single Brand Retailing was permitted to the extent of 51%. From

here it is but natural and logical that FDI would now proliferate to multi-brand retailing.

But the progression to FDI in multi-brand retailing cannot take place at the cost of vital

concerns raised in connection with this possible change by different groups; viz, the

question of adaptability of the retailers in the unorganized sector, the question as to

how the FDI in retailing can be harnessed for the benefits of Indian agriculture and

Medium and Small Enterprise and above all how to impart into the economy a degree of

resilience to withstand the changes that would be ushered in the wake of introduction

of FDI in retailing. All these concerns have to be addressed not because the Left wing

political parties and the media through their campaign have necessitated such attention

but because we are constitutionally bound to do so .The Preamble of the

Constitutionresolves to constitute India into a Sovereign, Socialist, Secular, Democratic,

18

Republic and to secure to all its citizens JUSTICE, social, economic and political EQUALITY

of status and opportunity.Directive Principles ofState Policy similarly exhorts the state to

establish just, equitable and fair order. Article 39(c) states that the state should ensure

that the operation of the economic system does not result in the concentration of

wealth and means of production to the common detriment. Though both these features

are not enforceable, the Executive and the Apex Court in particular have time and again

reiterated the sacrosanct nature of these features.

Unlike FDI in single brand retailing which pertains to brand loyal and a relatively

small high income clientele, FDI in multi-brand retailing would have direct impact on a

vast spectrum of population and thus a sensitive issue. Left alone foreign capital will

seek ways through which it can only multiply itself, and unthinking application of capital

for profit, given our peculiar socio-economic conditions, may spell doom and deepen

the hiatus between the rich and the poor. Thus the proliferation of foreign capital into

multi-brand retailing needs to be anchored in such a way that it results in a win-win

situation for India. This can be done by integrating into the rules and regulations for FDI

in multi-brand retailing certain inbuilt safety valves. For example FDI in multi –brand

retailing can be allowed in a calibrated manner with social safeguards so that the effect

of possible labor dislocation can be analyzed and policy fine tuned accordingly. To

ensure that the foreign investors make a genuine contribution to the development of

infrastructure and logistics, it can be stipulated that a percentage of FDI should be spent

towards building up of back end infrastructure, logistics or agro processing units. One of

the justifications for introducing FDI in multi-brand retailing is to transform the poverty

stricken and stagnating rural sphere into a forward moving and prosperous rural sphere.

To actualize this goal it can be stipulated that at least 50% of the jobs in the retail outlet

should be reserved for rural youth and that a certain amount of farm produce be

procured from the poor farmers. Similarly to develop our small and medium enterprise,

it can also be stipulated that a minimum percentage of manufactured products be

19

sourced from the SME sector in India. Public Distribution System is still in many ways the

life line of the people living below the poverty line. To ensure that the system is not

weakened the government may reserve the right to procure a certain amount of food

grains for replenishing the buffer. The government may also put in place an exclusive

regulatory framework to protect the interest of small retailers. It will ensure that the

retailing giants do resort to predatory pricing or acquire monopolistic tendencies.

Besides, the government and RBI need to evolve suitable policies to enable the retailers

in the unorganized sector to expand and improve their efficiencies

The Industrial policy 1991 had crafted a trajectory of change whereby every sectors of

Indian economy at one point of time or the other would be embraced by liberalization,

privatization and globalization.FDI in multi-brand retailing is in that sense a steady

progression of that trajectory. But the government has by far cushioned the adverse

impact of the change that has ensued in the wake of the implementation of Industrial

Policy 1991 through safety nets and social safeguards. But the change that the

movement of retailing sector into the FDI regime would bring about will require more

involved and informed support from the government. One hopes that the government

would stand up to its responsibility, because what is at stake is the stability of the vital

pillars of the economy- retailing, agriculture, and manufacturing. In short, the socio

economic equilibrium of the entire country.

The Initial research revealed four major bodies that have been constituted and could

provide data pertaining to FDI

1991 Foreign Investment Promotion Board FIPB

20

• consider and recommend Foreign Direct Investment (FDI) proposals, which do not

come under the automatic route. It is chaired by Secretary Industry (Department of

Industrial Policy & Promotion).

1996 Foreign Investment Promotion Council FIPC

• constituted under the chairmanship of Chairman ICICI, to undertake vigorous

investment promotion and marketing activities. The Presidents of the three apex

business associations such as ASSOCHAM, CII and FICCI are members of the Council

.

1999 Foreign Investment Implementation Authority FIIA

• Functions for assisting the FDI approval holders in obtaining various approvals and

resolving their operational difficulties. FIIA has been interacting periodically with the FDI

approval holders and following up their difficulties for resolution with the concerned

Administrative Ministries and State Governments.

2004 Investment Commission

• Headed by Ratan Tata, this commission seeks meetings and visits industrial groups and

houses in India and large companies abroad in sectors where there was dire need for

investment.

Attempting to research directives and results of the above bodies resulted in no direct

contact but instead a list of various other sub bodies.

• Project Approval Board (PAB) for approving foreign technology transfer proposals not

falling under the automatic route.

21

• Licensing Committee (LC) for considering and recommending proposals for grant of

industrial license.

• In addition, concerned Ministries/ Departments issue various approvals as per the

allocation of business and various Acts being administered by them.

• At the State level, State Investment Promotion Agency and, at the district level,

• District Industries Centers generally look after projects.

• Concerned departments of the State Government handle sectoral projects.

• Fast Track Committees (FTCs) have been set up in 30 Ministries/Departments for close

monitoring of projects with estimated investment of Rs. 100 crores and above and for

resolution of issues hampering implementation.

• “Investment Promotion and Infrastructure Development Cell” gives further impetus to

facilitation and monitoring of investment, as well as for better coordination of

infrastructural requirements for industry

• SIA has been set up by the Government of India in the Department of Industrial Policy

and Promotion in the Ministry of Commerce and Industry to provide a single window for

entrepreneurial assistance, investor facilitation, receiving and processing all applications

which require Government approval, conveying Government decisions on applications

filed, assisting entrepreneurs and investors in setting up projects, (including liaison with

other organizations and State Governments) and in monitoring implementation of

projects.

22

• CCFI Cabinet Committee on Foreign Investment- meets at the ministerial level and is

guided by the prime Minister, considers foreign investment exceeding Rs 3 billion as

requiring special political attention.

