Académique Documents
Professionnel Documents
Culture Documents
Unorganized sector
Concept view business
Overview of retail business
Challenges of unorganized retail business
Growth of retail business
Impact of organized and FDI in retail business in India
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It adds more than 60% to the national income while the contribution of the organized sector
is almost half of that depending on the industry. 1
Meanings:
The unorganized sector consists of all unincorporated private enterprises owned
by individuals or households engaged in the sale and production of goods and services
operated on a proprietary or partnership basis and with less than ten total workers.
Unorganized workers consist of those working in the unorganized enterprises or
households, excluding regular workers with social security benefits, and the workers in
the formal sector without any employment and social security benefits provided by the
employers2
The term Unorganized Sector is used to denote the collective of economic units
engaged in the production of goods and services with the primary objective of generating
employment and income for the persons engaged in the activity.
Categories of workers:
The unorganized Labour can be categorized broadly under the following
categories: 1. Occupation: Small and marginal farmers, landless agricultural laborers, share croppers,
fishermen, those engaged in animal husbandry, in beedi rolling, labeling and packing,
building and construction, collection of raw hides and skins, handlooms weaving in rural
G. Parthasarathy, (1996), Unorganized Sector and Structural Adjustment, Economic and Political
Mathur, D.C., (1987) Labour Welfare, Social Security and Industrial Relation in contract Labour in
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areas, brick kilns and stone quarries, saw mills, oil mills etc. are called occupational
laborers.
2. Nature of Employment: The unorganized labourers are attached to agricultural
labourers, bonded labourers migrant workers, contract and casual labourers etc.
3. Specially distressed categories: Some of the unorganized labourers are toddy tappers,
scavengers, carriers of head loads, drivers of animal driven vehicles, loaders, unloaders,
etc
4. Service categories: Some of the unorganized labourers are Midwives, domestic workers,
barbers, vegetable and fruit vendors, newspaper vendors etc.3
3.2 CONCEPT OF BUSINESS:
Introduction
As business and society have become more difficult over the years, at present, the
business world is very competitive and the cost of businesses is going up. Because of high
competition and rising cost of business transactions, the margin available to the owners of
business becomes very thin. Therefore, the businessmen have to improve the financial
performance of the business by monitoring and measuring the results of business regularly.
4
Businesses are pre dominant in capitalist economies, in which most of them are privately owned
3
Meenakshi Gupta, (2007) Labour Welfare and Social Security in Unorganised Sector, Meenakshi
Sasidhran Pillai C.R, Theory and Practices in Business Organization, Indian Journal of Commerce,
December 2007
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and formed to earn profit to increase the wealth of their owners. Businesses may also form notfor-profit or be state-owned. A business owned by multiple individuals may be referred to as a
company, although that term also has a more precise meaning.
Business organization refers to all necessary arrangements required to conduct a business.
It refers to all those steps that need to be undertaken for establishing relationship between men,
material, and machinery to carry on business efficiently for earning profits. This may be called
the process of organizing. The arrangement which follows this process of organizing is called a
business undertaking or organization. A business undertaking can be better understood by
analyzing its characteristics.
Characteristics of Business:
1. Distinct Ownership: The term ownership refers to the right of an individual or a group
of individuals to acquire legal title to assets or properties for the purpose of running the
business. A business firm may be owned by one individual or a group of individuals
jointly.
2. Lawful Business: Every business enterprise must undertake such business which is
lawful, that is, the business must not involve activities which are illegal.
3. Separate Status and Management: Every business undertaking is an independent
entity. It has its own assets and liabilities. It has its own way of functioning. The profits
earned or losses incurred by one firm cannot be accounted for by any other firm.
4. Dealing in goods and services: Every business undertaking is engaged in the production
and or distribution of goods or services in exchange of money.
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2. Management: The owner of the enterprise is generally the manager of the business. He
has got absolute right to plan for the business and execute them without any interference
from anywhere. He is the sole decision maker.
3. Source of Capital: The entire capital of the business is provided by the owner. In
addition to his own capital he may raise more funds from outside through borrowings
from close relatives or friends, and through loans from banks or other financial
institutions.
4. Legal Status: The proprietor and the business enterprise are one and the same in the eyes
of law. There is no difference between the business assets and the private assets of the
sole proprietor. The business ceases to exist in the absence of the owner.
5. Liability: The liability of the sole proprietor is unlimited. This means that, in case the
sole proprietor fails to pay for the business obligations and debts arising out of business
activities, his personal property can be used to meet those liabilities.
6. Stability: The stability and continuity of the firm depend upon the capacity, competence
and the life span of the proprietor.
7. Legal Formalities: In the setting up, functioning and dissolution of a sole proprietorship
business no legal formalities are necessary. However, a few legal restrictions may be
there in setting up a particular type of business. For example, to open a restaurant, the
sole proprietor needs a license from the local municipality; to open a chemist shop, the
individual must have a license from the government.
