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Impact of FDI on Indian retail sector

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Contents

Introduction................................................................................................................................3

Literature review........................................................................................................................4

Research methodology...............................................................................................................9

Analysis....................................................................................................................................11

Case study: Tata’s Croma.....................................................................................................16

Findings....................................................................................................................................20

FDI in Retail in India............................................................................................................21

Growth drivers in India for retail sector...............................................................................22

Discussion................................................................................................................................23

FDI in INDIA SECTOR WISE............................................................................................23

Conclusion................................................................................................................................25

Bibliography.............................................................................................................................27

Introduction

Foreign Direct Investment (FDI) is fund flow (inflow/outflow) between the countries wherein one gains benefit from their investment whereas another can exploit the opportunity to enhance the productivity and find out better position through performance. Foreign Direct Investment (FDI) is the flow of funds between countries wherein one country reaps benefits from the investments and the other can make the most of the opportunity to improve the productivity and stabilize their position through performance. The Dictionary of Economics has defined FDI as investment in an overseas country through the acquisition of a company there of an operation on a new site. In other words, the capital inflows from abroad that is invested in to improve the production capability of the economy.

Two forms of FDI: Inward FDI Outward FDI

FDI is an important factor for growth and development in both developed and developing countries. FDI has seen a spectacular growth in the last two decades globally. Policies are formulated in order to accelerate inward flows. FDI provides good opportunities and benefits for both the host and home countries in terms of investments. The “home” countries benefit from the markets opened by industrial growth and the “host” countries obtain managerial and technological skills along with domestic savings and foreign exchange. Moreover, the lack of capital, financial, technology, entrepreneurship, access to markets skills and practices have prompted developing nations to accept FDI as a viable option.

The Government of India (GOI) with the help of World Bank and IMF has introduced macro-economic stabilization and structural adjustment program. India has embraced FDI and adopted a liberal foreign policy to lure foreign investors. Under the new foreign investment policy, GOI has constituted Foreign Investment Promotion Board (FIPB) whose main function is to invite and assist foreign investment through a single window system from the Prime Minister’s Office. Government has raised the foreign equity cap for the existing companies to 51 percent and allowed the usage of foreign brand names for locally produced items. India is now a member of MIGA (Multilateral Investment Guarantee Agency) which protects foreign investments.

FDI trends in INDIA

FDI policy has a vital role in the growth of developing countries economically around the world. The government of India has been considering opening up the retail business to FDI. Many other sectors have been exposed to FDI, the retail sector has had to wait for quite some time due opposition from political parties.

FDI will be a powerful catalyst to the growth of retail industry (The Siasat Daily, 2012). The general agreement on trade in services with World Trade Organization (WTO) was opened FDI for wholesale and retailing services in 1995. In 1997, FDI cash and carry (wholesale) with 100% rights was allowed with government approval. There had been a greater momentum in the retail sector since 2006 as the Government of India liberalized FDI

policies. The FDI policy in wholesale and cash and carry under the automatic route and in single-brand 51% investment was permitted. On November 24, 2011, the Government of India announced that it had approved FDI in multi-brand retail subject to a number of conditions.

A foreign company initial investment must be at least $100 million and at least 50 percent is required in supply chain operations. Investors will have to source 30 percent their products from "micro and small" industries with not more than $1.0 million in capital investment. FDI will be allowed in retail stores only which operate in cities where population is more than one million.

The second largest employer in India is the retail sector with over 35 million people employed by the industry. There has been opening of Indian economy to foreign organization for foreign direct investment through organized retail. The union government has permitted 51% foreign direct investment in multi-brand like Tesco, Wal-Mart and Tesco. This will make foreign goods and items of daily consumption available locally, at a lower price, to Indian consumers. The new policy enables multi brand foreign retailers to establish shops in cities with more than 10 lakhs as per the 2011 census.

Currently, there are 53 cities wherein big retailers can look at smaller cities too. The state governments will have the final decision. Foreign retailers will require a minimum investment US $100 million of which at least 50% of total FDI should be invested in back-end infra-structure which would include capital expenditure on the entire spectrum of related activities including cold chain infrastructure, food processing, refrigerated transportation, logistics. Big retailers will need to obtain from Indian small industries at least 30% of manufactured or processed products.

As per a recent UNCTAD survey, with less than USD 1 billion in 1990, India has been projected as the FDI destination after China for multinational corporations during 2010-2012 and the main sectors for investments included telecommunication, services, computer software and hardware and construction activities.

The US, UK, Singapore and Mauritius were the leading resources of FDI. For 2009-10, FDI was at USD 25.88 billion which was 5 per cent less than the previous fiscal of USD 27.33 billion. In August, FDI reduced by about 60 per cent to USD 34 billion as per industry data. India’s FDI inflow in the first two months was at USD 7.78 billion compared to USD 4.4 billion for the same period in the previous year.

The challenges FDI face may be due to government trade restrictions and policies and thereby leading to less contribution to economy and GDP. The studies try to understand the economic scenario and gauge the factors contributing to the economy in India.