• Indian Missions Abroad- can also receive project proposal and will forward tem to the

institutions in New Delhi.

• Indian Investment Centre- (This was supposed to be closed after the Planning

Commission was established but still continues to operate) established as an

autonomous organization in 1960 with the objective of doing promotional work abroad

to attract foreign private investment into India and establishment of joint ventures,

technical collaborations and third country ventures between Indian and foreign

entrepreneurs.

The major competitors of Wal-Mart include Costco, Target Corp., and K-Mart.

Wal-Mart leads the industry and sector in market cap, employees, revenue, EBITDA, net

income, and earnings per share. Target and Costco have surpassed Wal-Mart in Revenue

Growth by quite a margin. Target also leads Wal-Mart in gross margin. K-Mart has

shown a decline over the past years and is dropping out of the major competitor

category.

23

COMPANY PROFILE

24

Wal-Mart

Arkansas’s Sam Walton founded Wal-Mart in 1962, based on the idea of bringing big-

city discounting to his corner of the rural American South. To make up for low profit

margins, the company had to sell higher volumes in lots of big stores. It lowered costs by

dealing directly with manufacturers, investing in technology and logistics, and increasing

worker productivity, while keeping labor costs low.

Sam Walton, a businessman from Arkansas, began his retail career when he started

work on June 3, 1940, at a J. C. Penney store in Des Moines, Iowa where he remained

for 18 months. In 1945, he met Butler Brothers, a regional retailer that owned a chain of

variety stores called Ben Franklin and that offered him one in Newport, Arkansas.

Walton was extremely successful in running the store in Newport, far exceeding

expectations. However, when the lease came up for renewal, Walton could neither

come to agreement on the existing store's lease renewal nor find a new location in

Newport. Instead, he opened a new Ben Franklin franchise in Bentonville, Arkansas, but

called it "Walton's Five and Dime." There, he achieved higher sales volume by marking

up slightly less than most competitors.

On July 2, 1962, Walton opened the first Wal-Mart Discount City store located at 719

Walnut Ave. in Rogers, Arkansas when he noted the need for serving customer in small

towns. The building is now occupied by a hardware store and an antique mall. Within

five years, the company expanded to 24 stores across Arkansas and reached $12.6

million in sales. In 1968, it opened its first stores outside Arkansas, in Sikeston, Missouri

and Claremore, Oklahoma. Retailers such as Kmart and Sears focused on big towns. This

created an opportunity for Wal-Mart to fill people’s needs in rural areas. This small-

town orientation is reflected in the company’s values, which emphasize maintaining

good relationships with staff as well as suppliers. The focus on cost savings enables the

25

company to offer “everyday low prices”, which has become the familiar company

slogan.

The company was incorporated as Wal-Mart Stores, Inc. on October 31, 1969. In

1970, it opened its home office and first distribution center in Bentonville, Arkansas. It

had 38 stores operating with 1,500 employees and sales of $44.2 million. It began

trading stock as a publicly held company on October 1, 1970, and was soon listed on the

New York Stock Exchange. The first stock split occurred in May 1971 at a market price of

$47. By this time, Wal-Mart was operating in five states: Arkansas, Kansas, Louisiana,

Missouri, and Oklahoma; it entered Tennessee in 1973 and Kentucky and Mississippi in

1974. As it moved into Texas in 1975, there were 125 stores with 7,500 employees and

total sales of $340.3 million Wal-Mart opened its first Texas store in Mount Pleasant on

November 11, 1975.

Impact of Wal-Mart on Small retailer

In global business world, only larger size cannot imply that Wal-Mart is better and

successful. In fact, Wal-Mart also came under criticism for its impact on small retail

businesses. Independent small shops have to went out of business after this giant chain

stores come into play. Some research said that after Wal-Mart has been in town for

eight to ten years, that town is just a ghost town. This phenomenon is not happening

only in the United States, but it also has the same consequence in everywhere that this

giant chain store comes into play. In some countries, Wal-Mart has banned from local

communities because it obliterates local business. In short run Wal-Mart is like a

custodian but when look cautiously, it is a killer.

Though Wal-Mart is the world's largest retailer and consumer center and a principle

source in boosting up the American economy but it is resulting into negative impacts

over the local small business economies. The very policies of Wal-Mart from controlling

26

their suppliers to managing the working environment and low wages strategy along a

policy to provide products related to every filed of life under one single roof with a

cheaper rate then any other shopping center. This is affecting the local market

tremendously.

Basically Wal-Mart is a very large business company, which primarily focuses on

developing and expanding Wal-Mart while maintaining its standard of products and

presenting a healthy shopping environment. Therefore, it offers incentives like

partnership to the suppliers, sharing profits with the staff as well as assuring a friendly

customer care service with everyday low prices.

However, the small local business companies cannot earn a large amount

of profit from a minimum cost of production as compared to big shopping centers and

specifically Wal-Mart, which is the world's largest chain of shopping centers. Another

aspect that affects the small town business companies is the low wages labors with

extra facilities. Since small town business companies do not have ample potential and

capacity to earn maximum profits with minimum cost production and minimum lose,

workers are also not interested to work with these companies as they find no charm and

attraction in the working environment.

The small local business merchants lose economic strength and diversity

ofvarious products, as they do not have the potential to compete the giant retailers like

Wal-Mart.

Nature of retailing in china

China’s retail industry has extensive room for market growth. Favorable macro

conditions, changes in consumption patterns and the new demographic structure will be

the driving forces of the growth of the retail industry.

27

Favorable macro conditions to the retail industry include China’s relatively low

percentage of consumption / GDP compared with other developed countries, rapid

urbanization, a bigger middle class, supportive government policies and inflation

pressures.

Micro changes include the teens and 20s become the dominant group in the retail

markets. These consumers have higher tendency for consumption and more aggressive

consumption patterns.

China’s retail market is more fragmented than that of other developed countries

or other industries in China. There will be more opportunities for investors to look for

future leaders with strong growth potential in the retail industry.

Sales channel plays a significant role in the selling process of the retail industries.

It also has a big impact on the investment returns of consumer products manufacturers.

However, sales channel resources (such as supermarketsand department stores) are

scarce and scattered in China. The characteristics of sales channels also bring risks

andlimitations to the development of the retail industry.

The risks and limitations brought by different sales channels to the consumer

goods manufacturers explain the fragmented nature of China’s retail industry.

