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Transcript of Finalfdiinretailppt 101011161658-phpapp01
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FDI IN
RETAIL
SECTOR
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•FDI in Retail – Policy Perspectives.
•Retail Sector – An Overview.
•FDI Policy in Retail - Opportunities & Challenges.
•Emerging Human Resource Challenges.
•What lies ahead ?
Issues for Discussion
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FDI IN RETAIL
POLICY PERSPECTIVE
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The commitment of money or
capital to purchase financial
instruments or assets in order to
gain profitable returns.
An investment is..
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Investment done by citizens and government of one country (home country) invest in industries of another country (host country).
An investment becomes foreign investment when..
Foreign Investme
nt through
Foreign Direct
Investments
Foreign Institutional Investors
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Automatic Route
FDI Routes
Government
No permission required Approval /License required.
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• 1991- FDI allowed selectively up to 51% in priority
sectors.
• 1997-FDI allowed up to 100% in sectors like mining,
manufacturing.
FDI Policy Initiatives
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• 2000-06 FDI allowed up to 100% in specified sectors.
FDI limits increased.
Procedures further simplified
• The top 3 Indian Regions attracting the highest FDI.
Mumbai, Delhi and Karnataka.
Account for nearly 62% of the total FDI.
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Modes of FDI
By Target
•Mergers and Acquisitions•Horizontal FDI•Vertical FDI. *Backward Vertical FDI *Forward Vertical FDI
By Motive
•Resource-Seeking•Market-Seeking•Efficiency-Seeking•Strategic-Asset-Seeking
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Barter system
Weekly marketVillage melas
Kirana StoresConvenience store
Government Stores
Super marketsHyper marketsMallsBrand outlets
Introduction to Modern Retail
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FDI Policy in Indian Retail Sector
Single Brand Retailing
• 51%
Cash and Carry Model
• 100%
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Why Global Retailers Look Up to India?
Incentives attract FDI.
Market size and potential are sufficient inducers.
Tax breaks, import duty exemptions, land and power
subsidies, and other enticements.
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Comparison of FDI Inflow.
FDI inflows from August 1991 to April2010 were
$134.6 billion.
FDI inflows from 2000-10 crossed $300 billion
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RETAIL INDUSTRY : AN
OVERVIEW
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Indian Retail Sector
GRDI Position : 3rd
Size : $ 400 billion
Growth Rate : 13%
GDP contribution : 12%
Major sector : Food and Grocery
Employment : 2nd largest industry
(35.06 million)
Types: Organized ( 5%)
Unorganized ( 95%)
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• Corporates are increasingly coming into this sector.
• Demand of branded goods on a large scale.
• Demand of new and varied products.
• High quality product is preferred .
• Varied window display.
• E-tailers increase the presence.
Emerging Trends
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Major Indian Retailers : Categories Format Description Retailers
Hypermarkets Offering basket of product Spencers, Big bazaar
Cash and Carry Bulk-buying requirement Bharti-wal-mart
Departmental stores Large layout, Wide merchandise mix
Lifestyle , Globus
Supermarkets Household product as well as food as integral part of the service
Apna bazaar , food bazaar
Shop-in-shop Shops located in shopping malls Navras ( big bazaar)
Specialty stores Focus on individual product type Brand Factory
Category killers Particular segment The LOFT
Discount stores Branded product at discounted prices
Subhiksha, levi’s outlet
Convenience stores Small Retail stores In and out
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Retail Segment Percentage holding in sector
Major retailers
Food and grocery 63% Reliance fresh, Café brio, food bazaar
Clothing, textile and fashion
9% Westside, shoppers stop, globus
jewellery 5% Tanishq
Catering services 5% IRCTC
Consumer durable 4% Viveks, vijay sales, Croma
pharmaceuticals 4% Piramal group
Entertainment 3% Bowling co.,
Furnishing, utensils 3% Hometown, Tangent Concept
Mobile handsets 2% The mobile store,
Segmentation
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• One of the world's largest industries exceeding US$ 9
trillion.
• Dominated by developed countries.
• 47 global fortune companies & 25 of Asia's top 200
companies are retailers.
• US, EU & Japan constitute 80% of world retail sales.
Retail Sector at Global Level
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• Retail trade in Europe employs 15% of the European
workforce (3 million firms and 13 million workers).