Literature review

This section reviews the empirical studies on the relation between FDI and economic activities in the host economy, which could facilitate in identifying the issues relating to the impact of FDI at the sartorial level. In the earlier stage, few studies had shown that FDI has a negative impact on the growth of the developing countries ( (Singer, 1950); (Griffin, 1970);(Weisskof, 1972)). The main argument of these studies was that FDI flows to Less Developing Countries (LDCs) were mainly directed towards the primary sector, which basically promoted the less market value of this sector. Since these primary products are exported to the developed countries and are processed for import, it receives a lower price for its primary product. This could create a base for the negative impact of FDI flows in the economy.

A study by (Kasibhatla, 1996) in the U.S. supports a unidirectional causality from GDP to FDI and not the reverse causation. This may be due to the fact that for a developed country, FDI follows GDP, as GDP is an indicator for market size.

(Aitken, 1997), showed the external effect of FDI on export with example of Bangladesh, where the entry of a single Korean Multinational in garment exports led to the establishment of a number of domestic export firms, creating the country’s largest export industry.

The study by (Chen, 1995) using time series data for the period of 1979-93, estimated the regression between GNP, domestic saving in one period lag, and FDI in one period lag (all in logarithmic value). The results of the study show that there is a positive relationship between FDI and GNP and it is significant at 5 per cent level for the Chinese economy.

(Bashir, 1999), examined the relationship between FDI and growth empirically in some MENA countries, using panel data. The study found that FDI leads to economic growth; the effect however varies across regions and over time.

(Balasubramanyam, 2003) and (Fischer, 2002) argue that the anti-export bias of India’s trade policy have not been eliminated by the implemented reforms. According to (Arabi, 2005) and (Agarwal, 2001), India has remained a domestic market for FDI. It is widely believed that the type of FDI and its structural composition matter at least as much for economic growth effects as does the overall volume of inward FDI.

(Agrawal, 2005) reckon that in India, quality of FDI is important than quantity. Further, the FDI to GDP ratio is almost negative if not significant. Inclusion of exports as a variable may be partial towards the FDI variable downwards to the extent that the growth of FDI may impact promotion of export.

(Chen, 1993) noted the relevance of cross border R & d activities and recommended that research on FDI be conducted on why companies globalize their R & D.

(Dijkstra, 2011), (Tybout, 2000) and (Vachani, 1997) found that in less developed countries (LDCs), investment policy liberalizations have greater bearing on firms. Depending on their characteristics, companies may gain or lose.

(Kumar, 2001) analyses the role of infrastructure availability in determining the attractiveness of countries for FDI inflows for export orientation of MNC production.

(Anand Virmani and Susan Collins, 2007) studied empirically India’s economic growth experience during 1960-2004 focusing on the post 1973 acceleration and their analysis focused on the rare dimensions of India’s experience. Their findings showed that India needs to expand more to provide manufactured products to the global market and jobs for its low skilled workers.

(Singh, 2005) has analyzed FDI flows from 1991-2005. His study reveals that FDI has become a success in India, the progress is slow. The success of infrastructure is due to power sector and telecommunication, which has undergone a dramatic change. Power is not evenly distributed and FDI in sectors is mainly held by telecommunication.

This paper examines the consequences in growth and economic development of India due to change in policies.

(Bose, 2007) in his book studied the FDI inflows and outflows in India and China. This book provides information on FDI in India and China, emerging issues, globalization, foreign factors, trends and issues in FDI inflows, FDI inflows in selected sectors. He has revealed in his book that India has the opportunity and the potential to surpass China in FDI inflows in various sectors. Tanay Kumar Nandi and Ritankar Saher (2007) studied FDI in India with focus on Retail Trade. This paper suggests allowance of FDI in retail sector and also can be allowed in various sectors which are good with less harm to domestic economy.

FDI and retailing are the current burning issues and several researches were conducted in this area. It is an interesting subject for research scholars and policy makers. The literature review mainly focused on huge untapped markets in Indian retail and the opportunities available in the Indian market for the growth of organized retail. (Chopra, 2006), reported that retailing in India is evolving rapidly with an increasing number of global retail firms and several foreign investors are willing to invest in this sector. The sector is seeing high growth rate of more than 27 percent over the next five to six years.

(Sinha, 2003) viewed that consumers prefer traditional means to bargain and prefer modern methods because they connect entertainment with shopping.

(Joseph, 2009) preferred modern outlets as they provide better product quality, lower prices, one-stop shopping, choice of more brands and products, good shopping experiences with family and fresh stocks etc. (Mukherjee, 2005) opined that consumers are the major benefactors of the retail boom as organized retailers are initiating methodologies such as tracking consumer behavior and consumer loyalty programs to retain their market share.

(Rao, 1998), (Rao, 2000) reported that Indian consumers recognize a brand’s value addition and preference for multinational brands. (Kinra, 2006) viewed that consumers recognize view quality of foreign brands better than Indian brands. (Kaur, 2007) found that key decision-makers are children in household purchases who are much interested in branding. According to (Arabi, 2005) and (Agarwal, 2001), FDI in India has remained domestic market seeking.