The growth rate of consumption ofChina is 6.9% from 1998 2006 which is the highest in‐

the world.

The following factors will continue to contribute to the growth of the retail industry in

China:

1.) Rapid urbanization and increasing disposable income

2.) A bigger middle class and an improving social security system‐

3.) Inflation pressure is beneficial to retail sales growth

4.) Supportive government policies to boost internal consumption

28

Wal-Mart in china

Local adaption is a key reason for Carrefour’s success, and Wal-Mart has also adapted its

modal to the Chinese Market. In the grocery section of its stores, Wal-Mart originally

offered meat and seafood American-style, in plastic wrapped, freshness-dated

containers. To Chinese consumers, however, “fresh” means that you can pick it out

yourself and watch it wriggle so they took a pass. In response, Wal-Mart brought

Chinese wet markets indoors, allowing consumer to pick out their own dinner. Now

when opening stores in a new city, Wal-Mart teams arrive five months early in order to

research local consumption habits and to fine-tune store merchandise.

In China, Wal-Mart executives have their eyes squarely on the growing middle class, not

on China’s large poor population who cannot afford Wal-Mart good As a result, Wal-

Mart merchandise is more upscale and aligned with middle class materialism then in the

United States.

Prices in China are high, in part, because there is a VAT of 13% on most things.

More important, retailing in China is not nearly as efficient as it is in the US. While Wal-

Mart is successful in China, it doesn’t enjoy anything like the market share it does in the

US. Smaller, but my guess is, far more profitable. Wal-Mart faces very limited low-price

competition in China. Most stores are of the Mom-and-Pop variety, which keeps overall

prices high. Urban real estate is also expensive, and that also has an underlying impact

on consumer prices.

According to a recent McKinsey study, China currently boasts more than one

million wealthy urban households and more ten 42 million middle class households are

expected by 2015,which will give China a more sizeable middle class than found in

either America or Europe.

29

China remains a crucial location for sourcing the good that Wal-Mart sells

worldwide. Wal-Mart Global procurement Center moved from Hong Kong to Shenzhen

in 2002, and the retailer’s supplier networks are heavily concentrated in China. Wal-

Mart’s global sourcing strategies are forcing changes in the way that Chines suppliers

operate.

Logistics and distribution are serious problems for Wal-Mart too. In China,

however, Wal-Mart faces several difficulties. The first is China’s infrastructure while

more efficient than most developing countries; there are still plenty of bottlenecks.

Some of these are physical, relating to roads, ports, and so on. Wal-Mart operations in

China are not yet large enough to reap efficiencies from its logistics system.

In China, however, labor unions are vastly different from their western

counterparts, both in structure and in practice. Unions are officially run by the

Government and tend to be more pro management than in other country, while

financially supporting the community party structure and helping to secure social order.

30

Factor Affecting FDI In Retailing (CHINA)

factor Impact Advantage Disadvantage

Culture To Chinese consumers,

however, “fresh” means

that you can pick it out

yourself and watch it

wriggle so they took a pass

It cerate customer believe

on store.

Price policy Prices in China are high, in

part, because there is a VAT

of 13% on most things.

Wal-Mart faces very

limited low-price

competition in China.

it can’t enjoy

anything like the

market share.

Government and

labor issue

Labor Unions are officially

run by the Government

Wal-Mart tread unions

compete with

government trade union.

Government can

interfere in

management practices

Supply chain and

distribution

China’s infrastructure while

more efficient than most

developing countries; there

are still plenty of

bottlenecks.

It can provide competitive

and long term advantage

in market.

It creates new and

costly distribution

systems Which

influence to price of

product.

Income group China a more sizeable

middle class than found in

either America or Europe

and its par capita income of

person will be grow in a

future

Demand and Sale will be

improved with the

growth of middle class.

31

Nature of U S A Retail Industry

The retail industry business has been around for centuries in the United States. It

allstarted with a community general shop where people of the community would shop

foritems of necessity. Single general stores by local residents were the most common

because specialty stores were not really necessary due to limited population within the

city and dissconnectivity of people. As societies advanced with population increase

leading to expanded cities, and new advanced technologies gave rise to

interconnectivity as well easy communication between distanced cities or societies,

opportunity for specialty stores was formed. But before the specialty stores formed into

a business the function of the general store was most essential because they provided

the varied needs of the local community.

Also the reason for the striving success of these general stores then was

"necessity". People around had no other options but to go for the general store. In the

current scenario, the US retail industry is thriving and booming. With the exponential

growth of the retail business across the whole of the United States, it is more likely to

predict that this industry will very soon come in to the category of the infrastructure

industry. Managing customer relations and attending their needs is a very important

issue in business-to-business markets Customer is the prime focus in retail business and

only they matter because they are the ones who buy the retailer products.

Retail chainsin the U.S. are publicly traded on the stock exchange and privately

owned. An estimatedtwo-thirds of the U.S. gross domestic product (GDP) comes from

retail consumption.Retail industry is a good indicator of the well-being of the U.S.

economy. According to thelatest annual report from the U.S. Census Bureau (2009), the

total amount of sales for theU.S. Retail Industry (including food service and automotive)

was $4.13 trillion. Of theworld’s 10 largest retail companies in the world, five of them

are from the US and five areFromEurope. The top ten global retailers had combined

sales of $1.15 trillion in 2008,according to international consulting group, Deloitte.

32

According to the U.S. Bureau ofLabor Statistics, around 14.4 million people were

employed in the U.S. Retail Industry asof April, 2010. Although retail employment was

increasing every month at the beginningof 2010, due to the recent recession of the

economy, the retail employment numbers werestill the lowest they've been for the past

decade. Due to the decline in retail jobs and theincrease in overall unemployment, the

retail job market in 2010 is extremely competitive atall levels.

Wal-Mart in U S A

Wal-Mart is primarily a discount retailer because they sell their products at the lowest

possible prices.Byselling at the lowest price.The essence of successful discount retailing

to cut the price on an item as much as possible, lowering the markup, and earn profit on

the increased volume of sales.Wal-Mart’s key slogan was around offering the lowest

prices in the market all year around, making an emphasis on cutting down any

competitors’ offer, averaging around 20% less than their competition.

The company has three "Basic Beliefs" or core philosophies Sam Walton built the

company on. Those beliefs are: (1) Respect for the Individual, (2) Service to Our

Customers, and (3) to Strive for Excellence. Other beliefs include, exceeding customer

expectations with "aggressive hospitality" such as using door greeters. The store also

features patriotic display and themes in its US stores.