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self- reliance, self-determination, independent thought and action, initiative, hard work
etc,. Thus, he sets an example for others to follow.
9. Equitable Distribution of Wealth: A sole proprietorship business is generally a small
scale business. Hence there is opportunity for many individuals to own and manage small
business units. This enables widespread dispersion of economic wealth and diffuses
concentration of business in the hands of a few.
Disadvantages of Sole Trader:
1. Unlimited Liability: In sole proprietorship, the liability of business is recovered from the
personal assets of the owner. It restricts the sole trader to take more risk and increases the
volume of his business.
2. Limited Financial Resources: The ability to raise and borrow money by one individual
is always limited. The inadequacy of finance is a major handicap for the growth of sole
proprietorship.
3. Limited Capacity of Individual: An individual has limited knowledge and skill. Thus
his capacities to undertake responsibilities, his capacity to manage, to take decisions and
to bear the risks of business are also limited.
4. Uncertainty of duration: The existence of a sole tradership business is linked with the
life of the proprietor. Illness, death or insolvency of the owner brings an end to the
business. The continuity of business operation is, therefore, uncertain.
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traditional history of retail trade. Many of the retail formats have been in existence since
ancient times and at the same time they have a presence across the country.
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Exclusive brand outlets, hypermarkets and supermarkets, department stores and shopping malls
Shopping experience/ efficiency Modern formats/ international
Meaning of Retail
The word Retail is derived from the French Word Retaillier meaning to cut a
piece off or to break bulk. In simple terms this means a firsthand transaction with the
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customer. Retailing thus might be understood as the final step in the distribution of
merchandise, for consumption by the end consumers. It thus consisted of all activities
involved in the marketing of goods and services directly to the consumers for their
personal, family or household use. Retailing involves a direct interface with the customer
and the coordination of business activities from end to end- right from the concept or
design stage of a product or offering, to its delivery and post-delivery service to the
customer. Retail was the final stage of any economic activity. By virtue of this fact, retail
occupied an important place in the world of economy.5
A retailer may be defined as a dealer or trader who sells goods in small quantities or
one who repeats or relates. Retailing can be considered as the last stage in the movement of
goods and or services to the consumer. Put simply, any firm that sells products to the final
consumer is performing the function of retailing. Thus, it consists of all activities involved in
the marketing of goods and services directly to the consumers, for their personal, family or
household use.
Definitions of retail:
The High Court of Delhi In 2004 defined the term retail as a sale for final consumption
in contrast to a sale for further sale or processing a sale to the ultimate consumer. Thus,
retailing can be said to be the interface between the producer and the individual consumer
buying for personal consumption. This excludes direct interface between the manufacturer
and institutional buyers such as the government and other bulk customers. Retailing is the
last link that connects the individual consumer with the manufacturing and distribution
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chain. A retailer is involved in the act of selling goods to the individual consumer at a margin
of profit.
Philip Kotler Retail includes all the activities involved in selling goods or services to
the final consumers for personal, non-business use. A retailer or retail store was any business
enterprise whose sales volume comes primarily from retailing.
The North American Industry Classification system (NAICS) specifies that the retail
trade sector comprises establishments primarily engaged in retailing merchandise, generally
without transformation, and rendering services incidental to the sale of merchandise.
Retailing is a distribution channel function, where one organization buys products
from supplying firms or manufactures products themselves, and then sells these directly to
consumers.
Retailing is defined as all the activities involved in selling goods or services
directly to final consumers for personal, non business use. Retailing consists of the final
activity and steps needed to place merchandise made elsewhere into the hands of the
consumer or to provide services to the consumer. 6
Retailing consists of the sale of goods or merchandise, from a fixed location such as
a department store or kiosk, in small or individual lots for direct consumption by the
purchaser.
Retailing may include subordinated services, such as delivery. Purchasers may be
individuals or businesses. In commerce, a retailer buys goods or products in large quantities
Chetan Bajaj, Rajnish Tuli, Nidhi V Srivastava, Retail Management, Oxford University Press, 2005.
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from manufacturers or importers, either directly or through a wholesaler, and then sells
smaller quantities to the end-user. Retail establishments are often called shops or stores.
Retail comes from the French word retailers, which refers to "cutting off, clip and divide"
in terms of tailoring (1365). It first was recorded as a noun with the meaning of a "sale in
small quantities" in 1433 (French). Its literal meaning for retail was to "cut off, shred,
paring".
According to David Gilbert Any business that directs its marketing effort towards
satisfying the final consumer based upon the organization of selling goods and services as a
means of distribution
According to Chetan Bajaj Retailing is defined as a conclusive set of activities or steps
used to sell a product or a service to consumers for their personal or family use. It is
responsible for matching individual demands of the consumers with supplies of all the
manufacturers.
