DATALINK UNIVERSITY COLLEGE

NAME : BRIDGET MARTEKIE IDUN (MRS.)

PROGRAMME : MSC. / MPHIL IN STRATEGIC MANAGEMENT

INDEX NUMBER : MD/MPHSM/19/00018

COURSE : INTERNATIONAL BUSINESS STRATEGIES

COURSE CODE : MPSM 5522

CREDIT HOURS : 3

COURSE LECTURER : DR. AGARWAL SONAL

CASE STUDY 1 – FOREIGN DIRECT INVESTMENT

QUESTION 1:
How will FDI in retail help the Indian organized retail?

ANSWER:
FDI in retail means that foreign companies in certain categories can sell
products through their own retail shop in a country. Hitherto, Foreign Direct
Investment (FDI) in pure retailing was not permitted in India. Now, India has
liberalized its single brand retail industry to permit 100 percent foreign
investment.
Regarding FDI multi-brand retailing, India has placed a special ban,
restricting it to 49 percent foreign equity participation.
Many countries operate the regime of protectionism. India is no exception.
However, there are restrictions that have been lifted.
FDI in retail will help the Indian organized retail in the area of employment
creation, accessibility, competition in quality goods, the resource transfer
effect and balance of payment effect, increment on share capital and
growth in Gross Domestic Product.
Employment
The more retail business is introduced in a market, the more employment is
created. By fully permitting the Foreign Direct Investment in single retail
therefore, the number of workers in the single product retail will increase,
thereby creating jobs for the jobless.
Accessibility
By allowing a hundred percent FDI in single-product retail, accessing the
product that has been allowed in will be much easier. Accessibility to these
products will increase.
Competition in quality goods.
The more consumers are exposed to many choices, producers compete to
offer quality goods. This will be same for the Indian economy when FDI is
allowed in a single product retail. Consumers will be entitled to a wider
choice range and this will eventually take away from the market, goods that
are inferior in nature since competition will be enhanced.
Balance Of Payment
When FDI and retail businesses are encouraged, the overall Balance of
Payment of India is enhanced. Since Balance of Payment is the difference
between all monies received by a country and all monies expended by the
country, FDI reduces a deficit balance on Balance of Payment since it
increases a country’s revenue by way of tariffs.
Resource Transfer Effect
When FDI and retail business in India is encouraged, there is a positive
effect on capital, technology and management. These effects are brought
in by FDI and would otherwise not be available for India’s economy.
Increment on share capital
Following the liberalization of FDI in single brand retail industry, shares of a
number of retail companies in India grew. Domestic retail giant, Pantaloon
retail gained 7%, while Shoppers stop, an Indian department store chain
and emerging retailer, gained 2.9% of its shares.
Growth in Gross Domestic Product (GDP)
When FDI in retail business is normally unrestrained, there is growth in the
Gross Domestic Product as against growth in Gross National Product. GDP
records value of all services and goods produced within the boundaries of a
country, whether by its nationals or by foreigners. This is why the GDP of
India will increase if India continues to encourage FDI in retail business.

QUESTION 2
Will FDI in organized retail affect the unorganized retail sector in India?

ANSWER:
The interest of those in the unorganized retail sector in India, will not be
gravely undermined, since the consumer, having a wider choice, to a mega
shopping complex or a small retailer, has a constant change in taste and
preference. It cannot be said that the consumer will always choose a mega
shopping complex over a small retailer. The behaviour of the rational
consumer is not predictable.
Consumers will ultimately respond to the incentives of convenience, price,
variety and service.
If it is convenient for a consumer to buy from an organized retail due to
easy accessibility, he will make that choice as against buying from the well-
organized retail shops.
The same applies to pricing. If an unorganized retail offers a competitive
price for its products, they will sway consumers to themselves.
Variety give a consumer a wider choice and preferences since consumers
are at liberty to choose from a wide variety of goods, the organized retail
shops will not suffer when organized retailing are encouraged in the Indian
economy.
In the area of service, consumers will always be attracted to retailers
(organized or unorganized) that render better customer services. If the
unorganized retailers offer better customer services that will be an
advantage to them.