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GLOBALISATION AND ITS IMPACT ON RETAIL INDUSTRY IN INDIA: A MACRO

LEVEL STUDY IN THE NEW F.D.I. REGIME

Article  in  International Journal of Trade & Global Business Perspectives · December 2015

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 Volume 4, Number 4, October – December’ 2015
ISSN (Print):2319-9059, (Online):2319-9067
PEZZOTTAITE JOURNALS SJIF (2012): 3.946, SJIF (2013): 5.017, SJIF (2014): 5.912

GLOBALISATION AND ITS IMPACT ON RETAIL INDUSTRY IN INDIA:

A MACRO LEVEL STUDY IN THE NEW F.D.I. REGIME

Dr. Manoj P. K.13

ABSTRACT

Retail industry is still in its infancy in India. However, given a number of favourable features of Indian economy, there are
excellent growth prospects for this industry to grow and flourish. The industry has witnessed a number of radical changes
during the last one decade and has reached the threshold of some major development. All the major industry players are
equipping themselves to face the challenge. On the one hand there are excellent future prospects, on the other hand fierce
competition has resulted in many an established player quitting the market. Sensing the favourable business environment in
India, characterized by a growing and affluent upper middle class population, high GDP growth rates and a reasonably
stable macroeconomic environment many MNCs are eagerly looking into the Indian market. As global competitiveness has
become vitally significant, use of IT and IT-enabled services, (ITES) is now an imperative rather than an option even for the
small players in the retailing industry. Of late, in 2014, with a view to improve the ease of doing business in India, the
Government has aligned the FDI (Foreign Direct Investment) policy with NIC (National Industrial Classification) code. In
this situation, this paper looks into the status and future growth prospects of the retailing industry in India in the ongoing
globalized business environment and the future strategies that could be adopted by the retail players for survival and growth.

KEYWORDS

Retail Revolution, ORP, FDI, Competitiveness, IT, ITES etc.

INTRODUCTION

Retailing could include any business that involves selling goods and services, relating to any kind of industry. Accordingly, we
have retailing of food products, consumer durables, and electronic goods and so on. However, often there are certain clear fo rmats
or models for retail businesses, like, for instance departmental stores, shopping malls, discount shops, specialty stores, super
markets, margin-free shops and the like. There are seasonal retailers as well as regular businesses. Similarly, broadly speaking
there are organized retailers (like, Reliance, Fab Mall etc.) as well as unorganized ones. Retailing business, particularly o rganized
retailing is of very recent origin in India. Organized retail penetration (ORP), as of FY 2015, is estimated at the level of 8 per cent
of the total market (KPMG, 2014) [9].

India is still in its infancy in organized retailing and the country has a long way to traverse in this regard. However, all recent
studies have pointed out that India is poised for a quantum jump or ‘Retail revolution’ in the near future. The immense growth
potential of Indian retail industry is pointed out by Manoj P K and P. Arunachalam (2012) [12] in view of the favourable
Government policy, stable macroeconomic environment, fast growing demand, favourable demographic features and such other
positive factors.

The need for enhancing the competitiveness of the players for their survival and growth is also pointed out because of the fierce
and ever growing competition. In respect of the ORP (Organized Retail Penetration) segment of the retailing industry, which grew
at 2 to 3 per cent in FY 2007, there is as high as 8 per cent growth rate in FY 2015. For FY 2009–FY 2013 period, there was 19 to
20 percent growth in ORP. As a whole, retail market in India is expected to reach USD 1.3 Trillion by 2020 with a CAGR of 23.09
for FY 2000-FY 2020.(BCG, 2015) [2]. In this context, as an extension of the work done by Manoj P.K and P Arunachalam (2012)
[12] this paper seeks to make a closer look into the retail industry in India, and accordingly based on suggests competitive
strategies for its faster and healthier growth.

OBJECTIVES OF PAPER

 To make an assessment of the trend and pattern of the growth of retail industry in India in the reforms era from a global
perspective;
 To study the implications of the recent Government policies on FDI on retail industry;
 To suggest strategies for better competitiveness for retailers in the new FDI regime.

