A SWOT Analysis Of FDI In Indian Retail Sector

Prof. Mallikarjun Dalal

Lecturer @ B. V. V. Sanghas Institute of Management Studies, Bagalkot

A SWOT ANALYSIS OF FDI IN INDIAN RETAIL SECTOR
Prof. Mallikarjun Dalal
Lecturer @ B. V. V. Sanghas Institute of Management Studies, Bagalkot


Abstract:
India is one of the biggest countries by population giving shelter to more than 120 crore people. One
of the biggest consumption centres of the world today and of the future. This is the main reason why
India would be the epicentre of the board meetings of the many big retail firms of the world. The
retail industry in India is being hailed as one of the sunrise sectors in the economy. According to AT
Kearney, international management consultancy identified India as the second most attractive retail
destination. According to Deloitte report Jan 2013, The Indian retail industry is expected to be
around 850 billion USD by 2015 and is expected to be over 1.3 trillion USD by 2020. The share of
organized retail is estimated to be 20% by 2020. The recent wave of reforms by the Government of
India to intensify FDI in retail has brought about a new outlook on the business climate in India.
Key Words: Retail, FDI, SWOT, Sector Growth, Forecast, Policy
A SWOT Analysis Of FDI In Indian Retail Sector
Prof. Mallikarjun Dalal
Lecturer @ B. V. V. Sanghas Institute of Management Studies, Bagalkot

A SWOT ANALYSIS OF FDI IN INDIAN RETAIL SECTOR
Introduction:
Retailing involves a retailer, traditionally a store or a service establishment, dealing with consumers
who buy goods and services for their own use rather than for resale. Retail sector in India is also
means for growth of stalling tactics of below the line marketing used by major retail players like
Spencers, Big Bazaar, Reliance fresh, More, etc.
Objectives of the Study:
1) To understand the concept of FDI in retail sector in India.
2) To study glimpse of Current & Forecasted FDI in Indian Retail sector.
3) To find out the Major Strengths, Weaknesses, Opportunities and Threats (SWOT) of FDI in retail
sector.
Research Methodology:
Research methodology is based on secondary data sources from journals, websites, World Bank
reports, research reports, already conducted survey by govt. and other agencies, etc.
Concept of FDI:
FDI (Foreign Direct Investment) is a process which enables the residents of one country to directly
invest their funds in another country and acquire ownership of assets and exercise control over the
investment in terms of production, management, distribution, effective decision making, employment
etc.FDI is an international financial flow with the intension of controlling or participating in the
management of an enterprise in a foreign country. Foreign investment is a means of making foreign
resources available to a developing country. Such investments can take place for many reasons,
including to take advantage of cheaper wages, special investment privileges (e.g. tax exemptions)
offered by the country.
There are two main types of foreign investment:
1. Portfolio investments - Portfolio investments are investments in purely financial assets such as
bonds, stocks denominated in national currency. Portfolio or financial investments take place
primarily through financial institution such a s banks investment funds.
2. Direct investments - These investments are the real investments in factories, capital goods, land and
inventories where both capital and management are involved and the investors retains control over use
of the invested capital. Foreign direct investment (FDI) is investment directly into production in a
country by a company located in another country, either by buying a company in the target country or
by expanding operations of an existing business in that country.

A SWOT Analysis Of FDI In Indian Retail Sector
Prof. Mallikarjun Dalal
Lecturer @ B. V. V. Sanghas Institute of Management Studies, Bagalkot

Different forms of Indian Retail Industry:
Mono/ Exclusive /Single
Brand Retail Shops
Multi -branded Retail Shops Convergence Retail Outlets
Exclusive Showrooms either
owned or franchised out by the
manufacturer. A complete range
of all the products manufactured
by the said manufacturer under
one brand name
In these kinds of stores, almost
all brands are available for a
single product type. The
customer has a very wide choice
for the kind of product he is
willing to buy.
These kinds of products have
almost all kinds of products ,
required by a consumer, in
them.
The focus is on the brand name. The focus is on the nature of
product
The focus is on the diverse
consumer needs.
Example: Exclusive showroom
/franchise outlets of Nike,
Liberty, Samsung, Nokia, etc
Example: Max, Shoppers Stop,
Croma etc
Example: Big Bazaar, In & Out,
Subhiksha, Grand India Bazaar
etc.