Concept view of Retailer:
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Generally goods and services pass through several hands before they come to the
hands of the consumer for use. But in some cases producers sell goods and services
directly to the consumers without involving any middlemen in between them, which can
be called as direct channel. So there are two types of channels, one direct channel and the
other, indirect channel.
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Meaning of Retailer:
Retailers are the traders who buy goods from wholesalers or sometimes directly
from producers and sell them to the consumers. They usually operate through a retail
shop and sell goods in small quantities. They keep a variety of items of daily use.
Characteristics of Retailers:
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5. Retailers generally deal with different varieties of products and they give a wide choice to
the consumers to buy the goods.
Functions of Retailers:
Retailer performs various functions while selling their products and services to
their customers and it is these functions that allow the products to ultimately be sold
successfully. In this context, they perform various functions like sorting, breaking bulk,
holding stock, as a channel of communication, storage, advertising and certain additional
services.
Sorting: Manufacturers usually make one or a variety of products and would like to sell
their entire inventory to a few buyers to reduce costs. Final consumers, in contrast, prefer
a large variety of goods and services to choose from and usually buy them in small
quantities. Retailers are able to balance the demands of both sides, by collection of an
assortment of goods from different sources, buying them in sufficiently large quantities
Holding Stock: Retailers also offer the service of holding stock for the manufacturers.
Retailers maintain an inventory that allows for instant availability of the product to the
consumers. It helps to keep prices stable and enables the manufacturer to regulate
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production. Consumers can keep a small stock of products at home as they know that this
can be replenished by the retailer and can save on inventory carrying costs.
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Buying and assembling of goods: Retailers buy and assemble varieties of goods from
different wholesalers and manufacturers. They keep goods of those brands and variety
which are liked by the customers and the quantity in which these are in demand.
Storage of goods: To ensure ready supply of goods to the customer retailers keep their
goods in stores. Goods can be taken out of these stores and sold to the customers as and
when required. This saves consumers from botheration of buying goods in bulk and
storing them.
Credit facility: Although retailers mostly sell goods for cash, they also supply goods on
credit to their regular customers. Credit facility is also provided to those customers who
buy goods in large quantity.
Risk bearing: The retailer has to bear many risks, such as risk of:
o Fire or theft of goods
o Deterioration in the quality of goods as long as they are not sold out
Display of goods: Retailers display different types of goods in a very systematic and
attractive manner. It helps to attract the attention of the customers and also facilitates
quick delivery of goods.
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Supply of information: Retailers provide all information about the behavior, tastes,
fashions and demands of the customers to the producers through wholesalers. They
become a very useful source of information for marketing research.
Behaviour of Retailer:
Retailing can be distinguished in various ways from other businesses such as
manufacturing. Retailing differs from manufacturing in the following ways:
There is direct end user interaction in retailing.
It is the only point in the value chain to provide a platform for promotions.
There are a larger number of retail units compared to other members of the value chain.
This occurs primarily to meet the requirements of geographical coverage and population
density.
Retailers have a direct contact with consumers. They know the requirements of the
consumers and keep goods accordingly in their shops.
Retailers sell goods not for resale, but for ultimate use by consumers. For example, you
buy fruits, clothes, pen, pencil etc. for your use, not for sale.
Retailers buy and sell goods in small quantities. So customers can fulfill their
requirement without storing much for the future.
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Retailers require less capital to start and run the business as compared to wholesalers.
Retailers generally deal with different varieties of products and they give a wide choice to
the consumers to buy the goods.
Dr. R. Ganapathi, T.V. Seetha Lakshmi (2007) Retailing Cashing in on the Boom
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home are not maintained separately. Profits were accumulated in slow moving & nonmoving stocks which were to become redundant or consumed in-house. Thus profits were
vanished without their knowledge. The Manufactures were to distribute goods through C
& F agents to Distributors & Wholesalers. Retailers happen to source the merchandise
from Wholesalers & reach to end-users. The merchandise price used to get inflated to a
great extent till it reaches from Manufacturer to End-user. Selling prices were largely not
controlled by Manufacturers. Branding was not an issue for majority of customers.
significance of unorganized retail :
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Indian retail sector is pre-dominantly controlled by traditional and unorganized
formats of retailing. These formats have emerged and developed with the growth of
population in the country in rural and semi urban areas. The traditional "kirana "or
"Baniya ki Dukan" still enjoy the leadership and commanding position in retail trade. In
smaller towns and urban areas we may see the power of small family run independent
'mom and pop' store offering a wide range of merchandise mix. These store formats are
traditional and do not enjoy professionalism. A large number of these stores are family
business involving more than one generation. These retailers have developed a rapport
and goodwill among customers and popularly known as" Dukan Wala bhaiya "
Unorganized retail business one of the easiest ways to generate self-employment,
as it requires limited investment in land, capital and labour. It is generally family run
business with lack of standardization and the retailers who are running this store are
lacking education, experience and exposure. In smaller towns and urban areas, there are
many families who are traditionally using these unorganized retail business shops and
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mom and pop stores offering a wide range of merchandise mix. Generally, these
unorganized retail business shops are the family business of these small retailers which
they are running for more than one generation.
