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India's fast growing retail market- currently estimated to be worth $328 billion - continues to attract foreign retailers. The latest to enter India's retail market include Walmart Stores Inc, the world's largest retailer, Spar International of Netherlands and Rosebys of UK. Waiting in the wings for greater clarity on policy are Carrefour, Tesco, Starbucks and Dunkin Donuts.
Walmart enters cash and carry retailing |
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Wal-Mart Stores has signed an agreement Bharti Enterprises, one of India's leading business groups with interests in telecom, agribusiness, insurance and retail, to establish an equal partnership joint venture for wholesale cash-and-carry and back-end supply chain management operations in India. Under the agreement, Bharti and Wal-Mart will hold an equal 50:50 stake in the wholesale cash-and-carry joint venture.
In addition, Bharti Enterprises' 100% subsidiary Bharti Retail, has entered into a franchise agreement with Wal-Mart which will provide technical support to Bharti Retail.
If and when the government allows foreign direct investment in multibrand retailing, Bharti Retail will also enter into a joint venture with Walmart for front end retail. Depending on the foreign equity allowed, Walmart may hold a 26% stake or a 50% stake in the joint venture.
The Bharti Walmart cash and carry joint venture, which is expected to open 10 to 15 wholesale cash-and-carry facilities over the next seven years, will serve not only Bharti Retail but other kirana (neighbourhood grocery) stores, fruit and vegetable resellers, restaurants and other business owners.
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Other entrants
Spar International of Netherlands has signed a licence agreement with Max Hypermarkets, owned by a non resident Indian, Max will invest Rs 2 billion in seven Spar branded hypermarkets in the large cities.
UK based home textile retailer, Rosebys plans to set up 20 stores to push its brand in India
Other foreign retailers are waiting to enter India. Dunkin Brands Inc, the owner of Dunkin Donuts, is in preliminary discussions with Indian partners to rollout their chain of coffee shops.
Routes to entry into India's retail sector
Over the years, foreign companies have entered India's retail sector through one of the following routes:
Franchise
This does not involve any direct foreign equity investment and no prior approval is required from the government or even the Reserve Bank of India (India's Central Bank). This route has been chosen by Marks and Spencers, Mango, Tommy Hilfiger, Shoprite, Hugo Boss, Chanel , Costas, McDonalds, KFC, and Domino's
Cash-and-carry wholesale trading
The current policy allows upto 100% Foreign direct investment in wholesale cash-and-carry operations, where one can only sell to retailers and distributors and not to consumers. This was the route chosen by Metro AG of Germany, which was quick to recognize the potential of the Indian market, and was the first international retailing company to set up operations in India. In 2003, Metro set up two cash-and-carry stores in the southern city of Bangalore . In 2006, it set up a third store in Hyderabad and intends to opens stores in Kolkata and Bangalore in 2007. Now Walmart has also chosen this route to enter India.
Single brand retailing
In February 2006, in a move aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices, the government permitted foreign equity in single brand retailing. FDI up to 51 per cent was permitted in retail trade of single brand products that are branded during manufacturing and are sold under the same brand internationally. Under this policy , the government has recently approved several proposals including those of luxury retailers such as Louis Vuitton, Fendi International, Ermenegildo Zegna, Elamint, Lee Cooper to set up subsidiaries with a 51% stake. The government has also permitted Lladro Commercials (Spain) to set up a joint venture with Spa Agencies (India) for Ceramics, Damro Exports Private Ltd (Sri Lanka) with Damro Furniture Private Ltd for furniture and Rino Greggio of Italy for silverware
Outlook
India's retail industry is expected to grow to $ 427 billion by 2010 and the share of organized retail is expected to increase to around 22% from the current level of just 4%.
Large Indian business groups - Reliance, Bharti, Tata, Aditya Birla , RPG, Raheja- are all eager to cash in on the first mover advantage by quickly rolling out their networks.
However, opposition to the entry of large organised retailers, whether Indian or foreign, is mounting . The UPA Chairperson Sonia Gandhi had written to Prime Minister Manmohan Singh over concerns raised in various quarters at the time of the announcement of Wal-Mart's India plans. Reliance Fresh has faced opposition to the opening of its stores. Recently, the government of the state of Uttar Pradesh ordered the closing down of the retail stores of Reliance and Spencer which were vandalized. Reliance has also announced its intention of going slow in opening of stores in the state of West Bengal.
Given the opposition to the opening up of retail, it is unlikely that the government will relax the foreign investment norms any further till the next federal elections due in 2009. There is also the possibility that some of the existing windows such as the franchise route, considered to be backdoor entry mechanism , may be closed or modified . The left parties have proposed that entry of large retailers be strictly licensed.
Leading foreign retailers in India
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Dairy Farm International |
| Metro |
| McDonalds |
| Domino's |
| Marks and Spencer's |
| Tommy Hilfiger |
| Hugo Boss |
| Mango |
| Shoprite |
| LVMH |
| Fendi |
| Lladro |
| Ermenegildo Zegna |
| Chanel |
| Nokia |
Leading large Indian Retailers
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ITC |
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Future Group (Pantaloon, Big Bazaar) |
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Reliance Retail |
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RPG (Spencers) |
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Tata (Trent, Titan and Infiniti) |
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Subhiksha |
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Bharti Group |
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Aditya Birla Group |
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K. Raheja (Shoppers Stop, Crossword, Hypercity) |
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Landmark |
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Vishal |
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Globus |
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Ebony |
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Vivek |
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Nilgiris
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