A Study on Foreign Direct Investment (FDI) with reference toIndian Retail Sector

BY

S.S.Naga Pratap. Murugula

DM-05-057

UNDER SUPERVISION

Of

Ms.Brinda

Submitted to:

Aurora’s Business School, Hyderabad.

IN PARTIAL FULFILMENT OFPOST GRADUATE DIPLOMA IN MANAGEMENT

CONTENTS

Chapter-1 Page No. Abstract 3 Objectives 3

Chapter – 2 Introduction 4 Over view 5

Chapter – 3 Chain of events for FDI in Indian Retail Factors affecting the future of Indian Retail International Retailers in India Plans of Retail Giants in the coming Future Recent Trends Opportunities for FDI in Indian Retail. Challenges for FDI Benefits to India through FDI in Retail Impact of FDI on Unorganized Retail sector

Chapter-4

Methodology Need for Study Limitations Expected Out comes

Chapter-1

Abstract : India is one of the largest emerging markets, with a population of over one billion. India is one of the largest economies in the world in terms of purchasing power and has a strong middle class base of 300 million.

Around 70 per cent of the total households in India (188 million) reside in the rural areas, where mostly traditional retail outlets, commonly called kirana stores exist. These are unorganized, operated by single person and runs on the basis of consumer familiarity with the owner. However, recently organized retailing has become more popular in big cities in India and most of the metropolitan cities and other big cities are flooded by modern organized retail stores. Many semi-urban areas also witnesses entry of such organized retail outlets. Till now, entry of foreign retailers was restricted in Indian retail market because of the ban on Foreign Direct Investment in Indian Retail Sector. But recently, as government has changed its policy and the cabinet has allowed 51 per cent FDI in single-brand retail, the prospects of foreign players entering India became high.

FDI is allowed up to 51 percent in retail trade in single brand products in India. However FDI in retail trade in single brand products is subject to approval from the Government of India. While there are many advantages to the Indian economy from FDI in retail trade for single brand products, certain conditions are to be fulfilled for getting approval for FDI in this sector.

Objectives:

To understand the Foreign Direct Investment with reference to Indian retail sector To understand the strategies and businesses of different foreign players in Indian retail sector To Understand the impact of Government rules and regulations on FDI in Indian Retail Sector To study the Impact of FDI on Unorganized retail sector.

Chapter-2

Introduction:

Indian retail sector is highly fragmented as compared to the developed as well as the other developing countries. This shows a great potential for the organized retail industry to prosper in India, as the market for the final consumption in India is very large. Retail trade is largely in the hands of private independent owners and distributor’s structure for fast moving consumer goods consisting of multiple layers such as carrying and forwarding agents, distributors, stockiest, wholesalers and retailers. Thus, the growth potential for the organized retailer is enormous. In the next 2-3 years, India will finally see operations of a number of very serious international players- net withstanding the current restrictions on FDI in retail.

The Indian retail sector is ready to take on challenges from global retail players such as Wal-mart and Carrefour because unlike them, they have a better understanding of the Indian consumer’s psyche. Ultimately, a successful retailer is one who understands his customer. The Indian customer is looking for an emotional connection, a sense of belonging. Hence, to be successful any retail outlet has to be localized. The customer should feel that it is a part of his culture, his perceived values, and does not try to impose alien values or concepts on him. Indian customer is not keen to buy something just because it is sold by an international company.

The BMI India Retail Report for the third-quarter of 2010, forecasts that the total retail sales will grow from US$ 353 billion in 2010 to US$ 543.2 billion by 2014. With the expanding middle and upper class consumer base, there will also be opportunities in India's tier II and III cities. The greater availability of personal credit and a growing vehicle population to improve mobility also contribute to a trend towards annual retail sales growth of 11.4 per cent. Mass grocery retail (MGR) sales in India are forecast to undergo enormous growth over the forecast period. BMI further predicts that sales through MGR outlets will increase by 154 per cent to reach US$ 15.29 billion by 2014. This is a consequence of India's dramatic, rapid shift from small independent retailers to large, modern outlets.

BMI forecasts consumer electronic sales at US$ 29.86 billion in 2010, with over the counter (OTC) pharmaceutical sales at US$ 3.28 billion. The latter is predicted to be the fastest growing retail sub-sector and BMI forecasts that sales will reach US$ 6.18 billion by 2014, an increase of 88.5 per cent. China and India are predicted to account for almost 91 per cent of regional retail sales in 2010 and by 2014 their share of the regional market is expected to be more than 92 per cent. Growth in regional retail sales for 2010-2014 is estimated by BMI at 72.2 per cent, an annual average of 14 per cent. India should experience the most rapid rate of growth in the region, followed by China. For India, its forecast market share of 13.9 per cent in 2010 is expected to increase to 14.3 per cent by 2014.

