chapter 1 introduction 1.1 foreign direct investment … · economic and political regimes there...
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CHAPTER 1
INTRODUCTION
1.1 FOREIGN DIRECT INVESTMENT IN INDIA
Foreign Direct Investment is the investment made in production or business
by the country in another country by either means of buying a company or
expanding its business in the foreign country. It is usually by means of bonds and
shares. Generally speaking FDI refers to capital inflows from abroad that invest in
the production capacity of the economy and are “usually preferred over other forms
of external finance because they are non-debt creating, non-volatile and their returns
depend on the performance of the projects financed by the investors. FDI also
facilitates international trade and transfer of knowledge, skills and technology.”
According to the Financial Times, "Standard definitions of control use the
internationally agreed 10 percent threshold of voting shares, but this is a grey area as
often a smaller block of shares will give control in widely held companies.
Moreover, control of technology, management, even crucial inputs can confer de
facto control.”
1.2 TYPES OF FDI
a. Horizontal FDI arises when a firm duplicates its home country-based
activities at the same value chain stage in a host country through FDI.
b. Platform FDI Foreign direct investment from a source country into a
destination country for the purpose of exporting to a third country.
A STUDY ON RETAILER'S PERCEPTION ABOUT THE FINANCIAL IMPACT OF
FOREIGN DIRECT INVESTMENT IN THE RETAIL SECTOR IN TAMILNADU
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c. Vertical FDI takes place when a firm through FDI moves upstream or
downstream in different value chains i.e., when firms perform value-
adding activities stage by stage in a vertical fashion in a host country.
1.3 METHODS OF FDI
The foreign direct investor may acquire voting power of an enterprise in an
economy through any of the following methods:
a. by incorporating a wholly owned subsidiary or company anywhere
b. by acquiring shares in an associated enterprise
c. through a merger or an acquisition of an unrelated enterprise
d. participating in an equity joint venture with another investor or enterprise
1.4 HISTORY OF FDI IN INDIA
The initial entry of FDI in India can be loosely considered from the time of
establishment of East India Company of Britain during the colonial era in the 17th
century when the British merchants approached the Mughal Emperor for
establishing factory in Surat city of India. Along with them the British brought on
the Industrial revolution to India which led to development of transportation
(Railways and Roadways) and communication systems albeit for their benefits. The
new innovations and inventions happening around the European countries got
introduced to the Indian subcontinent too.
After the Second World War, many Japanese companies entered the Indian
market and enhanced their trade with India. After our Independence the policy
makers of new India realized the need of foreign investment for development and
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designed the FDI policies aiming it as a medium for bringing in advanced
technologies and gaining valuable foreign exchange resources. With time and as per
economic and political regimes there have been changes in the FDI policy too. The
industrial policy of 1965, allowed MNCs to venture through technical collaboration
in India. Therefore, the government adopted a liberal attitude by allowing more
frequent equity.
With time, economic situations in the country and the outlook of government
in power, the attitudes of the policy makers kept changing towards foreign
companies investing in India.
FDI was introduced in the year 1991 under Foreign Exchange Management
Act (FEMA), by then finance minister Dr. Manmohan Singh. It started with a
baseline of $1 billion in 1990. India is considered as second important destination
for foreign investment. The major sectors that attracted FDI are services,
telecommunication, construction activities and computer software and hardware.
India in 1997 allowed foreign direct investment (FDI) in cash and carry
wholesale. Then, it required government approval. The approval requirement was
relaxed, and automatic permission was granted in 2006. From 2000 to 2010, Indian
retail has attracted about $1.8 billion in foreign direct investment, representing a
very small 1.5% of total investment flow into India.
India has received till now a total foreign investment of US $ 306.88 billion
since 2000 with 94 per cent of the amount coming during the last nine years. In the
period 1999–2004, India received US $ 19.52 billion of foreign investment. In the
period 2004–09, foreign investment in the country touched US$ 114.55 billion,
further increasing to US$ 172.82 billion between 2009–Sept 2013. During FY 2012–
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13, India attracted FDI worth US$ 22.42 billion. Tourism, pharmaceuticals, services,
chemicals and construction were among the biggest beneficiaries.
1.5 FDI APPROVAL ROUTES IN INDIA
In India the FDI is approved in the way of three routes:
1.5.1 AUTOMATIC APPROVAL BY RESERVE BANK OF INDIA(RBI)
a. Automatic approval within period of two weeks (subject to compliance of
norms)
b. Foreign equity up to 24%, 50%, 51%, 74% and 100% depending on industry
category and sector caps.
FDI in sectors/activities to the extent permitted under automatic route does
not require any prior approval either by the Government or RBI. The investors are
only required to notify the Regional office concerned of RBI within 30 days of
receipt of inward remittances and file the required documents with that office within
30 days of issue of shares to foreign investors.
List of activities or items for which automatic route for foreign investment is
not available, include the following:
a. Banking
b. NBFC's Activities in Financial Services Sector
c. Civil Aviation
d. Petroleum Including Exploration/Refinery/Marketing
e. Housing & Real Estate Development Sector for Investment from Persons
other than NRIs/OCBs.
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f. Venture Capital Fund and Venture Capital Company
g. Investing Companies in Infrastructure & Service Sector
h. Atomic Energy & Related Projects
i. Defence and Strategic Industries
j. Agriculture (Including Plantation)
k. Print Media
l. Broadcasting
m. Postal Services
Table 1.1 Automatic route for specified activities subject to Sectoral cap and
Conditions.
Sectors Cap
Airports
Existing
Greenfie
74%
100%
Air Transport Services
Non Resident Indians
Other
100%
49%
Alcohol distillation and brewing 100%
Banking (Private Sector) 74%
Coal and Lignite mining (specified) 100%
Coffee, Rubber processing and warehousing 100%
Construction and Development (Specified projects) 100%
Floriculture, Horticulture and Animal Husbandry 100%
Specified Hazardous chemicals 100%
Industrial Explosives Manufacturing 100%
Insurance 26%
Mining (Precious metals, Diamonds and stones) 100%
Non-banking finance companies ( conditional) 100%
Petroleum and Natural gas
Refining (private companies)
Other areas
100%
100%
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Sectors Cap
Petroleum and Natural gas
Refining (private companies)
Other areas
100%
100%
Power generation, transmission, distribution 100%
Trading
Wholesale cash and carry
Trading of Exports
100%
100%
SEZ’s and Free Trade Warehousing Zones 100%
Telecommunication
Basic and cellular services
ISP with gateways, radio paging, end-end bandwidth
ISP without gateway (specified)
Manufacture of telecom equipment
49%
49%
49%
100%
1.5.2 THE FIPB ROUTE – Processing of non-automatic approval cases
a. FIPB stands for Foreign Investment Promotion Board.
b. Approves all cases where automatic parameters are not met.
c. Processing time 4 to 6 weeks
1.5.2.1 GENERAL PERMISSION OF RBI UNDER FEMA
Indian companies having foreign investment approval through FIPB route do
not require any further clearance from RBI for receiving inward remittance and issue
of shares to the foreign investors. The companies are required to notify the
concerned Regional office of the RBI of receipt of inward remittances within 30
days of such receipt and within 30 days of issue of shares to the foreign investors or
NRIs. Application can be made in Form FC-IL; Plain paper applications carrying all
relevant details are also accepted. No fee is payable.
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1.5.2.2. PROCEDURE UNDER GOVERNMENT APPROVAL
FDI in activities not covered under the automatic route, requires prior
Government approval and are considered by the Foreign Investment Promotion
Board (FIPB). Approvals of composite proposals involving foreign
investment/foreign technical collaboration are also granted on the recommendations
of the FIPB. Application for all FDI cases, except Non-Resident Indian (NRI)
investments and 100% Export Oriented Units (EOUs), should be submitted to the
FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance.
Application for NRI and 100% EOU cases should be presented to SIA in
Department of Industrial Policy & Promotion.
1.5.2.3. INVESTMENT BY WAY OF SHARE ACQUISITION
A foreign investing company is entitled to acquire the shares of an Indian
company without obtaining any prior permission of the FIPB subject to prescribed
parameters/ guidelines. If the acquisition of shares directly or indirectly results in the
acquisition of a company listed on the stock exchange, it would require the approval
of the Security Exchange Board of India.
1.5.2.4. NEW INVESTMENT BY AN EXISTING COLLABORATOR IN
INDIA
A foreign investor with an existing venture or collaboration (technical and
financial) with an Indian partner in particular field proposes to invest in another
area, such type of additional investment is subject to a prior approval from the FIPB,
wherein both the parties are required to participate to demonstrate that the new
venture does not prejudice the old one.
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1.5.2.5. PARTICIPATION BY INTERNATIONAL FINANCIAL
INSTITUTIONS
Equity participation by international financial institutions such as ADB, IFC,
CDC, DEG, etc., in domestic companies is permitted through automatic route,
subject to SEBI/RBI regulations and sector specific cap on FDI.
1.5.2.6. FDI IN SMALL SCALE SECTOR (SSI) UNITS
A small-scale unit cannot have more than 24 per cent equity in its paid up
capital from any industrial undertaking, either foreign or domestic. If the equity
from another company (including foreign equity) exceeds 24 per cent, even if the
investment in plant and machinery in the unit does not exceed Rs 10 million, the
unit loses its small-scale status and shall require an industrial license to manufacture
items reserved for small-scale sector.
1.5.3 CCFI ROUTE
a. CCFI stands for Cabinet Committee on Foreign Investment
b. Sector not notified in the automatic route
c. Cost of project should be 6000 million or more
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Table 1.2 Table presenting the Prior Approval from FIPB where investment is
above Sectoral caps for activities listed below.
Sectors Cap
Existing Airports 74% to 100%
Asset reconstruction companies 49%
Atomic Minerals 74%
Broadcasting
FM Radio
Cable network
Direct-To-Home (DTH)
Setting up hardware facilities
Uplinking news and current affairs
Uplinking non-news, current affairs TV channel
20%
49%
49%
49%
26%
100%
Cigarette manufacturing 100 %
Courier services other than those under the ambit of Indian
Post Office Act, 1898
100 %
Defense production 26 %
Investment companies in infrastructure / service sector (except
telecom)
49 %
Petroleum and natural gas refining (PSU) 26 %
Tea Sector – including Tea plantation 100 %
Trading items sourced from Small scale sector 100 %
Test marketing for equipment for which company has approval
for manufacture
100 %
Single brand retailing 51 %
Satellite establishment and operations 74 %
Print Media
Newspapers and periodicals dealing with news and current
affairs
Publishing of scientific magazines / specialty journals
periodicals
26 %
100 %
Telecommunication
Basic and unified access services
ISP with gateways, radio paging, end to end bandwidth
ISP with gateway (specified)
49 % to 74 %
49 % to 74 %
49 % to 100%
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Table 1.3 FDI inflows from foreign countries within period 2000-2014
S.No. Name of the
Country Amount of Foreign Direct
Investment Inflows
% age with total
FDI Inflows (+)
(In Rs crore) (In US$ million)
1 Mauritius 395,600.65 82,717.43 35.65
2 Singapore 140,319.70 27,859.61 12.01
3 United Kingdom 105,903.36 21,605.24 9.31
4 Japan 86,267.33 17,205.24 7.41
5 Netherlands 68,169.41 13,206.58 5.69
6 U.S.A 62,942.67 13,117.60 5.65
7 Cyprus 38,065.75 7,834.50 3.38
8 Germany 33,898.73 6,900.32 2.97
9 France 20,991.99 4,255.60 1.83
10 Switzerland 14,013.36 2,851.29 1.23
11 UAE 13,727.15 2,820.50 1.22
12 Spain 9,820.54 1,937.25 0.83
13 South Korea 7,352.88 1,483.76 0.64
14 Italy 7,040.42 1,465.32 0.63
15 Hong Kong 6,160.46 1,266.82 0.55
16 Luxembourg 6,065.09 1,101.80 0.47
17 Sweden 5,124.22 1,069.12 0.46
18 Cayman Islands 4,636.19 1,021.68 0.44
19 Russia 5,034.18 935.68 0.40
20 British Virginia 3,738.75 818.11 0.35
21 Belgium 4,085.59 787.35 0.34
22 Malaysia 3,756.77 722.13 0.31
23 Indonesia 2,891.93 621.47 0.27
24 Poland 3,276.30 615.66 0.27
25 Australia 2,933.75 611.05 0.26
26 Canada 2,436.73 505.53 0.22
27 The Bermudas 2,252.20 502.07 0.22
28 China 2,472.35 447.92 0.19
29 Denmark 1,961.63 397.55 0.17
30 Oman 1,687.93 362.78 0.16
31 Ireland 1,667.12 317.63 0.14
32 Finland 1,562.08 316.22 0.14
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S
S.No.
Name of the
Country
Amount of Foreign Direct
Investment Inflows
% age with total
FDI Inflows (+)
(In Rs crore) (In US$ million)
33 Austria 1,207.14 239.09 0.10
34 South Africa 1,148.06 227.46 0.10
35 Thailand 930.50 179.20 0.08
36 Seychelles 1,060.49 176.16 0.08
37 Norway 835.45 164.15 0.07
38 Chile 710.49 150.23 0.06
39 Morocco 651.82 137.35 0.06
40 British Isles 463.88 100.65 0.04
41 Turkey 478.06 93.32 0.04
42 Taiwan 442.02 88.51 0.04
43 West Indies 348.17 78.28 0.03
44 Mexico 421.32 77.28 0.03
45 Israel 380.16 76.58 0.03
46 Philippines 363.18 63.75 0.03
47 Virgin
Islands(US)
273.83 49.95 0.02
48 St. Vincent 254.02 49.67 0.02
49 Saudi Arabia 227.61 46.50 0.02
50 New Zealand 218.29 44.38 0.02
51 Panama 189.51 41.30 0.02
52 Bahamas 186.76 38.09 0.02
53 Korea(North) 187.77 37.04 0.02
54 Bahrain 169.11 35.67 0.02
55 Sri Lanka 163.36 33.55 0.01
56 Saint Kitts &
Nevis
147.88 33.53 0.01
57 Channel Islands 172.43 31.78 0.01
58 Portugal 155.04 30.92 0.01
59 Jordan 156.47 28.80 0.01
60 Kazakhstan 134.16 26.11 0.01
61 Kuwait 129.83 25.73 0.01
62 Brazil 110.49 22.61 0.01
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S
.No.