• The world’s population is poised to expand 50% by 2050.
The world currently comprises of 78% poor, 11% middle
income and 11% rich.
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Contribution Of Retail Industry to GDP of Various Economies
USA
China
Japan
Brazil
India
20%
8%
14%
6%
12%
Contribution Respective to GDP
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US
Sales: $374.5 bn
Earnings: $12.9
billion
Stores: 6,800
worldwide
France
Sales: $130 bn
Earnings: $5.2 billion
Stores: 87,422
worldwide
UK
Sales: $102.6 billion
Earnings: $5.5 billion
Stores: 3,729
worldwide
Germany
Sales: $101 billion
Earnings: $1.5 billion
Stores: 2,221
US
Sales: $77.3 bn
Earnings: $4.2 billion
Stores: 2,258
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India
China
Indonesia
Thailand
Malaysia
Taiwan
US
0 10 20 30 40 50 60 70 80 90 100
OrganisedUnorganised
US Taiwan
Malaysia
Thailand
Indonesia
China
India
Unorganised
15%
19% 45% 60% 70% 80% 95%
Organised 85%
81% 55% 40% 30% 20% 5%
Organised vs Unorganised Retail at Global Level
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Emerging Concepts
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Opportunity Analysis and Strategies in Retail Globally
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India China
Focus on Services Focus on Industry
High labor cost Low Labor Cost
Home grown Capital FDI
Old technology Adaptability to Latest technology
Democratic Government Communist Government
India Vs. China
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FDI POLICY IN RETAIL
OPPORTUNITIES
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What Are Global Retailers Saying?
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•A large emerging market .
Increase in disposable income of a family.
70 mn Indians – salary of $18,000.
Rise to 140 mn by 2011.
Consumer spending power increased by 75% in
last 3 years.
The per capita income in 2009–2010 has more
than doubled to US$ 849 from US$ 348 in 2000–01.
Demographics
INDIA
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Characteristics of Indian Market
Source: McKinsey&Company
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•Increase in consumer class.
Consumer class will grow
from 50 million at present to
583 million by 2025.
With more than 23 million
people taking their place
among the world’s
wealthiest citizens.
Consumer Class Shift
Upper class
Middle class
Lower class
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•Wide demographics -- average age of 25 yrs.
•Brand consciousness.
60 % of population below age of 30.
Awareness through World Wide Web.
•Changing consumer mindset.
Focus shifting from low price to convenience, value
and a superior shopping experience.
•Small Basket Size Shaping of Consumption
Consumer Behaviour
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Consumption Boom
Source: McKinsey&Company
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•Easy consumer credit.
EMI & loan via credit cards --
easy for Indian consumers to
afford expensive products.
For instance, Casas Bahia’s-
Brazil.
Easy Credit
Upper class
Middle class
Lower class
Note: BOP C.K.Prahalad.
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•Employment generation.
Second-largest employer after
agriculture.
Retail trade employing 35.06 million.
Wholesale trade generating an additional
employment of 5.48 million.
Employment Generation
Additional 1.6 mn jobs .
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•Technology Better use of resources and
goods.
Wastage and Storage problems will be
resolved.
Efficient logistics, production, and
distribution channels.
Digital records.
Technology
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Infrastructure
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•Rural market.
Robust Consumption.
70% Indian households.
2/5 of the country’s total consumption pie.
Accounts to 45% of GDP.
Rural Market
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Fiscal Growth
Evergreen Need
•FDI in Retail sector will resolve problems regarding foreign exchange in India.
•The life-long basic needs will keep on driving the Retail Industry.
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Let the liberalisation be in steps rather than
being a leap.
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FDI POLICY IN RETAIL
CHALLENGES
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Challenges
SKILLED WORKERS
COMPETITION
REAL ESTATE PROBLEM
MARKET POWER
SUPPLY CHAIN MANAGEMENT
PROBLEM IN RAISING FUNDS
TAXATION POLICIES
INFLATION
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• Major challenge faced by Organized retail sector:
In Retail, over 70 per cent of the labor force in
both sectors combined (organized and unorganized)
is either illiterate or educated below the primary
level.
• Labor Laws
Lack of Skilled Workforce
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• A strong competition from mom and pop shops:-
Easily accessible & approachable.