FDI Policy
The Ministry of Commerce and Industry, GOI is the nodal agency for reviewing the FDI policy on
continued basis and changes in sectoral policy or sectoral equity cap. The FDI policy is notified
through press notes by the secretariat for Industrial Assistance (SIA) , DIPP. The salient features are:
1. India will allow FDI upto 51% in multi-brand retail.
2. Single brand retailers can own 100% of their Indian stores.
3. FDI upto 100% for cash and carry wholesale trading and export trading allowed under the
automatic route.
4. Both single and MBR will have to source at least 30% of their goods from small and medium sized
Indian suppliers.
5. MBR (Multi brand retailers) must bring minimum investment of USD 100 million percentage of
which must be invested in back-end infrastructure such as cold chains, transportation, packaging etc
to reduce remunerative prices to farmers and also to reduce post-harvest losses.
6. The opening of retail competition (policy) is left with the State Governments of the respective
states.
7. All retail stores can open up their operations in cities having population of over 1 million.

A SWOT Analysis Of FDI In Indian Retail Sector
Prof. Mallikarjun Dalal
Lecturer @ B. V. V. Sanghas Institute of Management Studies, Bagalkot

Informative Data Related to FDI
Table 01 - FDI Share of organized sector in selected countries
Country Share of organised Sector (%)
US 85
UK 80
Japan 66
Russia 36
India 04
(Source: Planel Retail & Technopak Adviser Pvt. Ltd. & ICRTER)


Table 02 - Multi-Brand Retail FDI Policy in other countries
FDI Limit Country
100% China
100% Thailand
100% Russia
100% Indonesia
(Source: Times of India, 3
rd
December 2011)
Table 03- Projected Size of the Organized Retail
Years Projected Size (in Crores)
2008 965
2010 1728
2015 5610
2025 17368
(Source: www.nsdcindia.org/pdf/organised-retail.pdf)
0
10
20
30
40
50
60
70
80
90
US UK Japan Russia India
Share of organised Sector (%)
Share of organised Sector
(%)
A SWOT Analysis Of FDI In Indian Retail Sector
Prof. Mallikarjun Dalal
Lecturer @ B. V. V. Sanghas Institute of Management Studies, Bagalkot


SWOT ANALYSIS OF FDI POLICY IN INDIAN RETAIL:
The strategic analysis of environmental factors is referred as SWOT analysis. This analysis provides
the information that is helpful in understanding the retail sector resource mobilization and capabilities
to the competitive environment in which it operates.
Strengths:
Welcoming the FDI in retail industry can prove advantageous for India as it increase the
competition in retail chain at domestic level. The competition always demands the innovation and
differentiation and the out result is the quality goods.
Retailing provides enormous employment opportunities to workforce in India, because it is highly
labour intensive. It can generate additional 8 million jobs, directly and indirectly.
Consumer will get assortment of products at less prices compared to market rates, and will have
more options to get international brands at one place. They will get better products at cheaper
price.
Retailing also helps small scale units to access market easily. They provide a platform for small
scale units producers.
The requirement of space is one of the biggest demands, so Indian economy will also see the real
estate sector climbing the steps of organized retail sector.
It will also contribute to large scale investments in the real estate sector with major national and
global players investing in devolving the infrastructure and construction of the retailing business.
In includes developments in road, rail, airways, warehousing and supply chain systems.
Biggest beneficiary of this would be small farmers, they would be able to improve productivity
and realize higher prices by selling directly to large organized players and shorten the chain to
reach consumers. Also reduces wastage of agricultural produce.
We can expect that Govt. will receive an additional US$ 25 to 30 Billion by way of Taxes in
coming years.
Weakness
One of the greatest weakness to the growth of modern retail formats are the supply chain
management issues. No major changes are needed in the supply chain for FMCG products; these
are well developed and efficient. For perishables items, the system it is too complex.
Lack of infrastructure in the retailing chain has been one of the major issues of concern which has
led the process to an incompetent market mechanism.
The instable political support for FDI in report could be weakness and many states are not in
favour of FDI in their states.
Frequently changing Government regulations, lack of adequate infrastructure and inadequate
investments are the possible bottlenecks for retail companies.
0
5000
10000
15000
20000
2008 2010 2015 2025
Projected Size of Organised Retail
Projected Size (in
Crores)
A SWOT Analysis Of FDI In Indian Retail Sector
Prof. Mallikarjun Dalal
Lecturer @ B. V. V. Sanghas Institute of Management Studies, Bagalkot