It is widely believed that the type of FDI and its structural composition matter at least as much for economic growth effects as does the overall volume of inward FDI. (Basu, 2012) states that only ten states in India have allowed the Centre's decision to allow FDI in multi-brand retail.

According to AT Kearney, well-known International Management Consultant India has been recognized as the second most attractive retail destination globally among the thirty emergent markets. (Singhal Aravid, 2011) reports that the retail industry is one of the mainstay of the Indian economy contributing 14 percent to the national GDP and employing 7 percent of the total manpower in the country.

A publication of the World Bank and the International Finance Corporation (2009) indicates that the income generated through revenues realized via taxation is assisted by FDI. FDI plays a crucial role in the productivity of the host country. (Joseph, 2006) described that the decision of permitting FDI in the retail sector has been a debate in India for a considerable period of time. (Mandeep, 2009) says that since the Indian retail sector is highly fragmented and domestic retailers are in the process of consolidating their position, the opening up of the FDI regime should be in a phased manner over 5 to 10 years time frame so as to give the domestic retailers enough time to adjust the changes.

Khatore, Prashant and Parekh (2009) said that there is a need to re-look, clarify, and further liberalize the policy on single-brand retailing to promote investments by global chains in India. (Pawar, 2010) argues on the necessity of conditions of rural employment creation and investment in back-end infrastructure etc. for permitting FDI. (Kalhan, 2007) indicated that there has been a severe impact of malls on the unorganized retail shops operating in the vicinity of malls. (Mukherjee, 2005) carried out a broad based survey on “FDI in the Retail Sector in India”, which was sponsored by the Indian Council for Research on International Economic Relations (ICRIER), vehemently recommended the allowing of FDI in the organized format in the retail industry over a period of five to six years to boost the speed at which the organized retail sector is growing.

They found that joint ventures with foreign retailers help the Indian industry to get access to finance and global best practices. The New FDI policy has become a key battleground in the emerging Multi-Brand Retail markets. Researchers like (Henley, 2004); (Palit, 2007); (Pires,2010); (Jain, 2012); (Moghe, 2012) have highlighted a number of problems related to backend infrastructure, implementation of improved technology, improvement in supply chains, issues of real estate and human resources.

It is observed that deficiency of appropriate investment in logistics and storage facilities which are two alarming factors leading to an inefficient market mechanism. (Henley, 2004) study shows China is in a better position in attracting FDI when compared to India. India's performance is understated because of various reasons like high tariffs, poor physical infrastructure; unfriendly regulatory system etc. (Fulzele, 2012) examined the impact of FDI in retailing in India on employment, consumers, capital inflow, infrastructure, farmers and retailers.

(Ranjan, 2010) suggested some recommendations to the retail industry as well as to the Government to take adequate steps in order to face challenges raised at the time of entry of global retailers. (Dey, 2007), took note of certain issues related to FDI in India. (Amisha, 2010) suggested that FDI in the buzzing Indian Retail should be significantly encouraged. (Malik, 2012) concluded that Indian consumers are more concerned about service quality,

store convenience, product quality and availability of new products in retailing. (Pai, 2011) says, the opening of multi brand retail is expected to bring down inflation and inflow of foreign funds may help finance the current account deficit. (Nayyar, 2011) welcoming the FDI in retail says “the primary benefit to farmers from the growth of organized retail is a higher price for their produce. (Guruswamy, et al., 2007), says that the retail industry in India is one of the rising sectors in the economy. (Joseph, 2009) study on organized retailing shows all segments of the Indian economy could be affected by the entry of large corporate giants in the Multi-Brand Retail business.

The liberalization of FDI for Multi brand retail sector would affect unorganized small retailers by giving rise to monopolies of large corporate houses with respect to pricing and availability of goods. (Pires, 2010), argue that the legal, technical and socio-economic problems at the macro-level interlink FDI and economic growth. The study stress on the importance of prioritizing the incentives offered to the FDI infrastructure.

Economic Survey (2011-12) for FDI in Multi-brand retail states that regarding inflation, the Inter-Ministerial Group (IMG) has recommended for leveraging FDI as it noted concerns for high rates of food inflation and low prices grasped by Indian farmers. McKinsey Report (2012) states that the retail productivity in India is very less compared to other International counterparts. (Moghe, 2012), critically analyzed the decision of Indian government to open retail sector for FDI in single-brand and multi-brand category and it's likely to have impact on various components of Indian economy. In addition, it was suggested to have a strong enforcement mechanism to ensure that big retailers do not dislocate small retailers by unfair means and to build a coexistence of both the arms.

The high-level group which is to be constituted under the Ministry of Consumer Affairs is expected to look into the aspects such as internal trade and recommendations on trade reforms to the government.

(Agarwal J, 2011) conducted the study on “Impact of FDI on GDP: A Comparative Study of China and India”, stated that one per cent increase in FDI would result in 0.02% increase in GDP of India and 0.07% increase in GDP of China. It also observed that China’s growth is affected by FDI than India’s growth.

