Why is the Indian retail industry so inviting?
The growth of the retail industry in India is growing very fast. As a matter of fact, India witnessed a tremendous growth in terms of the retail industry between 2004 and 2007 (Balyan, Shah & Shah, 2008). Besides the aforementioned remarkable growth in the retail sector in India, the issue of labor also needs to be taken into account.
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It is important to appreciate the fact that the retail industry is quite labor intensive and as such, an investor would be concerned about the cost of labor. Some 2007 statistics on labor index ranked India fourth out of 15 countries.
This labor index included such categories as talent availability, development, and labor economies. In all of these categories, India performed better in comparison with the other countries. As the leading countries in terms of labor resources, a majority of the foreigners find India retail; market very inviting.
The more modern (“organized”) retail sector in India only accounts for a partly 3 % of the total sales revenue from the retail industry in India. The remaining 97 % of the sales revenue goes to the small mom-and-pop-shops. This provides a window of opportunity for such foreign retailers as Wal-Mart, Metro, Tesco, and Carrefour to invest.
All these retail stores are eager to expand and increase the market share of India’s “organized” retail sector. It is not just Wal-Mart who has shown interest in the Indian retail market. Plans are underway for Carrefour to setup shop in the country.
Carrefour is ranked as the second largest retailer in the world in terms of sales, after Wal-Mart. Costco Wholesale is also planning to venture into the Indian retail market. Another multinational that is interested in the Indian retail market is the UK-based retail store, Tesco Plc.
Given Wal-Mart’s lack of a strong record overseas (or has various “hits and misses” when expanding overseas and does better in some countries than in others), does it have what it takes to succeeded in India?
In its quest to expand into the retail business into various countries, Wal-Mart has had its fair share of misfortunes. For example, Wal-Mart targeted the German market as its gateway to the European market not just because of the country’s central location, but also because it is also the biggest economy in Europe (Halepete, Seshadri & Park 2008, p. 702).
From here, Wal-Mart intended to expand to other markets in Europe. However, the going was not as rosy as one would have expected. To start with, Wal-Mart stores were very small in comparison with many of the German discount chains (Gerhard & Hahn, 2005).
In addition, the retail chain lacked scale power and as a result, it was not able to assume price leadership. In addition, Wal-Mart enjoyed a limited privilege to reduce prices, owing to the extremely low profit margins the company was recording.
Wal-Mart has what it takes to succeed in India. This is because as the leading retail giant in the world, Wal-Mart has super-efficient retail operations. This is a crucial asset because it will enable Wal-Mart to increase efficiency in the whole supply chain.
Wal-Mart has succeeded in implementing its efficient supply chain in China and at the moment, of all the exports that China makes to the United States, 10% of them are attributed to Wal-Mart. In addition, by investing in India, Wal-Mart would help to prevent between 30 and 40% of vegetables and fruits from rooting upon transit.
Balyan, R. K., Shah, P., & Shah, C. (2008). FDI in Indi retail-beneficial or detrimental. Web.
Gerhard, U., & Hahn, B., 2005. Wal-Mart and Aldi: two retail giants in Germany. GeoJournal, Vol. 62, pp. 15-26.
Halepete, J., Seshadri, K. V., & Park, S. C. (2008). Wal-Mart in India: a success or failure? International Journal of Retail & Distribution Management, Vol. 36 No. 9, pp. 701-713