Name of the
Country
Amount of Foreign Direct
Investment Inflows
% age with total
FDI Inflows (+)
(In Rs crore) (In US$ million)
63 Kenya 102.31 21.71 0.01
64 Iceland 93.72 21.14 0.01
65 Gibraltar 85.14 19.75 0.01
66 Czech Republic 83.08 18.71 0.01
67 Hungary 88.39 16.85 0.01
68 Isle of Man 82.11 15.56 0.01
69 Liberia 64.54 14.56 0.01
70 Malta 65.40 14.05 0.01
71 Nigeria 64.44 12.90 0.01
72 Belarus 50.44 12.26 0.00
73 Argentina 46.35 10.17 0.00
74 Liechtenstein 47.42 9.45 0.00
75 Myanmar 35.75 8.96 0.00
76 Slovenia 40.58 8.49 0.00
77 Romania 33.19 6.26 0.00
78 Ghana 31.27 6.20 0.00
79 Maldives 26.81 5.83 0.00
80 Belize 25.37 5.56 0.00
81 Slovakia 23.06 5.29 0.00
82 Rep. of Fiji
Islands
22.30 5.07 0.00
83 Qatar 27.12 4.94 0.00
84 Tunisia 19.84 4.31 0.00
85 Guernsey 23.53 4.25 0.00
86 Scotland 18.65 3.93 0.00
87 Greece 20.05 3.92 0.00
88 Uruguay 16.87 3.77 0.00
89 Egypt 15.53 2.93 0.00
90 Bermuda 16.88 2.75 0.00
91 West Africa 12.31 2.47 0.00
92 Trinidad &
Tobago
12.73 2.34 0.00
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S
S.No.
Name of the
Country
Amount of Foreign Direct
Investment Inflows
% age with total
FDI Inflows (+)
(In Rs crore) (In US$ million)
93 Nepal 9.68 2.02 0.00
94 Yemen 7.74 1.87 0.00
95 Tanzania 7.47 1.60 0.00
96 Monaco 7.49 1.52 0.00
97 SAN MARINO 9.41 1.52 0.00
98 Lebanon 7.01 1.24 0.00
99 Colombia 5.40 1.18 0.00
100 Ukraine 5.06 1.12 0.00
101 Uganda 5.06 1.10 0.00
102 Cuba 4.73 1.04 0.00
103 Guyana 4.60 1.00 0.00
104 Vanuatu 4.41 0.94 0.00
105 Togolese
Republic
4.28 0.80 0.00
106 Iran 3.30 0.57 0.00
107 Congo (DR) 2.41 0.54 0.00
108 Croatia 2.29 0.52 0.00
109 Jamaica 2.70 0.50 0.00
110 Aruba 1.96 0.43 0.00
111 Bulgaria 2.04 0.42 0.00
112 Vietnam 1.63 0.32 0.00
113 Estonia 1.33 0.30 0.00
114 Anguilla 1.47 0.29 0.00
115 Yugoslavia 1.13 0.24 0.00
116 Iraq 1.02 0.22 0.00
117 Zambia 0.83 0.17 0.00
118 Peru 0.77 0.14 0.00
119 Latvia 0.52 0.10 0.00
120 Suriname 0.54 0.09 0.00
121 Libya 0.28 0.07 0.00
122 Mongolia 0.27 0.06 0.00
123 Sudan 0.24 0.05 0.00
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S
S.No.
Name of the
Country
Amount of Foreign Direct
Investment Inflows
% age with total
FDI Inflows (+)
(In Rs crore) (In US$ million)
124 Costa Rica 0.23 0.04 0.00
125 Bangladesh 0.16 0.03 0.00
126 Afghanistan 0.12 0.03 0.00
127 Botswana 0.13 0.02 0.00
128 St. Lucia 0.06 0.01 0.00
129 Georgia 0.02 0.00 0.00
130 East Africa 0.02 0.00 0.00
131 Cameroon 0.01 0.00 0.00
132 Bolivia 0.01 0.00 0.00
133 Kyrgyzstan 0.01 0.00 0.00
134 Djibouti 0.00 0.00 0.00
135 Paraguay 0.00 0.00 0.00
136 Muscat 0.00 0.00 0.00
137 Venezuela 0.00 0.00 0.00
138 Barbados 0.00 0.00 0.00
139 Mozambique 0.00 0.00 0.00
140 Senegal 0.00 0.00 0.00
141 FII's 0.25 0.06 0.00
142 NRI ‘*’ 20,383.66 4,684.25 2.02
143 Country Details
Awaited
30,875.
37
6,964.32 3.00
SUB-TOTAL 1,130,836.85 232,053.54 100.00
144 RBI’S- NRI
SCHEMES
(2000-2002)
533.06 121.33 -
GRAND TOTAL 1,131,369.91 232,174.87 -
Source: dipp.nic.in
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Table 1.4: Sector wise FDI inflows from 2000-2014
S.No Sector Amount of FDI Inflows % age with total
FDI Inflows (+) (In Rs crore) (In US$ million)
1 Services Sector* 192,935.93 40,684.98 17.53
2 Construction
Development: Townships,
housing, built-up
infrastructure and
construction-development
projects
111,967.75 23,874.10 10.29
3 Telecommunications 81,406.50 16,628.12 7.17
4 Computer Software &
Hardware
62,202.41 13,238.58 5.70
5 Drugs & Pharmaceuticals 62,589.38 12,688.71 5.47
6 Automobile Industry 54,469.17 10,846.71 4.67
7 Chemicals (Other Than
Fertilizers)
47,718.48 10,081.24 4.34
8 Power 45,112.11 9,309.96 4.01
9 Metallurgical Industries 39,432.69 8,271.39 3.56
10 Hotel & Tourism 38,701.59 7,532.35 3.25
11 Petroleum & Natural Gas 31,620.00 6,514.65 2.81
12 Trading 32,723.83 6,273.74 2.70
13 Food Processing Industries 35,494.50 6,076.58 2.62
14 Information &
Broadcasting (Including
Print Media)
18,351.26 3,762.42 1.62
15 Electrical Equipments 17,888.34 3,720.22 1.60
16 Non-Conventional Energy 17,656.20 3,381.92 1.46
17 Industrial Machinery 15,947.22 3,117.39 1.34
18 Cement And Gypsum
Products
14,000.92 2,984.29 1.29
19 Construction
(Infrastructure) Activities
13,410.11 2,698.06 1.16
20 Consultancy Services 13,256.15 2,681.03 1.16
21 Miscellaneous Mechanical
& Engineering Industries
12,459.57 2,644.02 1.14
22 Hospital & Diagnostic
Centres
12,707.75 2,494.98 1.08
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S.No Sector Amount of FDI Inflows
% age with total
FDI Inflows (+)
(In Rs crore) (In US$ million)
23 Fermentation Industries 10,849.66 2,056.60 0.89
24 Agriculture Services 8,533.21 1,729.13 0.75
25 Ports 6,719.33 1,635.40 0.70
26 Rubber Goods 8,829.20 1,623.78 0.70
27 Textiles (Including
Dyed,Printed)
7,333.60 1,495.07 0.64
28 Mining 7,224.17 1,467.89 0.63
29 Electronics 6,667.80 1,403.74 0.60
30 Sea Transport 6,422.60 1,348.83 0.58
31 Prime Mover (Other Than
Electrical Generators)
6,019.30 1,155.43 0.50
32 Education 4,981.31 964.03 0.42
33 Paper And Pulp (Including
Paper Products)
4,242.02 896.52 0.39
34 Medical And Surgical
Appliances
4,511.65 871.58 0.38
35 Soaps, Cosmetics & Toilet
Preparations
4,333.18 833.03 0.36
36 Machine Tools 3,438.40 699.69 0.30
37 Ceramics 3,115.75 666.58 0.29
38 Railway Related
Components
3,393.95 629.00 0.27
39 Air Transport (Including
Air Freight)
2,560.47 537.03 0.23
40 Diamond,Gold Ornaments 2,185.91 453.41 0.20
41 Vegetable Oils And
Vanaspati
2,248.71 442.98 0.19
42 Glass 2,207.85 434.28 0.19
43 Printing Of Books
(Including Litho Printing
Industry)
2,167.53 420.58 0.18
44 Agricultural Machinery 1,832.15 365.79 0.16
45 Fertilizers 1,544.20 319.57 0.14
46 Commercial, Office &
Household Equipments
1,443.00 297.56 0.13
47 Earth-Moving Machinery 1,062.80 222.43 0.10
48 Scientific Instruments 951.51 170.46 0.07
49 Retail Trading (Single
Brand)
842.53 159.17 0.07
50 Leather, Leather Goods
And Pickers
659.57 129.77 0.06
51 Tea And Coffee
(Processing &
Warehousing Coffee &
Rubber)
489.53 107.08 0.05
52 Timber Products 440.51 86.41 0.04
53 Dye-Stuffs 417.28 74.38 0.03
54 Photographic Raw Film
And Paper
273.76 67.29 0.03
55 Industrial Instruments 310.56 67.06 0.03
56 Boilers And Steam
Generating Plants
314.80 63.33 0.03
57 Sugar 267.39 55.90 0.02
58 Glue And Gelatin 177.82 32.39 0.01
59 Coal Production 119.19 27.73 0.01
60 Mathematical, Surveying
And Drawing Instruments
39.80 7.98 0.00
17
Source: dipp.nic.in
Table 1.5: Total FDI inflows (from April, 2000 to September, 2014):
1
1
CUMULATIVE AMOUNT OF FDI
INFLOWS (Equity inflows + ‘Re-invested
earnings’ +‘Other capital’)
- US$ 345,073
Million
2
2
CUMULATIVE AMOUNT OF FDI
EQUITY INFLOWS (excluding, amount
remitted through RBI’s-+NRI Schemes)
Rs.1,130,837
crore
US$ 232,054
Million
Source: dipp.nic.in
1.6 FDI IN CHINA
China, one of the developing country in the world has a major share of
FDI for the past 30 years. China initially utilized the official borrowing from the
World Bank, Asian Development bank and through bilateral development. However,
in 1990 it started FDI with a base of less than $19 billion. China’s major two ways
of FDI was in the form of Foreign Sole ownership and by joint ventures. The
Government passed the Joint venture law in 1979 and establishment of Special
Economic Zones (SEZ’s) in 1980. The main role of FDI has been its involvement in
production by means of foreign invested firms. It helped to develop the domestic
industries, re-organize capital and labour within factories, improve the quality of
S.No Sector Amount of FDI Inflows % age with total
FDI Inflows (+) (In Rs crore) (In US$ million)
61 Defense Industries 24.36 4.94 0.00
62 Coir 22.05 4.07 0.00
63 Miscellaneous Industries 39,566.58 8,520.23 3.67
Sub-Total 1,130,836.85 232,053.54 100.00
64 RBI’S- NRI Schemes
(2000-2002)
533.06 121.33 -
Grand Total 1,131,369.91 232,174.87 -
18
existing products and the export factors. However, the investment policy was biased
towards southeast coastal region – Hong Kong and Macau.
1.6.1 CHINA – FACTORS FAVORED THE FOREIGN MARKETS
When the American and European countries decided to invest their funds in
developing countries mostly the Asian countries, China attracted the most with its
factors. In General, China had a huge manufacturing base which helped to improve
their markets. The major factors are as follows:
Huge markets
Internationalization
Factors favoured FDI Competitive spirit
In China Production cycle model
Cheap and well educated labour
Economic & Government policies.
The other important factors that attracted China was the preferential tax
treatments, flexible contractual forms and establishment of Special Economic Zones
(SEZ’s) created by the Chinese Government.
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Fig – 1.1: FDI Inflows 2010 Estimates
Fig 1.1 explains that China attracted $105.7 billion through FDI in 2010. This is the
first time FDI in China crossed the $100 billion mark
1.6.2. FDI IN RETAIL SECTOR
The Chinese government allowed FDI in retail sector in the year 1992 with a
cap of 26%. After a gap of 10 years the cap was raised to 49% and in the year 2004
it was raised to 100%. The main motive of this gap was primarily to protect the local
retailers and at the same time to enjoy the benefits out of the foreign markets and
technology without harming the former. They allowed FDI only in selected cities
20
like Beijing, Shanghai, and Shenzhen. Again it was permitted only in those places in
these cities, where there will be no competition to the local retailers from them. In
this way they achieved the success of protecting and establishing the local retailers
also.
Table 1.6: Preliminary Chinese Provincial Retail Statistics (2011)
(Source: China’s National Bureau of Statistics)
21
Table 1.6 explains the list of provinces with their retail sales and growth rate for
2011.
1.6.3. IMPACT OF FDI IN RETAIL SECTOR IN CHINA
Farmers
Impact of FDI in Local Retailers
China Technology
Export Market
1.6.3.1 FARMERS
The introduction of foreign investments into retailing didn’t have much
impact on the share of the farmer. In fact it increased the size of the land holding of
the farmers. The farmers in china had land about 0.6 to 0.13 hectare each. With the
increasing employment opportunities in cities and growing development there, most
of the farmers moved their shift base to cities for better work by renting their land to
the necessary farmers who do agriculture for their living. Since the local farmers
always had their own set of customers who purchased from them on the daily basis,
it helped them to increase the production to meet the customers need with less price
compared to supermarkets.
