FDI in the Indian Retail Sector
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
FDI in the Indian Retail Sector
The discussion post must be at least of 300 word long and two references
FDI in the Indian Retail Sector
This activity is important because, as a manager, you must be able to understand the costs and benefits of FDI for the home and host country as well as the policy instruments that government use to influence FDI flows.
The goal of this activity is to demonstrate your understanding of FDI, its costs and benefits, and how and why governments might seek to regulate FDI flows.
Read the case and answer the questions that follow.
Historically, the structure of retailing in India was very fragmented, with a large number of very small stores serving most of the market. Supply chains were also very poorly developed and fragmented. As recently as 2010, larger format big box stores, chain stores, and supermarkets only accounted for 4 percent of retail sales in the country (compared to 85 percent in the United States). This might sound like an ideal opportunity for efficient foreign retailers such as Walmart, IKEA, Tesco, and Carrefour. In theory, these multinational enterprises could enter the market and transform India’s retail space, making it more efficient and bringing modern retail formats, technology, and supply chains to the country. This would benefit consumers and producers from farmers to manufacturers. For example, it has been estimated that up to 40 percent of the food produced by Indian farmers is currently wasted because chronically underdeveloped supply chains mean that food rots before it reaches the market.
In practice, small store owners in India have a long history of using their political power to lobby the government to impose restrictions on direct investment by foreigners in the retail space. Like incumbents everywhere, their goal has been to limit competition and protect their businesses and jobs. Until 2011, foreign multi-brand retailers such as Costco, Tesco, and Walmart were forbidden from owning retail outlets in the country. Even single-brand retailers such as IKEA and Nike had to partner with a local retailer, were limited to a 51 percent ownership stake, and had to go through a lengthy bureaucratic approval process.
By 2011, the Indian federal government had come to the conclusion that foreign investment in retailing was needed to improve India’s supply chain, increase consumer choice, and help farmers bring their products to market. This view was supported by much of Indian industry, which saw the modernization of the retailing sector as an important condition for continued economic development. Clearly, the government believed that greater foreign capital and technology would help India grow its economy.
In late 2011, the Indian government announced a plan to reform foreign direct investment regulations. The plan was to allow foreign multi-brand retailers such as Walmart and Tesco to open retail stores, although they would be limited to a 51 percent ownership stake. At the same time, the government stated its intention to allow single-brand retailers to set up wholly owned stores, although anything over a 49 percent foreign ownership stake would still require formal government approval. These plans were greeted with strong opposition from small retailers and rival political parties, and the government was forced to temporarily shelve them.
In early 2012, the Indian government managed to secure approval for plans to allow foreign single-brand retailers to open wholly owned stores, but imposed the requirement that a single-brand retailer had to source 30 percent of its inventory from India. One of the first retailers to respond to these changes was IKEA, which announced that it would invest $1.9 billion and set up 25 stores in the country. More generally though, many analysts viewed the 30 percent sourcing requirement as a major impediment to entering India. Both Apple and Nike, for example, would have to establish significant production facilities in the country in order to meet that requirement and set up their own brand stores.
In early 2018, the government modified the 30 percent requirement, giving single-brand retailers five years after their initial entry to reach the 30 percent figure. The government also allowed single-brand retailers to establish wholly owned subsidiaries without having to go through the cumbersome government approval process.
In late 2012, the federal Indian government allowed foreign investors to open multi-brand retail stores in India, but limited ownership to 51 percent. Moreover, in a nod to the strength of the political opposition, the federal government made this requirement subject to approval by individual states within the country, allowing some to opt out. Several states have done so, which reduces the attractiveness of India as a market for foreign retailers.
At the same time, India has allowed 100 percent ownership of online retail marketplaces in India. Amazon took advantage of this to enter the country in 2014 and has committed to invest $5 billion in India. Unlike in the United States, however, Amazon does not sell goods that it has taken ownership of because that would classify the company as a multi-brand retailer, limit its ownership stake in Indian operation to 51 percent, and require it to take an Indian partner. Instead, Amazon only sells goods offered through its marketplace platform by third parties. However, Amazon is investing heavily in fulfillment centers and logistics infrastructure to enable it to deliver goods efficiently to Indian customers. Its investment may help to boost the efficiency of supply chains in the country.
Sources: Greg Bensinger, “Amazon Plans $3 Billion Indian Investment,” The Wall Street Journal, June 7, 2016; Vibhuto Agarwal and Megha Bahree, “India Retreats on Retail,” The Wall Street Journal, December 8, 2011; “India Online,” The Economist, May 5, 2016; Newley Purnell, “Jeff Bezos Invests Billions to Make Amazon a Top E-Commerce Player in India,” The Wall Street Journal, November 19, 2016; and K.R. Srivats, “Cabinet Okays 100% FDI in Single Brand Retailing via Automatic Route,” Business Line, January 10, 2018.
What explains the fragmented nature of India’s retail sector? What are the benefits of this system? What are the costs?
Given the political and economic realities in India, what is the best entry strategy for a foreign retailer?
RUBRIC
QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points: Student failed to submit the final paper. 20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. 40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. 50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points: Student failed to submit the final paper. 5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors 10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. 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The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. GET THIS PROJECT NOW BY CLICKING ON THIS LINK TO PLACE THE ORDER
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