Moreover, for the 4th time in five years, India has been ranked as the most attractive nation for retail investment among 30 emerging markets by the US-based global management consulting firm, A T Kearney in its 8th annual Global Retail Development Index (GRDI) 2009. India remains among the leaders in the 2010 GRDI and presents major retail opportunities. India's retail market is expected to be worth about US$ 410 billion, with 5 per cent of sales through organised retail, meaning that the opportunity in India remains immense. Retail should continue to grow rapidly—up to US$ 535 billion in 2013, with 10 per cent coming from organised retail, reflecting a fast-growing middle class, demanding higher quality shopping environments and stronger brands, the report added. Bharti Retail strengthened its position in northern India by opening 59 stores, Bharti Wal-Mart is expected to open 10 to 15 wholesale locations in the next three years, and Marks & Spencer is considering plans to open additional outlets in the next few years.

Established retailers are tapping into the growing retail market by introducing innovative store formats. Spencer's Retail, More (owned by Aditya Birla Group) and Shoppers Stop (owned by K Raheja Group) already plan to expand.

According to a McKinsey & Company report titled 'The Great Indian Bazaar: Organised Retail Comes of Age in India', organised retail in India is expected to increase from 5 per cent of the total market in 2008 to 14 - 18

per cent of the total retail market and reach US$ 450 billion by 2015.

Furthermore, according to a report titled 'India Organised Retail Market 2010', published by Knight Frank India in May 2010 during 2010-12, around 55 million square feet (sq ft) of retail space will be ready in Mumbai, national capital region (NCR), Bengaluru, Kolkata, Chennai, Hyderabad and Pune. Besides, between 2010 and 2012, the organised retail real estate stock will grow from the existing 41 million sq ft to 95 million sq ft.India continues to be among the most attractive countries for global retailers. Foreign direct investment (FDI) inflows between April 2000 and April 2010, in single-brand retail trading, stood at US$ 194.69 million, according to the Department of Industrial Policy and Promotion (DIPP).

Leading watchmaker Titan Industries Limited plans to invest about US$ 21.83 million for opening 50 premium watch outlets Helios in next five years to attain a sales target of US$ 87.31 million. "We are looking to open Helios outlets in Mumbai, Delhi, Hyderabad, Kolkata, Chennai, Pune, Ahmedabad etc in next 12 months," said Ajoy Chawla, Vice President (Retail), Titan.

British high street retailer, Marks and Spencer (M&S) plans to significantly increase its retail presence in India, targetting 50 stores in the next three years. M&S currently operates 17 stores in India through a joint venture (JV) with Reliance Retail.

Chinese retail major, Yishion has entered the Indian market and plans to have at least 125 points of sales, including exclusive stores and multi-brand outlets, across India by 2012. It will open its first exclusive store in New Delhi by September 2010.

Spain's Inditex, Europe's largest clothing retailer opened the first store of its flagship Zara brand in India in June 2010. It further plans to open a total of five Zara outlets in India.

Bharti Retail, owner of Easy Day store—supermarkets and hypermarts—plans to invest about US$ 2.5 billion over the next five years to add about 10 million sq ft of retail space in the country by then, according to a company spokesperson.

Raymond Weil plans to invest US$ 883,665 in India during 2010, according to Olivier Bernheim, President and CEO, Raymond Weil.

Policy InitiativesFDI up to 51 per cent under the Government route is allowed in retail trade of Single Brand products, according to the Consolidated FDI Policy document.

Road AheadAccording to industry experts, the next phase of growth is expected to come from rural markets.According to a market research report published in June 2008 by RNCOS titled, 'Booming Retail Sector in India', organised retail market in India is expected to reach US$ 50 billion by 2011. The key findings of the report are:

Number of shopping malls is expected to increase at a CAGR of more than 18.9 per cent from 2007 to 2015

Rural market is projected to dominate the retail industry landscape in India by 2012 with total market share of above 50 per cent

Driven by the expanding retail market, the third party logistics market is forecasted to reach US$ 20 billion by 2011

Apparel, along with food and grocery, will lead organised retailing in India

PRESENT SCENARIO

Retailing in India is witness to the boom in terms of modern retailing formats, shopping malls etc. the future of retailing for any product across the country will definitely be in malls where the consumer can get variety, quality and ambience.

However, in spite of this continuous debate to be or not to be, recently Government has allowed up to 51 percent FDI in single brand retailing by foreign companies like Reebok and Louis Vuiton. As of now, single brand retailers operate through the franchisee route and there is a strong view that FDI in this segment would not displace jobs or impact the local industry but help create employment.