Another goal for the company is to support efforts in the local community via

charitable contributions. Wal-Mart identifies several affiliations with charities such as

the United Way and the Children's Miracle Network.

In all, the company strategy is that of growth, expansion, and diversification by

finding new areas to expand into within retail and the service industry. It is the number

one retailer in the US and in the World as a result.

33

There have been several disagreements between the Union and Wal-Mart, as

Wal-Mart will not allow its workers to unionize. Several battles have been fought in

court and in the U.S. Congress over Wal-Mart's questionable labor practices. Wal-Mart's

policy has been one of delay and "terror" in the words of one union representative who

has accused the company of old-fashioned union-busting tactics. All of Wal-Mart's

competitors are unionized. They simply decided to avoid all the trouble. Wal-Mart has

decided to go up against labor laws to keep its overhead lower (Bernstein).

Wal-Mart awarded its employees differently, shifting the focus from salaries and

into profit-sharing stock based rewards, working to improve the employees skills, trust

and involvement by doing constant job shifts and sharing the corporate information

with them.

The reputation of companies is not driven just by customer experience.

Highly public events can have a significant impact on customer and stakeholder

perceptions. Such events might be a “corporate crisis” or a natural disaster, but either

can be opportunities for companies to leave a positive lasting impression. Reputation

management requires a tight connection with the core identity and strategy of a

company. It also requires an ability to think strategically from the point of view of an

increasingly skeptical public. Wal-Mart embraced its success in responding to the

Katrina challenge as an opportunity to demonstrate the positive social value of its core

business model.

Other retailers have a stake in how well Wal-Mart is doing and how much they

are expanding. If a Wal-Mart moves into a community, changes are the other retailers

in that community, especially if they are privately owned are going to lose money and

may even be forced to close down. Because Wal-Mart is the largest retailer in the

United States and number 1 on the Fortune 500 list, they have the ability to lower their

34

prices and therefore can force other retailers out of business because they cannot

match Wal-Mart's low prices.

Wal-Mart’s technological edge is in its logistics, distribution, and inventory

control having installed a computer in its first distribution center in 1969, it had, by the

late 1970s, connected all Wal-Mart stores and distribution centers, along with company

headquarters, to a computer network. Wal-Mart was an early adopter of bar-code

technology. Wal-Mart is currently at the forefront of efforts to integrate Radio

Frequency Identification — a technology in which each individual item receives a tag

that can be read by a radio signal, thus facilitating tracking shipments, inventory, and

sales. Wal-Mart’s investment in information technology does appear to have increased

its own productivity over the last several decades. Computations from Basker and Van

(2007) indicate that improvement in Wal-Mart’s technology have reduced its cost of

operating alarge chain.

Wal-Mart has managed to build one of the most efficient distribution systems in

the US. Distribution centers were constructed so that any Wal-Mart’s stores will always

have a distribution center less than a day’s drive away and operating its own truck fleet

has led to 99.5% on time delivery record.Wal-Mart was able to build a win-win

partnership with their suppliers while still acting as a very strong negotiator. Insisting on

lower prices, Wal-Mart was also working with suppliers to help them achieve those

prices by providing them with support and consultancy and going into details to achieve

efficiency for their businesses.

The United States has well-established distribution channels for all types of retail

companies. The retail services industry provides an openly competitive environment

that fosters strong business operations and spurs innovations that increase efficiency

and reliability.

Numerous opportunities for growth exist in the U.S. retail market for retail

providers of all sizes, including individual direct marketers or direct sellers, small- to

35

medium-sized franchise unit owners, and large “big-box” store operators. New

distribution companies are opening stores and units daily to serve a large, affluent

consumer base.

FACTOR AFFECTING FDI IN RETAILING (U S A)

Factor Impact Advantage Disadvantage

36

Employment

Improve the employee’s skills, trust and involvement.

Allow employee’s ability to grow with the company and be promoted into higher positions.

Several battles have been fought in court and in the U.S. Congress over Wal-Mart's questionable labor practices.

Price policy However, as the economy faced a downturn, people wanted low price stores.

It fulfills budgetary needs of their target customers.

These price segments do not target all population of that area.

Technology Flexible systems provide retailers with a competitive advantage that can improve shopping experience and increase profitability.

While this industry is very technical, one thing that has not, and will not ever change is that consumers want and demand superb customer service.

Technology change is dynamic process.

Companies Services

Significant impact on customer and stakeholder perceptions.

Supply chain and distribution

Wal-Mart’s stores will always have a distribution center less than a day’s drive away and operating its own truck fleet has led to 99.5% on time delivery record.

Nature of retailing in Brazil

37

Despite its wealth Brazil is a country in which 26% of the population lives below the

poverty line. The good news for businesses, however, is that this percentage is

shrinking, meaning that more and more people have disposable income. The emerging

middle class – a significant proportion of a total population of more than 190 million –

presents a wealth of opportunity to potential retail entrepreneurs. Indeed, Brazil has

just overtaken the UK as the sixth-largest economy in the world and is expected to carry

on growing at a healthy rate for the foreseeable future. Brazil has falling unemployment

(very rare in the current economic climate), falling inflation, and a rising population of

working women – just a few of the positive attributes that bode well for a robust and

fertile retail economy.

Brazil’s consumers are classed into four main categories: A, B, C and D. Classes A and B

occupy the higher end of the personal income scale. Class C, containing those with low

to middleincomes, is growing the fastest. New opportunities are constantly arising for

astute retailbusinesses as Brazil takes on characteristics usually associated only with the

most advanced western economies:

• More working women

• Growing class of Double Income No Kids couples (‘DINKS’)

• Longer life expectancy

• Greater consumption of health related products

As a result of these developments the consumer market in Brazil is evolving. Although

still a relatively young population, the average age is set to rise, which along with the

general increase in affluence will create new desires for consumer goods.

Among the distinctive traits highlighted during the seminar was the concentration of

wealth in a few regions of Brazil, 18 in total, which together account for approximately

48% of all retail trade. Of these regions, the Northeast, with the largest proportion of

38

people below the poverty line, is also changing quickly, with the fastest growth in class C

consumers. Interestingly, 70% of point of sale stores, around 400,000, are small

independent stores, not large chains, and in geographical terms are spread out thinly.

