Session 11 leb simple final
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11
F.D.I. in Retail Sector
SESSION 10LEGAL ENVIRONMENT OF BUSINESS
2
Agenda
Retailing : An overview
Indian retail
FDI in Indian retailing
Why FDI?
3
Retailing : An overview
4
RetailingWorld’s largest private industry
US$ 6.6 trillion sales annually
Indian retailingLargest employer after agriculture - 8% of
populationHighest outlet density in world
Around 12 mn outletsStill evolving as an industry
Long way to go
Retailing: An overview
5
Wal-MartTopmost global Fortune 500 company(3
Consecutive Years)Annual Sales of over US$ 250 bn
Fortune 1009 RetailersCarrefour, Ahold, Home Depot, Kroger,
Metro, Kmart-Sears, Target, Albertsons’
Retailing: An overview
6
Weekly MarketsVillage FairsMelas
Convenience StoresMom and Pop/Kiranas
PDS OutletsKhadi StoresCooperatives
Exclusive Brand OutletsHyper/Super MarketsDepartment StoresShopping Malls
Traditional/Pervasive Reach
Government Supported
Historic/Rural Reach
Modern Formats/ International
Source of Entertainmen
t
Neighborhood Stores/Convenie
nce
Availability/ Low Costs /
Distribution
Shopping Experience/Efficie
ncy
Evolution of Indian retail
7
Informal retailing SectorTypically small retailers.Evasion of taxesDifficulty in enforcing tax collection
mechanismsNo monitoring of labour laws
Formal Retailing SectorTypically large retailersGreater enforcement of taxation mechanismsHigh level of labour usage monitoring
Evolution of Indian retail
8 8
9
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%)
10
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
11
0 20 40 60 80 100
IndiaC hina
Indones iaThailandMalays ia
TaiwanUS
O rganised
Unorganised
US Taiwan Malaysia Thailand Indonesia China IndiaUnorganised 15% 19% 45% 60% 70% 80% 95%
Organised 85% 81% 55% 40% 30% 20% 5%
12
CATEGORIES OF INDIAN RETAIL
13
Corporate Houses Tatas: Tata Trent RPG group: Food World, Health & Glow, etc ITC: Wills Life Style Rahejas(Shoppers Stop), Hiranandani (Haiko), DLF(DT
cinemas), etc.Dedicated brand outlets
Nike, Reebok, Zodiac, etcMulti-brand outlets
Vijay Sales, Viveks, Ritu Wear, Sehgal Bro, etc.Manufacturers/ Exporters
Bata, Weekender, Lilliput
Categories of Indian retail
14
Modern Format retailersSupermarkets (Foodworld)Hypermarkets (Big Bazaar)Department Stores (S Stop)Specialty Chains (Ikea)Company Owned Company Operated
Traditional Format RetailersKiranas: Traditional Mom and Pop StoresKiosksStreet MarketsExclusive /Multiple Brand Outlets
Classifying Indian retail
15
Hypermarket
Big Bazaar , Giants , Shoprite, Star
Department store
Lifestyle, Pantaloon, Piramyd, Shoppers
Stop, Trent
Entertainment
Fame Adlabs, Fun Republic, INOX, PVR
Large Indian retailers
16
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
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
Organised retail formats in India
17
Format Description Retailers
Hypermarkets Offering basket of product Spencers, Big bazaar
Cash and Carry Bulk-buying requirement Bharti - Walmart
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 px. Levi’s Outlet
Convenience stores
Small Retail stores In and Out
Major Indian Retailers - Categories
18
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
19
20
21
F.D.I.
22
The commitment of money or
capital to purchase financial
instruments or assets in order to
gain profitable returns.
23
Investment done by citizens and government of one country (home country) invest in industries of another country (host country).
Foreign Investment
through
Foreign Direct Investments
Foreign Institutional
Investors
24
WHAT IS FDI?
Movement of capital across national frontiers in a manner that grants the investor control over the acquired asset.
25
As per Dictionary of Economics FDI means investment in a foreign country through the acquisition of a local company or the establishment there of an operation on a new (Greenfield) site.
Simply put, FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy.
WHAT IS FDI?
26
Automatic Route Automatic Route GovernmentGovernment
No permission requiredNo permission required Approval /License required. Approval /License required.
27
What was the Criteria for FDI?What was the Criteria for FDI?
1991-92 : Dr. Manmohan Singh, Finance Minister
referred to certain criteria for allowing Foreign
Direct Investment. These were :
1. Establishment of basic industries requiring huge
capital and advanced sophisticated technology
2. Infrastructure projects like electricity generation,
road, building, etc.
3. Projects which would generate employment
28
1991- FDI allowed selectively up to 51% in priority sectors.
1997-FDI allowed up to 100% in sectors like mining,
manufacturing, Cash and carry/wholesale (under Govt. approval
route).
It was brought under the automatic route in 2006.
FDI Policy InitiativesFDI Policy Initiatives
29
2000-06 FDI allowed up to 100% in specified sectors.
FDI limits increased.
Procedures further simplifiedThe top 3 Indian Regions attracting the highest
FDI.
Mumbai, Delhi and Karnataka.
Account for nearly 62% of the total FDI.
