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Organized Retail - Emerging Opportunity
for Indian Exporters
Opening up of organized
retail sector in India will have major impact on Indian
export. If you are an exporter - its time to take stock
of emerging opportunity and prepare yourself accordingly.
Removal of multifibre agreement in 2005 has hugely
impacted Indian textile sector. Absence of quota restriction
has witnessed huge increase in export of Indian textile
products. All doomsayers who predicted collapse of Indian
textile export in the face of Chinese competition in
a quota free world had to eat crow. Similarly - another
opportunity for large sections of Indian export - handicraft,
garments, home furnishing etc. is beginning to emerge
in 2006
How Big is the Opportunity ?
Global retailers buy about US Dollar 60 billion of goods
each year from China alone. India has so far managed
to export only about US Dollar 1 billion worth of goods
to global retailers. Obviously, scope of exports through
the global retail chain is enormous. But what's so special
about 2006 ?
The reason for such high optimism lies in a recent
Govt decision allowing global retailers to open shop
in India. In a major decision, the Cabinet on January
24' 2006 decided to allow international brands to set
up their retail chains with majority stake instead of
having to depend on local franchisees.
So Marks & Spencer, Giordano, Nine West and Macy's
can now have their own stores in India. The move will
also help companies which already have a sizeable presence
in India but have to operate through a network of franchisee
stores at present - like Nokia and Adidas.
While detailed guidelines is yet to be issued, commerce
and industry minister Mr. Kamal Nath has told reporters
that companies can hold up to 51% stake in the retail
chain ventures. The government has also decided not
to cap the number of stores that can be opened.
This could be the first significant step towards entry
of foreign retail chains like Wal-Mart, Target and Carrefour
in the Indian market.
Why FDI in Retail will Help Indian Exporters
Major Retail Chains are already procuring from India.
How does their direct presence going to affect Indian
Exports in a significant way ? After all, Wal-Mart can
buy from India without opening their store here.
Though theoretically, Wal-Mart or any other global
retail chain can source from India without opening their
shop here - in reality, they do not work that way. That
is the reason why India's export to global retailers
is so meager today.
A global chain would buy large quantities for exports
on a sustained basis only when it establishes a close
linkage with the local market and suppliers. This happens
after they open local stores.
By being close to local suppliers and customers, the
global chains remain in far better position to control
and monitor the supply chain including product design,
quality of inputs, manufacturing process, standardization,
labeling and packaging, transportation, storage, warehousing,
distribution network etc. Such closeness with supply
chain enable them to change product mix quickly in response
to changing global fashions and establishing the right
kind of captive suppliers who would not be selling to
their competitors.
Establishment of efficient supply chain and related
infrastructure that global retailers develop for their
local stores, would yield significant cost economies
when the same infrastructure is used to procure supplies
for their global needs. Resultant efficiency and economy
of scale can not be expected from their existing lot
of Indian suppliers.
Today, Wal-Mart sources some $18 billion of goods from
China for their global operations. However, this happened
only after Wal-Mart was allowed substantial presence
in Chinese local retail market.
Conclusion
Indian manufacturers and exporters should lap up this
emerging opportunity and prepare themselves accordingly.
Understanding sourcing process of global retail chain
is the first step in that direction.
Happy and Productive Surfing
Dr. Amit K Chatterjee
Related Links:
Author
: Dr.
Amit K. Chatterjee
(Amit worked in blue-chip Indian and MNCs for 15
years in various capacities like Research and Information
Analysis, Market Development, MIS, R&D Information
Systems etc. before starting his e-commerce venture
in 1997. The views expressed in this columns are
of his own. |
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