Even today the government is undecided about the level FDI in retail, but a number of foreign players, including the Wal-mart stores, Inc., have announced their intention to enter India in a big way. At present Wal-mart is operating through its subsidiary in Bangalore, which was functioning as a liaison office till last year. Now it is in the process of setting up offices in New Delhi and Mumbai.

RETAILING IN THE 21ST CENTURY

Retailing in the new millennium stands as an exciting, complex and critical sector of business in most developed as well as emerging economies. Today, the retailing industry is being buffeted by a number of forces simultaneously, e.g., increasing competition within and across retailing formats, the growth of online retailing, the advent of “Radio Frequency Identification (RFID) technology, the explosion in customer-level data availability, the global expansion of major retail chains like WAL-MART and METRO Group and so on. Making sense of it all is not easy but of vital importance to retailing practitioners, analysis and policymakers.

RETAIL IN INDIA - THE FUTURE

According to a study the size of the Indian Retail market is currently estimated at Rs.704 crores, which accounts for a meager 3% of the total retail market. As the market becomes more and more organized the Indian retail industry will gain greater worth. The Retail sector in the small towns and cities will increase by 50% to 60% pertaining to easy and inexpensive availability of land and demand among consumers.

Growth in India Real estate sector is also complementing the Retail sector and thus it becomes a strong feature for the future trend. Over a period of next 4 years there will be a retail space demand of 40 million sq. ft. However with growing real estate sector space constraint will not be there to meet this demand. The growth in the retail sector is also caused by the development of retail specific properties like malls and multiplexes.

According to a report, from the year 2003 to 2008 the retail sales are growing at a rate of 8.3% per annum. With this the organized retail which currently has only 3% of the total market share will acquire 15%-20% of the market share by the year 2010.

Overview:

The Indian retail industry is the fifth largest in the world. Comprising of organized and unorganized sectors, India retail industry is one of the fastest growing industries in India, especially over the last few years. Though initially, the retail industry in India was mostly unorganized, however with the change of tastes and preferences of the consumers, the industry is getting more popular these days and getting organized as well. With growing market demand, the industry is expected to grow at a pace of 25-30% annually. The India retail

industry is expected to grow from Rs. 35,000 crore in 2004-05 to Rs. 109,000 crore by the year 2010.

Indian retailing is undergoing a process of evolution and is poised to undergo dramatic transformation. The traditional formats like hawkers, grocers and pan shops co-exist with modern formats like Super- markets and Non-store retailing channels such as multi level marketing and teleshopping. Modern stores trend to be large, carry more stock keeping units, and have a self-service format and an experiential ambience. The modernization in retail formats is likely to happen quicker in categories like dry groceries, electronics, men’s' apparel and books. Some reshaping and adaptation may also happen in fresh groceries, fast food and personal care products. In recent years there has been a slow spread of retail chains in some formats like super markets, malls and discount stores.

Factors facilitating the spread of chains are the availability of quality products at lower prices, improved shopping standards, convenient shopping and display and blending of shopping with entertainment and the entry of Tata’s into retailing. Foreign direct investment in the retail sector in India, although not yet permitted by the Government is desirable, as it would improve productivity and increase competitiveness. New stores will introduce efficiency. The customers would also gain as prices in the new stores tend to be attractive. The consequences of recent modernization in India may be somewhat different due to lower purchasing power and the new stores may cater to only branded products aimed at upper income segments.

The Indian retail environment has been witnessing several changes on the demand side due to increased per capital income, changing lifestyle and increased product availability. In developed markets, there has been a power shift with power moving from manufactures towards the retailers. The strategies used by retailers to wrest power include the development of retailers own brands and the introduction of slotting allowances which necessitate payments by manufactures to retailers for providing shelf space for new products. The recent increased power of retailers has led to the introduction of new tactics by manufactures such as everyday low pricing, partnership with retailers and increased use of direct marketing methods.

Chapter-3

Chain of events for FDI in Indian Retail:

1997: India allows 100% foreign subsidiaries in whole sale cash-and-carry business that can sell only to other retailers and businesses. This allowed under the Government approval Route.

2006: 51% FDI in single brand retail is cleared i.e. companies are to sell multiple products under a single brand name, India allows 100% FDI in cash-and-carry through the automatic route.

2007 February:- Sonia gandhi writes the government to open the retail sector for investment only after all the “issues” are examined

2007 March:- The Ministry of commerce and industry asked Indian council for research on International economic relations(ICIER) to study the impact of large companies in retail on the unorganized Sector.

2008 May:- After 14 months of research, ICIER made a report stating that modern retail and the Unorganized sector can co-exist and flourish.

2010 July:- Dipp(Department of Industrial policy and promotion) starts a discussion paper on whether India should allow FDI in Multi brand Retailing.

Key points of DIPP Discussion Paper:

FDI in retail could assist in bringing technical know how to setup efficient supply chains which can act as models of development

FDI in retail may be an efficient means of addressing concerns of farmers and consumers.