13
Assistant Professor, Department of Applied Economics, Cochin University of Science and Technology (CUSAT), Kerala, India,
manoj_p_k2004@yahoo.co.in

International Journal of Trade & Global Business Perspectives© Pezzottaite Journals. 1996 |P a g e
 Volume 4, Number 4, October – December’ 2015
ISSN (Print):2319-9059, (Online):2319-9067
PEZZOTTAITE JOURNALS SJIF (2012): 3.946, SJIF (2013): 5.017, SJIF (2014): 5.912

SIGNIFICANCE OF STUDY

On the one hand, there exists excellent market potential for retail industry in India because of the peculiar socio -economic and
demographic profile of the very vast Indian population.

On the other hand, in the current scenario of pluralistic and globalised market, there exists cutthroat industry competition and
customers are increasingly becoming discerning. Thus, carefully formulated and clearly articulated strategies are essential for the
retailing players. In the new FDI regime (since 2014), the market is very attractive and competition is fierce.

METHODOLOGY AND DATA SOURCES

The paper is descriptive-analytical and exploratory in nature. It is descriptive to the extent that it traces current trends of India’s
retailing industry. It is analytical as it seeks to analyze the implications of the new FDI policy on this industry. It is exploratory too
as it is of the nature of continuous exploration that seeks strategies for sustained growth of this industry.

RETAILING INDUSTRY: AN OVERVIEW OF THE GLOBAL SCENARIO

Retailing in the modern times is largely perceived as an expression of consumer consciousness in society. As societies, differ so do
the responses of consumers and their consciousness. However, retailing has helped a great deal in generating an international
flavour in business activities by way of closer interactions between different countries of the world.

World over, there have been sweeping changes in the retailing businesses over the last two decades or so. In some parts of the
world, relatively smaller family-run or regionally targeted stores dominate retailing business. However, as a general trend, it can
be observed that more and more of this market is increasingly being captured by the large MNCs. These include, billion dollar
MNCs like, Wal-Mart, Sears, and Carrefour and so on. Such big MNCs have many comparative advantages, like, huge
supply/distribution chains, excellent inventory management and financing systems as well as strong marketing infrastructure.

Trend and Pattern of Indian Retail Industry and Its Future Growth Prospects

In the emerging scenario, there is excellent growth potential for Indian retail, because of the sizeable and growingly affluent upper
middle class population. The growth rate works out to 23.09 per cent CAGR, for the period FY 2000- FY 2020; as the market size
grows from USD 204 Billions (FY 2000) to USD 13000 Billion (FY 2020). (Table I).

Table-I: Growth Pattern of Retailing Industry in India (FY 2000 to FY 2020)

Financial Year Market Size of Retail Remarks / Notes

Industry (USD Billion)
2000 204 CAGR for the period FY 2000 to
2002 238 FY 2020 is 23.09% [CAGR is
2004 278 Compounded Average Growth Rate]
2006 321
2008 368
2010 424
2012 518
2013 490
2015 (Estimated) 600
2020 (Projected) 1300
Sources: BCG & RAI, Retail 2020 – Retrospect, Reinvent, Rewrite, Feb. 2015, p.11 [2]

Over the last few years, Indian retailing industry has witnessed a number of sweeping changes. Eventually, India’s attempt to go
global in retailing business has been a success largely. The industry has reached the threshold of some major developments and all
the prominent players are equipping themselves to face the challenge.

Sensing the favourable business environment in India characterized by a huge share of affluent upper middle class population,
high GDP growth rates and stable macroeconomic environment many multi-national companies (MNCs) are eagerly looking into
the Indian market.

International Journal of Trade & Global Business Perspectives© Pezzottaite Journals. 1997 |P a g e
 Volume 4, Number 4, October – December’ 2015
ISSN (Print):2319-9059, (Online):2319-9067
PEZZOTTAITE JOURNALS SJIF (2012): 3.946, SJIF (2013): 5.017, SJIF (2014): 5.912

Figure-I: Growth Pattern of Retailing Industry in India since Inception–Major Phases

Sources: IBEF (2015), Retail, Aug. [9]; and BCG & AMR (2015), Feb. [2]

As shown in Figure-I, there are four distinct phases in the history of retailing industry in India. Since 2010, it is passing through
the fourth phase and is characterized by the liberal policy towards foreign direct investment (FDI). The high growth rate of the
retailing industry during the ongoing post-2010 regime (fourth phase) at rates double that of the GDP growth rates of the nation is
an indicator of the immense potential of FDI. (Figure II).

