Retail Sector - What is the hesitancy to open it for FDI?
Posted : July 25, 2005 at 7:43 pm [IST]
For last few months, the government seems to be working on getting the retail sector open for foreign direct investment. However, the leftists as usual are hell bent on opposing it. BJP as such a party of traders is also against it. And why should it not oppose everything that the government proposes, even though it is in the larger interest of the countrymen?
I don’t understand this opposition, particularly in light of the experiences of the other Southeast Asian countries that had similar dilemma before they opened the retail sectors? Is it because it will be causing a major loss of employment for the huge number of small self-employed shop owners at the street corners?
First of all, it will not happen, as it has not happened elsewhere. Those who are serving their customers well and honestly will always survive. After all they have survived even after many big and branded domestic companies came in the retail business.
My interest in opening of retail for bigger foreign companies is based on my experiences of USA and how these outlets have served the society consisting of different earning categories of the American population. First of all, their success is not because of only scale. It is more so because of the bringing in of technology and management of supply chains to the ultimate extent to cut the cost for the common people of the country. It has also created a lot of employment of lower skilled people. Secondly, these retail giants such as Wal-Mart, K-Mart, Costco, JC Penny, Target and many smaller and bigger ones have made the brand of products irrelevant to a great extent. And naturally along with that has tumbled down the prices of products that is just due to its brand associations. Brand owner typically collect most of the profit. It is surprising but a fact of life. A pair of Nike running shoes that leaves factory in China at a cost of $5 may sell in US for $ 100 at the Nike outlets. Nike makes the most of the profits and not the factory owners who are to work on very thin margins. Many of these stores have created a brand image of their own. Once the consumers buy the things from these stores, they are convinced of its quality too for the prices they pay.
Another reason for my backing the entries of these retail giants is for encouraging the Indian manufacturers to participate in the global competition. Without a grand come back in manufacturing our huge economy can’t grow and flourish. It is these retailers who have got developed the manufacturers of China and built its manufacturing so strong that the whole world including the super power US feels threatened today. It is not only textiles and garments. You can go to any store of specialized or general merchandise; you find the major presence of Chinese products. When we reached US in February, we got a feel of the extent of the Chinese entry in all the American households. All the accessories in the bathrooms and kitchens or for that matter everywhere including the weighing machines was from China. All decorative lighting fixtures and also the bed and quilt that my son had bought for us were of Chinese make or ‘Made-in China as per the exact specifications of an American manufacturer’. My son ordered for a pedometer through Amazon. I was surprised when we found that too manufactured in China.
Today perhaps any thing that Americans design and develop, they think of China only as the cost competitive manufacturing source. I got the same impression while going through the project report of MIT’s $100 laptop or the solar concentrator under development. It will be necessary for the Indian entrepreneurs to get into manufacturing in big way and compete. And with all my knowledge of management, and technology, I can only confirm that to be a clear possibility. Only thing that our entrepreneurs are lacking is the change in mindset to compete and excel. The government must see that all petty manufacturers in the country visit the developed countries to see what they can make and sell to its consumers with huge buying powers.
And the opening of the retail sector to FDI will boost manufacturing and our exposure to competitive manufacturing. Let our prime minister and commerce minister convince the leftists or send all the politburo members to China to see the things themselves and get convinced. Let there be some restrictions that can still keep the investment attractive enough for FDI. But it should come fast without unnecessary delays in name consensus building.
- Indra
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