Monday, 22 October 2012

India Bursts Open Its Gates to Foreign Retailers

India has opened its doors to allow 100% foreign ownership of single brand retail stores. It’s a big move for Asia’s third largest economy with one billion inhabitants and a retail market forecast to double to $850 billion by 2020. 

This move will allow global retailers to operate without an Indian partner. Rajan Bharti Mittal, vice-chairman and managing director of Bharti Enterprises one of the countries largest retailers says that “increased investments by foreign single brand retailers will not only help improve consumer choices but also enhance competitiveness of Indian enterprises through access to global designers, technologies and management policies.”

The move will also benefit India’s small producers as any global retailers will be required to source at least 30 % of their products from small and cottage industries. However opponents fear the move would undermine small traders and farmers and destroy jobs and businesses.

Although this move does appear to be a step in the right direction, there are quite a few restrictions which could trip up a few retailers.

  • States can choose whether to participate in this or not, only about 1/3rd have chosen to go ahead with it.
  •    Retail outlets can only be opened in cities that have a population of 1 million or more. Only 53 cities meet this criteria accounting for only 12% of the Indian population.
  •  Foreign investors should invest a minimum of US$100 million into the venture and 50% should be invested in back end infrastructure.

No wonder the Indian government has insisted on investment into back end infrastructure; the country currently loses roughly 40% of its fresh produce because of infrastructure issues like lack of refrigerated trucks and temperature controlled warehouses. Inter state border transit delays and doggie power grids don’t help either.

In order for overseas retailers to be successful they should take a look at China and what has happened to their neighbours in the past few decades. Tesco, an American owned supermarket chain, and Carrefour, a French supermarket chain, have both had very different outcomes.

Tesco entered the market about seven years ago and is only just breaking even. Carrefour, who entered the Chinese market in 1995-2000, had officially overtaken local Chinese retailers in sales of “fast moving consumer goods” by 2005. Carrefour currently has over 163 Carrefours throughout China.

The reason why Carrefours have been more successful than Tesco is because they adapted more to the Chinese tastes and shopping preferences. They introduced larger aisles and “wet markets” where live animals are sold within the supermarkets.

I think that overall this will be a risky, but a beneficial move for foreign investors if they get it right. Hopefully it will create millions of jobs ( not only in retail but in the IT and Property sectors), help check inflation and modernise the agriculture and transport sector. Watch this space!


  1. Wow - does this mean Retailworld Resourcing will be continuing their highly successful global expansion to India ???

  2. Goodness gracious me - I would most definitely be wanting to apply.