Primarily the retail will mainly cater to high-end consumers placed in metros and will not deliver
mass consumption goods for customers in villages and small towns.
The current surge in property prices, retail real estate rentals have escalated significantly. Retail
companies have to pay high rentals which will block their profits.
Opportunities:
The technical know-how from global firms, such as warehousing technologies and distribution
systems, will lend itself to improving the supply chain in India, especially for agricultural produce.
There are numerous empirical evidences across globe relating to massive increase in the
employment opportunities as the sector grows after the reforms were initiated in countries like US
and China. India is likely to experience the same situation in this liberalized and open regime of
FDI in retail sector in the country.
It can become one of the largest industries in terms of numbers of employees and establishments.
Rural retailing is still unexploited Indian market and could act as an opportunity for the giants to
venture into the rural retail market.
The prices of the commodities will be automatically checked. It will benefit unswervingly the
farmers, producers and consumers at large in respect of realisation of true prices evicting the
intermediaries.
Farmers can benefit with the farm to - fork ventures with retailers which helps (i) to cut down
intermediaries ; (ii) give better prices to farmers, and (iii) provide stability and economics of scale
which will benefit, in the ultimate analysis, both the farmers and consumers
Threats
Major threat is competition from the unorganized sector. Traditional retailing has been established
in India for many centuries, and is characterized by small, family-owned operations Because of
this, such businesses are usually very low-margin, are owner-operated, and have mostly negligible
real estate and labor costs with credit facility for local consumers.
Another possible threat would be flow of profit from India to foreign countries. Just like in BPO
industry, work will be done by Indians, profits will go to foreigners hence is not viable solution for
Indians. We cannot ever forget the example of East India Company. It entered India as a trader and
then took over politically.
Indian economy is a developing economy and the level of development is not as desired. Due to
paucity of infrastructure resources in Indian economy, there is a direct threat from big giants like
Wal-Mart, which will compel current independent stores to close which will directly lead to
massive job losses, as their level is very high, fully automated which need very few people to
operate. This will lead to massive job losses; also since the Sector is unable to employ retail staff
on contract basis, this becomes a biggest threat for the Indian economy.
Conclusion:
Every change will have resistance from its stake holders; it will have its own pros and cons.
The need of the hour is to discuss these pros and cons of this decision. It should be implemented in
such a way that maximum benefit is sought out of it and all the threats and risks are minimised.
Allowing FDI in multi brand retail can bring about Supply Chain Improvement, Investment in
Technology, Manpower and Skill development, Tourism Development, Greater Sourcing from India,
Up gradation in Agriculture, Efficient Small and Medium Scale Industries etc.
However there is darker side of FDI in retail too. Experts feel that it may result in Massive
Job Losses, Inequitable Competition, Repatriation of profits outside India, Persistence of Political
A SWOT Analysis Of FDI In Indian Retail Sector
Prof. Mallikarjun Dalal
Lecturer @ B. V. V. Sanghas Institute of Management Studies, Bagalkot

inconclusiveness of issues, Offensive public opinion, Asymmetric growth of cities etc. We should
work on how to handle these factors for smooth functioning of retail.
References:
[1] DIPP ,Ministry of Industry and Commerce Press Note No. 4, 5 and 6 (2013) series on FDI policy
on single and multi-brand retail
[2] www.thehindu.com/busness/industry/fdi-in-muktibrand retail-with-riders/article389775.ece
[3] A review of the impact of FDI on Indian Retailing by Dr. Sheetal Mundra and others published in
the International Journal of sciences: Basic and Applied Research (IJSBAR) (2013) Volume 10, No1,
pp 01-18
[4] FDI and unorganized retail sector a case study by Sameer Ahmad Shalla and others in IOSR
Journal of Business and Management (IOSR_JBM) Vol 8, Issue 3 (Mar-April 201.) pp 01-05
[5] Technology to help retailers face FDI in the hindu business line dated 12.10.2012
[6] FDI in retail will benefit all in the hindu business line dated 9.8.2012
[7] FDI in retail is no monster in the hindu business line dated 25.8.2012