Q.1 The revolution of Indian retail sector/industry by Foreign Direct Investment.

In the urban areas, both organized and the unorganized players exist. Organized players like Big Bazaar, More, Star Bazaar and Trent, Spencers Daily, Reliance Fresh etc. have already entered the urban markets and are trying hard to stabilize their operations.

 Apart from the above mentioned retail chains many multi brand retail outlets like Vishal Retail, Subhiksha, More (originally started by the Piramal Group and later sold to Indiabulls Group) etc. failed to set their foot in the lucrative organized retail space. The government opened up the retail sector for foreign direct investment (FDI). How will the entry of global retail giants like Wal-Mart, Tesco, IKEA, Carrefour etc. affect the existing players, employment, consumers, suppliers and the allied businesses. This means that global retail giants will be able to start their operations in India in cooperation with local partners. Most of the foreign players have already tied up with Indian players well before the FDI was allowed. For instance, Wal-Mart has already entered into a joint venture with Bharti Group while Tesco has tied up with Tatas Trent Ltd. for its retail foray. Other global players are soon expected follow suit to commence their operations in India.This may be a win-win situation for both the foreign players and their Indian counterparts as India is a complex market as compared to other markets in the world.

They will not only get the know-how and expertise of the business from the foreign players but also can command a premium when it comes to offloading stakes in their retail ventures either to PE investors or to retail investors in the stock markets. There is a feeling that small stores and local stores wont be in a position to compete with the global giants. Though there may be some threat to such unorganized players, the overall growth in consumption will mean that there will be some business for everybody in the market. There was a similar fear when the Indian organized players entered the market but most of the small and local operators remained unaffected by the growth of organized retail. Though prima facie, it looks like the impact on unorganized players will be minimum, only time will tell what is in store for the small retail operators.

 Employment will definitely get a big boost as the investment by global retailers will create more job opportunities in retail as well as other allied sectors like real estate, logistics etc. If the unorganized retail is unable to cope up with the competition in the future, the self employed shopkeepers may have to look out for other employment opportunities. Large retailers enjoy huge bargaining power and can negotiate hard with suppliers. Thus they can afford to sell at comparatively lower prices than their competition. They also tend to deal directly with the actual producers and eliminate middlemen. There is a fear that farmers will have to bow before the bargaining power of the retail giants. But it is very unlikely that the farmers will be at a loss, as in India, government generally fixes the minimum support price of various food grains which acts as a support if prices start to fall. Also the elimination of middlemen will create a win-win situation for retailers, suppliers and the consumers. There are a lot of other sectors like real estate, logistics and transport, air conditioning etc. which may benefit from the growth in retail sector. Demand for retail commercial and warehousing space will shoot up as companies try to add more and more stores, and would require storage space for their stock.

Q.2 What will be the effects on small retailers by entering WALLMART in India?

Wal-Marts size gives it power to drive down costs in the retail and manufacturing sectors and to ignore and even attack the rights of workers as, Wal-Mart is the largest private employer in the United States with 1.3 million employees and is moving to dominate retail sectors in other countries including Mexico, Canada, and Brazil.

 Workers and unions, small businesses, environmental organizations, investors, and political and religious leaders in the U.S. and around the world have condemned WalMarts refusal to treat workers and communities with dignity. These institutions have produced numerous reports documenting Wal-Marts abuses, many of them focusing on the destruction of small businesses and jobs, and the washing away of local production by Wal-Marts flood of Chinese-made goods.

While total imports to India from all countries have risen by 56% in the last five years, imports of Chinese-made goods to India have jumped by more than 200% in the same period.

In 2003 alone, Chinese imports to India grew by 45%, but Indian manufacturing production grew by only 6.9%. However, the amount that Wal-Mart actually sources from India is tiny when compared to Wal-Marts sourcing operations in China. Additionally, manufacturing work for Wal-Mart is not reliable because the company moves production wherever it can find the lowest prices.

Wal-Marts entry to the Indian retail sector is sure to produce a flood of cheap Chinese-made goods. Even as Wal-Mart was advertising its Made in America products to American consumers in the 1990s, the company was quickly replacing U.S.-made products with Chinese goods.

Wal-Marts Dependence on China

Wal-Mart emphasizes its contribution to exports in India, yet in 2004 Wal-Mart sourced only $1.2 billion worth of goods from India, not even one-fifteenth of the amount Wal-Mart purchased from China in the same year.

 The total amount that Wal-Mart sources from India every year amounts to only a little more than a dollar per person in India. And, if allowed to open retail stores, Wal-Mart could upset the import balance by importing massively from China rather than using local production.