Figure-II: Growth Pattern of Indian Retail Industry since inception–Major Phases

Sources: KPMG (2014), Indian Retail– the Next Growth Story [11]; IBEF (2015), Retail [9]

In spite of the commendable growth in retailing industry over the years, particularly during the ongoing fourth phase (post-2010
era), the organized retail penetration (ORP) is still at about 8 per cent (2014) which may reach 10 per cent by 2020 if the p resent
growth of the industry continues.

A CGGR of 13 per cent for FY 2014 – FY 2019 period for retailing industry is double the estimated GDP growth rate of 6.5 per
cent (Figure II). An ORP of about 8 per cent for India as of 2014 (Figure II), is one of the lowest in the whole world if other
nations, both developed and developing, are considered. This fact points to the immense untapped potential of the organized
retailing sector in India. (Figure III).

International Journal of Trade & Global Business Perspectives© Pezzottaite Journals. 1998 |P a g e
 Volume 4, Number 4, October – December’ 2015
ISSN (Print):2319-9059, (Online):2319-9067
PEZZOTTAITE JOURNALS SJIF (2012): 3.946, SJIF (2013): 5.017, SJIF (2014): 5.912

Figure-III: Organised Retail Penetration (ORP) in India Vs Other Major Countries

Sources: Adapted from, KPMG (2014), Indian Retail – the Next Growth Story [11]

Current Government Policy on FDI in Retailing and Its Implications

Following the global trend in this regard, retailing in India has been picking up momentum over the last few years. India’s attempt
to go international in retailing has been generally successful and India’s retailing industry could maintain a growth of roughly
double that of the GDP growth rate during the corresponding period. (Figure II). During the third phase (2005-2010) (Figure I),
there was substantial investment in retailing, and the industry could outperform its global average growth (e.g. FY 2006) and a
‘Retail Revolution’ emerged. The recent developments in India have given another dimension to the fast growth prospects of retail
industry in India. Some of the major policy developments that could enhance the prospects of retail sector in India in the days to
come are as follows:

 FDI upto 100 per cent in single brand retail is allowed.

 FDI upto 51 per cent in multi-brand retail is allowed.
 Introduction of Goods and Services Tax (GST) as a single unified tax system from FY 2016-17 onwards.

Because of the favourable governmental policy towards retailing, particularly FDI into retailing, foreign retailers are growingly
attracted to enter the Indian retaining market. Cumulative FDI inflow into retail sector as of March 2015 has been as high as
USD275.38 Million. This is expected to grow further as the new FDI policies as above (viz. upto 51 per cent in multi-brand, 100
per cent in single brand retail etc.) become operational. India ranks first in FDI inflows into Greenfield investments in ter ms of
estimated capital expenditure. India is ahead of China, US, UK etc., as per the recent projections by fDi Markets, under Financial
Times data services (Table II). This indicates immense growth potential retailing industry in India in the days to come primarily
triggered by the large FDI inflows into the country. This is because of the fact that retail sector accounts for a sizeable s hare of the
total FDI inflows into India over the years.

Table-II: FDI Inflows in Greenfield Capital Investments (First Half of 2015)

Financial Year Market Size of Retail Remarks

Industry (USD Billion)
India 31 First Rank
China 28 Second Rank
US 27 Third Rank
UK 16 Fourth Rank
Mexico 14 Fifth Rank – Shared by
Indonesia 14 Mexico and Indonesia
Sources: fDi Markets (2015), Financial Times data services, September [7].

As per the records of M/s. fDi Markets, in respect of India totally 1225 projects are recorded. The capital expenditure and job
created (including estimates) are respectively USD 69,039.30 Million and 292595 because of huge FDI investments as above in
India. The number of companies / investors interested in FDI investments in India is 894. The leading FDI destinations in Ind ia are
Bangalore, Mumbai, Pune, Chennai and Hyderabad in that order with number of projects of 187, 101, 80, 72, and 67 respectively
(M/s. fDi Markets, 2015) [7].