This clearly presents a challenge to retailers attempting to reach the consumers.

Important considerations for businesses when planning on entering the Brazilian retail

market include

• Identifying the consumer

• Understanding their unique desires

• How to communicate with the consumer to meet these desires

• How to meet the geographical challenges of the Brazilian landscape

Even in the late 1990s, Brazil was just like any other emerging economy, characterized

by extremes of wealth and abject poverty with no social class dividing the bridge

between. A decade and more down the line, the effervescence in the middle cannot be

missed. Yes, the great Brazilian middle class – defined as those who earn between $690

and $2,970 a month – has arrived and is here to stay. If Brazil has made a name in the

global retail sector, it had better thank these late comers, empowered with good

purchasing power and access to credit.

For the eighth consecutive year, the Brazilian retail industry has grown. While

Brazil’s GDP increased 2.7 percent in 2011, the retail sector expanded 4.4 percent,

demonstrating resilience against an economic downturn. According to the Brazilian

Supermarket Association (ABRAS), the retail industry was estimated to be worth about

R$224.3 billion (approximately US$119.31 billion) in 2011. Ongoing macroeconomic

stability and social inclusion policies that have put more credit in the hands of

consumers have played an important role in maintaining this positive result. The

industry has also adopted aggressive strategies as the market becomes more

39

competitive. These are all factors impacting the sector’s improved profile compared to

2010: the number of stores increased from 81,100 to 82,000 (1.1 percent); the number

of employees also went up from 919,900 to 967,700 (5.2 percent); sales floor size

expanded from 19,700 thousand square meters to 20,600 square meters (4.4 percent);

and the number of check-outs increased from 199,300 to 206,600 thousand (3.6

percent).

Brazil’s retail market is estimated to be worth about $230 billion, driven mostly by

domestic demand. Besides the 40% growth in GDP per capita during the last eight years

or so, population distribution also plays a vital role in encouraging the growth of sectors

such as retail. About 30% of the country’s population lives in the 10 principal

metropolitan cities. Sao Paulo brims over with a population of 18 million, while Rio de

Janeiro has 10 million.

Still, the consumption habits of this predominantly urban population are diverse.

As a PwC report points out, the lower income sections tend to spend more on essentials

such as food and beverages, while those in the upper income bracket splurge on leisure,

durable goods, as well as luxury items. The Brazilian market is also perhaps the most

internationalized among the BRICs, as the top 10 retailers corner almost 60% market

share among themselves. Food retailers, apparel retailers, consumer goods makers,

appliance retailers, and consumer staples companies form the backbone of the sector.

Wal-Mart in Brazil

The original intention of Wal-Mart was to achieve the number one retailer position in

the Brazilian retail market through a partnership with a local “player” in a very short

40

period of time. In order to achieve this ambitious goal, Bentonville headquarters

planned a logistics and communication infrastructure capable of supporting no less than

80 stores in the Brazilian market. In addition, the headquarters’ intention was to export

its expertise and practices in the form of an extensive set of operational manuals that

proved successful in the United States, including product assortment and internal space

utilization as well as its product mix.

Wal-Mart began its operation in Brazil in an absolutely fantastic way. The initial

five stores were opened in a few months and, through a very aggressive pricing strategy,

attracted thousands of enthusiastic consumers ready to empty the shelves. Another

attraction was employees' disposition to help consumers, as well as wide product

offering. Overall, during its initial periods of operation in the Brazilian market, Wal-Mart

had captured a very favorable image from consumers and, subsequently, had painted a

dark picture for its competitors' future.

The initially aggressive and promising entry strategy came to a halt after Wal-

Mart immediately encountered severe unexpected operational problems. Long

checkout lines, high stockout rate (40%), unreliable supply lines, faulty management-

performance measures, traffic congestion, competitors’ reactions, and governmental

forces were responsible for Wal-Mart’s initial failure in the Brazilian retail market.

Following Wal-Mart’s disappointing performance in the Brazilian retail market,

the company had to revise its originally aggressive strategy. To accomplish this, some

valuable lessons learned from Wal-Mart’s international expansion into Mexico and

Canada had to be incorporated into the redesigned strategy for Brazil. Consequently,

Wal-Mart’s strategy revision planned for adoption of a more conservative and

controlled expansion, consolidation of distribution lines, and improved assimilation into

the Brazilian culture. An example of Wal-Mart’s revised strategy included for the

opening of only 10 stores from 1995 to 1997, down from the initial 80 plus stores.

41

Furthermore, Wal-Mart intended to acquire an existing retail chain instead of exploring

other partnerships, as was originally planned. In addition, the company wanted to

acquire experienced managers from other competitors.

The challenges that Wal-Mart has experienced in Brazil may be grouped into six

categories: state of the economy, cultural differences, management, advertising,

logistics & distribution, and competition.

Since Wal-Marts entry into the Brazilian retail market in 1994 until the end of

2001, Brazil’s economy has been all but stable. The “Real Plan,” implemented in 1994 to

curb the currency hyperinflation, brought the inflation from 40% in the year it was

instituted, to 3% in 1999. Thanks to appreciation of the U.S. dollar, the Asian financial

crisis, and a resulting global economic slowdown, Brazil floated its currency in 1999, as

was the case prior to the Real Plan of 1994. This caused the inflation to moderately

increase to 8.9% in 1999, but was brought down to 5.3% at the end of 2001. However,

triggered by national currency depreciation, inflation increased again in 2002 and was

expected to cross 8%.

The Brazilian economy was recently struck with the energy crisis. The crisis was

caused by electricity consumption in Brazil being greater than its production, thus

forcing the import of electricity from Paraguay. Although the current state of the

Brazilian economy could be characterized as somewhat stable as compared to that

before 1994, the future outlook of the economy does not provide any guaranties on a

long-term basis.

Brazilian retail consumers consider product quality the most important factor in the

decision-making process of purchasing, followed by product price, customer service,

store cleanliness, and store distance.

42

Most Brazilians prefer shopping in small- to medium-size neighborhood stores.

Nevertheless, they also enjoy the occasional shopping trip to a big discount supercenter.

This trip, however, occurs only once a month, and thus making so-called “monthly

purchases,” instead of once a week as in the United States. Yet the current energy crisis

has forced most Brazilians to turn off their freezers and to adjust their shopping habits

accordingly. Namely, food-related trips to the store in Brazil have increased in

frequency, but decreased in the quantity of food purchased, especially in perishable

goods.

