Friday, February 23, 2007

Yes, the entry of WAL MART is beneficial to India

The present spate of protests against WAL MART's entry into India is totally misconceived. The small family owned retailers that dot the Indian landscape will be greatly reduced in numbers, irrespective of whether WAL MART comes in or not. Consider the statistics
Indian retail industry is projected to grow to $400 billion by 2010 - Source : McKinsey Quarterly, 2005 Special Edition
Currently "organized" retail business comprises only 3% of total retail sector as opposed to over 70 per cent in developed economies, and 20% in China.
"Organized" retail projected to grow at 25-30 per cent per annum in India - Source : McKinsey Quarterly, 2005 Special Edition
This growth in the "organized" sector is not being fueled by foreign retailers, but by home grown organizations. One has just to drive through the growing suburbs to observe the growth of 100% Indian owned "organized" retail, i.e., large establishments.
Within the last decade or so, starting from scratch, Indian organizations have invested massively in the fast growing retail sector, some examples of their growth to date being
SHOPPERS STOP - 20 stores, Revenues US $ 150 million
TRENT (TATA) - 22 stores, Revenues US$ 90 million
PANTALOON Group - 140 stores, Revenues US$ 450 million
Every major business group (Reliance, Birla etc.) is taking to the retail path.
And that's just the tip of the iceberg. The Indian-owned retail chains are sweeping out into the 35 Indian cities with populations over 1 million, with ambitious plans for mall development, food, hospitality and amusement parks to complement their retail offerings.
The smaller retailers are doomed, one way or another, and is that such a bad thing ? The children of their owners will finally be freed from the generational compulsion to provide cheap labor to their parents' otherwise unviable ventures. They will be free to take advantage of the educational and career opportunities that are opening up in the wake of growing economic demand.
So where does WAL MART fit into this ? Well, WAL MART brings a new dimension to Indian retail by providing the supply chain logistics and IT systems that will bring modern goods and services to the aspiring classes living outside of the major urban cent res. Plus the skilled employment that these systems will require. The spread of WAL MART stores will improve the infrastructure of the exurban areas. And as for the bogey of WAL MART causing unemployment, it should be borne in mind that WAL MART internationally is the largest corporate employer in the world.
The method by which WAL MART has finally been allowed entry, under India's arcane laws restricting foreign FDI in retail, also merits comment. Under the agreed terms, the Bharti organization will set up, own and operate the stores themselves. WAL MART will have 100% ownership of the supply chain, will sell all the merchandise to the Bharti-owned stores and collect a royalty too on the retail sales. So the foreign entity makes its profits up front and off the top, while the Indian partner bears the capital investment burden and the business risk. Go figure that one out, my protectionist brothers and sisters !

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