(Kumar Gajendran Lenin, 2010) found out in their study on “Sectoral Performance through Inflows of Foreign Direct Investment (FDI)”, that FDI plays an important role in the host country’s economic development. Most of the developing countries use foreign investment and technology to improve their economic growth. FDI provides production level, high domestic capital and employment opportunities.

(Singh, 2009) stated in their study that a major role is played by FDI policies in the economic growth of developing countries around the world. The emerging markets key field is attracting FDI inflows with pro-policies. The paper highlighted the FDI trends in India and affect of FDI in the growth of Indian cities. (Devajit Mahanta, 2012), conducted the study to find out the impact of foreign direct investments on Indian economy and concluded that India needs FDI for its prolonged economic growth and development through developing manufacturing industries, creation of jobs, short and long term project in the field of healthcare, education, research and development.

(Sharma, 2006), “FDI in Higher Education: Official Vision Needs Corrections”, raised four issues requiring critical attention: alternatives to FDI, higher education objectives, its relevance and the financial situation. It was concluded that objectives for higher education were long term and investment requirement to the tune of Rs. 20000 to 25000 crore over the next five or more years and this requires FDI. (Balasubramanyam VN, 2007), stated in their article “Does India need a lot more FDI” compared the FDI inflows in India and China and China’s FDI is ten times more than India. The paper concluded that keeping in mind, the structure and composition of India’s industry sectors (manufacturing and service), and human capital, India may not require increase in FDI. India can rely on sources other than FDI for its capital requirements. (Bajpai Nirupam, 2006), in his paper on “Foreign Direct Investment in India: Issues and Problems”, identified the issues and problems linked to India’s current FDI and other related factors responsible for India not being an investment destination. FDI flows into India has been less than satisfactory despite a large domestic market, low labor costs, rule of law and working democracy. It was concluded that various factors like high import tariffs, stringent labor laws, centralized decision making processes, exit barriers for firms; poor quality infrastructure and limited scale of export processing zones were the reasons for making India an uninviting investment destination.

(Singh, 2009), stated in his study “Foreign Direct Investment in India: A Critical analysis of FDI from 1991-2005” examined the rough beginnings of FDI in India and observed the economic and political developments in two sectors i.e. infrastructure and industry. The study finalized that there was a mixed picture in the reforms on the policy environment for FDI in India.

Researchers focused the FDI problems in North and South Central Areas of Vietnam in the period 2000-2010 and found that FDI and GDP were closely related. Both FDI and GDP contribution in difficult socio-economic conditions have been important and positive.

Research methodologyResearch in common parlance refers to a search for knowledge. Research is an academic activity and as such the term should be used in a technical sense.According to Clifford Woody research comprises defining and redefining problems, formulating hypothesis or suggested solutions; collecting, organising and evaluating data; making deductions and reaching conclusions; and at last carefully testing the conclusions to determine whether they fit the formulating hypothesis. Research is, thus, an original contribution to the existing stock of knowledge making for its advancement. It is the persuit of truth with the help of study, observation, comparison and experiment. In short, the search for knowledge through objective and systematic method of finding solution to a problem is research. As such the term ‘research’ refers to the systematic method consisting of enunciating the problem, formulating a hypothesis, collecting the facts or data, analyzing the facts and reaching certain conclusions either in the form of solutions(s) towards the concerned problem or in certain generalizations for some theoretical formulation.

The purpose of research is to discover answers to questions through the application of scientific procedures. The main aim of research is to find out the truth which is hidden and

which has not been discovered as yet. Though each research study has its own specific purpose, we may think of research objectives as falling into a number of following broad groupings.

This research is a descriptive study in nature. The study is based on the time period from 2000-2011. Graphs and tables have also been used where ever required to depict statistical data of FDI during the study period.

Researcher used the Secondary data from

Websites of Government

Journals like journal relates with FDI

Books and magazines related to FDI inflows relate with different sectors

Books and magazines related to FDI inflows relate with different sectors..

Reports and publications of various associations connected with business and

industry, Agencies, government etc.

Historical documents and other sources of published information.

The objectives of this research is to identify factors which a customer considers for selecting a brand, the consumer perception for store brands, reasons for low contribution of private labels in a retail outlet and in the end coming up with a set of parameters which can be worked upon to enhance store brand’s image and increase their contribution in the total sales.

For this purpose Croma – Specialty retailer for consumer durables and electronics is considered. Primary data is collected for which Survey method is used for obtaining information which is based on questioning the respondents. Structured questionnaire is used to ask prearranged questions from the respondents.

Most of the questions are close ended with multiple choices to assist customers in answering. Most of the questions are framed on 5 point Likert Scale. The personal detail of respondents is limited to Age, Qualification and Area of Residence.

The study tries to find out how FDI seen as an important economic catalyst of Indian economic growth by stimulating domestic investment, increasing human capital formation and by facilitating the technology transfers. The main purpose of the study is to investigate the impact of FDI on economic growth in India.