The reasons might be
In smaller towns and urban areas, there are many families who are traditionally using
these kirana shops and 'mom and pop' stores offering a wide range of merchandise mix.
Generally these kirana shops are the family business of these small retailers which they
the customer doesn't want to change their old loyal kirana shop.
A large number of working class in India is working as daily wage basis, at the end of the
day when they get their wage, they come to this small retail shop to purchase wheat flour,
rice etc for their supper. For them this the only place to have those food items because
purchase quantity is so small that no big retail store would entertain this.
Similarly there is another consumer class who are the seasonal worker. During their
unemployment period they use to purchase from this kirana store in credit and when they
get their salary they clear their dues. Now this type of credit facility is not available in
corporate retail store, so this kirana stores are the only place for them to fulfill their
needs.
It is the convenience store for the customer. In every corner the street an unorganized
retail shop can be found that is hardly a walking distance from the customer's house.
Many times customers prefer to shop from the nearby kirana shop rather than to drive a
long distance organized retail stores.
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These unorganized stores are having n number of options to cut their costs. They incur
little to no real-estate costs because they generally operate from their residences.
Grocery Stores: Grocery stores sell are variety of food and non-food products,
such as meat, produce, cereal, dairy products, health and beauty aids and cleaning
products. Depending on their location and the area's population, the size of a
grocery store can vary from a small family market to a large supermarket.
Food retailers: There are large number and variety of retailers in the foodretailing sector. Traditional types of retailers, who operate small single-outlet
businesses mainly using family labour, dominate this sector .In comparison, super
markets account for a small proportion of food sales in India. However the
growth rate of super market sales has being significant in recent years because
greater numbers of higher income Indians prefer to shop at super markets due to
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specializing in these products have come into the market. Although these retail
chains account for only a small share of the total market , their business is
expected to grow significantly in the future due to the growing quality
consciousness of buyers for these products . Pharmacy retailing in India is largely
dominated by traditional/local chemists. Over the years, this category has
attracted a number of pharmaceutical companies venturing into retailing. These
new entrants are offering attractive discounts along with value added services
preferences, it is unlikely that the traditional outlets will survive the test of time.
Home furniture & household goods: Small retailers again dominate this sector.
Despite the large size of this market, very few large and modern retailers have
established specialized stores for these products. However there is considerable
potential for the entry or expansion of specialized retail chains in the country.
Durable goods: The Indian durable goods sector has seen the entry of a large
number of foreign companies during the post liberalization period. A greater
variety of consumer electronic items and household appliances became available
to the Indian customer. Intense competition among companies to sell their brands
provided a strong impetus to the growth for retailers doing business in this sector.
Leisure & personal goods: Increasing household incomes due to better
economic opportunities have encouraged consumer expenditure on leisure and
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personal goods in the country. There are specialized retailers for each category of
products (books, music products, etc.) in this sector. Another prominent feature of
this sector is popularity of franchising agreements between established
consumers today see an exciting explosion of choices, new categories, and new shopping
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options and have increasing disposable income to fulfill their aspirations they are seeking
more information to make these choices. Consumers are increasingly seeking
convenience in shopping. Today consumer changes so many factors there
Factors of changes:
Status Symbol: India has almost 96% of unorganized retail that means only 4%
of retail is organized. People still are very selective when it comes to shopping.
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Good parking facilities: With the increasing number of four wheelers, parking
has become a big problem for the shoppers as they go out for shopping. Parking
may also act as an important factor in deciding for a purchase or a retailer.
Retailers who offer ample parking space for the shoppers may be at an advantage
as compared to the retailers where parking is a problem. Thus, shoppers who
perceive that organized retailing offers good parking facility may prefer the
newer form of retailing for their shopping needs.
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their outlet. This factor helps them create a perception in shoppers mind that they
will get the best of all if they visit a modern retail outlet. Thus, this can be a
factor which may influence the shoppers very much and force them to shop from
an organized retail outlet rather than a traditional one.
The challenges of retail trade government influences very essential because the
rules and regulations to favourable for organized and multilevel organization of the
government. A retailer has to obtain a number of permissions from the government to
start his business. Retailers expect some incentives from the government to run their
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management and other organized retail store have come up with different marketing
strategy i.e., freshness, door delivery, membership card etc., but customers prefer to
purchase their variety of goods due to various reasons. It is obvious that the quality, price,
advertisement, brand value, freshness, convenience etc. Before choosing shops around for
that is best suitable. In the modern world advertisements is a must to all types of product
to get popularity, among the people while giving advertisement one should keep it in
mind not to give wrong information about the products.
