Retailing in India is evolving rapidly, with consumer spending growing by unprecedented rates at one end along with an increasing number of global retail firms willing to invest in this sector at the other (Chopra, 2006). The sector is on a high-growth trajectory and is expected to grow by more than 27 percent over the next five to six years (Chopra, 2006). The Indian retail market is going through a revolution. Increasing urban demographics, rapid development of shopping malls, an emerging class of brand-conscious consumers, and various influences from the western world are changing the face of the Indian retail industry.
India’s GDP and Growth
The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country’s economy. India’s GDP growth of 9.4 percent in 2006–07 was the highest posted in over 18 years, reflecting the booming economy of the country (Prahalad, 2007). In 2005, India’s GDP was $690 billion US (more than $3 trillion in Purchasing Power Parity), which was comparable to that of the United States (Biswas, 2006). This rise in GDP, a high growth rate, along with the increasing spending power of Indians, is leading to the phenomenon of consumerism (Halepete and Iyer, 2008).
Retail Sectors in India
Although India has been declared one of the most attractive destinations for retail development (A. T. Kearney, 2007), there has been minimal research on the different retail structures (organized and unorganized) and their challenges in India. Limited research has been done in regard to understanding the Indian market for better positioning of foreign direct investment (FDI).
For decades there have been only traditional retail operations in India such as small “mom-and-pop” stores and friendly neighborhood outlets that sold fast-moving consumer goods and other commodities in a limited variety (Hunter, 2005). It is important to note that this unorganized (traditional) sector accounts for 96 percent of the total Indian retail market. In the 1980s, manufacturer retail chains like DCM, Gwalior Suitings, Bombay Dyeing, Calico, and Titan started making their appearance in larger cities like Delhi and Mumbai and smaller towns like Pune (Bijapurkar, 2007). Multibrand retailers, such as Marks and Spencer, came into the picture in the 1990s (Sreejith and Jagathy, 2007), and the year 2000 saw the emergence of supermarkets and hypermarkets.
The growth of organized (nontraditional) Indian retail has been characterized by sprawling shopping centers, multistoried malls, and huge complexes offering shopping, entertainment, and food under one roof (Dominic, 2007). Retailers, however, face several roadblocks. An underdeveloped supply chain, lack of a strong cold chain, and poor warehousing facilities and storage are just a few areas of concern, especially for perishable goods.
We have analyzed and categorized the challenges facing foreign direct investment in India. The relevant literature and industry observations formed the data sources for our content analysis concerning the current Indian retail market environment. Sources included academic journals, newspapers, trade publications, and industry Web sites.
What Is a Content Analysis?
Content analysis is a research tool used to determine the presence of certain words or concepts within texts or sets of texts. Researchers quantify and analyze the presence, meanings, and relationships of such words and concepts, then make inferences about the messages within the texts, the writer(s), the audience, and even the culture and time of which these are a part. The use of content analysis as a means of exploratory study is widely supported in the literature, particularly for qualitative research (Huberman and Miles, 1994). The goal of this analysis was to identify evidence reflecting the current state of retailing, as well as challenges and opportunities for sustained operations for retailers in the Indian market. These findings were grouped to reflect distinct emergent themes in Indian retailing and are discussed in the results section.
What Formed the Sources for Our Content Analysis?
Our analysis included assessment of publications on the development of the Indian retail industry (www.indianground.com, 2008; Gupta, 2005; www.expresstextiles.com, 2005). These publications were mainly published between the years 2000 and 2008 in order to make sure that the most current industry and market activity were captured. Publications included popular Internet sites, industry publications, and reports by PricewaterhouseCoopers, KPMG, A. T. Kearney, Ernst & Young, and TATA Strategic Management Group. Other sources included blog spots and interviews of executive managers working in retail in newspaper publications like Business Line and The Hindu.
The goal of the analysis was to identify evidence reflecting the challenges and threats to the organized (nontraditional) and unorganized (traditional) Indian retail industry constituencies and the infrastructure to support their co-existence in India. The aforementioned sources were analyzed to find recurrent themes on the threats these two sectors face because of the retail boom in India. This process was viewed as a first step toward documenting and understanding channel activity and relationships between the traditional and nontraditional sectors of the Indian retail industry. Data sources were supplemented by the personal and professional experiences of one of the authors, an Indian national and academician. Besides analyzing the industry reports, consumer reviews from various blog sites on the Internet were analyzed to take into account the standpoint of diverse consumers' views on the issue of retail diversification due to foreign direct investment in the Indian market.