SAMPLING DESIGN:

Sampling Technique: Convenience Sampling

The selection of sampling units is based on convenience of the interviewer. In this research the interviews are taken from the customers on the shop floor at the time when a sale is closed.

Sample Size: 152

Assumption: Sample Size of 152 respondents is true representative of the population.

Analysis

Foreign direct investment (FDI) as a strategic component of investment is needed by India for achieving the economic reforms and maintains the pace of growth and development of the economy. The paces of FDI inflows in India initially were low due to regulatory policy framework but there is a sharp rise in investment flows from 2005 towards because of the new policy has broadened.

FDI EQUITY INFLOWS IN INDIA (MONTH-WISE) DURING THE FINANCIAL YEAR 2011-12:

Interpretation:

Table 1 shows the amount of FDI inflows from April 2011 to February, 2012. It shows the amount in Rs crore and in US $ mn. The highest FDI inflows in the country is in the month June 2011 i.e. 25371 in Rs crores and 5656 in US $ mn. Other months shows the fluctuating

trend.

Chart 1

Amount of FDI inflows

INTERPRETATION

Chart 1 shows the total FDI inflows during the time period April 2011 to February,2012. The FDI inflow shows a fluctuating trend in different months.

Sectors attracting highest FDI equity inflows in India

Table 2.

Amount in Rs. crores (US$ in million)

INTERPRETATION

Table 2 shows the favorite and leading sectors for FDI in India. According to FDI report Service sector is the favorite sector with highest FDI inflow 20%. After service sector Telecommunication and Computer hardware & software is the next favorite sector with 8% and 7%. There is a good future prospect for investors in other sectors also like Housing sector and power sector.

Chart 2

FDI EQUITY INFLOWS IN INDIA

Interpretation

Chart 2 shows that service sector has the highest FDI inflow attracting 20% share. Other sectors have less FDI inflow in India. Telecommunication, computer software attracts only 7% FDI.

Statement on country-wise FDI inflows from April, 2000 to February, 2012

Table 3. Amount of foreign direct investment inflows country wise

INTERPRETATION

Table 3 depicts the country having the highest FDI in India. The report shows that the MAURITIUS country has the highest foreign investor in India with 39.25%. After Mauritius, Singapore and Japan invest the highest FDI in India with 10.46% and 7.53% respectively. U.S.A also get 4th position in FDI in India.

Case study: Tata’s Croma

Croma is one of the leading consumer electronics and durables retail chains in India with 54 stores across the country. Croma uses IT as a key di erentiator to o er a world-classff ff shopping experience.

Infiniti Retail operates a national chain of multi-brand electronics stores under the brand name Croma. It is a wholly owned subsidiary of Tata Sons, the holding company of the Tata Group. The company has a technical and sourcing agreement with Australian retail giant Woolworths. Under the arrangement Infiniti Retail owns and runs retail operations in India while Woolworths provides technical support and strategic sourcing facilities through its global network.

Croma is India’s first national, large-format, specialist retail chain for consumer electronics and durables. It is promoted by Infiniti Retail Ltd, a 100 per cent subsidiary of TATA Sons. Woolworths, one of the world’s leading retailers, provides technical and strategic sourcing support.

54 retail stores in large cities across India with the floor area ranging from 15,000 to

20,000 sq ft

Plans to have a network of over 100 stores by 2011

Croma Zip compact store format to penetrate in tier II and tier III cities

Croma sells a range of 6,000 products from 180 national and international brands

Online mode is used as a sales channel for select products

Croma is largest retail partner for most of the leading brands like Sony, Samsung, HP,

Nokia, LG, etc.

Croma launched private labels in December 2008 with a target of 20% sales contribution from them. However, till August 2010 Croma is able to gain only 5% contribution from its private labels. Therefore at present it becomes important for Croma to identify the factors which are acting as obstacles in Croma’s target’s achievement.

The study thus tries to identify some parameters used by customers to judge a brand and take its final purchase decision. The study with the help of those parameters tries to identify factors which when worked upon can increase the sales of private labels.

Areas of business

The Croma chain of stores offers, in different cities of India, a wide range of consumer electronics products across categories and brands. The stores are spread over 12,000 to 20,000 sq ft and have more than 6,000 products and 180 brands in eight categories: home entertainment, small appliances, white goods, computers, communication, music, imaging and gaming software. Infiniti Retail is headquartered in Mumbai.

Business Challenge

The retail industry is a world of rapid movement and change. Survival depends on fast, e ective interaction with customers to exceed their expectations while becoming moreff e cient, competitive, and profitable. Customer satisfaction hugely drives sales for largeffi companies and hence is the prime area of focus.

• To use IT as a differentiator providing the customers an enhanced customer

experience

• To enhance effciency of back-end operations

• To reduce the time for setting up stores from 75 to 80 days to 45 to 50 days,

supporting the pan India expansion plans

• To provide high bandwidth connectivity to all business critical sites at optimum cost

To succeed in the highly competitive retail industry, Croma sought to develop its strategies around efficient operations and enhanced customer satisfaction by achieving the following objectives:

Scalability: Scalable solution to cater to the expansion in POS or retail outlets

Connectivity: Connecting employees, 54 stores, distribution centres and head o ceffi

spread across India, on robust high-bandwidth network.