Organized Retail Format:
Departmental Stores: It the very old format of large type of stores. This format
emerged in the early nineteenth century as a way of offering a collection of
personal and home furnishings goods under one roof to the increasingly
discriminating and affluent Victorian middle-class customers. They are still a
powerful presence in todays retailing landscape, providing the focus for shopping
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customer to get involved with the product prior to purchase. The ability to peruse
the product offering, try new products and impulse purchase, appealed to the
increasingly affluent postwar customer. In addition, the space and labour-saving
factors allowed retailers to offer a wider choice of product at lower prices. The
supermarket was therefore quickly adopted as the principal methods for acquiring
every day goods. Supermarkets now dominate the retail industry. They have
grown into superstores, offering more and more products, adapting changes to
provide the most convenient method of shopping for the majority of household
pricing policy.
Convenience Stores: The convenience store concept has been the savior of many
small retail businesses who have seen their trade taken away by large grocery
orientated multi-outlet retailers. By adapting to provide an emergency, impulse
purchase and top-up service, many small retailers have found a living with a
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cumbersome procedures.
Loan taken by Commercial Banks: Generally banks do not sanction and release
loan amount to retailers as soon as they apply for a loan. Banks have to verify the
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application and forward it to their higher authorities for approval. It retailers apply
for a loan under some government scheme, Government officials concerned have
to inspect their application obviously it takes some time for sanctioning the loan
from the date of application. Besides this delay, banks take some more time for
releasing the sanctioned loan amount to maintain their liquidity position. Timely
financial assistance is essential to any Retail outlet. When commercial banks take
long periods of time in sanctioning the financial assistance from the date of
application to the date of sanction and disbursement, the Traders suffer a lot. It is
observed that banks delayed their assistance in many cases.
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Single brand: Single brand implies that foreign companies would be allowed to sell
goods sold internationally under a single brand, viz., Reebok, Nokia and Adidas. FDI in
Single brand retail implies that a retail store with foreign investment can only sell one
brand. For example, if Adidas were to obtain permission to retail its flagship brand in
India, those retail outlets could only sell products under the Adidas brand and not the
Reebok brand, for which separate permission is required. If granted permission, Adidas
could sell products under the Reebok brand in separate outlets.
Multi brand: FDI in Multi Brand retail implies that a retail store with a foreign
investment can sell multiple brands under one roof. Opening up FDI in multi-brand retail
will mean that global retailers including Wal-Mart, Carrefour and Tesco can open stores
offering a range of household items and grocery directly to consumers in the same way as
the ubiquitous kirana store.
2011.
Nitish Kumar, CM, in Bihar: The retail business is doing well, the shopkeepers
are earning money and people are buying their daily needs from them If FDI
comes in, the farmers will not be benefitted at all.The foreign investors promise
in the beginning that profits will reach farmers. But ultimately, the farmers get
nothing.
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Prakash Singh Badal, CM, in Punjab: If FDI comes, biggies would eat into the
share of small fries, which would be against the idea of social welfare.
Oommen Chandy, CM, Kerala: The Centre's decision to allow 51 per cent
foreign investment in multi-brand retail business will not be implemented in the
state.
Navin Patnaik, CM, in Odisha: FDI in retail is neither going to bring down the
people.
Overview of FDI in Indian retail sector:
Retail sector one of the pillars of its economy and accounts for 14 to 15% of its
GDP. The Indian retail market is estimated to be US$ 450 billion and one of the top five
retail markets in the world by economic value. India is one of the fastest growing retail
markets in the world, with 1.2 billion people. Indias retailing industry is essentially
owner manned small shops. In 2012, larger format convenience stores and supermarkets
accounted for about 4% of the industry, and these were present only in large urban
centers. India's retail and logistics industry employs about 40 million Indians (3.3% of
Indian population). Until 2011, Indian central government denied foreign direct
investment (FDI) in multiband retail, threatening foreign groups from any ownership in
supermarkets, convenience stores or any retail outlets. Even single-brand retail was
limited to 51% ownership and a practical process. In November 2011, India's central
government announced retail reforms for both multi-brand stores and single-brand stores.
These market reforms paved the way for retail innovation and competition with multi-
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brand retailers such as Wal-Mart, Carrefour and Tesco, as well single brand majors such
as IKEA, Nike, and Apple.
History has witnessed that the concern of allowing unrestrained FDI flows in the
retail sector has never been free from controversies and simultaneously has been an issue
for unsuccessful deliberation ever since the advent of FDI in India. Where on one hand
there has been a strong outcry for the unrestricted flow of FDI in the retail trading by an
overwhelming number of both domestic as well as foreign corporate retail giants; to the
contrary, the critics of unrestrained FDI have always fiercely retorted by highlighting the
adverse impact, the FDI in the retail trading will have on the unorganized retail trade,
which is the source of employment to an enormous amount of the population of India.