Wal-Mart misleads customers about the percentages of goods it buys locally to hide its deep dependence on imports. For example, Wal-Mart claims that 80-90% of goods sold in their Canada and Mexico stores come from local sources, but this means local suppliers or transporters, not just local producers. In fact, Wal-Mart Canada has been forced to admit that, of all the goods Wal-Mart sells in Canada, only half of that 80 percent are made entirely in Canada.

Initially, Wal-Mart sourced its products from America. However, the company began to pressure its suppliers to produce goods at the lowest price possible, forcing them to move production overseas, especially to China. In 1995, 6% percent of Wal-Marts total merchandise sold in the United States was imported.

The Closing of Small retailers Businesses

Wal-Mart claims that it does not hurt small businesses, yet in Puerto Rico, between 1993 and 2002 some 130 businesses went bankrupt because of the expansion of large chain stores on the Island, and of those,two-thirds were attributable to the growth and expansion of WalMart. Eight Latin American countriesMexico, Puerto Rico, Costa Rica, Argentina, Dominican Republic, Brazil, Uruguay, and Chile joined together to condemn the predatory practices of Wal-Mart on a global level.

The retail industry in India is already very crowded. Wal-Marts entry will destroy small mom-and-pop shops. Indias retail sector is already the second largest employer after agriculture, employing about 10 percent of the labor force. According to global consultancy firm A.C. Neilson, India had the highest shop densities in the world. In 2001, it was estimated that there were 11 outlets for every 1,000 people. Wal-Marts entry to India could devastate the small traders and their employees.

Q.3 Identify & scrutinize the logistics patterns of retail sector/industry with respect to other countries in India?

Product Definition and Data Collection

Filtering and Smoothing

Filling in Missing Values

Varying Parameter, Non-linear Estimation

Fixed-Parameter Linear Estimation

Aggregation and Benchmarking

Having implemented various alternatives and matched these with market outcomes, I have found that the optimal approach is to assume that certain key indicators are more likely to reflect efficiency than others.

Step 2. Filtering and Smoothing

This generates a convenience sample of indicators from which comparable figures are available. If the series in question do not reflect the same accounting period, then adjustments are made.

Step 3. Filling in Missing Values

In some cases, data are available on a sporadic basis. In other cases, data may be available for only one year. From a Bayesian perspective, these observations should be given greatest weight in estimating missing years. Assuming that other factors are held constant, the missing years are extrapolated using changes and growth in aggregate national, state or union territory and city-level income.

Step 4. Varying Parameter, Non-linear Estimation This assumption applies along the aggregate consumption function, but also over time (i.e., not all states or union territories or cities in India are perceived to have the same income growth prospects over time). Another way of looking at this is to say that latent demand for retail logistics is more likely to be similar across states or union territories or cities that have similar characteristics in terms of economic development.

This approach is useful across geographic regions for which some notion of non-linearity exists in the aggregate cross-region consumption function. For some categories, however, the reader must realize that the numbers will reflect a states, union territorys or citys contribution to latent demand in India and may never be realized in the form of local sales.

Step 5. Fixed-Parameter Linear Estimation Nonlinearities are assumed in cases where filtered data exist along the aggregate consumption function. Because India has more than 5,000 cities, there will always be those cities, especially toward the bottom of the consumption function, where non-linear estimation is simply not possible. use their savings, in the long run, to demand retail logistics). In a graphical sense, for low income cities, latent demand approaches zero in a parametric linear fashion with a zero-zero intercept. In this stage of the estimation procedure, a low-income city is assumed to have a latent demand.

Step 6. Aggregation and Benchmarking

From an economic perspective, however, a city does not represent a population within rigid geographical boundaries. To an economist or strategic planner, a city represents an area of dominant influence over markets in adjacent areas.

This influence varies from one industry to another, but also from one period of time to another. I allocate latent demand across areas of dominant influence based on the relative economic importance of cities within its state or union territory. Since some cities have higher economic wealth than others within the same state or union territory, a citys population is not generally used to allocate latent demand. Rather, the level of economic activity of the city vis--vis others is used. Figures are rounded, so minor inconsistencies may exist across tables.

Challenges Geographic diversity of India needing varied logistics expertise for each region is a major challenge to be addressed by 3PL service providers. Logistics operation in each state requires a suitable model that facilitates the effective storage and transportation of goods mostly sold in that state, making it very difficult for adopting a uniform logistics model. 3PL service companies interested in serving a particular company would have to offer multiple solutions to fulfill the nationwide logistics needs of that company. Infrastructure limitations in India, which limit the scope of logistics services package are another concern for 3PL service providers. The congested roadways and ports resulting in significant delay in movement of goods, affect the performance of 3PL service providers. The complicated tax structure, deep-rooted corruption and high bureaucratic control are some other hassles faced by 3PL service providers in providing the best of logistics solutions for their clients. However, despite the existence of challenges, several factors are driving the growth of Indian 3PL market.