Provide services like Free home delivery and goods on
credit.
They change consumer focus.
COMPETITION
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INDI
AN
• Pantaloons
• Reliance
• Bharti retail
• RPG• Lifest
yle• K
raheja
• Subhiksha
• Piramyd
• Trent• Vishal
group
GLOBAL
• Tesco• Walm
art• Metro• Carref
our• B&Q• Targe
t
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Problem of Real Estate
Clustering of outlets.
Highest Stamp Duty.
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FORMAT AVERAGE SIZE
Convenience Stores 800 sq. feet
Discount Stores 1000 sq. feet
Category Killers 8000 sq. feet
Specialty Stores Single-category
Shop-in-Shop Within Large malls
Organized Retail Formats in India
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FORMAT AVERAGE SIZE
Supermarket Large in Size Typical in layout
Department Stores 10,000 – 60,000 sq. feet
Cash and Carry 75,000 Sq. feet
Hypermarkets 50,000 – 1,00,000 sq. feet
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• Market power is in hands of unorganized retail.
• Potential of Indian Market is US$ 200 billion whereas India is just earning its 3%.
Market Power
Unorganized
•95%
Organized •5%
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Absence of Developed supply chainShrinkage
Lack of logistic Infra.
Corruption
Additional Intermediaries
Technology Hurdles
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Shrinkage
Lack of Logistic Infrastructure
In India every year there is pilferage of US$ 65 billion
whereas in USA it is just 1-2%.
Due to lack of proper storage infrastructure post-
harvest losses of farm produce is Rs. 1 trillion cr.
annually.
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In terms of corruption India stands at 85th position.
Because of paper work, corruption is present along the
entire supply chain.
Corruption
Additional IntermediariesIn India, there are additional 2-3 intermediaries as
compared to USA.
i. They dominate the value chain.
ii. They flout mandi norms & their pricing lacks
transparency.
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India is still in developing stage in installing and
managing an effective IT system especially in rural areas
which hampers the overall growth of organized retail
sector.
Technology Hurdle
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Banks are reluctant to finance retailers because of falling
demand of organized retailers in India as it has witnessed
failure of many stores like Spencer's, Subhiksha, etc.
Problem in Raising Funds
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• Taxation laws in India favors only small retail businesses.
• Implementation of non-uniform VAT across states.
• Octroi and entry tax in some states.
Taxation & Stringent Approvals
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• No Automatic Approval for FDI- Only 51% FDI is
allowed to one brand shops in Indian retail sector.
• Complications in issuance of licenses like a hypermarket
in Mumbai must apply for 29 unique licenses & then when
it has to come up with second store it has to apply for same
29 licenses all over again.
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Inflation Effect on Indian Retail Industry
Disturbed economic status.
Challenge to get more customers at
low cost.
Liquidity pressure
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EMERGING HUMAN
RESOURCE CHALLENGES
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• Indian retail sector :
Employs 8% (35 million)of the working population.
Could yield 12 to 15 million retail jobs in the coming
five years.
• Out of which organized segment is about 0.3 million.
• Retail sector grew at 9.4% on real terms & 15.4% on
nominal terms.
Present Scenario
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Value Chain & Core Processes
Front End Operations
Back End Operations
Store Operations
MerchandisingLogistics &
DistributionsMarketing
Procurement/ Purchase
Corporate Services
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Functional Distribution of Employment in Retail
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Distribution of Human Resource by Education Level
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Profile RequiredMBA Graduates with 5-10years of Experience
Graduates with 2-5years of Experience
Graduates/ 12th Pass/ 10th Pass
Graduates/ 12th Pass/ 10th Pass
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Skill Requirements &
Skill Gaps
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Associates&
Executives
Level Skills Required Skill Gaps
TransactionprocessingAssociate/Billing associate
• Computer Skills• Transactions
• Knowledge• Soft Skills
Customerservicerepresentative/SalesAssociate/Salesperson
• Selling Skills• Promotional Schemes• Product Knowledge
•Comm. Skills• Knowledge• Cross Selling
MerchandisingAssociate/Executive
• Responsibility• Routine Visits
• Customize
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Purchaseexecutive
• New Vendors• Communicate
• Delivery of merchandise during peak demand season
Executive/MarketingAssociate
•Marketing Strategies• Feedback• Knowledge
• Communication
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Senior Manager & Manager
Level Skills Required Skill Gaps
Store Manager/DepartmentManager
•Management • Proficient Tools•Sales Promotion Programms
•CrossFunctional Activities•Man Management Skills•knowledge.
