Look at the Indian organised retail industry. Would collaboration with global retailers such as Wal-Mart and Tesco be a better growth strategy, or would it be in understanding who their major competitors are and matching their capabilities and out competing them?
The recent wave of reforms by the Government to incentivize Foreign Direct Investment (FDI) in various sectors is bringing a new zeal to the investment climate in India. One of the most debated reforms is the policy for allowing 51 per cent FDI in multi-brand retail. Organized retail, which constitutes 8 per cent of the total retail market, will grow much faster than traditional retail. It is expected to gain a higher share in the growing pie of the retail market in India. Various estimates put the share of organized retail as 20 per cent by 2020.
The Indian retail industry has experienced growth of 10.6% between 2010 and 2012 and is expected to increase to USD 750-850 billion by 2015. ...view middle of the document...
Real Estate Choice:
Another critical success parameter is the real estate choice at prime location and reasonable rentals. This is especially true for a multibrand retailer, which requires a large retail space.
Private Label brand:
To meet the policy guidelines on sourcing and to have better margins, foreign retailers would need to cultivate relationships with local manufacturers to drive strong private label brand.
Way ahead for domestic retailers
The new FDI policy also presents a unique set of implications for domestic retailers. On one hand, the policy exposes the domestic retailers to competition from foreign retailers; while on the other hand, it seeks to safeguard them through a slew of protective measures. FDI in multi-brand retail is a state subject and as per the policy, e-commerce is not allowed as an alternate channel as it can serve the customer beyond the physical location of the store. Restriction on foreign retailers from conducting multibrand retail in towns with population less than one million can be construed as an enabling policy by domestic retailers who should now focus their efforts to expand their retail footprint.
As per a news article in The Indian Express, all the home-grown retailers are convinced that their business will go on as usual and are confident that global players will find it tough to catch up with them. As per Aditya Birla Retail Ltd Chief Executive Officer Thomas Varghese "We are not discussing with any foreign retailer or any kind of partnership. We will take it as it comes."
In my view too, we shall move ahead with belief in ourselves & shall try to compete with them keeping in mind that although Walmart/ TESCO can claim of having most efficient supply chain, our trade network is more sophisticated – more complex, more multilayered, more efficient than any system they can introduce as a giant wholesaler.
At the same time we shall be aware & careful of the fact that Wal-Mart has been prosecuted several times for predatory pricing behavior, which is defined as the practise as temporarily lowering prices in order to drive competitors out of business so that prices may be raised afterwards in a competition free environment.