1.6.3.2 LOCAL RETAILERS:
The Government’s step to protect the local retailers by increasing the
percentage of FDI with a gap of years, has definitely helped them. The introduction
of FDI in retail in China is definitely a threat to local retailers as the foreign
countries can provide cheap products with better quality and technology to the
22
consumers which is absent in the former market. But with this step from the
Government, the organized retail shops were able to understand and adapt the
strategies from the foreign markets without hurry. Since 1992, retail sector has
attracted huge investments, but without affecting the unorganized retail shops. In
fact, number of small Chinese outlets has increased to around 2.5 million from 1.9
million. Today the major share of the retail market are enjoyed by the local retail
companies and no more they consider the foreign investment as threat.
Fig 1.2: China Retail Market Share
Fig 1.2 explains about the retail market share of China which comprises of 80%
unorganized market and 20% of organized market.
1.6.3.3 TECHNOLOGY
Technology plays a vital role in the developed countries. With the
introduction of FDI in China, the local retailers were able to understand the latest
technology used by the foreign investors and in turn it helped them to develop the
local markets by means of technology transfer.
23
1.6.3.4 EXPORT MARKET
The latest technology, improved markets, efficient methods, quality products
helped china to improve their export markets.
1.6.4 THE RETAIL GIANTS IN CHINA
The main foreign retail giants in China are Tesco (U.K.), Walmart (U.S.),
Carrefour (France) and Metro (Germany). All these retail giants opened their
hypermarkets which is a large store that combines a traditional discount store and
supermarket. These hypermarkets attracted the Chinese as they provide food and
general merchandise at low prices and under one roof.
Among these, Walmart and Carrefour are the two largest retailers in the
world and pioneers in the globalization of the retail industry. Carrefour first opened
its hypermarket in mainland China in the year 1995, and Walmart followed in 1996.
By 2010, Carrefour operated 157 stores and Walmart 178 stores.
1.6.5 THE CURRENT SCENARIO OF RETAIL MARKET IN CHINA:
Shi Yongheng, an economics professor from Tsinghua University who has
studied the role of FDI in China’s retail sector, told The Hindu in an interview in
Sep 2012, that he believed that farmers and small retailers had, on the whole,
benefited from the allowing of FDI which had improved logistics and procurement
in the supply chain, even if many had indeed moved out of their jobs to cities as the
sector underwent a reorganisation.
24
Mr. Shi and most Chinese economists welcomed the reorganisation in the
sector, seeing it as employing too many people and too inefficient. In 2011, China’s
urban population exceeded its rural population for the first time.
Fig 1.3: China Retail Sales YOY
Fig 1.3 explains that according to National Bureau of statistics of China, the retail
sales in China increased to 13.70% in November 2013. Whereas, the retail sales in
China year-over-year averaged to 15.15% from 2010 until 2013, with the all-time
high of 19.90% in January 2011 and a record low of 11.60% in February 2011. In
China, the year-over-year change in Retail sales compares the aggregated sales of
retail goods and services during a certain month to the same month a year ago.
25
1.7 FDI IN INDONEASIA:
Similar to India and China, Indonesia has a huge population (fourth largest in
the world) with a large number of middle-income consumers and is considered to be
an attractive retail market. Indonesians are known to have a healthy appetite for
imported goods and this sector has seen rapid growth and modernisation.
The Indonesian Government opened the Agriculture sector for foreign
investments in 2010 by issuing a presidential decree wherein it stated that foreign
investors can own up to 49% of food plantation business. By this move it expected
to encourage cash inflow into one of its priority projects, the vast Merauke food
estate in Papua in eastern Indonesia.
Similar to India, agriculture sector is a major contributor to the GDP of
Indonesia and employs a large number of people. Historically, Indonesia’s economy
has relied on agriculture – small-scale farming, large scale plantations and fishing.
In early 2000s, Indonesian Government lifted a number of restrictions on
foreign investment and participation in the retail sector. Since then, Indonesia saw
rapid expansion in retail sector with the emergence of a large number of modern
retail outlets – Supermarkets, Hypermarkets and mini-markets. Currently, Indonesia
has a high proportion of modern retail outlets than in India (Indonesia’s 37% Vs.
India’s 4%). Currently, modern retail is most visible in the densely populated cities
like Jakarta, Surabaya and Bandung.
Although Indonesia is an archipelago where transportation of food and other
goods is restricted and challenging, it has well developed cold storage system which
is maintained by the foreign investors and local wholesalers alike.
26
In the past few years, with the development and establishment of
supermarkets, the supermarkets have emerged as major buyers from the farmers.
The supermarkets have acted as a mediator in bringing the consumers and farmers
closer. The supermarkets have influenced the procurement system in Indonesia and
have enforced quality standards for the farmers. The local traders and wholesalers
(middlemen) have been by-passed and farmers have directly benefited from this.
The consumers too have benefited from the supermarkets which have provided
better price, choice, quality, hygienic packaging for the products.
Fig 1.4: Sector wise factors attracting foreign investors
Source: Indonesia Investment Coordinating Board (BKPM)
The above fig 1.4 explains that mining and quarrying is the most attractive sector for
foreign investors followed by transport and manufacturing
1.7.1 FDI INFLOWS TILL 2014:
Foreign direct investment; net inflows (% of GDP) in Indonesia was last
measured at 2.27 in 2011, according to the World Bank. Foreign direct investment
27
are the net inflows of investment to acquire a lasting management interest (10
percent or more of voting stock) in an enterprise operating in an economy other than
that of the investor. It is the sum of equity capital, reinvestment of earnings, other
long-term capital, and short-term capital as shown in the balance of payments.
Fig 1.5: FDI Net Inflows till 2014
Source: www.tradingeconomics.com
This fig 1.5 shows net inflows (new investment inflows less disinvestment) in the
reporting economy from foreign investors, and is divided by GDP.
28
Table 1.7: World Bank Indicators - Indonesia - Balance Of Payments (BoP)
Particulars 1990 2000 2010
Trade in services (% of
GDP) in Indonesia 7.5 12.6 6.1
Communications; computer; etc. (% of
service imports; BoP) in Indonesia 36.2 51.8
Income payments (BoP; US
dollar) in Indonesia 5599000000.0 10900883886.1 22679589881.4
Imports of goods and services (BoP;
US dollar) in Indonesia 27511000000.0 56002459130.4 153536398207.8
Insurance and financial services (% of
service imports; BoP) in Indonesia 3.9 2.1 6.2
Particulars 1990 2000 2010
Goods imports (BoP; US
dollar) in Indonesia 21455000000.0 40365376000.0 127447053592.3
Service imports (BoP; US
dollar) in Indonesia 6056000000.0 15637083130.4 26089344615.5
Royalty and license fees; payments
(BoP; US dollar) in Indonesia 1616459043.2
Imports of goods; services and income
(BoP; US dollar) in Indonesia 33110000000.0 66903343016.5 176215988089.2
Transport services (% of service
imports; BoP) in Indonesia 46.2 25.7 33.2
Source: www.tradingeconomics.com
The table 1.7 explains the balance of payments of Indonesia from 1990 to 2010.
29
Fig 1.6: Major foreign investors to Indonesia
Source: Indonesia Investment Coordinating Board (BKPM)
The above fig 1.6 explains about the major foreign investors to Indonesia.
1.8 RETAILING
Retail is the sale of goods and services from individuals or businesses to the
end-user. Retailers are a part of an integrated system called the supply chain. A
retailer purchases goods or products in large quantities from manufacturers directly
or through a wholesale, and then sells smaller quantities to the consumer for a profit.
Retailing includes subordinated services, such as delivery. The term "retailer"
is also applied where a service provider services the needs of a large number of
individuals, such as for the public.
Retailing is a commercial transaction in which a buyer intends to consume
the good or service through personal, family, or household use.
1.9 EVOLUTION OF INDIAN RETAIL
Retailing is one of the biggest sectors and it is witnessing revolution in India.
The new entrant in retailing in India signifies the beginning of retail revolution.
30
India's retail market has grown tremendously in the past few years According to AT
Kearney, The Windows of Opportunity shows that Retailing in India was at opening
stage in 1995 and now it peaked in 2006. The origins of retailing in India can be
traced back to the emergence of Kirana stores and mom-and-pop stores. These stores
used to cater to the local people. Eventually the government supported the rural
retail and many indigenous franchise stores came up with the help of Khadi &
Village Industries Commission. The economy began to open up in the 1980s
resulting in the change of retailing. The first few companies to come up with retail
chains were in textile sector, for example, Bombay Dyeing, S Kumar's, Raymond’s,
etc. Later Titan launched retail showrooms in the organized retail sector. With the
passage of time new entrants moved on from manufacturing to pure retailing.
Until the 1990s, regulations prevented innovation and entrepreneurship in
Indian retailing. Some retails faced complying with over thirty regulations such as
"signboard licenses" and "anti-hoarding measures" before they could open doors or
new outlets. There were taxes for moving goods to states, from states, and even
within states in some cases. Farmers and producers had to go through middlemen to
make their products available to consumers. The logistics, transportation facilities
and infrastructure was very poor, with losses to the producers exceeding 30 per cent.
Through the 1990s, the Indian government introduced widespread free market
reforms, including some related to retail. Since then there has been widespread
changes in the way Indian consumers shop. Between 2000 to now, consumers in
select Indian cities have gradually begun to experience the quality, choice,
convenience and benefits of organized retail industry.
The size of Indian retail market in 2010 was estimated at US$ 353 billion and
by 2014, it is expected to increase up to US$ 543 billion. Further, the estimated
value of current size of Indian retail market is about 500 billion USD and by 2020 its
31
value is pegged to be at 1.3 trillion USD. Over 20 per cent of India's gross domestic
product (GDP) is contributed by retail sector and in total employment it contributes
eight percent. India is Home to one of the top five retail markets in the world and in
retail, India offers immense scope of growth and opportunities. According to A T
Kearney’s Global Retail Development Index (GRDI) 2013, the global slowdown has
impacted India’s growth also and as a result India’s growth rate fell from a 10 year
average of 7.8 percent to 5 percent and in GRDI ranking India slipped to 14th.
India’s previous low ranking was 6th place in the inaugural Index in 2002 but in
2009 it stood first. However the GRDI report points out some positive factors
leading to optimistic expectations. These factors are: strong long-term fundamentals
and young increasingly brand and fashion conscious population. The report projects
14 to 15 percent growth per year in retail sector through 2015 and due to more
urbanization and more potential new investment by retailers, expects a higher
proportion of modern retail which is 7 percent in 2012.
Table 1.8: Share of Retail Trade in Gross Domestic Product (G.D.P)
Year % age share of Retail Sector
2007 8%
2009 12%
2011 22%
Source: AT Kearney
The above table 1.8 explains about the share of retail trade towards country’s GDP.
32
Fig1.7: Retail market size in India
Source: IBEF
Fig 1.7 explains the market size of Indian retail industry. The total market size was
US$ 490 billion in 2013, registering a CAGR of 6.1 per cent since 1998.
1.10 TYPES OF RETAILING
The total retail sector in India can be divided into organized and
unorganized sectors. The trading activities undertaken by licensed retailers are
categorized as organized retailing. Licensed retailers are those who are registered for
sales tax, income tax, etc. These include the corporate backed hyper markets and
retail chains, and also the privately owned large retail businesses. Unorganized retail
or traditional retail on the other hand, include a large number of small retailers that
consists of local kirana shops, owner manned general stores, chemists, footwear
33
shops, apparel shops, paan and beedi (local betel leaf and tobacco) shops, hand cart
hawkers, pavement vendors, etc.
Table 1.9: Share of Organized Retail Sector in Total Retail Trade
Year % age share of Organized Retail Sector Source
2005 3.5% AT Kearney
2008 5% MC - Kinsey & Company
2010 8% AT Kearney
2013 10% AT Kearney
The table 1.9 explains about the share of organized retail sector in the retail sector.
1.11 TYPES OF RETAILERS:
There are 7 main types of retailers which can be defined by the size of their
business and the way they in which they sell their products.
1.11.1 DEPARTMENT STORE
This type of retailer is often the most complex offering a wide range of
products and can appear as a collection of smaller retail stores managed by one
company. The department store retailers offer products at various pricing levels.
This type of retailer adds high levels of customer service by adding convenience
enabling a large variety of products to be purchased from one retailer.
1.11.2 SUPERMARKETS
Generally this type of retailer concentrates in supplying a range of food and
beverage products. However many have now diversified and supply products from
the home, fashion and electrical products markets too. Supermarkets have significant
buying power and therefore often retail goods at low prices.
34
1.11.3 WAREHOUSE RETAILERS
This type of retailer is usually situated in retail or Business Park and where
premises rents are lower. This enables this type of retailer to stock, display and retail
a large variety of good at very competitive prices.
1.11.4 SPECIALITY RETAILERS
Specializing in specific industries or products, this type of retailer is able to
offer the customer expert knowledge and a high level of service. They also add
value by offering accessories and additional related products at the same outlet.
1.11.5 E-TAILER
This type of retailer enables customers to shop on-line via the internet and
buy products which are then delivered. This type of retailer is highly convenient and
is able to supply a wider geographic customer base. E-tailers often have lower rent
and overheads so offer very competitive pricing.
1.11.6 CONVENIENCE RETAILER:
Usually located in residential areas this type of retailer offers a limited range
of products at premium prices due to the added value of convenience.