Reliability: High uptime ensuring customer service round-the-clock, enabling Croma

to meet end customer SLAs.

Vendor consolidation: Consolidating three network vendors into one for all telecom

requirements to reduce cost and simplify manageability.

Short implementation time: Telecom expertise to enable Croma to start operations

within 45 days from time of lease by providing connectivity.

Optimizing cost: Reduction in network cost, billing cost and voice cost

New vistas of growth

After tasting success in the bigger markets, the company is now working on a plan to set up stores in newer as well as smaller markets such as Madurai, Trichy, Ludhiana and Chandigarh. Next year, Croma will foray into the east, starting with Kolkata.

“When we started off, we had decided that every fifth store should have a different look and feel. We have managed to achieve that so far. In fact, we turn around our stores in just 60 days — from identifying the location, to doing up the interiors and finally cutting the ribbon,” says CEO and MD Ajit Joshi. Growing competition is not a concern as “we prefer to benchmark ourself against the best international retailers”.

“At the time of our entry, the market was populated with price-focused local players and there was limited endeavour to understand the needs of the consumer. Shopping for technology products is an involved process given the wide variety of brands, products, features and jargon,” adds Sumit Sahay, Croma’s head of marketing. “Therefore, Croma came in with a strong intent to help consumers in the buying process. This is aptly expressed in the tagline ‘We help you buy’.”

That the tagline doesn’t just remain something that merely sounds nice is a constant endeavour at Croma, where staff is trained to understand a customer’s requirements and recommend products to fit the need. As Croma stores have only employees (or interns) and no commission agents, customers get to explore the products on display without pushy salespersons breathing down their necks. And that makes it a perfect electronics shopping destination for the whole family.

The Croma Zip stores, by contrast, attract the young and the restless generation of gadget-lovers. These smaller format stores focus on more digital offerings such as laptops, cameras, mobile phones, MP3 players, software, gaming and accessories. And given the target audience, these stores sport a younger look with differently designed fixtures and more energetic communication.

Current scenario

Tata Group’s privately held company Infiniti Retail, which runs electronics retail chain under the brand Croma, has acquired Australian partner Woolworths’ wholesale retail arm in India for Rs 204 crore ($38 million). Woolworths Wholesale (India) Private Limited, a wholly owned subsidiary of Woolworths Limited Australia, is a ‘cash and carry’ wholesaler supplying merchandise to Infiniti Retail.

Since foreign investment in multi-brand retail was not allowed until recently in India, Tatas had struck a deal where Woolworth came in as a backend supplier for its Indian owned front end business. Interestingly, this is the first deal after the government allowed FDI in multi-brand retail in India (barring e-commerce) which is expected to lead to Indian retailers selling stake to foreign partners or new strategic investors.

In the case of Woolworths, the deal is pursuant to its strategy to exit electronics retail business. In a simultaneous deal, it has also sold Dick Smith electronics retail chain comprising some 325 outlets across Australia and New Zealand to private equity firm Anchorage Capital Partners for $20 million. It had been looking to exit its electronics retail arm since early this year. Woolworths retail presence spans across food & grocery, liquor, petrol, general merchandise among others outside India.

Ajit Joshi, managing director and CEO of Infiniti Retail, told VCCircle that the firm is not looking at bringing in a new partner: “We are not looking for any strategic investor or partner at this stage. We will fulfil all our distribution needs through Woolworths and already have expertise in front end.”

At the same time, he feels, this deal is not a roadblock for Infiniti to get further foreign investments in the future.

Tata Sons, the group holding firm of the multi-billion dollar conglomerate, owns 100 per cent stake in Infiniti Retail and has pumped in a further Rs 220 crore into the private retail arm to fund the acquisition. Bulk of the money will be used for the stake acquisition with the rest (Rs 16 crore) to be used for further development and expansion of Croma stores, Joshi said.

“This year, we are looking at expanding only in the 15 cities that we are present in and next financial year we will look at expanding into other cities,” he said.With the latest infusion, the total investment by Tata Sons in Infiniti Retail is now Rs 700.

Joshi referred to the deal as ‘one team one dream’ where Woolsworths' team will be handling the back end and distribution centre for Infiniti and the front end will continue to function as it is.

Ankur Bisen, associate vice president at consultancy firm Technopak Advisors said, “Woolworths was primarily handling the back-end support and technology for Infiniti Retail. Infiniti had may be grown beyond Woolsworths in options and had more choices to partner with.” Analysts also opine that this deal has not come as a surprise to them as both the parties were looking for more options.

According to its website, Woolworths Wholesale (India) has warehouses in Mumbai, Ahmedabad, Gurgaon (NCR) and Bangalore.

Through Croma, Infiniti Retail runs one of the largest electronics retail chain in India. For the year ended March 2012, Infiniti Retail clocked sales worth Rs 1,972 crore, up from Rs 1,500 crore in FY11.