FDI in retail cannot wipe out the small kirana stores as they are popularly known .

India was losing about RS.1 lakh crore in Agriculture products due to lack of cold chain systems and this problem can also be addressed by foreign players.

In single brand Retail the total investments received between April 2006 and March 2010 were estimated at $194.69 million comprising 0.21% of the total FDI during the period. In cash-and-carry the country saw between April 2000 to March 2010, inflows of $1.78 billion.

Paper suggested a law called “shopping Mall regulation act” to protect small retailers.

Super Market giants like Wal-Mart, Carrefour want to enter in to India through Multi brand retail as of now they are restricted to cash-and-carry business only .

Through this paper Government is setting a stage for entry of Multi brand retailers through FDI.

Why has it not allowed so far?

Reason being opposition from both political parties and traders.

Government strategies to resolve the issues:

To resolve the issues Government‘s plan criteria is:

A law to protect Small shops called “shopping mall regulation act”. 50% of Foreign Investment should be Invested in creation of Back end Infra structure. Half of jobs should be reserved for rural youth.

Response of Top Retailers to the DIPP discussion Paper:

Wal-Mart:

According to Wal-Mart FDI in Multi brand retail should be permitted and Ideally without any restrictions (i.e100%) .

Carrefour:

According to Carrefour any cap of restrictions on FDI in this sector may result in potential loss of opportunities and avenues of inclusive growth of the retail sector.

Factors that are playing a role in fuelling the bright future of the Indian Retail are as follows:

The income of an average Indian is increasing and thus there is a proportional increase in the purchasing power.

The infrastructure is improving greatly in all regions is benefiting the market.

Indian economy and its policies are also becoming more and more liberal making way for a wide range of companies to enter Indian market.

Indian population has learnt to become a good consumer and all national and international brands are benefiting with this new awareness.

Another great factor is the internet revolution, which is allowing foreign brands to understand Indian consumers and influence them before entering the market. Due to the reach of media in the remotest of the markets, consumers are now aware of the global products and it helps brands to build themselves faster in a new region.

International Retailers in India:

Major retail players like Wal-Mart, Tommy Hilfiger, Carrefour, Marks & Spencer, Nike, etc. are going to foray into the booming retail industry in India. Indian fashion industry would see the advent of fashion brand DKNY through a franchisee agreement with S. Kumar's. In the food & beverages sector, McDonald's is going to penetrate the markets through 100 new outlets across the country. Encouraged by the huge success of Pizza Hut, McDonald's, and Dominos, another organization known as Starbucks has expressed its interest in opening up outlets in India through franchising. There are various kinds of restrictions on FDI in the Indian retail sector, but organizations can enter the industry through Strategic License agreements, Franchising and Cash and carry wholesale trading.

Plans of Retail Giants in the Coming Future:

Established retailers are tapping into the growing retail market by introducing innovative store formats. Spencer's Retail, More (owned by Aditya Birla Group) and Shoppers Stop (owned by K Raheja Group) already plan to expand.

According to a McKinsey & Company report titled 'The Great Indian Bazaar: Organized Retail Comes of Age in India', organized retail in India is expected to increase from 5 per cent of the total market in 2008 to 14 - 18 per cent of the total retail market and reach US$ 450 billion by 2015.

Furthermore, according to a report titled 'India Organized Retail Market 2010', published by Knight Frank India in May 2010 during 2010-12, around 55 million square feet (sq ft) of retail space will be ready in Mumbai, national capital region (NCR), Bangalore, Kolkata, Chennai, Hyderabad and Pune. Besides, between 2010 and 2012, the organized retail real estate stock will grow from the existing 41 million sq ft to 95 million sq ft.

India continues to be among the most attractive countries for global retailers. Foreign direct investment (FDI) inflows between April 2000 and April 2010, in single-brand retail trading, stood at US$ 194.69 million, according to the Department of Industrial Policy and Promotion (DIPP).

Leading watchmaker Titan Industries Limited plans to invest about US$ 21.83 million for opening 50 premiums watch outlets Helios in next five years to attain a sales target of US$ 87.31 million. "We are looking to open Helios outlets in Mumbai, Delhi, Hyderabad, Kolkata, Chennai, Pune, Ahmedabad etc in next 12 months," said Ajoy Chawla, Vice President (Retail), Titan.

British high street retailer, Marks and Spencer (M&S) plans to significantly increase its retail presence in India, targeting 50 stores in the next three years. M&S currently operates 17 stores in India through a joint venture (JV) with Reliance Retail.

Chinese retail major, Yishion has entered the Indian market and plans to have at least 125 points of sales, including exclusive stores and multi-brand outlets, across India by 2012. It will open its first exclusive store in New Delhi by September 2010.