1.11.7 DISCOUNT RETAILER:
This type of retailer offers a variety of discounted products. They offer low
prices on less fashionable branded products from a range of suppliers by reselling
end of line and returned goods at discounted prices.
1.12 MAJOR RETAILERS IN INDIA:
Some of the major retailers in India are as follows:
a. REI AGRO LTD Retail: 6TEN and 6TEN Kirana stores
35
b. Future Groups-Formats: Big Bazaar, Food Bazaar, Pantaloons, Central,
Fashion Station, Brand Factory, Depot, All, E-Zone etc.
c. Raymond Ltd.: Textiles, The Raymond Shop, Park Avenue, Park Avenue
Woman, Parx, Colourplus, Neck Ties & More, Shirts & More etc.
d. Fabindia: Textiles, Home furnishings, handloom apparel, Jewellery
e. RP-Sanjiv Goenka Group Retail-Formats: Spencer’s Hyper, Spencer’s
Daily, Music World, Au Bon Pain (Internaional bakery cafeteria), Beverly
Hills Polo Club
f. The Tata Group-Formats: Westside, Star India Bazaar, Steeljunction,
Landmark, Titan Industries with World of Titans showrooms, Tanishq
Outlets, Croma.
g. Reliance Retail-Formats: Reliance MART, Reliance SUPER, Reliance
FRESH, Reliance Footprint, Reliance Living, Reliance Digital, Reliance
Jewellery, Reliance Trends, Reliance Autozone, iStore
h. Reliance ADAG Retail-Format: Reliance World
i. K Raheja Corp Group-Formats: Shoppers Stop, Crossword, Hyper City,
Inorbit Mall
j. Nilgiri’s-Formats: Nilgiris’ Supermarket chain
k. Marks & Spencer: Clothing, Lifestyle products, etc.
l. Lifestyle International-Lifestyle, Home Centre, Max, Fun City and
International Franchise brand stores.
m. Pyramid Retail-Formats: Pyramid Megastore, TruMart
n. Next retail India Ltd (Consumer Electronics
o. Vivek Limited Retail Formats: Viveks, Jainsons, Viveks Service Centre,
Viveks Safe Deposit Lockers
p. PGC Retail -T-Mart India, Switcher , Respect India ,Grand India Bazaar
,etc.,
36
q. Subhiksha-Formats: Subhiksha supermarket pharmacy and telecom
discount chain.
r. Trinethra- Formats: Fabmall supermarket chain and Fabcity hypermarket
chain
s. Vishal Retail Group-Formats: Vishal Mega Mart
t. BPCL-Formats: In & Out
u. German Metro Cash & Carry
v. Shoprite Holdings-Formats: Shoprite Hyper
w. Paritala stores bazar: honey shine stores
x. Aditya Birla Group – “More” Outlets
y. Kapas- Cotton garment outlets
z. Nmart Retails
1.13 GROWTH OF ORGANIZED RETAIL SECTOR:
Fig 1.8: Indian Retail market share and Indian Retail Market Segment
Source: IBEF
37
The above fig 1.8 explains the Indian retail market share and the market segments in
retail sector.
Fig 1.9: Investment options in organized retail India
Source: IBEF
The above fig 1.9 explains that Real estate's retail component is an attractive
opportunity, which is currently attracting 29 per cent of total investment in real
estate.
38
Fig 1.10: Mall space breakup in India
Source: IBEF
The fig1.10 explains the space break up in mall. Hypermarkets would be the largest
retail segment, accounting for 21 per cent of total retail space by 2013-14.
Fig 1.11: Indian retail industry break-up by revenues
Source: IBEF
39
The Fig 1.11 explains the revenue break up from each market. In 2013, food &
grocery accounted for nearly 69 per cent of total revenues in the retail sector, followed by
apparel (8 per cent).
1.14 KEY DRIVERS OF THE INDIAN RETAIL INDUSTRY
The Indian retail industry has seen tremendous growth in the past ten years.
The growth has been so phenomenal that many big players in India (like Tata group,
Reliance and Mahindra) have entered this segment. This kind of growth is mainly
attributed to the increase in the buying power of the end consumer who now have
more expendable money at their disposal. India has seen emergence of nuclear
family structure (deviating from the traditional joint family structure) with increase
in double-income in the households. People have now exposure to foreign trends
and many travel frequently to other developed countries. With the Government
policies also encouraging women to contribute to the development of the country
during the 80s and 90s, India has seen significant raise in the working population.
Hence the demand as well as expenditure on luxury items has seen an unprecedented
increase. Many of the current youth are brand conscious and are willing to spend
more on imported branded goods. Supporting the trend, the Government policies
have also been inclined towards globalization and Indian has slowly opened its
doors to foreign companies for investment and to set up factories. The real estate has
also benefited with the advent of foreign companies setting up factories in India with
Government allocating SEZs for such purposes where both local people and the
investing companies have benefitted. This has led to settlements of people and
urbanization of many cities and towns at an accelerated pace.
40
1.15 BOTTLENECKS
The above contributing factors being said, it is also to be noted that India is
not fully prepared for the investment by foreign companies. The main problem areas
have been lack of efficient supply-chain management system, shortage of trained
manpower and lack of proper storage infrastructure. Due these factors India is still a
long way in meeting international standards. The Government hopes that
encouraging FDI will slowly and steadily improve and plug the gaps in our retailing
system. In the long term it is expected that both people and the foreign companies
will benefit.
1.16 CHAPTERISATION:
Chapter I deals with the introduction to Foreign Direct Investment (FDI),
FDI in China and Indonesia and about the retailing sector.
Chapter II deals with the literature review collected on FDI, FDI in other
countries, Retailing, FDI in retail and review from other similar studies.
Chapter III is about the background history of FDI in Retail sector in India
by giving brief explanation about single brand and multi brand retailing, scenarios
from consumer, small medium and large scale industries and consumers. An
overview about FDI in retail sector in Tamil Nadu is also discussed with a case
study.
Chapter IV explains the statement of problem, objective of this study, the
research design, sample design and the sampling techniques used to carry out the
study with a detailed explanation.
Chapter V focuses on about the data analysis and interpretation for the
collected data using various statistical techniques.
41
Chapter VI deals with the findings of the data and the conclusions to be
drawn based on it.
42
CHAPTER II
LITERATURE REVIEW
2.1 INTRODUCTION
A literature review is an evaluative report of information found in the
literature related to the selected area of study. The review should describe, summarize,
evaluate and clarify this literature. It should give a theoretical base for the research.
Literature reviewed typically includes scholarly journals, scholarly books,
authoritative databases and primary sources. Sometimes it includes newspapers,
magazines, other books, films, and audio and video tapes, and other secondary
sources.
a. Primary sources are the origin of information under study, fundamental
documents relating to a particular subject or idea. Often they are first-hand
accounts written by a witness or researcher at the time of an event or
discovery. These may be accessible as physical publications, as
publications in electronic databases, or on the Internet.
b. Secondary sources are documents or recordings that relate to or discuss
information originally presented elsewhere. These, too, may be accessible
as physical objects or electronically in databases or on the Internet.
2.2 BASIS OF THE PRESENT REVIEW
The FDI in retail is creating quite a stir across the various sections of the
society. Though an investment from a foreign country will help to develop the growth
43
of the economy, unless a proper analysis is done a complete picture cannot be framed.
So this present review is an attempt to synthesize the previous work done by others
on foreign direct investment in retail to enhance the study in a prospective way by
classifying it in broader categories.
It is beyond the scope of the thesis to descriptively report all the papers listed
under various categories. An attempt is made to portray the entire literature in a
condensed frame work.
2.3 FOREIGN DIRECT INVESTMENT (FDI)
Kamlesh Gakhar (2006) explained about the FDI policies from 1947 to 2007
covering the basic understanding about the introduction of foreign direct investment
in India. He has explained about the how the FDI was initiated in the year 1991 by
then finance minister Dr. Manmohan Singh and about the foreign equity partition
allowance up to 51% in high priority areas. The book studies the various aspects of
how the investing party retained the control over the investment and the various forms
of FDI which are equity capital, technical and managerial services, capital equipment
and intermediate inputs and legal rights to patented or secret products, processes or
trademark. He studied that developing countries liberalized their foreign investment
regimes and seek FDI not only as a source of capital funds and foreign exchange but
also as a dynamic and efficient vehicle to secure much needed industrial technology,
managerial expertise, marketing know-how and networks to improve on growth,
employment, productivity and export performance.
Park Jongsoo, (2004), in his article has found out that there are two principal
deterrents to FDI investment in India that is bureaucracy and slowing pace of reforms.
He has studied this flow of FDI in India through industrial cluster: with special
reference to Hyundai Motors. He has mentioned that there is change in outlook of
44
Government attitude towards FDI post 1991 and also the growth of India has increased
by means of joint ventures and Greenfield investments.
Bose Kanti Tarun, (2012), in his article has compared India and China with its
strengths such as cheap labour, huge markets, literacy, resource by taking the case of
two major companies: Wal-Mart operations in China and Hyundai operations in India.
He states that both China and India has been a hotspot for foreign investment because
of the availability of all form of resources.
Chakraborty Chandana and Basu Parantap, (2002), in their study has explained
about two way link between FDI by using the Indian sample from period 1974 to 1996
and found that there is long run relationship existing between FDI and GDP which is
unit labour cost and import duty in total tax revenue.
Dr. S N Babar and Dr. B V Khandare, (2012) in their article focused mainly
about the structure and direction of India’s FDI during globalization period. An
analysis is been made on the benefits of FDI towards economic growth. The sectoral
wise analysis was studied till 2010 and India accounted 2,525 millions of US Dollars
in 1996 to 34,613 million of US Dollars in 2009.
2.4 FDI OF OTHER COUNTRIES
Ralph Paprzycki & Kyoji Fukao (2008) in his book have explored about the
how FDI helped Japan, an island nation to acquire opportunities with the help of
access to the world markets. They explained how the exports helped them to raise the
economy in 1990’s as the Japanese firms actively invested overseas including real
estates and movie studios in the United States and setting up their production facilities
in United States, and Europe. They further added that the early postwar period faced
informal obstacles that limited the presence of foreign firms in the Japanese market
and slowly important sectors such as finance and telecommunications have been
45
deregulated and measures to facilitate mergers and corporate reassurance introduced.
Mergers and acquisitions previously unheard in Japan, have become almost common
place and the lifetime employment system, another pillar of Japan Inc has been
seriously undermined by mass layoffs. They have mentioned some prominent cases
which include acquisition of controlling stake in Nissan by French carmaker Renault,
the acquisition of Japan Telcom first by British Telecom and AT&T and then
Vodafone and sale of failed long term credit bank to foreign investors.
Edward M.Graham, Paul R.Krugman (Third Edition 1995) in their book
stated clearly about how the role of foreign firms in the US economy grew rapidly
between the late 1970’s and early 1990’s and the shares of US assets, employment
and production accounted for by US affiliation of foreign investors increased by a
factor of between three and five. They explained that the growing foreign presence in
the United States made an alarming ring as they worried the foreign firms would
behave differently from domestic ones in ways that reduced employment inhibited
technological progress in America.
Yanrui Wu (1999) from University of Western Australia, explained in his
book about the introduction of Foreign Direct Investment (FDI) in China which grew
from zero in 1978 to over USD 45 billion in 1997. He stated that China allowed FDI
in two models – Foreign sole ownership and Joint ventures. The factors he think that
made China attractive for FDI to US and European countries are: market power,
internalization, international competitiveness, production cycle model, abundance of
cheap and well-educated labour, economic reforms and open door policy. He added
that China’s investment policy was biased towards south-east coastal regions (Hong
Kong and Macau) and the main role of FDI has been its direct involvement in current
production in the foreign investor firms which helped the domestic industries to
restructure and reorganize capital and labour, bring new ways of management,
46
improve the quality of existing products and extend the export markets. The domestic
firms were allowed either to follow or imitate the foreign investor firms.
Borensztein et al., (1998) in his paper studied that the effect of FDI on
economic growth is mainly dependent on the human capital available in the host
country and FDI is a vehicle for the adoption of new technologies. FDI would result
from a combination of advanced management skills and more modern technology;
FDI may be the main channel through which advanced technology is transferred to
developing countries in a framework of cross- country regressions for 69 developing
countries over the last decade.
Campos and Kinoshita (2002) investigated that there is no empirical
evidence to test positive relationship between impacts of FDI with economic growth
in the host country. The effects of FDI on 25 transitional economies of the former
Soviet Bloc transition between 1990 and 1998 was studied and found that FDI is a
significant factor in economic growth.
Nyatepe-Coo (1998) also conducted a similar study on relationship between
the contributions of FDI to economic growth during the period 1963 to 1992 in
Southeast Asia, Latin America and Sub-Saharan Africa following the work of
Borensztein et al., (1998).
Wang (2002) in his study conducted similar study on FDI inflows and
economic growth by using data from 12 Asian economies over the period of 1987-
1997 and found that total FDI inflows in manufacturing sectors significantly affects
the economic growth.
47
2.5 RETAIL MANAGEMENT
Dr. Swapna Pradhan (2009) has given a brief introduction about the concept
of merchandising in this book. The key points she has mentioned in this book are as
follows: the process of merchandising starts with a strategy of what to be produced,
the sources, pricing strategy, the terms and condition and method of packaging and
presentation to the end consumer and the merchandise plan play an important role
where the key factors are Planned Sales, Planned Purchases, Reductions, Markdowns,
Discounts, Shrinkage, Planned Mark-up, Gross Margin. The decision on whether to
make or buy the product becomes the first decision in sourcing. The two factors
involved in sourcing are cost and the availability of production capacity. The
evolution of the concept of category management is closely linked to the
developments in the field of supply chain management and technology. The whole
process is aimed at providing customer satisfaction and at the same time maximizing
returns for the organization.