Despite the unbelievably bad traffic jams, the average Sao Paulo resident is

willing to take the long lasting trip to a specific supercenter if he/she perceives it as cost

efficient and need satisfying. Similarly, the notion of having to pay a membership fee in

order to shop at Sam’s Club is not greatly appreciated by Brazilian consumers, especially

when shopping at “buyer’s club” is not perceived as providing greater savings and

overall extra benefit to the end-consumer.

The product mix in Wal-Mart’s supercenters should be as close to reflecting the

needs of Brazilian consumers as possible. Offering products popular in the United States

such as golf equipment, vacuum cleaners for garden leaves, American footballs, and

food grinders shows complete ignorance to Brazilian consumers since they have little or

no use for these items. Likewise, assigning 25% of supercenter space for food in a

country where food represents 60% of supermarket sales is another example of Wal-

Mart’s cultural ignorance.

Due to dissimilarities in income and culture between U.S. and Brazilian markets, a

greater degree of managerial autonomy may be desirable for Wal-Mart in Brazil. In

addition, getting back to the basics, or in other words, implementing Sam Walton’s

“management by walking around” concept has not been used to its fullest extent by

Wal-Mart in Brazil.A faulty product mix and store-space misallocation present examples

43

of bad management policies. Moreover, the overall corporate grip that Wal-Mart has

on its subsidiary in Brazil can best be exemplified by the fact that performance of the

local managers in Brazil was based primarily on store sales volume. Thus, mangers set

prices below cost to artificially stimulate demand and inflate sales volume numbers.

Managers should have greater freedom in managing on a micro level. Wal-Mart has

recognized the need to hire professionals, and has recently started a head-hunting

campaign to acquire proven professionals from local competitors. This move should

reduce Wal-Mart’s need to micromanage the Brazilian effort.

Many Brazilian consumers, and housewives in particular, have the habit of

listening to the radio during the day, while cooking and/or cleaning the house. Radio

advertisements, therefore, should be used to reach and attract potential shoppers.

Contrary to logic, Wal-Mart did not use radio as a medium for communicating to its

customers. Some television and newspaper advertising is used by the company, but the

resources allocated to the overall advertising campaign amount roughly to only 2% of

Wal-Mart’s revenues. Although Wal-Mart has hired a Brazilian advertising agency, the

lack of autonomy given to the agency defeats the whole purpose of “going local”

through advertising.

Initially, Wal-Mart experienced an alarming 40% stock out rate in Brazil, as

compared to 5% in the United States. Although the stockout rate has decreased since,

the problem is far from being completely eliminated. Namely, Brazilian suppliers are

lagging behind their U.S. counterparts in logistics technology, thus making computerized

inventory management systems useless. Additionally, constant traffic jams present

another major obstacle to consistency and predictability in supply of both Wal-Mart

stores and distribution center(s).

Since Wal-Mart entered the Brazilian retail market in 1994, competition has been

ever increasing, and all to the benefit of end-consumers. Many retailers are focused on

expansion into different retail formats with the purpose of targeting different customer

44

segments. Increasing the number of stores across the country is another way retailers

compete in Brazil. Thanks to Wal-Mart, “price wars” are the most visible effects of fierce

competition.

The 1995 data state that Brazil’s entire retail industry accounts for 6.6% of GNP,

with total consolidated sales of U.S. $43.7 billion. The top 5 retailers in the Brazilian

retail market account for roughly U.S. $11.2 billion. The 1997 data show that Wal-Mart’s

major competitors are Carrefour, CompanhaBrasileira de Distrubuição, Royal Ahold, and

MakroAtacadista. In addition, some smaller retail chains and a large number of

individually owned stores account for the remaining portion of the Brazilian retail

market.

Wal-Mart Now

Since originally entering the Brazilian retail market in 1995, Wal-Mart has revised its

strategy and consequently gained a substantial share of the marketplace. Although Wal-

Mart is currently the 6th largest retailer in Brazil, it still holds a relatively small share of

the retail market, which is dominated by the French retailer Carrefour. Still, future

prospects are looking good for Wal-Mart in Brazil.

As of 2002, Wal-Mart has a total of 22 stores in operation and has 2% of the

market. Out of 22 Wal-Mart stores in Brazil at the moment, it operates under three

different formats, 12 Supercenters, 8 Sam’s Clubs, and 2 Wal-Mart TodoDia stores in the

states of Sao Paulo, Rio de Janeiro, Minas Gerais and Parana (AOL Latin America

Announces Marketing Alliance With Wal-Mart Brazil, 2001).As previously stated, Wal-

Mart’s first revised strategy called for the opening of only 10 stores from 1995 to 1997,

down from initial plans of over 80 stores. Looking back, Wal-Mart actually opened only

3 stores over that same time period. Most of the expansion occurred within the past

two years until 2001 Wal-Mart revealed its revised plan for expansion in Brazil in July

45

2002. According to the plan, the company would inaugurate 5 stores in Brazil. However,

by the end of 2002, the total number of stores in operation continued to be 22.

In May of 2001, Wal-Mart opened the Barueri distribution center in São Paulo.

Wal-Mart previously had three rented, limited-capacity distribution centers. The new

distribution center has 35,000 square meters of storage space and is built on a 200,000

square meter lot owned by Wal-Mart. This new facility is designed to easily supply 20

local stores at its current size, gives Wal-Mart better control over supply lines, and

allows for future building expansion.

In May of 2001, Wal-Mart opened its first “TodoDia” store in the eastern Sao

Paulo section, Sapopemba. Since the Sapopemba section of São Paulo is mostly

inhabited by a lower income segment of the population, this move signals that Wal-

Mart is looking to increase its market share through catering to different market

segments. Another TodoDia store opened on October 10th, 2001 in Taboao de Serra

region of Sao Paulo, with a third store scheduled for opening by the end of the fiscal

year 2001. As opposed to Wal-Mart Supercenter that carries 60,000 items, Wal-Mart’s

TodoDia carries only 12,000 items. Besides being a smaller format store, TodoDia’s

inventory is stored directly above display shelves. It is reasonable to suspect that Wal-

Mart’s introduction of the TodoDia store format is used to test the market in Brazil for

future expansion into local, and extremely value-conscious neighborhoods. This strategy

is similar to that of Wal-Mart de Mexico where the company currently dominates the

retail market with six retail formats.