Spain's Inditex, Europe's largest clothing retailer opened the first store of its flagship Zara brand in India in June 2010. It further plans to open a total of five Zara outlets in India.

Bharti Retail, owner of Easy Day store—supermarkets and hyper marts—plans to invest about US$ 2.5 billion over the next five years to add about 10 million sq ft of retail space in the country by then, according to a company spokesperson.

Raymond Weil plans to invest US$ 883,665 in India during 2010, according to Olivier Bernheim, President and CEO, Raymond Weil.

French retailer Carrefour SA is exploring options to enter into a partnership with an Indian firm to sell directly to consumers.

Many global retailers have given thumps up to trade with India:The future ahead Industry experts see the rise of the rural sector in the coming years. Currently, rural market comprises nearly half of the domestic retail market of India, i.e., US$ 300 billion. The per capital

income of the rural India has reportedly grown by 50 percent over the last 10 years, mainly because of the rising commodity prices and better productivity. According to E&Y India, basic infrastructure, generation of employment guarantee schemes, better information services and access to funding are ushering in good times for the rural households.

As per the new market research report by RNCOS, organized retail market is expected to reach US$ 50 billion by 2011

The boom in the retail market will fuel the growth of the logistic market. It is estimated the market will reach around US$20 billion by 2011.

Retailing of mobile handset and accessories is estimated to reach close to US$990 million by 2010.

Rural market is estimated to lead the Indian retail industry landscape in the future.

Shopping malls are expected to increase at a CAGR of more than 18.9 per cent from 2007 to 2015.

INDIAN RETAIL LANDSCAPE

Raising income and increase consumerism are fueling retail growth.

Year $ billion retail growth

1998 201

2000 204

2002 238

2004 278

2006 321

2008 368

2010* 421

*Estimates

Recent Trends in Retail:

Indian retailing is undergoing a process of evolution and is poised to undergo dramatic transformation. The traditional formats like hawkers, grocers and paan shops co-exit with modern formats like Super- markets and

Non-store retailing channels such as multi level marketing and teleshopping. Modern stores trend to be large, carry more stock keeping units, have a self-service format and an experiential ambience. The modernization in retail formats is likely to happen quicker in categories like dry groceries, electronics, mens' apparel and books. Some reshaping and adaptation may also happen in fresh groceries, fast food and personal care products. In recent years there has been a slow spread of retail chains in some formats like super markets, malls and discount stores.

Factors facilitating the spread of chains are the availability of quality products at lower prices, improved shopping standards, convenient shopping and display and blending of shopping with entertainment and the entry of Tatas into retailing. Foreign direct investment in the retail sector in India, although not yet permitted by the Government is desirable, as it would improve productivity and increase competitiveness. New stores will introduce efficiency. The customers would also gain as prices in the new stores tend to be lover. The consequences of recent modernization in India may be somewhat different due to lower purchasing power and the new stores may cater to only branded products aimed at upper income segments. The Indian retail environment has been witnessing several changes on the demand side due to increased per capital income, changing lifestyle and increased product availability. In developed markets, there has been a power shift with power moving from manufactures towards the retailers. The strategies used by retailers to wrest power include the development of retailers own brands and the introduction of slotting allowances which necessitate payments by manufactures to retailers for providing shelf space for new products. The recent increased power of retailers has led to the introduction of new tactics by manufactures such as every day low pricing, partnership with

retailers and increased use of direct marketing methods.

1. Most retailers have yet to make online push as social networking sites start to make an impact. Multichannel retailing continues to grow as more companies develop an e-commerce capability.  However, online still accounts for a small percentage of sales. On average, online sales account for 6.6% of total sales for the top 100 retailers in the world. The internet is going to pose an ever-greater challenge and opportunity for retail in the next decade.

2. Retailers need to ensure their multichannel strategy is in place to capitalize on web-savvy shoppers migrating to the net. Secondly, we are starting to see retailers launch targeted marketing campaigns online by offering special deals or discounts through their website or social networking sites. Social networking will increase transparency in the retail industry, giving consumers greater access to information about retailers, their products and pricing. This has the potential to undermine margins by lowering prices to the level of the most desperate seller. There are great opportunities too, as new touch points open up for retailers to communicate with their customers.

3. Emerging market retailers set to take on established players. "Many emerging market retailers are rapidly becoming world-class players in their own right”. "Not only are they well-equipped to compete with the global giants in their home markets, some are becoming competitive in other markets too.

4. The next step will be investments into developed markets and some of this is starting to take place. "These are typically specialty players rather than food or mass merchandise retailers. The global playing field of retailing is becoming more level."