K.Vijaya Chitra (2009) explains in her book that Retail business is the largest
private industry contributing around 9 percentage of GDP in the west. In developed
countries, retail business houses have share as large as 40 percentage of the market.
Indian retail industry contributes around 10-11 percentage of GDP to the country and
has largest number of retailers, about 12 million, though they are mostly small. The
basics of retail marketing concepts like the retail store types, branding, sales
promotion, supply chain management, international retailing are explained in detail.
Aggarwal (2007) in his book has highlighted the various important factors
which will help in the emergence of organized retailing in India and their effect on
the economy. He has mentioned that Employment generation, Growth of real estate,
Increase in disposable income and Development of retail ancillary market are some
of the various catalytic effects on Indian economy.
48
Gibson G. Vedamani (2004) in the book has explored about the retail industry
in India where scenario is unique. The book emphasize about the changing trends in
retail industry. Because of the increase in number of nuclear families with working
women, the work pressure is higher and commuting time, convenience has become a
priority for Indian consumers. Over the years, international brands like Marks &
Spencer, Samsonite, McDonald’s, and Domino’s have come into India through the
Franchise route following the relaxation of FDI restrictions. Buying behaviour and
lifestyle in India too are changing and the concept of “Value for Money” is fast
catching up in Indian retailing. This is evident from the expansion of the Pantaloons
chain into a large value format, Big Bazaar and the entry of new discount stores in
food retailing in the south namely Subhiksha and Margin Free.
Barry Berman and Joel R Evans (2007) explained about the concept of
strategic planning in retailing that provides an overview on the impact of Retailing on
the economy .They stated that retailing is a major part of U.S. and world commerce.
According to them Retail sales and employment are vital economic contributors and
retail trends often mirror trends in a nation‘s overall economy. Retailing according to
them can be viewed in multiple perspectives like tangible and intangible items.
Retailers are viewed at two capacities, one as a part of distribution channel to
consumer and other one as customer to supplier. The main focus of this study is to
interpret a strategic planning with retail format to adapt to changing environment.
Hino (2010) in his paper has dealt with the diffusion, adoption and usage of
supermarket formats over the traditional retail formats based on Muslim-Arab
customers. He has explained in his study with the help of hypothesis of how the
emergence of super markets will lead to decrease in market share of traditional
formats.
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Nair Suja (2008) in her book has explained the growth of retailing in Indian
context with respect to factors like new economic policy, global economic
development, changes in the marketing and economic system as well as changing
pattern and classification of economic activity. There is a significant effect of
liberalization and privatization policies on development of retail format which is
based on the basic 4 tier component i.e. consumer behaviour, trade structure, retailer-
distributer-manufacturer relationship and the competition. According to her, the
profile of today‘s customer can be easily described as an affluent one with a higher
and most disposable income, frequent visits & makes a longer and investment and
time to explore a detailed shopping experience. However the consumers have also
revealed a willingness to pay a premium provided they are offered better service
quality at a retail counter. In addition to these, modern consumers will also appreciate
additional facilities such as ATM, parking and in-store attendance.
Mishra (2007) on her article has studied that organizational retail has started
gaining popularity among consumers which can change the way of consumer
behaviour towards traditional formats. A survey was conducted to know about the
consumer behaviour towards both the formats and the consumers prefer shopping
malls and other organized retail format over traditional format due to convenience and
variety of choices.
Goyal and Aggarwal (2009) in their article, has analyzed the growing changes
in the retail sector and about the consumer purchasing behaviour in organized retail
formats. They have studied that most of the consumers visit the shops for happiness
and to deprive their depression and hence these kinds of organized retail formats helps
them to have a casual shopping with variety of choices or to do window shopping just
for fun.
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2.6 FDI IN RETAIL
Pulkit Agarwal (2011), an advocate in his article has presented a detailed
study on foreign direct investment in retail sector where it explains why India being a
signatory to World Trade Organization’s General Agreement on Trade in Services,
which include wholesale and retailing services, had to open up the retail sector to
foreign investment. He analyzed that there were initial reservations towards opening
up of retail sector arising from fear of job losses, procurement from international
market, competition and loss of entrepreneurial opportunities. However, the
government in a series of moves has opened up the retail sector slowly to Foreign
Direct Investment (“FDI”). In 1997, FDI in cash and carry (wholesale) with 100
percent ownership was allowed under the Government approval route. FDI was
brought under the automatic route in 2006 and after that the 51 percent investment in
a single brand retail outlet permitted in 2006.
Hindustan Times (2011) published an article which emphasized on the
introduction to the basic concept of FDI in retail which includes the following key
points, FDI is the economic reform where the policy for multibrand is 51 percent and
single brand is 100 percent. This policy does not require approval from the Parliament
but in turn require approval from the respective states. The Government as a safety
measure has put forth condition that 30 percent of the raw materials must be sourced
from Indian market. There was a Citi report also that says about $15-20 billion in FDI
could flow into the country over the next 10 years as a result of FDI in multi-brand
retail. The report also says the move would help enhance the share of organized
players in the overall retail sector, which currently account for about six percentage
of India's $470-billion retail market. It would develop the organized retail sector
which accounts about 6 percentage of India’s 470 billion retail market.
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Mathew Thomas (2012) published an article in money life economy about
how FDI will affect the common man. He has stated that FDI is welcomed by the
Government as it will provide more revenue and employment to farmers. But the
Parliament Committee has provided report that there are chances of monopoly,
predatory pricing and attendant consequences. The Committee found that unorganized
retail provides livelihoods for 40 million people, that is, for about 8 percentage of the
country’s workforce. Referring to the projection of FDI in retail creating 2 million
jobs, the Committee said that this was exaggerated and that this ignores 200 million
people who depended on retail trade for a living. The Committee was not only critical
of FDI in retail, but also of any large corporate in retail business. The Committee drew
a dismal picture of the effect of FDI in retail on the “Mango Man”. But the
Government relied on the report provided by ICRIER (Indian Council for Research
on International Economic Relations), which carried out two studies, one in 2008 and
the other in 2011. So does the Government by ignoring the Parliament committee
report rather than relying on small survey of 300 samples hitting the Mango man with
FDI?
Gautam Chikermane (2011) published an article in Hindustan times where
he has mentioned that FDI has three promises for the rest of us - farmers will get
higher prices for their produce, consumers will pay lower prices to buy those products,
and workers will benefit from more jobs. But in reality if we take farmers, are they
are getting paid properly? No. Already the existing organized retail sector pays less
to the farmers by taking them for advantage. Similarly FDI will create 10 million jobs,
but there is no clarity on what kind of jobs they will be providing to the farmers or
people associated with it. On the non-agricultural front, the argument is the entry of
Wal-Mart or a Carrefour will create more businesses and hence jobs. So he has put
forth two questions: One, how will the government ensure that sourcing is done from
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small and medium enterprises (SMEs)? And two, how will it ensure that the SMEs
are not a front for a larger enterprise?
India Info line News Service (2012) published an article where it has
mentioned that Government had instituted a study, on the subject of “Impact of
Organized Retailing on the Unorganized Sector”, through the Indian Council for
Research on International Economic Relations (ICRIER), which was submitted to
Government in 2008. Based on the study it is sure that the FDI will lead to better
markets, innovative technologies, and exposure to global markets. The idea of 30
percentage of raw materials to be outsourced from the small and medium industries
will increase the revenue. It is likely to create more employment opportunities for the
youth and better remuneration to the producers and farmers.
Deepshikha Sikarwar (2013) in Economic Times published an article where
the main key points regarding single brand retail are, the Government plans to
liberalize the policies for the single brand retail to encourage foreign investors invest
in it. The finance ministry has asked the Department of Industrial Policy and
Promotion (DIPP) to amend the policy to allow single-brand retailers to bring
different brands belonging to the same product line under one company. The Foreign
Investment Promotion Board, or FIPB, the inter-ministerial body that approves FDI
proposals in the country, has received 63 proposals from single-brand retailers after
FDI was allowed in the sector. While the rush of applications clearly signals the
interest of foreign investors in the sector, most retailers want the policy to clearly
allow them to sell their different brands in the same store. Several retailers such as
Gap and Louis Vuitton own multiple brands under a single company or investment
group. Gap Inc owns the Old Navy, Banana Republic, Piperlime and Athleta apparel
brands besides the flagship Gap brand. Similarly, Louis Vuitton owns Fendi, and
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Labelux owns Jimmy Choo and Belle. The government raised the FDI limit in single-
brand retail to 100 percentage in January 2012.
Mr P. Chengal Reddy, Secretary General, Consortium of Indian Farmers
association has expressed his views under the title FDI in Retail – the Indian Farmer’s
Perspective, where he states that Indian agriculture lacks in proper storage, investment
and technology, low price realization, appropriation by middlemen and wastage up to
30-40 percentage. FDI will help the market to reach the global level. It helps to have
uniformity in prices, superior back end infrastructure, enhanced branding and
integration of multiple Government policies and regulations. The fear of jobless are
unfounded as FDI is allowed only in larger cities and gain currency from upper class.
Indian Merchant Chambers on December 2011 had a debate on FDI in Retail
sector - Pros and cons from which the common view are as follows: India is one fastest
growing retail sector in the world which contributes around 14%-15% of GDP to the
economy. It contributes around 40 million employment opportunities in India. The
Indian retail market is estimated to be US$ 450 billion. Since India is a diversified
country, the culture and tradition are different from each and every state. Hence, the
retail sector has to cater the needs as required from each customer. It has a wide
geographic wide spread and area in India. India has highest number of outlets per
person (7 per thousand) Indian retail space per capita at 2 sq. ft. (0.19 m2)/ person is
lowest in the world Indian retail density of 6 percent is highest in the world. 1.8
million Households in India have an annual income of over INR45 lakh
(US$82,350.00).
Dr. M. Selvakumar and G. Ramesh (2012) published an article in Business
and Economic Facts for you. The main key points discussed by them were India is the
tenth most industrialized country in the world. Seventy percent of the population is
engaged in farm sector. Retailer is a person between a producer and the individual
54
consumer buying for personal consumption. It excludes interface between
manufacturer, government and bulk customers. In 2011, Indian retail market
generated sales of about USD 470 billion of which USD 27 billion came from the
organized retail sector such as the supermarkets, chain stores with centralized
operations and shopping malls. In 1997 FDI in Cash-and-Carry business was allowed.
The sectors which attracted FDI most are telecommunication, construction activities
and computer software & hardware. FDI will help to improve the supply chain, reduce
food inflation, remunerate prices for farmers and improve employment opportunities.
But the negative effects of FDI could be that small retailers might be wiped out, may
lead to monopoly or oligopoly of investors, job losses.
In Money Control (2012) an article was published, where it has stated that
India's foreign direct investment (FDI) inflows grew by over 65 per cent year-on-year
to USD 1.94 billion in October, according to the Department of Industrial Policy and
Promotion (DIPP). In October 2011, the country had attracted FDI worth USD 1.16
billion. For the April-October period of this fiscal, however, FDI inflows have
declined by about 27 per cent to USD 14.78 billion, from USD 20.29 billion in the
year-ago period as overseas investment inflows were small in the initial months.
Sectors which received large FDI inflows in September include services (USD 3.6
billion), hotel and tourism (USD 3.11 billion), metallurgical (USD 1.21 billion),
construction (USD 691 million) and automobile (USD 743 million). For the first
seven months of the fiscal, India received maximum FDI from Mauritius (USD 6.75
billion), Japan (USD 1.52 billion), Singapore (USD 1.24 billion) the Netherlands
(USD 1.05 billion) and the UK (USD 611 million), the DIPP said. The October figure
is lower than the previous month when the country received highest FDI for a month
in this fiscal.
55
The Economic Times (2013) published an article where it has mentioned that
a France based hypermarket retail chain Auchan is investing in India to open around
60 stores in the country. At present, Auchan has 13 hypermarkets in India operating
under a franchise agreement with Max Hypermarket India. As per the regulations,
foreign retailers planning to enter the multi-brand segment would have to invest a
minimum of $ 100 million, with 50 per cent of it in the back-end infrastructure.
Dr. Ashish Chatterjee (2012) from Noida presented an article where he has
stated alternative ways to protect farmers from FDI in retail- Collective marketing
where group of farmers agree to work together over an extended period of time on
critical aspects across the value chain to market their produce profitably and by
development of Haat (Weekly Market – the rural mall) where about 60% of the farm
produce does not enter the commercial stream. The government owned haats help the
farmers to share the information and their products and goods. It helps to reduce
overhead costs due to the exclusion of middlemen. The transactions are through cash.
A.Noorul Ameen (2012) in his article has expressed the following views that
Government and RBI must lend suitable policies that will enable organized and un-
organized sectors to expand and improve efficiencies. A national commission must
be established and a proper conditionalities on giant foreign retailers must be framed.
The Government must set up co-operative stores to protect the local and small
producers and an Agricultural Perishable Produce Commission must be established.
V. Kamal Nasir and M. Suhail Sinnalebbe (Feb 2012) have explained that
even though Wal-Mart will give a better deal to the farmers as middlemen and agents
will be eliminated, it will lead to monopoly and oligopoly conditions in the market.
The farmers will be dictated by Wal-Mart as it will be the only major purchaser of the
produce. Similarly, consumers will also have to pay the price fixed by them. Policy
makers should focus on farmers rather than seeds and fertilizer corporations.
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Government should set up a commission with statutory powers that take decisions on
issues such as agricultural pricing policy and cropping pattern.
J. Starlin Georgina (Feb 2012) in her article discussed the following points:
Players need to increase their investments in retail ancillaries and retail logistics to
ensure sustained benefits. In recent times the consumer are showing greater
confidence and in a due response the retail players in the market are veering towards
aggressive expansion plan. These developments are clearly signaling an affluent time
for retail sector.
