September 21, 2012

India Welcomes Walmart Tesco Carrefour : FDI in Multi-brand Retail

Finally on September 20, 2012 Government of India allowed Foreign Direct Investment in multi-brand retail in India. It’s possible now for global retail majors like Wal-Mart, Tesco & Carrefour to enter the market which has 300-400 millions strong middle class. Without going into political economy aspect of the move let’s look at the management & marketing side of the multi-brand retail in India. Retail & aviation has many similarities in India particularly. Retail majors need to learn lessons from India’s aviation industry as both cater to same customer base.

Lessons: Largest of the domestic corporate giants have burnt their fingers in organized retail in India during more than decade long period. Top three of them have reported losses. Retail in India is a fragmented unorganized business evolved alongside the social structure of communities. India has more cultural diversity than entire Europe as language, food habits, customs, religions & even Gods change every 50 kilometers in India. Hindustan Lever Limited had attempted to monopolize ice cream market in India two decades ago by buying out major brands but they could not fight with local satraps.

Basics: India has population of the size of China living on 1/3 of the area. Publicity managers of brand India have projected that what makes India attractive is presence of 300-400 million middle class consumers. Let me flag this figure right here from marketing perspective. Since Indian society is highly fragmented & culturally diverse therefore it’s a challenge to find various ‘consumers profiles’ embedded in this large population of consumers.

India buys few cars just [1/6 ] as compared to China. This figure is very significant as majority of Indian people prefer buy a house before car unlike in rest of the world.  India has no problem with congestion as all metro cities are teeming with people hence retail experience to India may not be same as routinely described in classical retail plans. On the issue of buying on credit or cash Indian consumers are no different than others but majority of Indians don’t have credit cards.

Entry Strategy: What business model Walmart would use in India is the billion dollar questions. Will they go for company owned company operate [COCO] route to begin with or take the franchise route? I believe later route may be more suitable as it would cut cost of entry & provide for safe landing for this controversial roll out. If Walmart recruits 25 major franchises in the beginning it would provide substantial leverage in domestic market to navigate the social reaction in the first phase.

POS & billing: In my opinion POS strategy would be the waterloo for Retail in India. Walmart, Tesco & Carrefour would be wise to invent a new POS strategy as no other country resembles in India in buying behavior. I would recommend that CXOs of retail giants should invest lots of their time at airport lounges & Metro railway in Delhi & Kolkata to grasp the behavior of Indians and ignore Mckinesy consumer reports. It’s impossible to succeed in retail without strategizing this final moment of truth in retail trade.

India is really a more diverse country than it appears on paper. Retail industry may have to take Indian Railway route & organize the operations that could handle the diversity of buyer needs in India. Historically Indian may have lived under centuries of foreign domination but they have succeeded at maintaining their lifestyle & culture and this must serve as guiding principle to any executives involved in this service sector. 

September 4, 2012

India's Private Shame !

The rise of China has significantly trounced the Thatcherism on public vs private sector. The experts failed to notice the dangers of universalizing an essentially Western phenomenon. It has been argued & agreed that each economy has some unique features that differentiate it from the others. Moreover an economy also has certain competencies prevalent due to several natural & man made reasons.  Apologists for poor performance of India vis-à-vis China point to two main factors that are cultural & administrative factors in nature. Indian ultra-nationalist economists never tire of stating that China has been able to pull of spectacular economic performance majorly due to one race- one language and a political system that doesn’t allow room for dissent. Both arguments examined closely would prove nothing but mythology.

Blind faith in virtues of privatization & efficiency myth of Indian corporation must be examined in the light of realities of two decades of its operation in India. The representative symbol of economic growth in India in last two decades is the current Prime Minister Dr. Manmohan Singh who brought in a set of economic reforms in early 90s that gave India freedom from Hindu rate of growth of two to three percent. India has posted a six plus GDP number ever since he came on the scene. His economic policies were continued by governments across political spectrum in India.

Where is the evidence to prove the hypothesis of private sector‘s superior performance in comparison to the public sector? China may have greater number of private enterprises now than ever before but the public sector enterprises continue to contribute a lion’s share to the state output.  In India too, despite domination of service sector by private companies, baring telecom, virtually in all other arena public sector organizations continue to command higher trust than the private sector companies. India remains a difficult place to do business but on the corruption front private sector companies have been found to be worse off than public sector.

Organized retail in India faces no public sector competition and FDI restrictions have kept the global competition at bay, but still is has failed to take off. How could one exonerate India’s corporate giants for failing in retail sector?  Once FDI is allowed into retail India shall see the rise of global retail corporations & reap benefits in terms of expansion of economy.

To upgrade human resources of India government allowed private capital into high education sector to boost the infrastructure. The story here too is no different. None of the higher education enterprise set up in private sector has been able to offer any competition to the autonomous public sector institutes. A management institute was launched in Hyderabad with much fanfare to augment talent creation in business management education but it has failed to offer any competition to even newly set up IIMs? The scenario in related field of health & pharma is not different. ?  India is globally known for its Information Technology firms too but unfortunately some of them have been called as chop shops due to their lack of going up the technology curve to become true tech corporation.  Story in aviation is no different private sector companies as doing as bad as public sector behemoth. Banking & Insurance services sector too portrays same picture with SBI & LIC leading the pack by miles.

Maruti Suzuki began its journey as government owned company and it remains the number one player in passenger vehicles segment.  All major Oil companies are also in public sector. Reliance despite huge industrial base could not compete with public sector companies. It would not be out of place to mention consumer electronics sector too. The moment global competition came in consumer electronics, all major Indian companies melted away like snow flakes.  Indian corporations except TATA group failed to dominate consumer goods & fmcg space despite having head-start in form of understanding local culture critical for success in distribution led businesses. Some Indian companies have made their mark in industrial goods & telecom sector that shows the private capital in same light as it’s seen globally.

India is no UK or USA. Private companies in India are run differently than global standards & practice. India has failed to romp up quality & create large capacities in private sector.  Private sector companies have failed to create & nurture talent as they are led by families in unprofessional manner. There are many factors responsible for dismal performance of Indian private sector companies that has led to enormous pains to fighting poverty in India. The Government has rolled out red carpet to private sector for close to two decades now but its performance has disappointed everyone. It’s ridiculous to give better report card to private sector over public sector in India.  Government need to accelerate state capitalism to kick start the economy.  

My inquisition into search for finding factors that show private sector in poor light than public sector has thrown up various reasons that need verification & further research.  But most prominent factor is the quality of management in private sector, the governance. Families run private sector companies assisted by small group of top executives from bureaucracy generally fail to recognize, nurture & reward the talent. Recruitment in private sector are done in arbitrary manner and religion & caste play a major part in profiling a candidate.  Private sector in the name of merit has been rejecting the state’s affirmative action initiatives for long which has led to low quality of human resource pool that is out of sync with reality of India. Failure happens due to absence of talent and private sector companies in India are no exception either. India is faced with horrendous poverty that need faster economic growth and the private sector must prepare for the responsibility. 

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