Wal-Mart is one of the biggest retail players in the world. In the US it became famous over time for its “everyday low prices” (EDL) concept. Efficient supply chain management is at the core of its business. But when they expanded over time to countries like China and India, they realised the fact that it wasn’t easy to replicate this kind of success. Regulatory problems, supply chain issues, political considerations and what not has resulted in them being still somewhat of a miniscule player in these regions.
In India, as everyone knows, foreign retailers are barred from opening their own retail stores. And therefore, they had been sourcing all their products from outside, in turn spending millions of dollars in this process itself. After a period of 10 years, they finally managed to form a JV with Bharti Retail. But even till date due to many of the problems mentioned above along with the general sentiment against foreign retailers, they have just managed to open three cash and carry retailers which sell in bulk to other retailers. Their problems were even more compounded when they were barred from selling to the retail outlets of Bharti Retail itself.
But a recent ruling to allow foreign retailers to sell as much as 25% of their goods through the retail outlets of their joint venture partners seems like just the start these retailers needed. Though it may be too early to be happy and rejoice, this could signal the beginning of some change in the government policies regarding FDI in retail. A number of companies like Kohinoor Foods, ITC Ltd, Amul had lined up recently at the buyer – seller summit to gain a spot as an approved supplier in the books of Wal Mart.
The critics of opening up the retail sector decry the fact saying that, absorbing unorganized players who occupy about 97% of the US $400 billion market could result in massive unemployment. But then even the same thing was being said when the current Indian players like Reliance, Future Group etc. opened their respective stores right?
According to a study by the Indian Council for Research on International Economic Relations (ICRIER), larger retail chains pay a 25% higher price for produce compared to what the farmers get generally from the market. And farmers selling to the retailers directly earn 60% higher profits.
Along with the generation of more than US $20 billion investment over the 5 years, the experience of players like Wal Mart in improving the transportation linkages and maintaining a good supply chain would work wonders for the industry.
We keep crying about protectionist policies from the USA. Isn’t this some kind of that?