FDI Policy InitiativesFDI Policy Initiatives
30
April 2006 - May 2010 : 94 proposals were
received
57 proposals approved= inflow of USD196 mn
under single brand retailing
FDI Policy InitiativesFDI Policy Initiatives
31
As per Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010 which provide the sector specific guidelines for FDI with regard to the conduct of trading activities.
A) FDI up to 100% for cash and carry wholesale trading and
export trading allowed under the automatic route.
B) FDI up to 51 % with prior Government approval (i.e.
FIPB) for retail trade of ‘Single Brand’ products, subject
to Press Note 3 (2006 Series)
C) FDI is NOT permitted in Multi Brand Retailing in India.
32
33
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
34
35
Private labels Hi-Tech items/items requiring specialized after sales service Medical and diagnostic items Items sourced from the Indian small sector (manufactured with foreign technology)For 2 year test marketing (simultaneous commencement of investment in production facility required)
FDI in Indian retailingCurrent FDI is not permitted in retail trade sector, except in:
36
Although prior to Jan 24, 2006, FDI was not authorised in retailing, most general players had been operating in the country. Some of entrance routes used by them are:
1. Franchise Agreements
2. Cash And Carry Wholesale Trading
3. Strategic Licensing Agreements
4. Manufacturing & Wholly Owned Subsidiaries
5. Distribution
Entry Options for Foreign Players prior to FDI Policy
37
Foreign company gives name and technology to
local partner. Gets royalty in return.
Easiest track to enter Indian market
In franchising and commission agents’
services, FDI is allowed with the approval RBI
under FEMA
E.g. Nike, Pizza Hut, Tommy Hilfiger, Marks
and Spencer, Mango
1. Franchise Agreements
38
100% FDI is allowed in wholesale trading which involves building of a large distribution infrastructure to assist local manufacturers. E.g. Metro Cash & Carry
Entities established prior to 1997 Allowed to continue with their existing foreign
equity components. No FDI restrictions in the retail sector pre-1997 Foodworld
51:49 JV between RPG and Dairy Farm I’nal (it’s leading food retailer in India now)Mc Donalds
2. Cash & Carry Wholesale Trading
39
foreign brands give exclusive licences and
distribution rights to Indian companies
Indian companies sell it through their own
stores, or enter into shop-in-shop
arrangements or distribute the brands to
franchisees
E.g. Mango with Piramyd, SPAR with
Radhakrishna Foodlands Pvt. Ltd.
3. Strategic Licensing Agreements
40
Bata, Nike, Reebok, Adidas, etc. have wholly-owned subsidiaries in manufacturing which are treated as Indian companies and are, therefore, allowed to do retailThey sell products to Indian consumers by franchising, internal distributors, existent Indian retailers, own outlets, etc. E.g. Nike entered through an exclusive licensing agreement with Sierra Enterprises but now has a wholly owned subsidiary, Nike India Private Limited
4. Manufacturing & Wholly Owned Subsidiaries
41
International company sets up local distribution
office
Supply products to Indian retailers to sell
Also set up franchised outlets for brand
E.g. Swarovski, Hugo Boss
5.Distribution
42
In July 2010, Department of Industrial Policy and
Promotion (DIPP), Ministry of Commerce circulated a
discussion paper on allowing FDI in multi-brand retail. The
paper doesn’t suggest any upper limit on FDI in multi-
brand retail. If implemented, it would open the doors for
global retail giants (Wal-Mart, Carrefour and Tesco) to
enter and establish their footprints on the retail
landscape of India.
On the last count……
43
Let the liberalisation be in steps rather than
being a leap.
44
LICENCES & PERMITSINDUSTRIAL DISPUTE ACTSHOP & ESTABLISHMENT ACTCOSUMER PROTECTION ACTWEIGHT & MEASUREMENT ACTPACKAGING ACTPREVENTION OF FOOD ADULTRATION ACT
PREVENTION OF BLOCK MARKETING ACTANTI-HOARDING & PROFEELING ACTMONEY LENDING ACTPROVIDENT FUND ACTMINIMUM WAGES ACTESI ACTGRATUITY ACTBONUS ACT
INEFFICIENT LABOUR
PRESENT CONDITION OF TRADERS
Inspector Raj
Political Interference
Anti Socal Elements
WATER TAX
POWER PROBLEM
HIGH BANK CHARGES
SALES TAX
OCTROI
SERVICE TAX
WEALTH TAX
PROFESSIONAL TAX
INCOME TAX
ENTRY TAX
VAT
STAMP DUTY
POOR MARKET CONDITION
PURCHASE TAX
ESSENTIAL COMMODITIES ACT
CENTRALEXCISE
FDI in Retail Trade
Fringe Benefit Tax
New Naka Complex
Cash Transaction Tax&
Quarterly ‘C’ Form
45
Retail Traders
TelecomAviation
Banking
Insurance
Steel
Information Technology
Infrastructure
Pharma
Mining
ProfessionalEducation
46
M.N.C. REGIMEM.N.C. REGIME
CONTRACT FARMING
COLLECTION OF AGRICALTURE PRODUCTS
TO OWN FACTORY
TO OWN DEPT. STORE
TO CUSTOMER