January 10th, 2018
Impact of the Entry of Large Retailers in India
Large emerging markets such as China and India offer opportunities for firms to expand beyond their traditional markets. These markets offer firms benefits such as cost reduction due to relatively cheaper labour and a lower cost of raw materials compared to their traditional markets (Enderwick 2009, p. 7). Additionally, the high population and high economic growth rates in the emerging markets offer firms the opportunity to market their products thus avoiding overreliance on traditional markets (Enderwick 2009, p. 7). Such advantages lure big retailers to the emerging markets but the effects that entry of the large retailers has on the population, governments and existing retailers in the emerging markets have remained a point of contention.
This paper evaluates the benefits and disadvantages that India would incur following entry of big retailers. In the past, India’s retail sector has remained highly regulated restricting big retailers such as Wal-Mart and Tesco from having wholly owned stores. For instance, before November 2011, only single-brand retailers were allowed to have direct-to-customer stores, and even then, their foreign investment was capped at 51 per cent (Kumar 2011). Multi-brand retailers, the category in which the large retailers fall, were only allowed to trade as wholesale stores; they were not allowed to sell merchandise directly to consumers. Due to such regulation, the main actors in the Indian retail sector have been small retailers such as local Kirana shops, small corner shops (Paan and beedi) and handcart and pavement vendors (Business Monitor International Ltd 2012a). Such composition of the Indian retail market has led to its reference as an unorganised industry (Thenmozhi & Dhanapal 2011). However, following the government’s opening up of the market to allow up to 100 percent foreign investment for single-brand retailers and 51 percent for multi-brand retailers (Kumar 2011), various large retailers could enter the market to gain from the potential offered by the high population and high economic growth rates. This paper seeks to evaluate the effects that such entry would have to the population, the government and other retailers in the market. Such effects are evaluated with regard to economic, political, sociocultural, and ethical aspects. Go to part two here.