In line with Wal-Mart’s revised strategy that called for improved assimilation into

Brazilian culture, the company is currently involved with local communities, supporting

social programs such as “Special Olympics Brazil” and “Mesa Sao Paulo”.

Wal-Mart’s latest move is the announcement of the marketing alliance with AOL

Latin America whereby AOL Brazil will be promoted in all Wal-Mart and Sam’s Club units

in Brazil. This marketing partnership is a logical strategic response to a current growth

46

of the e-commerce sector. The value of business-to-consumer (B2C) e-commerce sales

is forecasted to reach $4.3 billion in 2005. The number of Internet users in Brazil is

expected to jump to 29 million in 2005.

47

48

FACTOR AFFECTING FDI IN RETAILING(Brazil)

Factor Impact Advantage Disadvantage

Cultural Differences Involved with many social programs.

Identify to consumer.

Price policy / Income group

Start Everyday low price strategy.

Attract middle and lower class segment consumer.

This strategy does not improve market share.

Competition To targeting consumer Open different retail format store.

It fulfills demand of different costumer segment.

Existing competitor also follow that’s idea.

Marketing Alliance with AOL Latin America

Generate marketing wealth for Organization.

It affect organization low price strategy.

Distribution Open new distribution policy.

Better control on Wal-Mart supply chian.

This policy handle only few number of store.

49

Literature Review

Literature review is a study involving a collection of literatures in the selected area of

research in which the researcher has limited experience, and critical examination and

comparison of them to have better understanding. It also helps the researchers to

update with the past data, data sources and results and identify the gap for further

research, if any.

FDI

There are many studies which have identified technology, labor skills and infrastructure

as the major determinants of foreign investment. These factors are very important to

explain the patterns and trends in the geographical structure of FDI at the world capita

income, in relation to outbound as well as inbound FDI (Hummels and Stern, 1994).

The incentives announced by the exchequer is also very important in formulating

and analyzing the corporate strategies of international location, also institutional,

historical and cultural factors should be embedded in overall analyzing and framing of

policies ,as these factors should not be ignored as they influence the investor’s location

related decisions (Martin and Velazquez, 1997).

Whether tariff rate, exchange rate and tax rate are significant for FDI was tested in a

study by Aqeel and Nishat (2004).Some studies have also analyzed the variables like

market size and differences in factor costs and were also found to be significant in

determining the FDI location as these are very important in determining the market

economies and they cannot be achieved and exploited till the time market achieves a

certain size. (Markusen and Maskus, 1999).

Wal-Mart

Wal-Mart is the largest Discount Store in the United States. Its magnitude is not only

recognized domestically but also expanded to International Market. The company

50

believes that one day this one will replace the United States position when the trend

down (Molin, 2004). With this goal Wal-mart is encouraged to expanding stores into

nine countries around the world and more in its plans (About Wal-Mart, 2001). Being

number one in the United States does not always guarantee for being number one

elsewhere in the world. There are many problems that Wal-Mart is now facing in this

highly competitive business world. Finally, many references illustrate various problems

and causes Wal-Mart faced while expanding into International market.

The three basic belief and two keys rules that differentiated Wal-Mart from the

rivals were proposed in “The Wal-Mart Culture” (2004). Gilman, 2004; Jones, 1998 and

Menzer, 2001 describe the reason why Wal-Mart expand its intensity to international

market. Sources tend to agree that Wal-Mart itself has less consideration in

international market when compare with competitors (Groeber, 2002; Wal around…,

2001).

Another reference states that it was misreading the competitors (Molin, 2004).

In addition, other sources state that culture difference is another problem that Wal-

Mart was overlooked (Lewis, 1998; Anderson, 1994).

Even though Wal-Mart has close relationships with American suppliers, it fails to

make connection with local suppliers (Bianco & Zellner, 2003; Lohr, 2003). Wal-Mart

tried to use the same standard and concept as in United States but unfortunately one

concept does not fit all. Moreover, Gilman (2004) and Zellner, Schmidt, et al. (2001)

agree that Wal-Mart is too concentrated in expanding their concept.

Another external factor that comes into play is government regulations. Both

Groeber (2002) and Molin (2004) agree that these restrict regulations lead monopoly

market in some countries.

51

Although some source states that one of the biggest problems of Wal-Mart is

Human Resource Management (HRM) (Biddle, 2004), sex discrimination is the most

controversy topic not only in the United States but also in the international market as

well (Rock, 2001).

From the beginning Wal-Mart focused on increasing the volume of customers’

visits to realize economies of scale (Walton, 1992). When Wal-Mart enters a market,

prices decrease by 8 percent in rural areas and 5 in urban areas (Ghemawat and Mark,

2006). Wal-Mart competes with establishment in a wide array of sectors both directly

and indirectly (Basker, 2005).

Wal-Mart had the largest privately owned satellite communications network in

the U.S. This helped the managers to have a complete picture of where goods were and

how fast they were moving from the suppliers to frontend service and track all the costs

involved (Lichtenstein, 2005).Wal-Mart procures goods directly from manufacturers

bypassing all intermediaries and always drives hard bargain from suppliers. It spends a

significant amount of time meeting vendors and understanding their cost structure.

Once satisfied, it establishes long term relationship with vendors. It is in constant touch

with suppliers through computer network (Chandran, 2003).

Basker (2005) found that “…immediately after entry, retail employment in the

country increases by approximately 100 jobs; this figure declines by half over the next

five years as some small and medium size retail establishments close. Wholesale

employment declines by approximately 20 jobs over five years.”

Schell (2011) observes “Just as China is providing Wal-Mart with the lifeblood of

its commercial growth, Wal-Mart is helping the Chinese state not just to satisfy the

escalating demands of its consumers but to extend Beijing’s regulatory writ. Together,

they are engaging in a bold experiment in consumer behavior modification, market

economies, and environmental stewardship….how Wal-Mart and China interact with

each other over the next decade will be critical to the fate of the planet’s environment”.

52

OBJECTIVE

53

Objective of the study

Strategies tofollow by the Retail Market for overcoming the effects of FDI.

54

Research methodology

Research in common parlance refers to a search for knowledge. Once can also define

research as a scientific and systematic search for pertinent information on a specific

topic. In fact, Research is an art of scientific investigation. The Advance learner

Dictionary of current English laysdown the meaning of research as “A careful

investigation or inquiry especially through search for new facts in any branch of

knowledge”

According to Cliffort and Woody Research comprises defining and redefining problems,

formulating hypothesis or suggested solution, collecting, organizing and evaluating

data , making deductions and reaching conclusions and testing conclusions whether

they fit the formulating hypothesis.