Singh Kr. Arun and Agarwal P.K., (2012) in their article has explained the
various concepts like organized and Un- organized retailing, single and multi-brand
retailing. He states that the opening up of retail to FDI should be designed in a such
as way that many sectors - including agriculture, food processing, manufacturing,
packaging and logistics must reap benefits. By looking at FDI investments in other
countries they state that inflation will be definitely reduced and scale of operation and
technology will help organized retailers to provide products at low cost.
Dr. Mamata Jain and Mrs. Meenal Lodhana Sukhlecha, (2012), studies about
the retail sector in general and what is the need of FDI in retailing by means of various
arguments for and against the same. A comparison with China is also made with
respect to retail sector.
Dr. Arpita Mukherjee, Nitisha Patel, published an article in Academic
Foundation in association with The Indian Council for Research on International
Economic Relations (ICRIER) where a survey was conducted and study was analyzed
that the current retail marketplace in India is investigating current and projected
growth across different segments of retail and evaluating the impact of allowing
foreign-direct investment (FDI), which is currently not allowed in India. India's retail
57
sector is positioned to transform from mostly small, family-owned businesses to large-
scale chain retail, and many international brands are investigating how to enter India's
retail market. The study of the structural, regulatory, fiscal and other barriers affecting
the performance of retail trade suggests reforms for the removal of such barriers and
provides a timeframe in which the Indian government can open its retail sector to FDI
and the conditions that may be imposed on foreign retailers if FDI is allowed.
The CII Survey conducted during December 2011 January 2012 on the
impact of FDI on SMEs is based on a large sample size of 250 companies covering
different categories of SMEs according to sales turnover including SMEs with a
turnover of Rs.25 lakhs to 1 crores, between Rs. 1 crore to Rs 5 crore, Rs 5 crore to
25 crore and SMEs having turnover between Rs 25 crore and 100 crore and above,
from different regions of the country. The survey has turned out to be a positive view
as the majority of the respondents feels FDI will improve their growth and revenue.
Mathew Joseph and Nirupama Soundararajan (2010) published an article in
Academic Foundation in association with The Indian Council for Research on
International Economic Relations (ICRIER) in which a study was conducted and it
has been analyzed that that both traditional and organized retail can not only coexist
but also achieve rapid and sustained growth in the coming years. The findings of this
study are based on the largest ever survey of various stakeholders and an extensive
review of international experience, particularly emerging countries of relevance to
India. There has been competitive response from traditional retailers through
improved business practices and technology up gradation. Consumers and farmers
gain considerably from the entry of organized retail. The organized retail sector is
capable of taking care of itself, but public policy needs to help create a level playing
field for traditional retailers. Based on the results of the surveys, the authors have
made a number of specific policy recommendations for regulating the interaction of
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large retailers with small suppliers and for strengthening the competitive response of
the traditional retailers.
2.7 REVIEW FROM SIMILAR OTHER RESEARCH STUDIES
Naganathan Venkatesh, a research scholar from NITTTR in his article Indian
Retail Industries Market Analysis: Issues, Challenges and its Opportunity for the 21st
Century has mentioned about the below reviews:
Das (2000) revealed that the Indian situation is rather paradoxical. At $180
billion, the Indian retail business contributes 10-12 percent of the GDP higher than
the some western economies, where it averages 8 percent. It revealed that India have
the world’s thickest density of outlets at 5.5 percent for every 1000 people between
12 million retail stores, India’s per capita retail space is dismissal 2 square feet per
person.
Poviah and Shirali (2001) were of the viewpoint that shopping malls are
classic self service 4000- 20000 square feet. Stores with shopping carts, as
popularized in India by crazy boys film, with typical focus on regular groceries,
household goods and personal care products. Tesco and Nilgris. India is namely a
groceries market and here, shopping malls have not been able to eat into the business
of kirana shops. While the housewife might pick up her shampoo at a shopping mall,
she continues to use her local cart pusher for daily needs such as fresh vegetables. In
fact, so far organized Indian retailing has enveloped only the middle section (self-
esteem, social recognition) of Maslow’s pyramid.
Malliswari, M. (2007) indicated that Indian consumer is now sowing the
seeds for an exciting retail transformation that he already started bringing in larger
interest from international brands/ formats. With the advent of these players, the race
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is on to please the Indian customer and it’s time for the Indian customer sits back and
enjoys the hospitality to be integrated like a king.
Paromita Goswami (2007) conducted a study on how college students in
urban areas shopped for apparels. The factors investigated for the study were brand
conscious and needed variety and best quality for their apparel purchase. Furthermore,
parents influence their purchase behavior the most, followed by peer store approval,
friends’ influence and peer product influence.
Dr. Biradar et.al. (2008) in their article pointed out that the organized retail
sector is registering tremendous growth fuelled by the unleashed spending power of
new age customers who have considerable disposable income and willingness to have
new shopping experience. It is emphasized that India’s top retailers are largely
lifestyle, clothing and apparel stores followed by grocery stores. The paper further
mentions that increasing number of nuclear families, workingwomen, greater work
pressure and increased commuting time; convenience has become a priority for Indian
consumers. All these aspects offer an excellent business opportunity for organized
retailers in the country.
S. Koktanur (2010), tried to find out the various factors driving customers
towards shopping malls and consumer buying response for promotional tools. They
found four major factors that drive the customers towards the shopping malls. Those
factors are product mix, ambience, services and promotional strategies. Customers
consider fast billing, parking facility and long hours of operations as prime services.
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2.8 RESEARCH GAP IDENTIFICATION
2.8.1 OBSERVATIONS
The above literature reviews gives a clear picture about Foreign Direct
Investment in retail, Single brand retailing and Multi brand retailing. The authors had
expressed their views and opinions on the same by analyzing the concepts. Some of
the major observations from the literature review are
Consumers will be on advantage due to variety of Indian and international
brand choices, low prices of goods, shopping at one roof which will save their time
and money. The location size is ideal for perfect retail market space.
a. Farmers are to be protected by implementing haat system, collective
marketing.
b. CII survey states that small medium industries wants FDI to enter in retail
sector due to 30 percent source of raw materials from them.
c. The introduction of FDI in retail must help to develop manufacturing,
logistics, infrastructure, agriculture and food processing simultaneously.
d. FDI will help to improve the supply chain, reduce food inflation,
remunerate prices for farmers and improve employment opportunities.
e. But the negative effects of FDI are: small retailers might be wiped out,
may lead to monopoly or oligopoly of investors, and job losses.
2.8.2 RESEARCH GAP
All sections of players in FDI in retail sector have been analyzed by the authors
in the above reviews except the retailers who are the major players of FDI. It is indeed
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most important to understand from their point of view on what they know about FDI
and their expectations on the same. This will help the researchers to analyze properly
and make the picture perfect for further study. This study is to understand the retailer’s
perception about the introduction of FDI in retail sector.
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CHAPTER III
BACKGROUND OF THE STUDY
3.1 INTRODUCTION:
India being a signatory to World Trade Organization’s General Agreement on
Trade in Services, which include wholesale and retailing services, had to open up the
retail trade sector to foreign investment. There were initial reservations towards
opening up of retail sector to foreign investors however, the Government in a series
of moves has opened up the retail sector slowly to FDI.
India is the most populous democracy in the world and has a largely young
population. More than 60% of the population is estimated to make-up the working
class group which translates into an attractive consumer base for the global retail
players
3.1.1 RETAIL SECTOR
India has one of the fastest growing retail sector in the world which
contributes around 14 percent - 15 percent of GDP to the economy. The retail sector
contributes around 40 million employment opportunities in India. The Indian retail
market is estimated to be US$ 450 billion.
Indian retail market comprises of two sections namely organized markets and
un-organized markets. Organized markets are the registered license traders who
comply under sales tax, income tax, etc. Eg: Spencer’s, Nilgris. Un-organized markets
are the small owner shops, pavement shops and handcart shops, etc. In India, the un-
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organized retail markets contribute around 95 percent of service share to the retail
sector. The organized sector are mostly located in urban cities.
Table 3.1: Indian Retail Market (By Category)
Table 3.1 explains that food and grocery has the highest share of 34 percent
followed by apparel, jewelry & watches, IT & electronics items which contributes to
the remaining shares in retail sector.
3.1.2 FOREIGN DIRECT INVESTMENT IN INDIA (FDI)
Foreign Direct Investment is the investment made in production or business by
a country in another country by means of either buying a company or expanding its
business in the foreign country. It is usually by means of bonds and shares.
As per the current Foreign Exchange Management regulations,
a. FDI up to 100 per cent is now permitted in Single-Brand Product Retail
Trading
b. FDI up to 51 per cent is now permitted in Multi-Brand Retail Trading
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Presented below is the timeline of reforms carried out by the Government to
open up the markets to global players
Source: www.wikepedia.com
3.2 FDI IN RETAIL SECTOR
Fig 3.1 Types of FDI in retail sector
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3.3 SINGLE BRAND RETAIL MARKET
In Single Brand Market,
a. Only single brand products would be sold,
b. Products should be sold under the same brand internationally,
c. Single brand retail would cover products which are branded during
manufacturing
d. Any addition to the product categories to be sold under single-brand
would require fresh approval from the Government.
Eg: Reebok, Ikea
The Government initially approved only 51 percent ownership for single brand
products but in 2012 it permitted 100 percent ownership with 30 percent of raw
materials to be sourced from local markets. From 2006-2010, 94 proposals have been
received out of which only 57 were approved and implemented.
Table 3.2: Companies with high focus on franchisees stores
Source: (“New Found Optimism in Retail Sector: Trends for 2010”Technopak
Perspective, Vol.3, p.32)
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Table 3.2 explains about the list of total number of stores of single brand
companies and their percentage of company owned stores and franchised stores.
3.4 MULTI BRAND RETAIL MARKET:
Marketing of similar and competing products by the same firm under different
and unrelated brands. For example: Walmart
Until 2011, FDI in Multi Brand was not allowed. However in late 2011, FDI
was permitted by Government in Multi Brand market with a cap of 51 percentage
ownership. Some of other conditions include:
a. Fresh agricultural produce, including fruits, vegetables, flowers, grains,
pulses, fresh poultry, fishery and meat products, may be unbranded.
b. Minimum amount to be brought in, as FDI, by the foreign investor, would
be US $ 100 million.
c. At least 50 percent of total FDI brought in shall be invested in back-end
infrastructure‟. Back-end infrastructure will include investment made
towards processing, manufacturing, distribution, design improvement,
quality control, packaging, logistics, storage, ware-house, agriculture
market produce infrastructure etc. Expenditure on land cost and rentals, if
any, will not be counted for purposes of backend infrastructure.
d. At least 30 percent of the procurement of manufactured/ processed
products shall be sourced from Indian small industries which have a total
investment in plant & machinery not exceeding US $ 1.00 million.
e. Retail sales locations may be set up only in cities with a population of
more than 10lakh as per 2011 Census and may also cover an area of 10
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kms around the municipal/urban agglomeration limits of such cities; retail
locations will be restricted to conforming areas as per the Master/Zonal
Plans of the concerned cities and provision will be made for requisite
facilities such as transport connectivity and parking.
Table 3.3: Classification of Cities
Source: (The Retailer, April2009, Ernst & Young)
Table 3.3 explains the classification of cities based on the characteristics.
3.5 COMMITTEE ON FOREIGN AND DOMESTIC INVESTMENT IN
RETAIL SECTOR-90TH REPORT OF DEPARTMENT RELATED
PARLIAMENTARY STANDING COMMITTEE ON COMMERCE
The Hon'ble Department Related Parliamentary Standing Committee on
Commerce, in its 90th Report, on 'Foreign and Domestic Investment in Retail Sector',
laid in the Lok Sabha and the Rajya Sabha on 8June, 2009, had made an in-depth
study on the subject and identified a number of issues related to FDI in the retail
sector. These included:
68
a. Labor displacing effects of FDI driven modem retailing
b. Job losses due to predatory pricing strategies of large retailers
c. Disintegration of established supply chains by establishment of
monopolies of global retail
d. Chains, leading to their control of both ends of the supply chain
e. Inability of retail to boost GOP by itself, it being only an intermediate
value added process
f. Disruption of current balance of the economy by rendering millions of
small retailers jobless
The Hon'ble Standing Committee, in its report on 'Foreign and Domestic
Investment in Retail Sector', had, accordingly, made a number of observations/
recommendations related to the subject, which, inter alia, included:
Non-adherence of provisions of single-brand trading, practicing of product
bundling by corporate retailers and backdoor entry of foreign companies into retailing
through wholesale cash and carry trading (Page 112) of the committee report
a. Unemployment due to slide-down of indigenous retailers as a result of
FDI in retail, sidelining of consumers' welfare due to predatory pricing by
retail giants, leading to their monopolistic position and dictating of retail
prices and unduly affecting of farmers due to non-remunerative prices,
paid by procurement centers constituted by big corporate.
b. Blanket ban on large domestic corporate houses and foreign retailers from
entering retail trade in grocery, foods and vegetables and restrictions on
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opening of large malls by them for selling other consumer products;
reservation policy and extension of financial assistance schemes for
expansion and modernization of small and medium retailers; stopping of
issuance of licenses for 'cash and carry'
c. Unemployment created by corporate retail, as unorganized retail provides
employment to 40 million people, which accounts for 8% of the total
employment
d. Establishment of in-built policy to re-employ/re-locate people dislocated
due to opening of big malls in the vicinity of their shops
e. Preparation of a legal and regulatory framework and enforcement
mechanism to ensure that large retailers are not able to dislocate small
retailers by unfair means
f. Extension of institutional credit, at lower rates, by public sector banks, to
help improve efficiencies of small retailers; undertaking of proactive
programme for assisting small retailers to upgrade themselves
g. Establishment of a National Commission to study the problems of the
retail sector; Enactment of an Act to protect medium and small retailers
h. Providing a level playing field for small retailers; Analysis of traffic and
economic impacts before a store is given permission to open
i. Setting-up of a Retail Regulatory Authority to look into problems and to
act as a whistleblower
j. Adequate safeguards to prevent diversion of agricultural land for building
malls etc.
