Wal-Mart Stores Inc,the world's largest retailer, is hopeful that soon it would be allowed to set shop in India.
Prime Minister Manmohan Singh recently said that India is mulling over the issue of foreign direct investment in retail and a positive outcome is expected in the next 5-6 months. Finance Minister P Chidambaram and Commerce Minister Kamal Nath had also said that the first steps to open India's retail market to FDI could be taken during the first quarter of 2006.
Even though 100 per cent FDI in retail looks far-fetched, the governmnet is likely to open a portion of the lucrative market with certain riders attached. India, which boasts of a billion-plus population is largely untouched by modern retailing.
Buoyed by its success in China, Wal-Mart is now hot on India. Last month its international CEO John Menzer came lobbying for foreign direct investment in retail in India and sought government approval to open its first liaison office in India. Last July, Wal-Mart chief executive Lee Scott traveled to Washington, DC to talk to the prime minister who was visiting the United States at the time.
While the Left parties that support the Congress-led coalition government at the Centre are concerned that foreign retailers will hurt millions of small shopowners, Wal-Mart argues that global players are the key to streamlining national distribution systems to cut waste and stabilise prices.
The world's largest company has 3,000 stores across the United States, Britain, China, Japan and Mexico. Its revenue ($285 billion) is more than India's total retail market. But strict entry barriers have kept companies like Wal-Mart and J C Penny off Indian soil.
With its burgeoning economy and mushrooming hypermarkets and malls, India would soon be the shopper's paradise. A McKinsey report states that India's $250 billion retail business is the eighth largest in the world and has the potential to grow 7 per cent by 2011.
India is becoming an increasingly bright prospect as retail giants depend on international operations to shore up their profits. A recent report in The Wall Street Journal said that in the first nine months of Wal-Mart's current fiscal year, the retailer's international operations -- which account for 20 per cent of its sales -- saw operating income climb more than 10 per cent while its US stores notched gains of less than 7 per cent.
Besides Canada, Brazil and Mexico, the company has fared well in many Asian countries too.
Other giant retailers like Carrefour SA of France and Metro AG of Germany, already have teams in India. One of Britain's leading retailers and a Fortune 500 company with sales in excess of £37 billion, Tesco, is planning to ramp up its sourcing from India to £95 million this year. Tesco sourced goods worth £65 million in 2005.
Tesco's sourcing from India was focused on apparel with 90 per cent of Tesco's offering in the segment being outsourced from India. Currently, South Indian apparel hubs, Bangalore and Tirupur account for a large proportion of the sourcing. Even without stores in India, Wal-Mart is already a bigger consumer of Indian products than many countries.
If Wal-Mart manages to enter India, it could face competion on two fronts. One, it will have to compete with local giants like Shoppers' Stop, Pantaloon and Westside; and second, given India's poor infrastructure the company will have to build distribution systems from scratch while grappling with bad roads and power outages at the same time.
A recent WSJ article said, that Wal-Mart is aiming for slow and steady growth in the subcontinent.