Future Trends of Retail In India:

Indian retail sector is highly fragmented as compared to the developed as well as the other developing countries. This shows a great potential for the organized retail industry to prosper in India, as the market

for the final consumption in India is very large. Retail trade is largely in the hands of private independent owners and distributor’s structure for fast moving consumer goods consisting of multiple layers such as carrying and forwarding agents, distributors, stockiest, wholesalers and retailers. Thus, the growth potential for the organized retailer is enormous. In the next 2-3 years, India will finally see operations of a number of very serious international players- net withstanding the current restrictions on FDI in retail.

The Indian retail sector is ready to take on challenges from global retail players such as Wal-mart and Carrefour because unlike them, they have a better understanding of the Indian consumer’s psyche. Ultimately, a successful retailer is one who understands his customer. The Indian customer is looking for an emotional connection, a sense of belonging. Hence, to be successful any retail outlet has to be localized. The customer should feel that it is a part of his culture, his perceived values, and does not try to impose alien values or concepts on him. Indian customer is not keen to buy something just because it is sold by an international company.

PRESENT SCENARIO:

Retailing in India is witness to the boom in terms of modern retailing formats, shopping malls etc. the future of retailing for any product across the country will definitely be in malls where the consumer can get variety, quality and ambience.

However, in spite of this continuous debate to be or not to be, recently Government has allowed up to 51 percent FDI in single brand retailing by foreign companies like Reebok and Louis Vuiton. As of now, single brand retailers operate through the franchisee route and there is a strong view that FDI in this segment would not displace jobs or impact the local industry but help create employment.

Even today the government is undecided about the level FDI in retail, but a number of foreign players, including the Wal-mart stores, Inc., have announced their intention to enter India in a big way. At present Wal-mart is operating through its subsidiary in Bangalore, which was functioning as a liaison office till last year. Now it is in the process of setting up offices in New Delhi and Mumbai.

RETAILING IN THE 21ST CENTURY:

Retailing in the new millennium stands as an exciting, complex and critical sector of business in most developed as well as emerging economies. Today, the retailing industry is being buffeted by a number of forces simultaneously, e.g., increasing competition within and across retailing formats, the growth of online retailing, the advent of “Radio Frequency Identification (RFID) technology, the explosion in customer-level data availability, the global expansion of major retail chains like WAL-MART and METRO Group and so on. Making sense of it all is not easy but of vital importance to retailing practitioners, analysis and policymakers.

RETAIL IN INDIA - THE FUTURE: According to a study the size of the Indian Retail market is currently estimated at Rs.704 crores, which accounts for a meager 3% of the total retail market. As the market becomes more and more organized the Indian retail industry will gain greater worth. The Retail sector in the small towns and cities will

increase by 50% to 60% pertaining to easy and inexpensive availability of land and demand among consumers.

Growth in India Real estate sector is also complementing the Retail sector and thus it becomes a strong feature for the future trend. Over a period of next 4 years there will be a retail space demand of 40 million sq. ft. However with growing real estate sector space constraint will not be there to meet this demand. The growth in the retail sector is also caused by the development of retail specific properties like malls and multiplexes.

According to a report, from the year 2003 to 2008 the retail sales are growing at a rate of 8.3% per annum. With this the organized retail which currently has only 3% of the total market share will acquire 15%-20% of the market share by the year 2010.

Factors that are playing a role in fuelling the bright future of the Indian Retail are as follows:

The income of an average Indian is increasing and thus there is a proportional increase in the purchasing power.

The infrastructure is improving greatly in all regions is benefiting the market.

Indian economy and its policies are also becoming more and more liberal making way for a wide range of companies to enter Indian market.

Indian population has learnt to become a good consumer and all national and international brands are benefiting with this new awareness.

Another great factor is the internet revolution, which is allowing foreign brands to understand Indian consumers and influence them before entering the market. Due to the reach of media in the remotest of the markets, consumers are now aware of the global products and it helps brands to build themselves faster in a new region

However despite these factors contributing to the growth of Indian retail Industry, there are a few challenges that the industry faces which need to be dealt with in order to realize the complete scope of growth in Indian market.

Foreign direct investment is not allowed in retail sector, which can be a concern for many brands. But Franchise agreements circumvent this problem. Along with this regulation, local laws, and real estate purchase restrictions bring up challenges. Other than this lack of integrated supply chain, management, and lack of trained workforce and flux of the market in terms of price and product choice also need to be eliminated.

The Indian Retail Street is set to glow brighter with India recapturing its position as the most attractive destination for global retailers, despite the global slump. According to the Global Retail Development Index (GRDI) released by US-based global management consulting firm, A T Kearney, India has emerged as best country amongst 30 emerging markets. This reinforces the fact that trade with India is a golden opportunity to be capitalized upon. Interestingly, Russia clinched the second position, while China settled for the third spot. The report also stated that India has become the most attractive destination for retail investment for the fourth time in five years.