The antagonists of FDI in retail sector oppose the same on various grounds, like, that the
entry of large global retailers such as Wal-Mart would kill local shops and millions of
jobs, since the unorganized retail sector employs an enormous percentage of Indian
population after the agriculture sector; secondly that the global retailers would conspire
and exercise monopolistic power to raise prices and monopolistic power to reduce the
prices received by the supply.
Advantages of FDI
FDI plays an extraordinary and growing role in global business. It can provide a
firm in the home country with new markets and marketing channels, cheaper production
facilities, access to new technology, products, skills and financing. For a host country
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FDI is said to be an important factor for spurring the development of a nation in the
following ways.
that FDIs helped several countries when they have faced economic hardships.
Transfer of technologies: FDI also permits the transfer of technologies. This is done
basically in the way of provision of capital inputs. It also assists in the promotion of the
opportunity to explore newer markets and thereby generate more income and profits.
Export: It also opens up the export window that allows these countries the opportunity to
cash in on their superior technological resources. It has also been observed that as a result
of receiving FDIs from other countries, the recipient countries can keep their rates of
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interest at a lower level. It becomes easier for the business entities to borrow finance at
Proper tax system: Tax revenue will increase like VAT and service tax. The organized
sales with computerized billing system will also yield more revenue through commodity
taxes like VAT and service tax to the government. Thus tax buoyancy of the economy
would increase.
Distribution system: The report shows that 30-35% of Indias total production of fruits
and vegetables is wasted every year due to inadequate cold storage and transport
facilities. Almost half of this wastage can be prevented if fruit and vegetable retailers
have access to specialized cold storage facilities and refrigerated trucks. The organized
retail will bring in efficient practices that will help farmers in the procurement process,
reduce wastage with finally efficient storage and will finally cut the losses. The giant
retailers will help India to have strong storage system with highly developed
transportation. Giant retailers with decades of experience on how to manage mountains of
inventories supply them to key distribution centers and do it all faster, better, cheaper.
The arrival of foreign retailers will definitely bring in synergies in distribution
management practices.
Partnership opportunity: Indian retailers have reason to be happy with foreign direct
investment in the retail sector because it is a partnership opportunity that involves a lot of
learning that could take them to higher profitability. The central government is planning
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to have 51% foreign investment; this means the foreign retailers need partners for the rest
investment to gain market.
Problems of allowing FDI
Adverse impact on the employment:
In the absence of any substantial improvement in the employment generating capacity
of the manufacturing industries in our country, entry of foreign capital in the retail sector is
likely to play havoc with the livelihood of millions. Let alone the average Indian retailer in
the unorganized sector, no Indian retailer in the organized sector will be able to meet the
onslaught from a firm such as Wal-Mart when it comes in full swing. With its incredibly
deep pockets Wal-Mart will be able to sustain losses for many years till its immediate
competition is wiped out. This is a normal predatory strategy used by large players to drive
out small and dispersed competition. This entails job losses by the millions. A back-of-theenvelope calculation can substantiate the point. If we take the case of India, it has 35 towns
each with a population over 1 million. If Wal-Mart were to open an average Wal-Mart store
in each of these cities and they reached the average Wal-Mart performance per store-we are
looking at a turnover of over Rs 80330mn with only 10195 employees. Extrapolating this
with average trend in India, it would mean displacing about 432000 persons and if we
suppose that the large FDI driven retailers take up 20% of the retail trade in India, it would
mean a turnover of Rs 800 billion and displacement of eight million persons employed in the
unorganized retail sector.
promoting business of overall industry. Their economies of scale will allow them to reduce
their margin to provide value for money products in the beginning to grab the market share
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which is not possible for domestic players to reduce in comparison to global players because
of huge investment. Majority of the Indian players have not attained even breakeven point as
organized retail is still at the nascent stage in India.
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around 34.1%. Similarly, 54% of the final price of a pair of jeans goes to the retailers
while the manufacturing worker gets around 12%. The International market access
available to the global retailers do not benefit the producers from the developing
countries since they are unable to secure a fair price for their produce in the face of
enormous monophony power wielded by these multinational giants.
Monopoly in the customer market and creation of cartels by the global players
Foreign players may create monopoly by providing products at discounted rates in the
beginning to grab the market share by displacing domestic giants and after getting good
market or monopoly in the market may create a cartel of global giants to exploit the
customers by inducing price hike and customers would not get any option than to purchase at
the available prices.
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The volume and the quality of FDI in a country depend on the following factors:
Natural Resources: Availability of natural resources in the host country is a major
determinant of FDI. Most foreign investors seek an adequate, reliable and economical
source of minerals and other materials. FDI tends to flow in countries which are rich in
resources but lack capital, technical skills and infrastructure required for the exploitation
of natural resources.