MerchandisingManager/Sr.MerchandisingManager
• Current Market Trends• Product Knowledge• Visual Merchandising Concepts
• Understanding• Soft Skills
PurchaseManager/CategoryManager
• Sourcing Alternatives• Track Inventory Level
• Negotiation Skills• Soft Skills
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Level Skills Required Skills Gap
Senior Manager/Manager
•Availabilityof merchandise.•Maintenance •Design/modify the logistic schemes.• Negotiation with warehouse owners.
•Availability ofexperienced Logisticspersonnel is a keychallenge
MarketingManager/Sr.MarketingManger/MarketingOfficer
• Knowledge of data analysis.•Understand customer behavior.•Coordinate with media agencies.
• Ability to understand•Communication
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Factors Leading to Difference in Skill Intensity Across Retail Segments
Complexity/Technical Nature of Product
Nature of Supply Chain
Changes in the Product Nature/ Type
Level of Customer
Involvement
Store Characteristics
Price Segment(Luxury, Mass market etc.
Intensity of Skill Requirement
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Issues
Demand• Communication Skills
• Multi Tasking
Supply• Limited Retail Training
Opportunities
• Higher Level Skills
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Current Training/Education Infrastructure
• The Retailers Association of India (RAI)
- Diploma and Degree Programs in Retailing
- Bharti Retail and Vishal Retail
- 5,000 trained persons
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Projected Industry Size
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Skill Pyramid4-5%
30-33%
10-15%
50-53%
Level 3
Level 2
Level 1
Level 4
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WHAT LIES AHEAD?
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• Employment.
• Unfair competition.
• Under-developed organized retail sector.
NSSO Concerns On Opening Up Of FDI
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FDI can be a powerful catalyst to spur competition in the retail industry.
It can bring about: Supply Chain Improvement Investment in Technology Manpower and Skill development Efficient Small and Medium Scale Industries Increase in exports
‘FDI In Retail- A Policy Perspective’, - FICCI and ICICI
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Lifestyle plans to have more than 50 stores across
India by 2012–13.
Future Investments
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Major Retail Players Entering Into India
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• Investment into warehouse and cold storage chain will result in significant efficiency on supply chain.
• Farmers benefited through direct marketing and contract farming programme.
• Improves farm production through modern techniques.
• Increasing availability of low interest credit for farmers.
Benefits Envisaged To Agriculture Through The Opening Of FDI
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Future Predictions
2008 2011 2013 20180
0.2
0.4
0.6
0.8
1
1.2
1.4
0.35
0.59
0.830000000000001
1.3
Expected Growth
CAGR 10%
• In the last four year, the consumer spending in India climbed up to 75%.
• By the year 2013, the organized sector is also expected to grow at a CAGR of 40%.
• The total number of shopping malls is expected to expand at a CAGR of over 18.9 per cent by 2015.
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The initial cap on investment could be pegged at 49%.
FDI should be leveraged to create back-end infrastructure.
FDI will be a powerful driver to curb inflation.
Recommendations
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To develop our rural sector ,should conditionality’s be put on the FDI funded chains relating to employment?
For example, should we stipulate that at least 35% of the jobs in the retail outlets should be reserved for the rural youth?
?????
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Urban migration
Opportunity to urban and rural unemployed
Alternative incentive schemes
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Industry experts predict that the next phase of growth in the retail sector will emerge from the rural markets.
By 2012 the rural retail market is projected to have a total of more than 50 per cent market share.
Apparel, along with food and grocery, will lead organised retailing in India.(RNCOS)
Road Map
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What additional steps should be taken to protect small retailers?
Should an exclusive legal and regulatory framework be established to protect their interests?
?????
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National legal framework cannot be effective.
Hamper growth in retail sector.
Incentives directly to benefit small retailers.
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Restrict the number of stores that can be operated in a city.
Allow access to the small retailers to the stores through special windows.
Recommendations
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Thank You