Wal-Mart Take on the World
The FMCG industry in India is seeing a growth in sales volume after a long time. The main reason for the FMCG industry’s growth is the high Gross Domestic Product (GDP) growth. The FMCG sector has also started offering better value to consumers over the past few years due to innovation and utilization of world-class technology in product formulation and packaging. But one other factor for the FMCG growth is the sustained growth of the organized retail sector. If the government allows foreign direct investment (FDI) in retailing, then the growth of the FMCG sector will be faster.
The Mukesh Ambani controlled Reliance Retail is the most credible threat for any potential entrant in the organized retail sector in India. The reasons for this are multi-fold. The Reliance Retail initiative is part of the largest corporate conglomerate in India. With deep pockets, influence on FDI policy and know how of the India market, Reliance Retail is a potent threat. The company is on an expansion spree and occupying prime retail space in self-owned stores or by trying to rent space in existing hyper markets.
There are other groups such as the RPG Goenka promoted Spencer’s which is also trying to establish itself by launching multiple stores across cities. The organized electronics and consumer durable space is also seeing the entry of large corporate houses. TATA group is one of the leading corporate houses and the most trusted brand in India. It has opened a series of consumer durable stores with the brand name ‘Croma’. As India witnesses rapid growth the battle has shifted to acquiring prime retail space. The entry barrier in terms of investment cost is rising.
There are a number of political barriers in India especially with protests from the Left parties that support the Indian government from outside. There have been recent confrontations with State governments. Uttar Pradesh which is the largest state in India has seen the Chief Minister withdrawing the new retail policy and asking Reliance Retail and Spencer to shut shop citing potential law and order problem. The farmers and the unorganized sector of the industry are up in arms against the corporate houses as the farmers feel that slowly the corporate houses will destroy the traditional traders.
The unorganized retail sector feels the threat as they cannot compete with the size and sophistication of large players. These two stakeholders are a significant vote bank of the Indian polity and some political parties are bent upon maintaining their vote bank. As the above table suggests there is tremendous opportunity for the development of the organized retail sector in India. What is needed from the government is allowing foreign companies to have a higher stake in the joint ventures that are required to be set up with an India company to get license to operate in India.
Also, India needs improvement in infrastructure and cold storage facilities to facilitate fast and easy movement of farm goods to the stores. All these factors make India an attractive market for WalMart.
Crisil report retrieved from http://indiafdiwatch. org/fileadmin/India_site/10-FDI-Retail-more-bad. pdf Future of Retail Growth in India will be fueled by 150 additional shopping malls retrieved from http://www. indiadaily. com/editorial/7344. asp India and Global Economy, India In Globalization retrieved from www. economywatch. com/indianeconomy/india-and-global-economy. html