Analyzing the impact of foreign retail entry in similar economies and drawing out implications for India

Abstract

This study attempts to understand the way foreign retail players entered three similar economies Brazil, China and Thailand. It tries to understand why retail was allowed, how it was allowed and how the country has fared as a result of the same. China has been an example of a country trying to change from a much regulated farm based command economy to a more market based economy. The country started opening up in 1978, but, the real point of opening is considered to be 1992. Even at this point China exercised caution in allowing full ownership in retail. Through gradual phases, China increased the rights and ownership of foreign players. This gave enough time for the domestic players to learn and stay a step ahead of their foreign competitors. This section examines the various policies in place to ensure that foreign players were entered in a controlled manner. It also discusses how China phased the WTO requirements. We studied the Brazilian retail story in the context of FDI entry in the retail markets and came up with an analysis on the impact of FDI in the Brazilian economy. We found out that there has been an increase in productivity among the employees, improvement in sourcing due to good access to the local suppliers. The retail sector also gained as a result of the technological prowess of the formal foreign retail players. Improvements in supply chain and distribution channels introduced by these foreign players have now been incorporated by a lot of domestic formal players. There has been a decline in prices of commodities as a result of increased levels of competition between the formal foreign and the informal players. Modern retail formats have introduced elements of convenience to the masses at the same time leading to more productivity levels. On the negative side, we have observed that though productivity has been on the rise, there has been an overall reduction in employment levels. Also, we have not been able to indicate any wage rise as a result of these foreign players. Overall the Brazilian retail experience has been heralded as a success story and we have used the learning derived to recommend some suggestions which could be applicable in the Indian context. The Thailand story was a case in point on how sudden FDI entry after the economic crisis resulted in the sidelining of domestic players. Its impact on the employment and sourcing has also been studied. The recommendations have been drawn from learning obtained from all the three countries. A phased entry has been suggested. This has to be supported by reforms from the government side. The benefits of sourcing by foreign players and the improvements to distribution and manufacturing segments cannot be forgotten. A joint venture mode of entry has been suggested. Methods like contract farming should also be promoted which spell a lot of benefits for Indian farmers if implemented efficiently.