14 Aug ECONOMICS CASE STUDY
Hi, I need somebody to look over this case study and advise me which economics topics and subjects may come up in the question for this case study. I need the answer asap within the next 30mins/1hour
No rush for entry as India opens retail doors
(Derived from the Financial Times blog, with permission)
In September 2012 New Delhi finally opened its retail industry to foreign participation, a move touted as signalling the country’s desire for overseas investment. But India has made complex distinctions between “multi-brand retail” and “single-brand retail”, with radically different rules for each. As a result, international retailers are taking very different approaches to India, where 93 per cent of all retail sales are still made through independent mom-and-pop shops, open-air bazaars or other traditional retail formats.
Companies like Ikea, the Swedish flat-pack furniture maker, and western apparel groups such as Hennes & Mauritz are gradually moving to set up shop. But not a single global hypermarket has applied to open retail stores, deterred by onerous conditions. “The current regulations are not very favourable for [foreign hypermarkets] to come in,” says Raghav Gupta, a retail expert at consultants Booz & Co. “And with the overall slowdown in the economy, it’s not as if your board is pushing you to go to India. It’s just become a non-starter.” Walmart, Tesco, and Carrefour already have a presence in the Indian market with their wholesale “cash-and-carry” businesses permitted to sell B2B to other commercial enterprises, and were expected to move quickly to establish B2C consumer-oriented stores once permitted – but so far, all remain on the side-lines. Walmart says it is “looking forward to working with the government of India to understand the rules that exist for foreign direct investment”. Tesco, which has a franchise agreement with the Tata group’s Star Bazaar stores, says it will “continue to review the conditions”.
New Delhi has set a 51 per cent cap on foreign equity in multi-brand retail businesses. These retailers also are permitted to operate only in certain states – mostly those run by the ruling Congress party – and within those states are restricted to cities with at least 1m people. Booz estimates this gives companies access to just 15 per cent of India’s potential retail market. Additionally, foreign-owned hypermarkets are required to source up to 30 per cent of their inventory from small-scale suppliers, which the companies say is a major logistical challenge.
For single-brand retailers, policies are far more favourable. They can be wholly foreign owned and face no geographic restrictions on the location of their outlets. They also have an obligation to source 30 per cent of their goods locally but not necessarily from small-scale manufacturers, making it far more viable for them to comply. Ikea, which has long had designs on India, has led the pack of single-brand retailers seeking to enter the market since the September rule changes, and is awaiting New Delhi’s final approval for a plan to open 25 stores. International clothing chains are particularly keen on an apparel market that retail consultancy Technopak Advisors says is currently worth $40bn and expected to grow to $63bn by 2017.
Karl-Johan Persson, H&M chief executive, has said the Swedish purveyor of cheap chic will soon apply to set up in India, with plans for a “considerable investment”. Gap, the San Francisco-based retailer, is also considering plans for India. Even before September’s opening, some retailers had plunged in. Spain’sInditex has opened its Zara clothing chain stores in a joint venture with the Tata group, while French grocer Auchan has 13 stores in India through a franchise agreement with a local company.
India’s owners of mom-and-pop stores continue to complain about the Congress-led government’s decision to allow in foreign investment. But given the way it has opened the market, analysts are not expecting a flood of entrants any time soon.
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