Metro group & the Indian retail market

Abstract

In early 2006 the Indian government announced that it would allow foreign companies to own up to 51 percent of single brand companies operating in India. Many experts took this as a sign that India is about to open up its retail market entirely. The global consulting firm A.T. Kearney says that “India is more attractive than ever to global retailers”.1 This statement is underpinned by India’s first place in the Global Retail Development Index 2006 (GRDI 2006) and its second place in the Foreign Direct Investment Confidence Index 2005 (FDICI 2005).2 Nonetheless, there are considerable risks for foreign trade companies that want to enter the Indian market: Strong positions of local and federal bureaucracies, intensive opposition of established retailers, cultural differences and a lack of infrastructure might cause serious problems along the value chain of global retailers. The purpose of this research paper is to analyze if the Indian retail market is indeed attractive for foreign trade companies. But different to former surveys like the one carried out by A.T. Kearney, we will consider not only macro economic aspects but also factors that affect individual segments of the Indian retail market. In order to simulate the decision process of a foreign investor most realistically, we decided to take on the viewpoint of a specific company. Until now only one big, multinational retail company, the German METRO Group (METRO) has shown direct commitment to the Indian trade market. In 2003 Metro Cash & Carry, the wholesaling division of METRO, opened its first store in Bangalore. By doing so METRO was also the first international trade company to gather first hand information if the Indian retailing and wholesaling market. For these two reasons we decided to pick METRO as the company to be analyzed alongside with the Indian retail market This research paper will focus on the possibilities for global retailers to gain profits in the Indian market and will analyze potential risks and obstacles, these companies have to face. In order to work as close as possible to the economic reality, we will argue from METRO’s perspectives, using its business models and its experiences in the Indian market. We will ask the questions: What do the Indian markets for groceries and consumer electronics look like? Are they attractive for a company like METRO? Would it be reasonable to introduce an own department store chain into the Indian market? What are specific needs of Indian customers? And subsequently: Can you copy a business model that works in Europe to India? If not, which adjustments will have to be made? If one or more of the market segments appear to be attractive for the METRO Group we will try to find evidence which market entry strategy would most likely be successful. Chapter one contains an overview of the concern as a whole, METRO’s distribution channels, and their business models. In the presentation of the business models of METRO’s businesses we will continuously use the structure for business designs proposed by Slywotzky (Exhibit 1).3 Chapter two is dedicated to the analysis of the macro economic environment of retailing in India and the analysis of the Indian retail market with special consideration of the areas: Food retailing, electronics retailing and department stores. Chapter three relates the findings to strategic decisions an international trade company would have to make before or while entering the Indian market. This analysis bases on the hypothesis that the Indian retail market will open up. However, it is uncertain if and when this will happen. This paper is meant to help foreign retail companies to decide of they should start serious planning processes for a market entry or not. It is not meant to be a guideline for a successful market entry. Since we, as the authors of this study, have a long term interest in the analysis of the Indian retail market, we would appreciate any comments on our work and will answer questions as soon as possible.