DEMOGRAPHIC PROFILE:

Customer responses for factors considered for preference of croma’s private labels (percentage)

There are certain factors which play significant role in generating positive inclination towards the store brand. Customers preferring store brand give more importance to factors like price, good features differentiating them from the national brands, after sales support and positive inclination towards store as a brand. This clearly shows the key areas on which a retailer should focus on.

Findings

FDI is an important stimulus for the economic growth of India.

FDI shown a tremendous growth in second decade (2000 -2011) that is three times

then the first decade of FDI in services sector.

Service sector is first and Banking and insurance sector is second segment of which

pick the growth in second decade of reforms.

FDI create high perks jobs for skilled employee in Indian service sector.

Mauritius and Singapore is the 2 top countries which has maximum FDI in India.

FDI plays an important role in the development of infrastructure because many

countries invest in the infrastructure sector and service and banking finance sectors.

Atomic Energy and Railway Transport are some important and life line of any

country. Therefore India also restricted FDI in this sectors.

After above analysis , we can say that FDI has good future growth in Retailing and

Real estate sector in India.

It can be observed from the above analysis that at the sectoral level of the Indian economy, FDI has helped to raise the output, productivity and employment in some sectors especially in service sector. Indian service sector is generating the proper employment options for skilled worker with high perks. On the other side banking and insurance sector help in providing the strength to the Indian economic condition and develop the foreign exchange system in country. So, we can conclude that FDI is always helps to create employment in the country and also support the small scale industries also and helps country to put an impression on the world wide level through liberalization and globalization.

FDI in Retail in India

The entry of Foreign Direct Investment (FDI) in the retail sector seems to have become the next frontier for conquest by the pro-MNC forces of liberalisation. Paul Etgart, a former director of the giant UK retailer TESCO has said, "Indian retail business should not be fooled by partnership offers by global retail giants because they want 100 per cent control and eventual ownership". He also urged the government to retain strict FDI regulations, (for) global retail giants are very smart and clever to tackle local cultural and political obstacles. Of late, the retail industry in India has often been hailed as one of the sunrise sectors in the economy. From among 30 emergent markets, AT Kearney has recognised India as the 'second most attractive retail destination' globally. With a contribution of 14 percent to the national GDP and employing 7 percent of the total workforce in the country, the retail industry is definitely touted as one of the pillars of the Indian economy.

With huge growth potential, Indian retail industry has been touted as one of the sunrise sectors. By 2015, according to the Investment Commission of India, the retail sector would have grown to $660 billion i.e. almost three times its current levels. However, in spite of the

recent advancements in retailing and its huge contribution to the economy, retailing is still among the least evolved sectors and the growth of organised retailing is immensely slower compared to the rest of the world. Food retail trade accounts for 63 per cent of total retail sales in the economy and thus, is a very large segment of the total economic activity of our country. It holds a vast employment potential and hence, attracts the attention of government and foreign major retailers. Enhancing the efficiency and improving the food retail sales would have a cascading effect on employment and economic activity in the rural areas for the marginalised workers. Even without any significant involvement of FDI, the corporate owned sector in retailing is expanding ferociously at a high rate.

The question that is significant right now is that as there is no dearth of indigenous capital,

Why is FDI in retail needed at the first place?

Secondly, how the influx of FDI in retail in the country going to affect various

stakeholders?

Growth drivers in India for retail sector

The pace of growth in retail in India is very fast as it is expected that it will grow up to US$ 833 billion by the year 2013 and US$ 1.3 trillion by 2018 (at a CAGR of 10%). Simultaneously, the consumer spending has also gone up as in the last four years, the consumer spending in India surged to 75%. Also, the organized sector is promising to grow at a CAGR of 40% by the year 2013.

Following are the key factors driving growth in retail industry: growing middle class income, improving demand from rural markets, young demographic profile (Average age of an Indian homeowner has fallen to 27 from 40 years in the last decade), increasing consumer aspirations, housing boom, rising incomes and improvements in infrastructure. Other factors are increase in per capita income, liberalization of the Indian economy and the advent of double income families. Consumer preferences are also improving and they are becoming quality conscious and shifting their purchase behaviour from the traditional retail stores to malls.

Rohilla and Bansal (2012) examined that many online stores are highly accessible and hence, also help in creating awareness about global products for local markets. For example, TV channels promoting products-HomeShop18, India Today, etc. are increasing in number. About 47% of the Indian population is under the age of 20; and this may be increase up to 55% by 2015. This young population is highly tech-savvy compared to past generations and also watch more than 150 satellite TV channels, and show very high propensity to spend. This factor will immensely contribute to the growth of the retail sector in the near future.

Discussion

FDI in INDIA SECTOR WISE

Retail

Liberalization of the policy in Single- Brand Retail Trading.

Present Position: Foreign Direct Investment (FDI), in retail trade, is prohibited except

in single brand product retail trading, in which FDI, up to 51% is permitted.

