Saturday, September 29, 2012

India can benefit from its association with Wal-Mart, if it can replace China (or snatch some space from China) in the supply chain
~~Suman Mukherjee
Wal-Mart's power and influence are awesome: by figuring out how to exploit two powerful forces that emerged in the 1990s-- the rapid growth of information technology and the explosion of the global economy -- Wal-Mart has dramatically changed the balance of power in the world of business. Retailers are now more powerful than manufacturers, and they are forcing the decision to move production offshore. Wal-Mart has reversed a hundred-year history that had the retailer dependent on the manufacturer, but now the retailer is the center of the power structure, and the manufacturer becomes the serf, the vassal, the underling who has to do the bidding of the retailer. That's a new thing.
Welcoming Giant Retailers like Wal-Mart is necessary to attract the investment needed for India to modernize its food supply chains, reduce waste and bring down spiraling food prices and ultimately tame the inflation.
Bharti Wal-Mart, a joint venture with Bharti group, already operates 17 wholesale shops in India. Hence, Wal-Mart is not new to India. Meanwhile, Great Britain-based Tesco PLC and French retailer Carrefour have also expressed interest in expanding in India.
The government has already set strict rules which mandate that foreign retailers spend half their investment on building supply chain infrastructure and source 30% of manufactured goods from local small– and medium-sized companies. Foreign retailers are also restricted to India’s 53 cities with populations exceeding 1 million.
Infact, the India’s rules are tougher than those of China, Thailand, Russia, Brazil and Indonesia, all of which allow foreign investors 100% ownership in Retail, according to Goldman Sachs. In India it is only 51%, thanks to the efforts of the commerce minister, Mr.Anand Sharma.
Now, China is the largest exporter to the U.S. economy in virtually all consumer goods categories. Wal-Mart is the leading retailer in the U.S. economy in virtually all consumer goods categories. Wal-Mart and China has a very good tie up. More than 80% of Wal-Mart's merchandise suppliers are in China, where workers do not have the right of freedom of association.
When trade agreements were signed between the U.S. and China in the 1990s, bringing China into the World Trade Organization (WTO), the US Political and Business class peddled the idea that China's 1.2 billion people is an enormous untapped pool for American-made goods. But now, many leading economists are of the view that the reality, has turned upside down, with China now inundating the US markets with their cheap produce; in other words, Chinese exports to the U.S. have skyrocketed while the reversed has not happened much. This has resulted in US trade deficits with China and vice versa. Now India and China shares almost an identical work environment and Indian produce competes not only with China but with many others from Asia, including that from Pakistan, Bangladesh, South Korea and Vietnam to name a few.
At a salary of only 50 cents per hour or $100-120 a month, Chinese labor is a jackpot for international business. And the Chinese government is doing everything it can to be sure that the country's infrastructure supports the export business. Ten years ago Shenzhen's main port did not exist. Today it's on the verge of becoming the third busiest port in the world. This is what FDI in Retail has done to China. As far as the salary goes in the retail business, India stands almost at par with China.
Hence, India could be an ideal destination for Wal-Mart with its low cost labour and cheap produce to become its valued partner to access the US markets much easier than before. According to some media reports, Wal-Mart imports around $20-30 billion in the US from China as it covers 80% of its global outsourcing. Now this competition to source low cost produce to International Retailing Giants could make Indian Inc more competitive and could swiftly suck India into its system, helping the farmers and other low cost producers in a large way--this could jump start India's exports and at the same time help in keeping the price low. Thus RBI can go on keeping low interest rate, like the US, Fed is doing at the present moment. This would also add to the supply side factors as mentioned earlier.
However, the local "Kirana" shops would continue to function, through their low overheads and better CRMs. Moreover, the local "Kirana" shops might excel in some places because, unlike US, where the US sources cheap Chines products, making the domestic products more costly, India could be using their own products, albeit through foreign multinationals.
Lot of Multinational Companies are already there in India and Wal-Mart could be a new addition. Also, India could bring in stricter regulations in future so that the domestic industry is safeguarded.
What India Inc now needs to do is to bring out a comprehensive strategy to beat China, Bangladesh, Vietnam, Korea, Bangladesh, Indonesia, Pakistan, etc, from whom the competition is expected to come.

Note:.....with inputs, taken from Internet