National Markets: The market size of a host country in absolute terms as well as in
relation to the size and income of its population and market growth is another major
determinant. Large markets can accommodate more firms and can help firms to achieve
economies of large scale operations.
Availability of Cheap Labour: The availability of low cost and skilled labour has been a
major cause of FDI in countries like China and India. Low cost labour together with
availability of cheap raw materials enables foreign investors to minimize costs of
production and thereby increase profits.
Socio-Economic Conditions: The size of the population of the host country, its
infrastructural facilities and income level of the country also influence direct foreign
investment.
Political Situation: Political stability, legal framework, judicial system, relations with
other countries and other political factors prevailing in the country also influence
movements of FDI from one country to another.
Rate of interest: Differences in the rate of interest prevailing in different countries
stimulate foreign investment. Capital tends to move from a country with a low rate of
interest to a country where it is higher. FDI is also inspired by foreign exchange rates.
Foreign capital is attracted to countries where the return on investment is higher.
Government Policies: Policy towards foreign investment, foreign collaborations, foreign
exchange control, remittances, and incentives both monetary and fiscal offered to
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projected US$1,563. The Indian retail market is witnessing a migration from traditional
retailing to modern/ organized retailing formats, with an explosive proliferation of malls
and branded outlets. Modern retailing outlets in India are increasingly becoming global in
standards and are witnessing intense competition. The growth in the overall retail market
will be driven, in large part, by the explosion in the organized retail market. By this, we
mean the familiar Western concept of chain outlets, department stores, supermarkets, etc.,
and this segment accounted for US$12.1bn of sales in 2006, or 4.6% of the total retail
segment (Investment Commission of India (ICI) data, 2008). Indian retail industry is
poised to grow at a rate of 19 per cent over the next five years (Crisil, 2009). The
Organised retail market in India is projected to grow to US$ 23 billion in 200910. The
Organised retail segment is expected to grow from 5 per cent to about 7 to 8 per cent by
201213. With a share of over 95 per cent of total retail revenues, traditional retailing
continues to be the backbone of the Indian retail industry. Over 12 million small and
medium retail outlets exist in India, the highest in any country. Traditional retail is highly
pronounced in small towns and cities, with a primary presence of neighbourhood 'kirana'
stores, push-cart vendors, 'melas' and 'mandis'. Organised retailing is growing at an
aggressive pace in urban India, fuelled by burgeoning economic activity. An increasing
number of domestic and international players are setting up base in the country and
expanding their business to tap this growing segment. The food and beverages segment
accounts for the largest share, at more than 70 per cent of the total retail pie. Traditional
retail dominates food, grocery and the allied products sector, with grocery and staples
largely sourced from kirana' stores and push cart vendors. Food and grocery segment
comprises 62 per cent of the $ 270 billion Indian retail market (India Retail Report,
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2007). Only 0.8 per cent of this segment is in the organized sector and witnessed a yearon-year growth of 30.8 per cent in 2005-06 as against 2.2 per cent growth of the total
food and grocery retail market (Dr. Paromita Goswami, Dr. Mridula S. Mishra, 2008)3.
The apparel and consumer durable verticals are the fastest-growing verticals. Mobile
phones, supported by the growing telecom penetration in small towns and villages, are a
major retail item with the addition of 10 million to 12 million mobile phone users every
month. The home dcor sector is witnessing rapid growth with the reducing average age
of Indians buying homes. Beauty care, home dcor, books, music and gift segments are
gaining attraction, predominantly in the urban areas and emerging cities.Organized retail
in India is largely restricted to urban regions with consumer exposure to modern retailing
formats such as malls and standalone stores, etc., for specific product categories. The
clothing and textiles/apparel segment dominated the organised retail sector with revenues
worth US$ 6 billion in 200708, contributing more than 27 per cent to the organised
retail pie. Figure 2.3 shows the comparative penetration of the organized retail in various
countries. While the penetration is maximum (85%) in USA, it is hardly about 4% in
India. Penetration of organised retail in India is projected to increase to 7 per cent by
201213.
Retail Trade in various countries
Country
Percentage
India
China
17
Poland
20
Indonesia
30
Russia
33
Brazil
35
77
Thailand
40
Malaysia
55
USA
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Bharti Wal-Mart Bharti Retail (Pvt.) Ltd. Unveiled the roadmap for its retail venture on
19th February, 2007 envisaging an investment of $2.5 billion with expectation of revenue
of $4.5 billion from this business by 2015. The first retail outlet is expected to open
somewhere in the month of August .Bhartis plan is to invest $2.5 billion by 2015 and
open stores across all major cities. This investment would be only for setting up front-end
stores. The modalities for its back-end linkage, including its joint venture with the world's
largest retailer Wal-Mart, are in the process Retailing consists of all activities involved in
selling goods and services to consumers for their personal, family or household use. It
covers sales of goods ranging from automobiles to apparel and food products and
services ranging from hair cutting to air travel and computer education. Sales of goods to
intermediaries who resell to retailers or sales to manufacturers are not considered a retail
activity.