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k. Enactment of a National Shopping Mall Regulation Act to regulate the
fiscal and social aspects of the entire retail sector
l. Formulation of a Model Central Law
3.6 FDI IN RETAIL – PERCEIVED BENEFITS
Some of the perceived benefits with the introduction of FDI in retail are as
follows:
3.6.1 COLD STORAGE FACILITIES
The main motive of FDI is to provide more cold storage facilities in India.
These facilities will help to store the excess food harvest and release the same during
the time required. This will help to balance the demand and supply function and also
reduces the price gap.
3.6.2 FARMER’S BENEFIT
Since the investors will the main manufacturers, they will have direct contact
with the farmers and hence the chances of middleman is eliminated from the picture.
They will be in a position to afford the proper margin to the farmers who in turn will
deliver them goods on time. This will be a win-win situation for both the parties.
3.6.3 INNOVATION AND TECHNOLOGY
With the help of FDI there are more chances of development in retail sector by
means of introduction of new technology and innovation. The system will become
more computerized and all information can be viewed by everyone at the same time.
The new electronic products and technologies available in foreign countries will be
open to home market too. Thus the retailers will have access to all new technologies.
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3.6.4 EMPLOYMENT
FDI in retail sector is expected to create more employment opportunities
directly and indirectly. With the 50 percent of investment in back end infrastructure
like processing, manufacturing, distribution, design improvement, quality control,
packaging, logistics, storage, ware-house, agriculture market produce infrastructure
there are more chances of employment creation.
3.7 SCENARIO OF FDI IN RETAIL FROM FARMER’S PERSCEPTIVE
India is one of largest producers of major crops, fresh vegetable and fruits and
other food staples like rice and wheat, and it ranks among the top five producers of
the world. It is also the world’s second largest populous country and hence has as
many consumers.
3.7.1 SELLING METHODS ADOPTED BY FARMERS IN INDIA
Below are some of the selling methods adopted by the farmers to sell their
produces:
3.7.1.1 FARMERS’ MARKET
In this method the farmers set up small temporary stalls to market their
produces like vegetables and fruits. The farmers directly sell their products to the
consumers. In this way both farmer and the consumer are benefitted as farmers get
the desired price for the product without middlemen eating into their profit.
Consumers get fresh products at a cheaper price than buying from a retailer.
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3.7.1.2 BULK SALE TO TRADERS
The traders are the middlemen or the wholesalers who buy the farm produces
in bulk from the farmers and resell it to other wholesalers, exporters or retailers at a
higher price (with their own profit margins). This happens for major crops like rice
and wheat as the production of these is in very large quantities and is dependent on
crop season.
In this system, it is observed that the farmers are at the mercy of the middlemen
as they determine the price of the harvest. The farmers end up complying with the
demands of the traders as they are forced to dispose of the harvest as quickly as
possible to cut down losses due to spoilage.
3.7.1.3 SELLING TO THE GOVERNMENT (FOOD CORPORATION OF
INDIA)
When the farmers get a good harvest season, their happiness gets cut short due
to plummeting of food price due to supply exceeding demand for the produce. The
farmer has to sell the produce at a throw away price just to dispose of the product and
thus has to incur losses. To protect the farmers from such events, the Government
introduced the system of Minimum Support Price (MSP). Minimum Support Price is
the price at which the Government purchases crops from the farmers whatever may
be the price for the crops. This ensures that the market price of the crop cannot go
below the MSP. In this case the Government takes care of storage and export of the
surplus produce thus relieving the farmer from this burden.
India also experiences one of the highest food losses in the world due to the
following reasons:
a. Poor infrastructure (road and transportation facilities)
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b. Food spoilage due to lack of proper storage facilities
c. Lack of proper food packaging units
d. Unorganized retailing methods
e. Inefficient supply chains
It is observed that almost one third of the farm produce does not reach the
consumers due to the inefficiency of existing supply chain system. In the traditional
method of transporting the produce to sales counter, the food travels through a slow
chain of local traders (middlemen) to finally reach the consumers
India lacks the proper logistics and storage systems for preserving the crop
harvest from spoilage. In 2010, the Government faced controversy and criticism for
having to dump the stored grains from its warehouses due to rotting of the grains. This
was caused due to improper storage and lack of sufficient storage facilities.
In November 2012, Indian Farmer and Industrial Alliance (IFIA), a joint
venture of Consortium of Indian Farmers Associations (CIFA) in Hyderabad said,
“the Government move to allow 51 per cent FDI in retail will be helpful to the farm
community as it would provide backward and forward linkages.” They are happy that
the middlemen will be eliminated at various levels in the chain.
A survey taken by Dr. Gaurav Bisaria, Assistant Professor, Faculty of
Management & Research, Integral University in Lucknow, states that majority of the
population expects positive growth with the introduction of FDI in retail in India for
farmers.
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Fig 3.2: Impact on farmers over FDI in retail
As evident from the above fig 3.2, 68 percent of the survey respondents believe
that farmers will benefit from FDI in Retail sector while only 28 percent of the
respondents think that farmers will not be benefited.
While this is the view of the farmers from Lucknow, India’s largest dairy
cooperative and food brand Amul feels that allowing FDI will hurt the milk producers
and retailers. The managing director of Gujarat Co-operative Milk Marketing
Federation Ltd. Mr. Sodhi says that farmers get the least returns from the modern trade
practices and benefits only the large retailers as they constantly drive the prices down
to have competitive advantage in the market.
Quoting from the International Farm Comparison Network (IFCN) data, Mr.
Sodhi presents following observations in the form of chart (Fig 3.3)
0%
20%
40%
60%
80%
Will benefit Will not benefit Can't say
68%
28%
4%
Impact on farmers over FDI in retail
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Fig 3.3: Country wise Share of Dairy Farmer in Consumer Price
Fig 3.3 explains the dairy farmer’s share of the end consumer price in the
United States is only 38 percent while it is only 36 percent in United Kingdom. But
in India, Mr. Sodhi states, that the dairy farmer’s share of the consumer price is 70
percent which is really good for the milk producer.
3.8 SCENARIO OF FDI IN RETAIL SECTOR FROM MICRO, SMALL
AND MEDIUM SCALE INDUSTRIES (MSME) PERCEPTIVE
As per the latest reforms announced by the Government, 100 per cent FDI has
been allowed in single-brand retailing where 30 percent of the raw materials must be
sourced from local producers or manufacturers.
A survey was conducted on Dec 2011 and Jan 2012 by CII to understand the
perspective of FDI in Retail from MSME’s point of view.
0%
20%
40%
60%
80%
United States United Kingdom India
38% 36%
70%
Dairy Farmer's Share
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Chart 3.4: Growth in size of the company
Source: Survey conducted by CII on Dec 2011 and Jan 2012
Chart 3.4 represents the views of respondents on how FDI in retail sector will
affect the growth of SMEs. Around 22.9 per cent of respondents perceived that their
industry would grow at excellent rate (of more than 20 per cent). 25 per cent of the
respondents expect the impact on the size or capacity addition to be in the high range
of 10-20 per cent while 33 per cent expect the growth to be in the moderate range of
5-10 per cent and 22 per cent perceive the growth to be in the low range (0-5 per cent)
category. A significantly negligible 2 per cent of the respondents feel that the decision
would have a negative impact on the growth of size of the industry and business.
22.925
27.1
22.9
2.1
0
5
10
15
20
25
30
Excellent(>20%)
Higher (10 to20%)
Moderate (5 -10%)
Low (1 to 5%) Negative(<10%)
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Chart 3.5: Impact on Employment
Source: Survey conducted by CII on Dec 2011 and Jan 2012
As represented in the above given Chart 3.5, based on the survey conducted by
CII on employment opportunities in SME’s, 48 percent of the people have a positive
outlook towards it and feel that employment opportunities will increase whereas
35percent feel that FDI in single brand and multi-brand will have no impact on
employment and 17 percent of the respondents feel that it will have negative impact
on employment opportunities.
3.9 SCENARIO OF FDI IN RETAIL FROM CONSUMER PERSCEPTIVE
Consumers are the considered as God for the retail industry. The consumer
base in India has currently widened with the inclusion of a large number of youngsters.
With opening of markets to foreign brands by India, many global players have entered
the retail market in the past few years. This has changed the way people shop today.
No Change35%
Positive48%
Negative17%
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The Indian urban consumer has become more brand-conscious and is spoilt for choice.
The retailers too are innovative and come up with new ideas to attract more
consumers. The shopping style of consumers has moved from traditional “mom and
pop” store to new organized retail outlets
A survey report was produced by Naganathan, a research scholar from
NITTTR, India under the title “Indian Retail Industries Market Analysis: Issues,
Challenges and its Opportunity for the 21st Century” in International Journal of
Application or Innovation in Engineering & Management Volume 2, Issue 12,
December 2013 regarding the survey conducted to 200 consumers in Chennai and
Bangalore related to consumer buying behavior.
Table 3.4: Research methods and techniques used for the study on
consumer behaviour in Chennai and Bangalore
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Table 3.4 explains the research methods and techniques adopted by the
research scholar to conduct the study in Chennai and Bangalore based on consumer
buying behaviour towards FDI in retail. This survey will help to understand better
about the consumer perception of FDI in retail.
Table 3.5 Survey results of consumer perception in Chennai and
Bangalore
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81
From the above table 3.5 we can perceive that there is wide change in
behaviour of consumers comparatively as now they give importance to the quality of
the product and value for money. Most of the consumers are open to branded products
and they are also aware about the knowledge of the products they buy unlike in the
past. Majority of the respondents in both the cities support FDI in retail sector as they
want more buying choices and brands in India.
3.10 FDI IN RETAIL – WEAKNESSES AND THREATS
One of the greatest barriers to the growth of modern retail formats are the
supply chain management issues. No major changes are needed in the supply chain
for FMCG products; these are well developed and efficient. For perishables, the
system is too complex. Government regulations, lack of adequate infrastructure and
inadequate investment are the possible bottlenecks for retail companies. The supply
chain for staples is less complicated than the net groceries. But staples have a unique
problem of non-standardization.
a. Difficult to target all segments of society.
b. Emergence of hyper and super markets trying to provide customer with –
value, variety and volume.
c. Heavy initial investment is required to break even with other companies
and compete with them.
d. Labour rules and regulation are also not followed in the organized retails.
The
e. Lack of uniform tax system for organized retailing is also one of the
obstacles. Inadequate infrastructure is likely to be an obstacle in the
growth of organized retails.
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f. Organized retailing in India is yet to get an industry status.100% Foreign
Direct Investment (FDI) is not permitted in retailing in India. Ownership
of retail chain is allowed only to the extent of 49% but without FDI, the
sector is deprived of access to foreign technologies and faster growth.
g. Problem of car parking in urban areas is serious concern.
h. Sector is unable to employ retail staff on contract basis.
i. The unorganized sector has dominance over the organized sector in India
because of low investment needs.
j. Will mainly cater to high-end consumers placed in metros and will not
deliver mass consumption goods for customers in villages and small
towns.
k. Retail chains are yet to settle down with proper merchandise mix for the
mall outlets. Retailing today is not about selling at the shop, but also
about researching and surveying the market, offering choice, competitive
prices and retailing consumers as well.
l. Small size outlets are also one of the weaknesses in the Indian retailing.
96% of the outlets are lesser than 500 square feet. The retail chains are
also smaller than those in the developed countries for instance, the
superstore food chain, food world is having only 52 outlets whereas
Carrefour promotes has 8800 stores in 26 countries.
m. The rapid development of retail sector is the sharp improvement in the
availability of retail space. But the current rally in property prices, retail
real estate rentals have increased remarkably, which may render a few
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retailing business houses unavailable. Retail companies have to pay high
rentals which are blockage in the turn of profits.
n. The volume of sales in Indian retailing is also very low. India has largest
population in the world and a fast growing economy.
3.11 FDI IN RETAIL SECTOR IN TAMILNADU – AN OVERVIEW
3.11.1 INTRODUCTION
Tamil Nadu is the fourth largest state of India, and contributed 8.1 per cent to
India's gross domestic product (GDP) in 2013-14. Gross state domestic product
(GSDP) of Tamil Nadu grew at a compound annual growth rate (CAGR) of 16.3 per
cent between 2004-05 and 2013-14, reaching US$ 141.1 billion in 2013-14. Per capita
GSDP of US$ 2,059.3 (at current prices) is nearly 48.2 per cent higher than the
national average of US$ 1,389.6.
Fig 3.6: GSDP of Tamil Nadu
Source: www.ibef.org
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The above fig 3.6, explains the Tamil Nadu's gross state domestic product
(GSDP) at current prices, which is about US$ 141.1 billion in 2013-14.
Table 3.7: Break up of Investments
Source: www.ibef.org
The above fig 3.7 explains that in 2013-14, the state had a total outstanding
investments of US$ 159.5 billion. Electricity contributes a major share of investment
with 48.5 percent followed by service sector (29.5 percent) and then comes
manufacturing sector with the contribution of 10.7 percent to the investments. Real
estate contributes around 9.9 percent and mining around 0.7 percent and finally comes
irrigation which contributes around 0.8 percent to the total investments.
