FDI- Walmart the other side

This post is a interesting article I found on bizopedia. It talks about the negative aspect of Wal-Mart. How it affects the suppliers. Very funny use of language. I am not editing it. Just sharing it here:

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How Wal-Mart does its business

Wal-Mart is more than just the world's largest retailer. It is an economic force, a cultural phenomenon and a lightning rod for controversy. It all started with a simple philosophy from founder Sam Walton: Offer shoppers lower prices than they get anywhere else. That basic strategy has shaped Wal-Mart's culture and driven the company's growth.

The distinctive strategies adopted by the companies are given as follows:

1. Wal Mart's position starts at two ends of the spectrum - make as many things as widely available to as many people as possible with small margins. So big turn over nets big profits but lots of sales need to be made to get that profit.

2. because you have so many customers, SQUEEZE the life out of your suppliers - get them to give you even cheaper wholesale rates and advertising support - make them carry the cost of distribution and warehousing, force them to meet your IT needs. This reduces your own costs whilst forcing your suppliers to carry the can - the end result - greater margins for you.

3. Deny access to new suppliers who don't give you an even better wholesale rate. But keep them interested enough so that when one of your current suppliers goes out of business because you have milked them dry and they go bankrupt, you'll have a new supplier ready to step into the grave

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So now we know why the Indian Govt. had been dragging FDI in retail all this while. 

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FDI Multi Brand Retail - Sneak peek

Retail is predicted to be the next Boom sector in India after IT. It came changed the face of India and now retail is going to do just the same. The Indian customer is going to shop like never before and I as a normal MBA student foresee a lot of change in consumer behaviour in Retail with the FDI expanding its footprint in Indian Retail sector.

Retail Industry India –Quick Facts

• Retail accounts for 35% of the our GDP (Gross Domestic Product)
•  Indian Retail ranked in the top 1-3 of GRDI (Global Retail Development Index) for the past 5 years
•  Retail Industry accounts for around 8% of the country’s employment.
•  Market size: US $312 Billion

Why the debate over FDI?

There is debate over FDI in retail sector (Multi-brand retail) primarily because Indian Govt. wants to protect the huge chunk of unorganized players (kirana stores/ mom & pop stores ). The negatives they foresee are:

•  Low prices and high variety killing the business of local players
•  High power of global companies to influence prices
•  Suppliers’ margins could shrink considering bulk purchases from the manufacturing company   directly
•   Lopsided growth in cities- FDI Retail will focus only on target markets and leave out the towns

The positives would be:

• The establishment of a DREAM Supply Chain- which will improve the efficiency of Indian retailers as well
• An opportunity for Indian manufacturers to reach global markets
• Indian consumer with growing disposable income has now more variety to choose from while deciding how to spend it
•  A Joint Venture would be  mutually beneficial for Indian as well as Foreign Investor

 My Supposition: Save money for next few years and then shop like never before. FDI will be a very good move for the consumer as well as the economy.

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FTA Japan-India (What it means?)

Free Trade Agreement

FTA aims chiefly to remove tariffs on goods and trade barriers for services, but also covers areas such as intellectual property rights and facilitation of human exchange.

Why a FTA in the first place?

The theory of comparative advantage argues that in an unrestricted marketplace (in equilibrium) each source of production will tend to specialize in that activity where it has comparative (rather than absolute) advantage. The theory argues that the net result will be an increase in income and ultimately wealth and well-being for everyone in the free trade area. (Source: Wikipedia)

In simpler words- prices of good involving import of parts or goods being exported reduces which gives a fantastic trade opportunity for companies involved in these industries. 

Usually after a FTA the immediate years affect few sectors in countries involved. At times it might lead to lifestyle changes depending upon the sector in prime focus.

Key elements of FTA with Japan

·         The FTA to be signed by Japan and India will phase out the tariffs on products that make up 90% of Japan's exports to India and 97% of India's exports to Japan within 10 years the main focus being auto parts. (Source: http://business.nikkeibp.co.jp) . 

Prime focus of FTA Japan-India: Automotive sector

The past: FTA S.Korea-India

Under the FTA signed between India and South Korea the tariffs were decided to be eliminated over a span of 8years. This agreement has already been signed in 2009. Duties on Korean auto parts, the country's biggest trading item, were decided to be slashed from the average then, of 12.5 percent to 1 percent over the next eight years.  The automotive company that will be benefited by it is Hyundai which is South-Korean automobile maker.

The future: FTA Japan- India

5to 10% of automotive parts particularly electronic parts of all Suzuki car models are supplied from Japan. The elimination of tariffs will provide them a marginal competitive advantage over other car manufacturers. Another anticipated outcome is the development in Indian automobile manufacturing capabilities. Once there is no bar on import of automotive parts Indian car makers can explore the possibility to gear up their models up to global standard.  

General supposition: Automatic cars to enter market because they will finally become affordable and Indian cars flooding global market. Small cars have already become a attractive segment and will become even more exciting, they are one of the major reason why Japan in pressing on FTA. The automotive segment will hence become very vibrant to look out for.


PS: This is a classic example of industry directing a Government decision. The Japanese automakers played a huge role in Japanese Government agreeing to sign FTA. 

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A cup of noodles

Note: The statistical data mentioned in this post was taken from various newspaper articles.

Instant noodles segment in India seemed to have reached a phase of saturation with only one dominant player and a struggling runner up. Suddenly something happened and the instant noodles segment found its rebirth with many biggies flooding the retail outlets with new brand of Instant noodles. The Indian customer seemed to have grown demanding and was desperately seeking for alternative options. A ideal Indian family is now exposed to various kinds of information. An average Indian family spends 1.02% of their annual income on eating out. This makes the kids aware that there is more to noodles than a yellow yummy ‘Maggi’. This seemed like an ideal time to hit the market for companies waiting patiently for the maggi madness to reduce.  The instant noodles market in India is valued at around Rs 1,000 crore. The category is growing at 20 per cent annually. The main players are Maggi, Knorr Soupy Noodles and Foodles. Other competitors are Capital Foods (Ching’s Secret and Smith & Jones), Future Group (Tasty Treat), CG Foods (Wai Wai), Cup noodles and Nissin Foods (Top Ramen). Entering the competition is ITC with its Sunfeast Yippee noodles. The noodle leader isn’t keeping mum and is investing Rs 950 crore to set up two units to manufacture instant noodles and infant foods in Karnataka and Haryana.

While the new entrants are just filling in the market gaps with different flavours and exciting new alternatives, maggi is saddled with the old flavour as it is caught in the dilemma of catering to existing huge loyal customers and redefining itself with new flavours. It had changed the flavour of the classic maggi and was faced with strong opposition from its customer base. It reverted back to the old flavour but managed to slip in the “Healthy calcium” tag and added a variant “Atta noodles” to avoid blows from the health watch groups in the country.  It later introduced “Rice noodles” and now has introduced cup noodles. All this to remain in the market and guard its market share.  It also did a ‘meri maggi’ campaign to reinforce the brand loyalty.

But, did it wait too long to introduce new variants? Somehow the idea of cup noodles and ‘maggi’ don’t gel well. Its classic taste is so strongly positioned in the minds of the consumers that it new flavours might find it difficult to get accepted. My supposition is that the customers will retain the classic maggi purchases but reduce the quantity in their monthly basket to replace it with the new entrants catering to the same segment. This means maggi is likely to lose its ground. But, maggi will be a tough fight with its 70% market share.

PS: Instant noodles were first invented in Taiwan in the 1958. For reading about the history of Instant noodles click here

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