International Journal of Trade & Global Business Perspectives© Pezzottaite Journals. 1999 |P a g e
 Volume 4, Number 4, October – December’ 2015
ISSN (Print):2319-9059, (Online):2319-9067
PEZZOTTAITE JOURNALS SJIF (2012): 3.946, SJIF (2013): 5.017, SJIF (2014): 5.912

IMPLICATIONS OF THE NEW POLICY OF THE GOVERNMENT ON FDI IN RETAIL SECTOR

The major benefits of attracting FDI into retail sector are as follows:

 Influx of FDI would boost the economic life of the country;

 FDI would help to get rid of the intermediaries between farmers and the retailers, and this in turn would help the farmers
to obtain better returns for their produce;
 FDI would help to reduce prices at the retail level and suppress inflationary pressures;
 Big and established retail chains would make sizeable investments in supply chains, and hence help to reduce wastage.
Such wastages are as high as 40 percent for fruits and vegetables;
 Small and medium enterprises (SMEs) in retailing can enjoy such benefits as bigger market, advanced technology,
modern management techniques, global best practices etc. with FDI inflows. Besides, they get better branding also in the
new FDI regime;
 FDI can generate large number of jobs and helps to relocate people engaged in smaller stores into better organized and
professionally managed modern retail shops;
 FDI would induce greater competition in the market resulting in enhanced competitiveness of products and services, and
reduced wastage. This would benefit the consumers by way of better quality goods and producers through
competitiveness.

ENHANCED PERFORMANCE OF INDIAN RETAIL INDUSTRY: SOME STRATEGIES

Emphasis on Revenue Generation and Profitability through Customer Focus: Global experiences suggest that revenue growth is
increasingly becoming the key measure of effectiveness of retailing business, and accordingly it enhances the profitability a nd
operational efficiency. This in turn necessitates concerted efforts aimed at maximization of business revenue through identifying
and satisfying customer needs.

Vital Significance of Customer Relationship Management (CRM): The task of customer attraction and retention, however, is
becoming more and more challenging year after year. In this context effective customer relationship management (CRM),
particularly electronic CRM (or, E-CRM, in brief) assumes significance.

FMCG Focus: Appears Specially Relevant in the Indian Scenario: As per a recent study (by M/s. Deloitte, in Jan 2007) the
segment of fast moving consumer durables (FMCG) has been observed to be the biggest sector by sales volume among the top 250
retailers across the globe. In India too, FMCG offers excellent prospects especially because of the fast growing and increasingly
affluent upper middle class population.

Diversity in Population: Specialty Formats are Essential in the Indian Context: As cultural and regional differences are quite
prevalent in the Indian society, the need for specialist formats for retailing is of special significance in India. Separate and tailor-
made formats catering to the needs of different segments of the population have to be designed meticulously and effectively
delivered. Single format will not suffice in a diverse society. Specialty boom is a global trend, as already noted. Major players have
already adopted this strategy. Reliance Retail has at present 11 such formats ranging from footwear to jewels. Likewise, after
launching its e-Choupal retail stores in rural India and hence gaining a foothold in the retail markets, is currently focusing on urban
and semi-urban markets for enhanced business prospects from the urban market. For the urban customers, it seeks to develop
‘mass-end’ format through which it offers products of other companies as well.

Innovative Payment Options and Special Schemes: To attract and retail more customers in a nascent market like India, it is
imperative that innovative and flexible payment options (like, for example, through EMIs viz. Equated Monthly Installments,
which enable the customers to distribute their financial burden over a period of time) are offered. Similarly, to retain the regular
customers special discounts be offered to customers holding memberships. For instance, Reliance Reta il is planning to offer MFT
(Membership Financial services and Travel) across all its retailing formats, which include flexi-payment options like EMI scheme.

Hypermarket Format is the Most Suitable Option in the Indian Scenario: Hypermarket is emerging as the most favorable format
for the time being in India. Further, with the arrival of multinationals, this format will get a further push. Because, this format
offers maximum prospects for the players to compete effectively with those from the unorganized retailing – currently the most
predominant group within the industry.

Aggressive Marketing Strategy: Last, but not the least, is the utmost significance of aggressive marketing in order to survive and
prosper in a business like retailing. Aggressive marketing strategy, as an imperative, emanates primarily from the cut-throat
competition that is characteristic of any globalized market. Besides, the unique complexities intrinsic of retailing business like
rapid product obsolescence, very thin profit margins, ever changing customer tastes and preferences in growingly pluralistic world
markets and above all, constant price changes add to the need for such an approach.