Aditya Birla The Aditya Birla Group is India's first truly multinational corporation.
Global in vision, rooted in values, the Group is driven by a performance ethic pegged on
value creation for its multiple stakeholders. A US$ 24 billion conglomerate, with a
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market capitalization of US$ 23 billion and in the League of Fortune 500, it is anchored
by an extraordinary force of 100,000 employees belonging to over 25 different
nationalities. Over 50 per cent of its revenues flow from its operations across the world.
Our mission is to change the way people shop. We will give them more. says Mr. Kumar
Mangalam Birla, Chairman, Aditya Birla Group. The MORE promises a world-class
pleasurable shopping experience to Indian consumers in their very own neighborhood.
Reliance Retail: On June 26, 2006, Mukesh Ambani, Chairman and Managing Director,
Reliance Industries Limited, announced an Rs 25,000-crore investment in the retail
sector. Reliance Retail started its retail operation with Reliance Fresh, a grocery store
that sells vegetables, fruits, personal care items and other food products. Soon, these
retail outlets will also be selling apparel and footwear, lifestyle and home improvement
products, electronic goods and farm implements and inputs. They will also offer products
and services in energy, travel, health and entertainment. In addition to this, partnerships
would be developed to bring the best of global luxury brands to India as well. Reliance
Retail plans to extend its footprint to cover 1,500 Indian cities and towns with outlets of a
varied format, a mix of neighborhood convenience stores, supermarkets, specialty stores
and hypermarkets. Reliance also plans to open restaurant outlets, financial services marts
and tourism counters within its stores. Mukesh Ambanis ultimate ambition seems to be
to create the Indian equivalent of Wal-Mart by scaling up the business to unprecedented
heights to reach every nook and corner of the country. With its retailing venture, Reliance
expected a revenue target of US $20 billion through its retail operations by 2010. Over a
span of five years, RRL expects a 20% return-on-investment. The first store christened
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Reliance Fresh opened in November 2006 at Hyderabad. Within a few months they
have now opened stores in Mumbai, Pune and Ahmedabad and plansof being worked out
RPG Spencer :RPGs Spencer presently has 125 stores across 25 cities covering a retail
trading area of half a million square feet and with a clientele of 3 million customers a
month. Spencer's has a national footprint with seven hypermarkets, three supermarkets
and 70 daily use outlets, called Dailies. All the newly opened Spencer's stores stock every
conceivable product that is required by a household on a daily basis. At Spencer's Daily
shoppers can get fresh fruits, vegetables, fast-moving consumer goods, household items,
groceries, with regular offers and discounts. Spencer's outlets are divided in to three retail
formats. These are, Spencer's Hyper, the over 25,000-sq ft hypermarkets stocking over
25,000 items. The 8,000sq ft to 15,000-sq ft mini hyper stores, branded as Spencer's
Super and the daily purchase 4,000-sq ft to 7,000-sq ft Spencer's Daily for groceries,
fresh food, chilled and frozen products, bakery and weekly top up shopping.
Subiksha: The Chennai based Subiksha grocery chain runs around 200 outlets all over
the country and its current turnover stands at Rs 224 crores. Their target customer is the
middle income value conscious buyers. The main aim of Subiksha is to offer a functional
and transactional shopping experience. This retail chain has no qualms and spends almost
no money on creating a pleasant shopping experience, and all stores are non-air
conditioned. There is no false roofing or sparkling vitrified tiles on the floor. A few years
ago, Subiksha did not even offer shoppers self service. The customer had to place an
order at a computerized teller and the goods were billed and delivered after cash is
collected. Customers had to bring their own carry bags or pay to buy them from the store.
Subiksha even attempted to charge the customers for home delivery.
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Piramyd: Piramyd Retail is part of the Piramal Group, which has presence in diverse
sectors spanning Pharmaceuticals, Textiles, Real Estate, Engineering, Family
Entertainment and Retail with manufacturing operations in 19 locations across five states
and employing over 18,000 people. The promoters launched the apparel business in 1999
under Piramyd Retail and Merchandising Pvt. Ltd. (PRMPL) while its food; home &
personal care businesses (FHPC) were housed under Crossroads Shoppertainment Pvt.
Ltd. (CSPL). As the apparel and food businesses individually reached a critical mass the
management merged the two companies into Piramyd Retail Ltd. due to distant synergies
in two businesses in March 2005. Pyramid also has a smaller format of stores called
TruMart that caters to Food and Personal Care products.
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