Profitable Growth in Retail: The Competitive Challenge

  

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Recently the India government has decided to allow foreign direct investment (FDI) in the nation’s retail sector. In a broader sense, the debate in India about  the plusses and minuses of this decision are very similar to those discussed when the Indian government decided to take major steps to liberalize the nation’s economy back in 1991.  We now know that the steps taken at time to ease government restrictions and to promote freer trade and the privatization of the means of production were the foundation on which India has made its amazing economic progress over the past several decades. The difference in this case is the relatively large number of people being affected in the service sector, i.e.  the millions of small shopkeepers  who make up the 97% of the nation’s retailers.  An early study estimated the total number, including the shopkeepers’ families, to be around 140 million.

Here are a few excellent articles on the pros and cons of FDI in Indian retailing:

1. An article in the Economic Times of India talks about the benefits of new job creation

2. A CNN-IBN site talks about the specific problems that will beset the small retailers

3. A blogger on an Indian Legal site that provides and excellent summary of the pros and cons of FDI in the Indian retail sector

4.A PowerPoint presentation with VERY, but informative slides about FDI in general from a historical perspective (e.g. talks about the early days for IBM and Coca-Cola in India).

5. An academic study done about 10 years ago that accurately foresaw the very challenges being discussed today.

I believe that opening up the retail sector to foreign direct investment in India is an inevitable part of the liberalization process that began two decades ago.  No doubt there will be tough challenges for the mom and pop stores and for that matter the large Indian-owned retail chains that make up the other 3 percent of the nation’s retailers. I anticipate that political pressures will ensure that the Indian government will try to ease the FDI process by providing such help to the small shops as credit and financing, training, and government sponsored co-operatives.  But many small shops will undoubtedly be displaced, as small American retailers were when Wal-mart and other large chains expanded throughout the country.  And so to survive, these small shops as well as the major Indian retail chains will need to have basic business acumen and marketing skills.  Many of these basic skills are presented in Business Acumen: Your Key to Success and Marketing Mastery:  Your Key to Success. I’ll give you some of my personal experiences and observations in my next blog.