The Indian growth story has been a resplendent one and it is seen as one of the worlds most favorable and sort after investment destinations. India's enormous population of 1.1 billion is its greatest asset as more than half of them are below the age of 25(Heather Timmons, December 13, 2007) which means India enjoys a rich demographic dividend. This coupled with the fact that there is a paucity of major retail outlets in India makes it a very lucrative proposition for retailers. The Retail market in India is estimated to be a mammoth $300 billion by the year 2010(Mohan Guruswamy, The Hindu Business line) .It offers a great opportunity for both domestic and foreign retailers to harness this enormous market. But the Foreign Direct Investment policy in India is very conservative and imposes stringent curbs on Foreign Investor's. However this cautious predilection is changing and India is opening up more sectors to FDI. Some constraints are also removed from the retail sector as in case of single brand retailers as the Indian government is seeing the advent of FDI in retail as a major challenge for the small time local retailers. It still remains to be seen that when the retail sector also opens up for multi brand stores.
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Tesco PLC the iconic retail brand form the United Kingdom with more than 20% of its sale and 50% of its floor space coming from foreign markets (Tesco PLC annual income statement, 2006) has an ingenious fervour for harnessing international markets. Telco's international strategies has been the corner stones for their success and Tesco's Chairman Sir Terry Leahy has articulated (Sunday Telegraph, August 13, 2006) the fact that their international business is their biggest opportunity, both for growth and delivering returns. Tesco's core objective is to create value for customers and earn their persistent loyalty.
When a retail giant as distinguished as Tesco makes its debut in the Indian retail scene it is bound to face its share of stiff challenges and impediments but being a late entrant it also has the benefit of analyzing the initial predicaments and complications faced by its competitors. India being a highly diverse market with a confined and Tory FDI policy needs a lot of market research and strategic planning. Complete knowledge of the prevailing economic, social, political and technological environment are the initial prerequisites for any international business venture and the same holds good for Tecso. Tesco making a delayed entry would take cognisance of the current economic scenario of India as the inflation rates, interest rates and the currency exchange rates can have its bearing of any international venture. Tesco also needs to familiarise itself with the local trends, beliefs and social patterns as it would indicate what genre of products it needs to market and sell in India. This holistic exercise would also reflect the need for innovation if any and would go a long way in helping to build a profitable marketing strategy. Tesco must also accustom itself to the political scenario and the ruling Government, as any major decision by the government can have huge ramifications on business. To give an example with the EC parliament contemplating to impose a community wide ban on tobacco advertisement, the tobacco manufacturers may face considerably losses. But it is also bliss in highly regulated sectors especially the retail sector as high end technological products takes time to enter the markets due to the laggard approach of the government and which saves the existing retailers from sudden technological innovations. Tesco must also make itself aware of the local labour market in India as it can be a decisive factor for any business. Unable to find and retain young talent due to other opportunities McDonald decided to hire Old aged pensioners to sell their hamburgers.
There is no doubt that Tesco would have to face some serve challenges to enter the Indian market and be a bellwether retailer but the opportunities are enormous and its up for grabs, seizing it is what remains. It is estimated that come 2010 India would be a $300 billion retail market as it is the growing economy has boosted the mushrooming of shopping malls in metropolitan cities. Some of the indigenous companies have started to leverage growth opportunities in the retail sector. The Tata group got into the retail sector with the acquisition of West Side and Infinity Retail a Tata group subsidiary partnered Woolworths to establish a consumer durable retail chain called Croma (S.Mjumdar, 17th September, 2002). Industry bigwigs like Pantaloon retail and Spencer's are also looking to expand aggressively.
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The FDI conundrum in India is a hard nut to crack as the government regulations and restrictions are very strait-laced. A minor relaxation in the FDI regime saw FDI's to rise from $8.28 billion in 2003 to $25.66 billion in 2006. This cautious approach of the government towards FDI reflects its deep rooted concerns for small business which might face strong competition form foreign retailers. If Tesco needs to register its presence in the Indian retail market it needs to put in place a strategy that is India specific ,The strategies that worked wonders for them in other Asian markets would come cropper here in India as the FDI regime is far more tighter and the market dynamics are far more diverse. Other Asian markets like China, Japan and Thailand are relatively easier proposition for foreign retailers as their governments have allowed foreign retailers to set up shop in their countries. Tesco ventured into China in 2003 and by 2006 it had set up 39 stores there, Tesco entered the Japanese market in the year 2003.Thailand also has 7 out of the worlds 10 biggest retailers.