Results of Content Analysis
The FDI debate has opened up many issues that deserve the proper attention of policy makers before the Indian retail sector is fully opened to foreign investors. The co-existence of both sectors poses innumerable issues that have formed the basis of debates and discussions between policy makers, consumers, and government officials. Our content analysis revealed several issues. Table 1 lists these broadly identified issues. These broader issues were categorized into four major categories. These categories are illustrated in Figure 1.
|1||The organized retail industry in India is faced with stiff competition from the unorganized sector.|
|2||There is a shortage of quality real estate and infrastructure in the country.|
|3||Opposition to foreign direct investment from small traders affects the retail industry.|
|4||Very high stamp duties on transfer of property affect the industry.|
|5||The shortage of retail space in central and downtown locations also hinders the growth of retail industry.|
|6||The presence of strong pro-tenancy laws makes it difficult to evict tenants, which poses problems.|
|7||Land-use conversion is time-consuming and becoming complex.|
|8||Settling property disputes consumes lot of time.|
|9||Rigid building laws make procurement of retail space difficult.|
|10||Nonresidents are not allowed to own property except when they are of Indian origin.|
|11||There is a prohibition of foreign investment in the real estate business.|
|12||Customs duties are levied on the import of goods in India.|
|13||Indian youth consider sales associate jobs to be blue collared.|
|14||State laws for business are different and are shaped by religion rather than global business logic|
Availability of retail space. Traditional Indian shops have been small, about 1000 sq. ft. Many of the inner-city buildings are old and dilapidated and unfit for global retailers. Obtaining land to establish retail stores in Tier I (metropolitan) cities such as Mumbai and New Delhi is a significant issue in India. In many places, land titles are disputed and unclear with regard to ownership (Khanna and Palepu, 2006). There are many limitations on retail land use. Many buildings have been constructed illegally, and business is being conducted from residential premises. These problems have forced new entrants in the retail areas to seriously consider Tier II (nonmetropolitan) cities such as Kolkata and Mangalore (Halpete and Iyer, 2008). This is forcing retailers to build in the outskirts of the city and hope that people come to them (Kottoli, 2006). This demand for legal space has contributed to the increase in rentals. Malls in Delhi and the national capital region are commanding a premium now with the increase in the demand for legal, quality retail space. “Rentals have increased in the last year because of a shortage in the supply of legal retail space,” added Anshuman Magazine managing director, C. B. Richard Ellis (http://propertybytes.indiaproperty.com/, 2006). Recently, mall rentals have shot up by 50-100 percent to touch a high of Rs 800–1200 ($24; [$1–49.00]) per square foot per month in some places (http://propertybytes.indiaproperty.com/).
Establishing supply chain logistics. India lacks a strong supply chain when compared to Europe or the United States (Kottoli, 2006). The existing supply chain has too many intermediaries, which at present include Manufacturer — National distributor — Regional distributor — Local wholesaler — Retailer — Consumer. This implies that global retail chains will have to build a supply chain network from scratch. In addition to fragmented supply chains, the trucking and transportation system is antiquated. The concept of container trucks and automated warehousing has yet to take root in India. This might result in significant losses/damages to merchandise during shipping (Chopra, 2006). Transportation and distribution are seriously affected by the poor infrastructure of airports, road systems, power lines, and ports. Transporting goods from one end of India to another by road takes over 40 days. Poor infrastructure is likely to slow down the development of the retail industry (Choi, 2006). Essentially, organized global retail chains will break the traditional symbiotic relationship that exists between small producers and small retailers. Also, in the new retailing format, due to unequal terms of trade in a monopoly-like situation, small producers and suppliers are likely to suffer most (Biswas, 2006).
Shortage of talent. Despite the large population that exists in India, a serious shortage of experienced human resources exists for retailing of all types (Gopal and Srinivasan, 2006). The number of people experienced in managing complex supply chain issues, people who have basic merchandising skills, and those with store planning skills are very few in India. As a result, most of the existing retail stores have poorly organized merchandise, inadequate inventory or excessive inventory — leading to lost sales and increased capital requirements. Global retail giants will have to spend substantial resources in terms of time and money to train the local workforce and bring them on par with their global standards. The Retailers Association of India (RAI) estimates that an additional 2 million workers will be needed in the next two years — this is to meet the requirements of the existing planned expansion in the retail sector. Hiring and training in large numbers in such a short time will be a challenge for even the biggest retailers.
Political challenges. India is a federal state with a national government at the center and state governments ruling the states (Gupta, 2005). This means that there are multiple sets of political and governmental clearances needed for retailers. Having a national license from New Delhi, the capital city, will not suffice. New retail entrants will also need clearances from various state governments, city corporations, and district administrations. Negotiating these will prove to be a challenge for global retailers. Global retailing companies tend to have different ethical standards; they may be against giving bribes or supporting local political candidates — common practices in India (Dey, 2006). Adhering to these standards in India will surely cause problems for their local operations. Thus, while global retailers may be eyeing Indian markets eagerly for that elusive first-mover advantage, success in the Indian retail segment will be a hard-won battle — a battle not against competition, but against the business environment (Gadgil, Joshi, Prasad, Manoharan, and Patil, 1997).
Conclusions and Implications
This analysis was based on a recent literature review of information available on unorganized (traditional retailing) in India. Organizing the retail sector is the need of the hour. But it has to be understood that change will bring with it a lot of upheaval and "teething problems." The local retail players — large as well as small — need to be given support and time to adjust to a changed environment.
For retailers to succeed in India, they need to invest in more efficient supply chains, cold chains, and increased farmer relationships, which all call for the greater investment that can come through FDI. Increasing real estate prices also calls for heavy investment, and the inflows are slow. The results of this study indicate the likely impact of the entry of global players into the Indian retailing industry. It also highlights the challenges faced by the industry in the near future.
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