Research Designing

Aresearch design is master plan or modal for conduct formal investigation. Once the

formal investigation is decided, the researcher must formulate the formal plan of

investigation. A research design is the specification of method and procedure for

acquiring the information needed for solving the problem. the information needed for

solving the problem. The information needed for solving the problem. The formal

investigation plan will concentrate on the three selection source of method and

procedures for gathering the data. Data gathering forms are prepared.

There are three basic type of research:

Exploratory

Descriptive

Casual

55

Exploratory:Designed to generate basic knowledge, clarify relevant issues, uncover

variables associated with a problem, uncover information needs, and/or define

alternatives for addressing research objectives.

Type of Exploratory studies

Literature Search

Analysis of Selected Cases

Experience Surveys

Descriptive: The Descriptive study Designed to provide further insight into the research

problem by describing the variables of interest. It can be used for profiling, defining,

segmentation, estimating, predicting, and examining associative relationships.

Type of Descriptive studies

Cross-Sectional Study

Longitudinal Study

Causal:This type of research Designed to provide information on potential cause-and-

effect relationships.Most practical in marketing to talk about associations or impact of

one variable on another.

56

ANALYSIS PART

57

Nature of Indian retailing

Before the decade of eighties, India with hundreds of towns and cities was a nation

striving for development. The evolution was being witnessed at various levels and the

people of India were learning to play different roles as businessmen and consumers.

Retailing in India at this stage was completely unorganized and it thrived as separate

entities operated by small and medium entrepreneurs in their own territories. There

was lack of international exposure and only a few Indian companies explored the retail

platform on a larger scale. From overseas only companies like Levi's, Pepe, Marks and

Spencer etc. had entered targeting upper middle and rich classes of Indians. However as

more than 50 % population was formed by lower and lower middle class people, the

market was not completely captured.

At present the Retail industry in India is accelerating. Though India is still not at

an equal pace with other Asian counterparts, Indian is geared to become a major player

in the Retail Market. The fact that most of the developed nations are saturated and the

developing ones still not prepared, India secures a great position in the international

market. Also with a highly diverse demography, India provides immense scope for

companies brining in different products targeting different consumers. The factor that is

presently playing a significant role here is the fact that a large section of Indian

population is in the age group of 20-34 with a considerably high purchasing power; this

has caused the increase in the demand in the urban market resulting in consistent

growth in the Retail business.

However there are a few precautions for every brand that explores Indian

market. As Indian consumers are very curious and have a broad perspective, they

respond well to a new product or concept and there are very fair chances of a brand

surviving well, but every Indian consumer be it an urbanite or a small town dweller

needs a feeling of value for money. Although labeled as tight fisted, Indian consumers

58

are great spenders once they realize that they are getting value for their money. Also

new product /service concepts from the western world are better adopted first by the

urban Indians, the smaller markets respond well to the need based retailing rather than

luxury concepts.

As the Indian retailing is getting more and more organized various retail formats are

emerging to capture the potential of the market.

Mega Malls

Multiplexes

Large and small supermarkets

Hypermarkets

Departmental stores are a few formats which flourishing in the both big and

small regional markets

Growth in India Real estate sector is also complementing the Retail sector and thus it

becomes a strong feature for the future trend. Over a period of next 4 years there will

be a retail space demand of 40 million sq. ft. However with growing real estate sector

space constraint will not be there to meet this demand. The growth in the retail sector is

also caused by the development of retail specific properties like malls and multiplexes.

The Retail sector in the small towns and cities will increase by 50 to 60 % pertaining

to easy and inexpensive availability of land and demand among consumers the

organized retail which currently has only 3% of the total market share will acquire 15-20

% of the market share by the year 2010.

India is a large and fragmented country and the absence of strong infrastructure and

logistics systems make it challenging to reach consumers located across vast distances.

With the Indian government making investments into state highways, an overall decline

59

of logistics costs is bound to occur. Studies suggest that logistics costs are between 10 to

12% of total GDP.

The major constraint of the organized retail market in India is the competition from

the un-organized sector. Traditional retailing has been deep rooted in India for the past

few centuries and enjoys the benefits of low cost structure, mostly owner-operated,

therein resulting in less labor costs and little or no taxes to pay. Consumer familiarity

with the traditional formats for generations is the greatest advantage to the un-

organized sector. On the contrary, organized sector have big expenses like higher labor

costs, social security to employees, bigger premises, and taxes to meet.

Proper training facilities for meeting the increasesing requirements of workers in the

sector would need the attention of both Government and the industry. Competition for

experienced personnel would lead to belligerence between retailers and higher rates of

attrition,especially during the phase of accelerated growth of the retail industry. The

process of avoiding middlemen and providing increased income to farmers through

direct procurement by retail chains need the attention of policy makers. Taking care of

supply chain management, mass procurement arrangements and inventory

management are areas that need the focus of entrepreneurs.

One of the key reasons for the increased consumption is the impressive growth of

the middle class. Around 70 per cent of the total households in India reside in the rural

areas. The total number of rural household is expected to rise from 135 million in 2001-

02 to 153 million in 2009-10. This presents the largest potential market in the world.

Indian consumer buying behavior to a large extent has a western influence. Foreign

brands have gained wide consumer acceptance in India and they are much more open

for experimentation. Beauty parlors in cities, eateries, designer wear, watches, hi-tech

products are a few instances which reflect these changes.

60

There is still no consensus made by government .In a politically and culturally diverse

country like India, within no time every economic issues turns out to become a political

issue and there is a persistence of inconclusiveness on the issue.

There are strong apprehensive comments and action seen by the proliferation of

these stores. A Wall Street Journal article reports that in Uttar Pradesh, Uma Bharti, a

senior leader of the opposition BharatiyaJanata Party (BJP), threatened to "set fire to

the first Wal-Mart store whenever it opens;" with her colleague SushmaSwaraj busy

tweeting up a storm of misinformation about how Wal-Mart allegedly ruined the U.S.

economy. With these offensive comments to develop a consensus is a most challenging

job by government of India.

61

Factor affecting FDI in retail (INDIA)

Factor Impact

Customer Segment

Culture

Government And Employment

Competition

Facilities

62