Revised Position: The Government of India has reviewed the extant policy on FDI

and decided that FDI, upto 100%, under the government approval route, would be

permitted in Single-Brand Product Retail Trading.

FDI in Hotel & Tourism sector in India

100% FDI is permissible in the sector on the automatic route. The term hotels include restaurants, beach resorts, and other tourist complexes providing accommodation and/or catering and food facilities to tourists. Tourism related industry include travel agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wild life experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment, amusement, sports, and health units for tourists and Convention/Seminar units and organizations.

Non-Banking Financial Companies (NBFC)

49% FDI is allowed from all sources on the automatic route subject to guidelines issued from RBI from time to time.

FDI in Insurance sector in India

FDI up to 26% in the Insurance sector is allowed on the automatic route subject to obtaining licence from Insurance Regulatory & Development Authority (IRDA)

FDI in Telecommunication sector

In basic, cellular, value added services and global mobile personal communications by satellite, FDI is limited to 49% subject to licensing and security requirements and adherence by the companies (who are investing and the companies in which investment is being made) to the license conditions for foreign equity cap and lock- in period for transfer and addition of equity and other license provisions.

a) ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permitted up to

74% with FDI, beyond 49% requiring Government approval. These services would be

subject to licensing and security requirements.

b) No equity cap is applicable to manufacturing activities.

c) FDI up to 100% is allowed for the following activities in the telecom sector :

FDI in Trading Companies in India

Trading is permitted under automatic route with FDI up to 51% provided it is primarily export activities, and the undertaking is an export house/trading house/super trading house/star trading house. However, under the FIPB route:-

100% FDI is permitted in case of trading companies for the following activities:

exports;

bulk imports with ex-port/ex-bonded warehouse sales;

cash and carry wholesale trading;

other import of goods or services provided at least 75% is for procurement and sale of

goods and services among the companies of the same group and not for third party

use or onward transfer/distribution/sales.

FDI in Power Sector in India

Up to 100% FDI allowed in respect of projects relating to electricity generation, transmission and distribution, other than atomic reactor power plants. There is no limit on the project cost and quantum of foreign direct investment.

Drugs & Pharmaceuticals

FDI up to 100% is permitted on the automatic route for manufacture of drugs and pharmaceutical, provided the activity does not attract compulsory licensing or involve use of recombinant DNA technology, and specific cell / tissue targeted formulations.

Roads, Highways, Ports

FDI up to 100% under automatic route is permitted in projects for construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports.

Pollution Control and Management

FDI up to 100% in both manufacture of pollution control equipment and consultancy for integration of pollution control systems is permitted on the automatic route.

Call Centers in India

FDI up to 100% is allowed subject to certain conditions.

Business Process Outsourcing in India

FDI up to 100% is allowed subject to certain conditions.

Foreign Direct Investment in Small Scale Industries (SSI's) in India

Recently, India has allowed Foreign Direct Investment up to 100% in many manufacturing industries which were designated as Small Scale Industries.

ConclusionIn this fast growing consumer durables industry, if retailers want to survive and perform well, the only way is to seek assistance of store brands to create differentiation .The current work provides an insight about the customers decision making process by coming up with the consolidated factors responsible for brand selection by a customer. The study tries to evaluate factors for both national brands and store brands, keeping in mind the objective of enhancing the performance of store brands in a store. The results give us few parameters for the customers making a purchase decision for consumer durables and electronics. Following are the key findings of the study:

• High level of credibility which brands develop through years of marketing and

promotional activities, excellent services and word of mouth, is an important factor

for customers. Therefore, to attract customers to purchase private labels, it is

important for the store to be strong brand in itself to pursue them for the first

purchase.

• In consumer durables and electronics industry features are one of the most important

drivers of sales. Private labels have a better chance to differentiate themselves from

the store brands by coming up with new features frequently.

• Salesmen play a major role in influencing the customers, by giving them proper cues

to aid the purchase of customer. They can justify a private label to a customer and

induces him/her to make the purchase.

• Earlier prices used to be the only Unique Selling Proposition for the store brands, but

now other things like efficient after sales support by the retailer for it’s in- house

brands, etc. are also becoming an important parameter to consider by the customers.

• The merchandising mix, brand equity and brand knowledge are identified as the key

components for consideration of a brand, especially store brands.

Foreign Direct Investment (FDI) as a strategic component of investment is needed by India for its sustained economic growth and development through creation of jobs, expansion of existing manufacturing industries, short and long term project in the field of healthcare, education, research and development (R & D) etc.

Government should design the FDI policy such a way where FDI inflow can be utilized as means of enhancing domestic production, savings and exports through the equitable distribution among states by providing much freedom to states, so that they can attract FDI inflows at their own level. FDI can help to raise the output, productivity and export at the sectoral level of the Indian economy. However, it can observed the result of sectoral level output, productivity and export is minimal due to the low flow of FDI into India both at the macro level as well as at the sectoral level. Therefore for further opening up of the Indian economy, it is advisable to open up the export oriented sectors and higher growth of the economy could be achieved through the growth of these sectors.

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