Overseas retailers eye bigger slice of India

Monday, 19 July 2004, 07:00 Hrs
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NEW DELHI: India is fast emerging as a major destination for global retail giants to meet the needs of a growing breed of middle-class Indians with more disposable income to spend on consumer goods, say experts.

Despite obstacles such as stringent investment rules for overseas retailers, experts say mass merchant and food retailers are planning to foray into India to tap the unprecedented spending habits of the country's youngsters.

India has been ranked the world's second-most attractive retail destination after Russia, topping even economic powerhouse China, in a recent global retail industry survey.

"As some major markets globally show signs of saturation, India has certainly emerged as the preferred market for big retailers," said Rajan Chhibba, managing director of consultancy firm Intrim Business Associates.

"India is among the top three countries globally, besides Indonesia and Pakistan, which has the highest number of people with spending capabilities in the age group of 25 to 49 years," Chhibba told IANS.

"And if you compare India's size of over one billion people with other countries, it certainly makes perfect sense for retail firms to enter India to sustain their growth."

According to a recent study conducted by global management consulting major AT Kearney, a number of international giants, including Wal-Mart and Carrefour, are considering entry into India if investment regulations are removed.

India doesn't allow foreign direct investment in the retail sector to protect local brands from the onslaught of overseas companies.

But the restriction has not deterred global retail brands like Marks and Spencer, Pizza Hut, Subway, Reebok and McDonald's from entering the country's $200 billion retail sector through the franchisee route.

The AT Kearney survey said in 2004, the 10 countries that mass merchant and food retailers should look to enter immediately are Russia, India, China, Slovenia, Croatia, Latvia, Vietnam, Turkey, Slovakia and Thailand.

The study said despite restrictive foreign direct investment rules, India rose to second place on the 2004 Global Retail Development Index (GRDI), an annual ranking of retail investment attractiveness among 30 emerging markets.

The GRDI helps retailers address the timing of international expansion by ranking emerging countries based on a set of variables, including economic and political risk, retail market attractiveness and retail saturation levels.

"India is at a stage where China was about 15 years ago," said Fadi Farra, a manager with AT Kearney's consumer industry and retail practice and co-leader of the study.

"The lack of consolidation and modern retail concepts in India present great opportunities for global retailers ready to enter this year."

China too had restrictive foreign investment rules that prevented overseas firms from owning retail ventures prior to joining the World Trade Organisation (WTO), said Farra.

But global retailers who developed joint ventures and franchise operations with local entities in China gained a significant first-mover advantage and a better understanding of the market, she said.

According to AT Kearney, this year global retailers are likely to announce plans to open their first stores in 16 countries, one-third more than the 12 countries they entered in 2003.

Enthused by the entry of global retail brands in India, giant malls are coming up thick and fast in and around metros and other major cities, thereby completely transforming the Indian retail sector.

Over 400 shopping malls, multi-storied air-conditioned buildings housing restaurants, multiplexes, clothing and electronic shops, coffee kiosks and fast food joints, are in planning or construction stage across the country.

Source: IANS
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