International Journal of Trade & Global Business Perspectives© Pezzottaite Journals. 2000 |P a g e
 Volume 4, Number 4, October – December’ 2015
ISSN (Print):2319-9059, (Online):2319-9067
PEZZOTTAITE JOURNALS SJIF (2012): 3.946, SJIF (2013): 5.017, SJIF (2014): 5.912

Focusing on High Growth Sectors would be more meaningful: Focusing on a few high growth categories of business within the
retail sector appears to be quite good. Such sectors include, inter alia, (i) Food and grocery retailing, (ii) Apparel retailing, and (iii)
Luxury retailing.

Advances in IT – Maximum Use of IT and IT Enabled Services (ITES): With the advent of computers and the use of the fast
advances in information technology (IT) in every occupation, no business can survive without effective utilization of IT. Bes ides
IT, various IT enabled services (ITES) also could be meaningfully integrated with retailing business too. In fact, use of IT and
ITES could be considered more as an imperative for survival and growth, rather than just an option.

Focus on Fast Growing Online Retailing Market: Online retail market is fast growing across all goods and services, and across
all market segments. The exponential growth of online retail market needs to be effectively taken advantage of, by all industry
players; because online retailing is here to stay in this IT era.

CONCLUDING REMARKS

Given the immense potential for retail business in India and the very favourable policy of the Governmental, particularly towards
FDI in retail, the prospects of Indian retailing industry are very bright. Considering the forthcoming fierce competition in the
retailing industry, the domestic players particularly the smaller ones have to enhance their competitiveness in order to effectively
defend against competition. In the emerging world order of globalization, there is no other way out for them than is a part of this
competition and face the challenge. Enhancing competitiveness through effective use of IT is vital.

REFERENCES

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Marketing, Vol. XXXVI, August 2006.

2. BCG (The Boston Consulting Group) & RAI (Retailers Association of India) (2015), Retail 2020: Retrospect, Reinvent
and Rewrite, Feb.

3. CRISIL Research (2014), Retailing in India, Research report (Retailing), Aug.

4. Dabholkar P.A Torpe and J.O. Rentz, 1996 “Ameasre of service quality for retail stores: scale development and
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5. Divya. M and Chinnadorai,K.M, “Retailing – An Emerging Sector in India”, SMART Journal of Business Management
Studies, Vol 5, Jan- June 2009.

6. Euromonitor International, Retailing in India Report 2007, Industry research report.

7. Financial Times (2015), Top destinations for Greenfield Investments (H1, 2015), fDi Markets, FT data services, Sept.
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8. Gupta.C.P, and Mitali Chaturvedi, “Retailing: An Emerging Trend in India”, Indian Journal of Marketing, June 2007.

9. IBEF (India Brand Equity Foundation) (2015), Retail, Industry report on retailing, Aug. 2015 (www.ibef.org).

10. Jain., J.N and Singh.,P.P, “Modern Retail Management”, Tata McGraw Hill Publishing, New Delhi, Year 2006.

11. KPMG (2014), Indian Retail – Next Growth Story, Industry research report.

12. Manoj P K. and Arunachalam P (2012), “Retailing Industry in India: The Way Ahead”, Proceedings of the International
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13. PWC (Price Waterhouse Coopers) (2015), Total Retail 2015: Retailers and the Age of Disruption

14. Sudhakar, G.P., “Retailing in India – What‟s up”, Indian Journal of Marketing, Vol.15, June 2005.

15. Selvakumar & Muthumoni, “Problems and Prospects of Retail Business – A Study of Sivakasi Taluk”, Zenith Journal of
Multi-Disciplinary Research, Vol. 1, Issue 6, Oct. 2011, pp. 394-427.

International Journal of Trade & Global Business Perspectives© Pezzottaite Journals. 2001 |P a g e
 Volume 4, Number 4, October – December’ 2015
ISSN (Print):2319-9059, (Online):2319-9067
PEZZOTTAITE JOURNALS SJIF (2012): 3.946, SJIF (2013): 5.017, SJIF (2014): 5.912

16. The Global Powers of Retailing 2007, M/s. Deloitte Touche Tohmatsu & STORES magazine, Jan. 2007.

17. Vijay Durga Prasad, “The spread of Organised Retaling in India – With a special reference to Vijayawada City”, Indian
Journal of Marketing, May 2007.

18. Vimal Sukumar, “Customer Satisfaction”, Indian Journal of Marketing, Vol 16, Nov. 2001.

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