Currently India has one of the largest numbers of retail outlets in the world. According to a report by images Retail estimates the number of operational malls will grow more than two-fold, i.e., it will cross 412, with 205 million square feet getting covered by 2010. Nearly 715 malls will be added by 2015, with major retail developments in tier-II and tier-III cities fuelling further growth.

Many global retailers have given thumps up to trade with India.

The future ahead Industry experts see the rise of the rural sector in the coming years. Currently, rural market comprises nearly half of the domestic retail market of India, i.e., US$ 300 billion. The per capital income of the rural India has reportedly grown by 50 percent over the last 10 years, mainly because of the rising commodity prices and better productivity. According to E&Y India, basic infrastructure, generation of employment guarantee schemes, better information services and access to funding are ushering in good times for the rural households.

As per the new market research report by RNCOS, organized retail market is expected to reach US$ 50 billion by 2011

The boom in the retail market will fuel the growth of the logistic market. It is estimated the market will reach around US$20 billion by 2011.

Rural market is estimated to lead the Indian retail industry landscape in the future. Retailing of mobile handset and accessories is estimated to reach close to US$990 million by 2010. Shopping malls are expected to increase at a CAGR of more than 18.9 per cent from 2007 to 2015.

Other Retail Trends:

LONGING FOR LEISURE: More Money, Less Time

Materialism, though still in full swing, is losing its momentum. As Americans spend more and more time working, they’re spending less time living. The acquisition of status symbols, a bulging portfolio and all the personal perfection that money can buy has become a treadmill that many are jumping off because there is no time to enjoy those things – and they are exhausted. Counter Trend: Enjoying the Time of My LifeThe desire to work harder to acquire more to enjoy is giving way to the desire to work less to reclaim the time that is our lives. “Working harder forever” is being replaced by a new mantra “enjoying the time of my life.”

MORPHING CULTURE: Forming New “Family”Singles outnumber couples; legislators and courts are redefining "marriage”; oldsters are living together; long-marrieds are getting divorced; legal “living” contracts are in the offing; serial monogamy is one by-product of longevity; older children living at home; more single mothers; acceptance of family planning via adoption, science or surrogates; friends are like family – or preferred over family. A revolution is in full swing via a cultural splintering that erases lines and “shoulds.” The desire for “home” continues, but what home is may change many times for individuals during their lives. Watch for a rapid evolution in the way families take shape and new communities take root and thrive, possibly resulting in dramatic effects on social, political, medical, and economic infrastructures.

Counter Trend: ‘Till Death Do Us Part

Adherence to previously sanctioned life partnerships and lifestyles. Traditional marriage vows, covenant marriages, abstinence until marriage, courtship, renewal of wedding vows, focus on family activities, values, reunions. Depending upon the satisfaction and success of a morphing culture, traditional marriage/family views could lead to polarization.

INCREASING OPTIMISM: Life is Good Upswing in volunteerism, grassroots groups; nations realizing significance of collaboration; agencies working together; neighborhood improvement groups “taking back the streets;” euphoria at routing out the bad guys in business; belief that the good guys will “win the war” (i.e. America is the greatest country

on earth – encompassing beliefs that things are getting better.) Look for this renewed sense of optimism to translate into choices impacting lifestyle as well, including automotive and product design, interiors and fashion. Look for an upbeat approach to color and lively new color combinations.

Counter Trend: Deepening Cynicism Who do you trust – no one! Watch for upswing in national and global skepticism. Whom can we trust? Or do we trust? Fallout from ongoing corporate scandals recently exposed, a broken medical system (that both providers and patients see as flawed and that politicians campaign on), growing disparity between rich and poor, a tenuous global economy and the understanding that safety and peace are not a given could result in people becoming even more cynical. If everything is “going to hell in a hand basket,” life becomes futile. Watch for a flattening of spirit, as people become less enthusiastic and only mildly engaged in the world around them.

Opportunities for FDI in Indian Retail:

CHANGE ACCELERATORS

The following factors will be significant in driving growth in the retail sector:

Consumer factors

Increase in income Working women Changes in lifestyle demand for ‘global’ trend

Supply side factors

Growing importance of retailing in political and economic agenda. Real estate reforms to be undertaken in the next 24 months. Major restructuring of the manufacturing sector easing product supply constraints for efficient retailing. Reduction in import duties- offering more global sourcing options.

Challenges:

Even though Big Retail giants like Wal-Mart, Carrefour, Tesco, etc are finding Big opportunities in India, Government rules and regulations, policies, opposition from political parties are becoming huge challenges for the foreign players to do retail business in India.