India not only is a huge retail market for Tesco because it is just opening up to foreign investments but also due to the fact that there is a large scope for economy growth as compared to developed nations. In 2006 the single brand retailers were allowed to invest up to 51%(The FDI policy, 20th October 2008), even after this relaxation the foreign investors were not at ease, because of the plethora of approvals that needed to be taken from concerned authorities. The approval of the FDI was the responsibility of the FIPB. The organised sector was mandated to use the services full time employees and the use of part-time wages workers was barred. Then there were state specific restriction as per the Shops and Establishment Act that required stores to remain closed on certain days and some states also had restrictions on lucrative sales schemes. The wages of the workers also fluctuated from state to state. Carrefour the world's second largest retailer had tried to establish its retail business in India but in 2004 announced that they have postponed their plans and would revisit it at a later date. Carrefour had mulled over the franchise arrangement but rejected the idea as it wanted full control over its business in India .Though the franchise route has been a run away success for international retailers in India, Big retail brand like Reebok, McDonalds, Nike and Shoprite Chekers have franchises all over India. But the best and most viable option in front of Tesco to enter the retail sector in India is to forge an alliance with a reputed Indian company. It is the best way forward to considering the stringent FDI norms and other impending issues.
This would be the best possible route to enter the Indian market as the government aren't relaxing FDI norms. The government does allow FDI in back end wholesale, logistics and real estate ,so doing business in these arena's and allowing the Indian partner to claim 100% control over the retail business till the FDI regimes further opens up would be an advisable option. Partnering an Indian company to enter the retail space would be a win-win situation for Tesco as not only would it mitigate the risk and the capital requirement but also would have a gamut of fringe befits like the key resources of the Indian company and their local contacts can be utilised optimally , fruitful relations can be built with the government and other imperative stake holders, infrastructural shortcomings can be dealt with more adroitly and it would provide excellent opportunities to target markets more efficiently. There are numerous precedence's to validate the propensity of this partnering model. The world's biggest retailer Wal-Mart had set up an office in India to conduct market research and they had articulated the fact that they consider India as a huge opportunity and they would continue to monitor the Indian Governments FDI policy (The press trust of India, August 1st, 2006). There were rumours that Wal-Mart were in deliberations with DLF, India's biggest real estate player. Although in late November 2006 (The Economist, op cit) Wal-Mart put rest to all rumours as it announced a joint venture with Sunil Mittals Bharti group which would be responsible for wholesale operations, supply chain management and logistics. The retail stores were to be owned by Bharti which would sell directly to the consumers. This dual ownership model has proved to be mutually benefiting for the business partners and its a great way for foreign companies to register their presence in the local markets.
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Tesco's six point ideology to be flexible, to act local, to create brands, to keep focus, to be multi-format and to develop capability are in sink with the idea of entering the emerging Indian market by creating a fruitful partnership with a credible Business house. It would create a brand presence of Tesco in India in spite of the strict FDI norms without actually loosing full control of the venture as in the franchise arrangement. After creating strong footprints in other Asian economies like Japan, China and Turkey Tesco is now pondering on an Indian debut some may say it's a little procrastinated move, but it's always good to be sure about the opportunities that can be harnessed and the challenges that are to be faced. The Indian companies and business houses are also looking out for foreign investors and are very keen to forge strong partnerships to do business in India. It is the right time for Tesco to enter one of the fastest growing economies in the world and reap profitable results. They have the expertise and the resources all they need in to deliberate and form a partnership with a willing Indian company. The FDI regime no doubt is very conservative, protectionist and brazenly stringent for Foreign investors but it's just a matter of time that it eases out and caves in to the pressures and lures of globalization. But until then partnering an Indian company and starting a retail business is a relatively sane option as it would also guarantee pan India brand presence.
Tesco started the Internationalisation of its business opportunity in the 1992 and hence there is no dearth of neither experience nor capabilities, it just needs to be flexible and patient in getting a chunk of the great Indian story.