Currently there is no cap for cash and carry business, 51% FDI in Single brand retail and Government has not allowed Multi brand FDI in India. But Foreign players wants to start FDI in multi Brand Retail.Metro, the first foreign retailer to venture into cash-and-carry here, has stated that a step-by-step approach would be appropriate as that would give local industry opportunity to build competencies.

The lobbies representing foreign firms such as US-India Business Council, American Chamber of Commerce in India and UK India Business Council too have made a case for 100% entry of FDI in the segment.

The foreign players such as Bharti Walmart and Carrefour have favoured 100% FDI in multi-brand retailing, but given the political sensitivity around the subject, they are willing to settle for 49-51% initially. However, they would like the government to lay out the path to reach the 100% level in the near-to-medium term. Sales Force Challenges:

External-Customer Issues :

Is your customer buying process changing ?? Are your Customers consolidating. Are your Customers getting more sophisticated & knowledgeable Are your Customers buying globally or looking for one global vendor How do I change my selling process and sales force organization to accommodate the above changes? Are transactional and consultative market segments are emerging. Should I go direct? Should I go indirect? If indirect then how can my sales force support my channel partners?

External-Environmental Issues

The economy is growing rapidly - how do I manage the growth? We may be in a recession - what do I do with my sales force? How do I incorporate the Internet into my Go-to-Market Strategy? How is technology changing the way that I need to sell? The unemployment rate is high - how do I upgrade my sales force? The unemployment rate is down - how do I attract and retain good people. Our industry is getting deregulated - how do I adapt my selling organization?

External-Competitive Issues

How do I use our sales force for competitive advantage? How do I restructure in the face of global competitors? Our competitors are more customer focused - what do I do? Am I losing my sales staff to competition - How should I protect my data , Retain experience ??

Internal-Strategy Shifts

How do I create a sales force? How do I effectively integrate selling organizations after a merger, acquisition or alliance? How do I change my sales force to successfully launch a new product or enter a new market? How do we move from a product focus to a customer focus? How do I adapt my selling organization to a new selling motion? What should our service offering be?

Do we need to redefine our selling proposition? How do I implement change without sacrificing revenue and profitability?

Internal-Performance Enhancement

How do I measure sales force performance? How do I create the best sales force in the industry? How do I ensure that I can make the sales goal? How do I lower my cost of sales? How do I get more sales for less cost? How can I motivate our salespeople and sales managers? How can I increase the quality of our salespeople and sales managers? Half of our people are using an outmoded selling model - what should I do? How do we get everyone aligned behind the sales strategy? What is the right size and structure for my sales force? Who should we call on? How frequently? How should we manage strategic accounts? How much should I pay my salespeople? What is the role of incentives? What is the best training program? How can I get sales and marketing to cooperate? How can I use technology effectively? How can I establish territory potential? How do I reduce turnover? How do I create a high-performance sales force culture?

Benefits to India through FDI in Retail:

Indian Supply chain Systems could be more effective and Efficient

Infrastructure would be good as foreign players need to invest 50% of the investment on development of Back end Infrastructure.

Cold chain systems could be more effective and wastage of vegetables, fruits may be reduced

Farmers may get more benefits through FDI in Indian Retail.

Impact of FDI on Unorganized Retail Sector in India:

Traditional formats like kirana stores business would not be effected due to FDI. They both can co-exist and flourish as Kirana stores are famous in their own places always loyal customers for that kind of traditional stores will exists.

According to India Retail Report 2009 , Retail Industry will touch Rs 18,10,000 crores by the year 2010 and organized retail is expected to contribute 13% of the total amount i.e. 2,30,000 crores .From this statistics we can understand that 87% of the Contribution to Retail Industry Revenue is through unorganized Retail Sector. So there would not be any kind of bad Impact of FDI on Unorganized Retail Sector. At present organized retail is only 2% of overall Retail Industry. It would take some more years to establish a organized retail chains across India . So there would not be any impact on unorganized retail sector in India.

Chapter-4

Methodology:

Entire research is carried out through Secondary Source of data.

Library, Internet, Articles, Journals, Newspapers, Business magazines would help to collect the data related to

research.

Need for Study:

As Retailing is emerging sector in India I want to understand the FDI With reference to Indian Retail sector. This topic may help to understand the different foreign retail strategies and the concepts involved in the retail. I have chosen FDI because it may help to understand the New trends and strategies that are adapted by the foreign retail players.

Limitations:

Entire Research is carried out through secondary source of data, as the research is not based on primary data some facts and figures may be false.

Time constraint.

Outcomes:

I have got maximum amount of data related to the stated objectives and I draw some inferences based on the data available. I have analyzed the data and I draw inferences based on the collected data .

Conclusion:

Clearly, the government will not be able to open up the sector to foreign investors in retail even if it desires. And, at this juncture, it will not be able to do so without the opposition calling it a sellout to the foreign lobby.