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3.11.2 FDI IN TAMIL NADU
Tamil Nadu has become one of the favourite investment decision for
foreign investors due to the following reasons:
a. Industrial output, value addition, strength of factories, and work force
employed in factories, have made Tamil Nadu rank among the first four
states in the country.
b. The State Government is quite friendly and open to the investors and the
climatic condition of the state is also apt for industrial developments.
c. The literacy rate in Tamil Nadu accounts for 80.25 percent which ensures
great number of workforce in the state.
d. Private Participation in Infrastructure building is ensured by the
Government of Tamil Nadu.
e. Single window clearance is availed to the investment that would surpass
USD 5.41892 million.
f. The state Government has assured about introducing a new Special
Economic Zone (SEZ) policy to carry out the execution of industrial
activities in a more systematized form.
g. A fresh new IT Policy 2002 and Information Technology Enabled
Services (ITES) Policy 2005 have been formulated with the aim to
provide an investor-friendly atmosphere to the IT sector in the state.
h. The Government of Tamil Nadu has reduced the stamp duty by 50
percent.
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Foreign Direct Investment Inflows on Tamil Nadu and Pondicherry has been
accounted for 8,485.38 crores which comes to around USD 1,876.1 million from
January 2000 to October 2006. Tamil Nadu ranks third in terms of FDI Inflows in
India.
According to a latest study by Frost & Sullivan and the Associated Chambers
of Commerce and Industry of India (Asshocham), the FDI equity inflows in Tamil
Nadu increased from Rs 3,653 crore in 2009-10 to Rs 6,711 crore in 2011-12. The
FDI inflow to the state increased by around 10 per cent during the fiscal, compared to
Rs 6,115 crore during 2010-11.
3.11.3 FDI IN RETAIL IN TAMIL NADU:
The announcement of introduction of foreign investment in retail sector was
not encouraged in the state of Tamil Nadu due to the fear of monopoly. The
Government voted against the parliament’s decision to bring in the same. Hence there
is not much encouragement from the side of Government towards FDI in retail. Again,
not much study or analysis been made by the Government to know what the people
from all sections of the society really perceive about it. It was made into a political
picture rather than a fair one.
3.11.4 CASE STUDY
ED. Priyadharshini & S. Sam Santhosh - M. Phil Scholar from,
Sadakathullah Appa College, Tirunelveli conducted a survey to understand the
“AWARENESS ON FDI IN RETAIL SECTOR IN TIRUNELVELI DISTRICT” as
majority of retail shops are in Southern side of Tamil Nadu who run it as their family
business.
87
Some of the major findings are:
Table 3.6: Vote on FDI in Retail Sector
Sl. No. Vote No. of Respondents Percentage 1 Accept 15 15 2 Not Accept 85 85 Total 100 100
Source: Primary Data
Fig 3.8: Vote on FDI in Retail Sector
The above table clearly shows that only 15 percent of respondents gave green
signal (accepts) for FDI in Retail sector. And 85 percent respondents strictly gives red
signal (not accepts) to FDI in Retail.
Table 3.7: Opinion on Indian Manufacturers for Purchase Goods from
Foreigners after FDI in Retail Sector
Sl. No. Opinion No. of Respondents Percentage 1 Possible 24 24 2 Not Possible 56 56 3 No Opinion 20 20
Total 100 100
Source: Primary Data
88
In the above table 3.7, 56 percent respondents said that there is no possibility
for purchasing goods by Indian manufacturers from foreign companies after FDI in
retail, 24 percent respondents said it is possible to purchase goods and rest 20 percent
respondents gave no opinion about this.
Table 3.8: Opinion on Indian Manufacturers Survive Market
Competition with Foreigners after FDI in Retail Sector
Sl. No. Opinion No. of Respondents Percentage 1 Possible 10 10 2 Not Possible 76 76 3 No Opinion 14 14
Total 100 100
Source: Primary Data
The above table 3.8 clearly shows us that 76 percent respondents said that there
is no possibility for the survival of Indian manufacturers in the market competition
with foreign companies after FDI in Retail sector. And only 10 percent polled that is
possible. Rest 14 percent polled no opinion in this competition survive.
The present study infers the clear details about FDI in retail sector in India and
reflects the common peoples’ opinion as a mirror. In our study area majority
respondents strongly oppose these investment methods directly from foreign
countries. They feel that it will affect the domestic retail business and so India’s
economy more. Our country has 90% of unorganized retail sector this FDI slowly
abolishing the retail sector of India. Although they lack in knowledge about FDI, they
are very strong in opposing it inside India. In this trend it is not safe to allow this
corporate sector in India. So it’s duty of Government to make them clear about FDI’s
two sides and at the same time they should respect the feelings of common people by
taking good decision which favors our soil and its innocent retailers.
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3.12 NEED OF THE STUDY
Retail sector in India started to develop slowly and steadily with the new
reforms and regulations. The market started developing in form of super markets,
department stores, convenience markets with variety of products to cater the needs of
customer’s requirements. Systemized billing system and sign boards were adopted.
But most of the practices were limited to urban cities alone. The rural areas mostly
adopted the same general stores but with a little availability of new products that are
affordable to them.
The buzz FDI is gaining more importance because of the speculations about its
aftermath, before a proper analysis been done on the same.
The major reasons for bringing FDI as proposed by the Government in India
are for better cold storage facilities, increase in revenue of farmers, explorations of
new and quality products.
But the major questions are;
a. Is it possible for the local retailers to practice the strategies adopted by the
foreign firms?
b. Is there a fear of monopoly in minds of retailer’s?
c. Will there be a financial improvement for the local retailers after
becoming a systemized retail outlet?
This study is basically to understand the veracity of the aforementioned
questions in the minds of retailers by analyzing the perception of the retailers, of how
they actually feel, will the FDI in retail sector help to develop their market or will it
put them down.
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CHAPTER IV
RESEARCH METHODOLOGY
4.1 INTRODUCTION
Research is the way to probe the unknown facts which is confronting us and
to attain the understanding of the same. Research is the process of defining and
redefining the problems, framing objectives based on it, followed by formulation of
hypothesis, then collecting and evaluating the reliable data, testing of hypothesis with
the evaluated data, and then finally drawing the findings and conclusions. Technically
research is the systematic investigation into and study of materials and sources in
order to establish facts and reach new conclusions. Research approaches the study in
two ways either quantitative or qualitative. Quantitative means the data are
measurable based on some units. Qualitative signifies the subjective assessment of the
data like opinions, attitudes.
Research can be broadly classified into three types, based on its application
in the study, the objectives for which the study is undertaken and depending on the
inquiry mode employed.
Research methods are the techniques used by the researcher for the process
of conduction of research. Basically the research methods comprises of three
questions namely,
a. What are the methods used to collect data from the respondents?
b. What are the statistical techniques used to relate the collected data with
the research study?
91
c. What are the methods to evaluate the accuracy of the results?
Research methodology is the process of applying the correct methods or
techniques to the research study and to find out what the impact will be to the study
after applying the same. So to take the research study in the correct path a brief
knowledge of research methodology is required. The researcher has to know the
various logics behind the usage of the methods. So the basic questions of research
methodology will be,
a. Why the particular research study is selected?
b. Why to select the particular research methods or techniques for this
study?
c. How to define the problem and hypothesis?
In this chapter we are going to discuss about the objective, need and scope
the study, he basic research design of the study, the sampling data types and
techniques used, about the Structural Equation model and the various statistical
techniques used in the study.
4.2 STATEMENT OF THE PROBLEM
Retail sector is one of the major sector in India which provides more
employment opportunities and revenue to the Government. It has attracted more
markets globally in recent times which resulted in Foreign Direct Investment in this
sector. But it also stirred major arguments among various sector of people across the
country. The main affecters that is the Retailers were not given much awareness about
it and their point of view from various level was not taken into consideration. This
research is basically to understand from the retailer’s point of view about how they
foresee the FDI in retail sector in Tamil Nadu and their expectations from the same.
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4.3 OBJECTIVES OF THE STUDY
The objectives of this study are:
a. To study the retailer’s profile with respect to the FDI in retail sector
towards financial impact.
b. To find interrelationship between the factors of FDI towards Financial
impact.
c. To find out the most important factor that contributes towards the
financial impact.
d. To study the most influencing factor that helps to improve financial
impact.
e. To develop Structural Equation Model (SEM) for interrelationship
between factors of FDI towards financial impact.
4.4 SCOPE OF THE STUDY
With the growing demand for variety and innovativeness the investment in
retail sector plays a vital role. But we tend to ignore the fact that the people involved
in retail sector i.e. retailers must also be considered while deciding whether FDI is
necessary or not. So this study is conducted within state of Tamil Nadu to identify
from retailer’s point of view what they actually expect from FDI and also will it pave
a way for their further growth and development.
4.5 RESEARCH DESIGN
A research design is a framing a structure or pattern for the research study
which includes,
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a. Identification of population and sample size
b. The type of data (that is primary or secondary) to be used in the research
study based on the problem identified.
c. If primary data collection, then what mode of data collection is selected
and who the respondents are.
d. In case of secondary data collection, then what are the books, journals
or publications to be referred for review.
e. What type of sampling technique to be used for the selected sample?
f. Then finally we have to identify what type of analytical tools can be
used to infer the results with the collected data.
So unless we have a clear vision of the research process it may not be possible
for us to understand the study and to proceed in the proper direction. Hence research
design plays an important role in research study.
4.6 STRUCTURAL EQUATION MODELING (SEM)
Structural equation modeling, or SEM, is a very general, chiefly linear, chiefly
cross-sectional statistical modeling technique. Factor analysis, path analysis and
regression all represent special cases of SEM.
SEM is a largely confirmatory, rather than exploratory, technique. That is, a
researcher are more likely to use SEM to determine whether a certain model is valid.,
rather than using SEM to "find" a suitable model--although SEM analyses often
involve a certain exploratory element.
94
The below SEM explains the various factors related to FDI in retail and how it
leads to the final output that is the financial impact for retailer’s.
Fig 4.1: SEM to determine the relationship between FDI in retail
towards financial impact
Source: Primary Data
4.7 POPULATION
a. The term "population" is used in statistics to represent all possible
measurements or outcomes that are of interest to us in a particular study.
- Robert A. Donnelly Jr., Ph.D.
b. The organized and un-organized retail sector in Tamil Nadu form the
population for this study.
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4.8 SAMPLE
a. The term "sample" refers to a portion of the population that is
representative of the population from which it was selected.
- Robert A. Donnelly Jr., Ph.D.
b. The sample size selected for this study is 516 based on the below formula,
n = (ZS/E)2
c. Determination of sample size:
Sample size n = (ZS/E)2
Where
Z = standardized value corresponding to a confidence level of 95percent =
1.96
S = Sample SD from pilot study of 50 sample = 0.5795
E = Acceptable Error = 5percent = 0.05
Hence, Sample size = n = (ZS/E)2
= (1.96*0.5795/0.05)2
= 516.034
= 516
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4.9 SAMPLING METHOD
Sampling methods are the methods used to collect data from the target
respondents. It can be classified into probability or non-probability sampling. The
sampling methods adopted to find the data from the retailers are as follow:
4.9.1 CONVENIENCE SAMPLING
Convenience sampling is a non – probability sampling where the sample is
selected based on the researcher’s convenience and proximity. In this study the un-
organized and organized retail outlets are selected within various cities of Tamil Nadu
based on convenience.
4.9.2 SIMPLE RANDOM SAMPLING
In this technique, each member of the population has an equal chance of being
selected as subject. Once the convenience sampling is done, then the random pick of
retail outlets within cities is done to give equal chance to all cities.
4.10 DATA COLLECTION
Data collection is the process of gathering and measuring information on
variables of interest, in an established systematic fashion that enables one to answer
stated research questions, test hypotheses, and evaluate outcomes.
4.10.1 PRIMARY DATA
a. Data collected by the investigator himself/ herself for a specific purpose
is known as primary data.
b. In this study, Questionnaire was used to collect data from the
respondents (organized and unorganized retail stores) in Tamil Nadu
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4.10.2 SECONDARY DATA
a. Data collected by someone else for some other purpose (but being
utilized by the investigator for another purpose)
b. Books and journals related to Foreign direct Investment.
c. Articles pertaining to Foreign Direct Investment in Retail Sector.
4.11 PILOT STUDY RELIABILITY ANALYSIS
Factors Number of
Sample
Number of
Item
Cronbach
Alpha
FDI In Retail 50 5 0.878
Supply Chain 50 5 0.349
Storage Facility 50 5 0.629
Government Policies 50 5 0.313
Competition 50 5 0.393
Employment 50 5 0.690
Joint Ventures 50 5 0.660
Inflation 50 4 0.861
Exchange Rate 50 3 0.757
Organized Retail 50 5 0.655
Financial Impact 50 5 0.867
4.12 STATISTICAL TOOLS USED
The statistical tools used on SPSS Software (Version 17.0) are:
a. One way ANOVA followed by Duncan Multiple Range Test (DMRT)
b. Friedman test
c. Correlation Analysis
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d. Multiple Regression Analysis
e. Structural Equation Model (SEM)
Confirmatory Factor Analysis (CFA) is also deployed to confirm the variables
related to each factors and Structural Equation Model (SEM) using AMOS software
(Version 16.0)
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CHAPTER V
ANALYSIS AND INTERPRETATION
5.1 INTRODUCTION
Statistical data once collected needs to be analyzed and interpreted to put it in
a meaningful form. Hence data analysis and interpretation plays a vital role in the
research process. Data analysis helps to break down the quantitative and qualitative
data questions into sub sets and to classify, organize and summarize the same for
better understanding. Data interpretation helps to look beyond the data and helps the
researcher to think in what way the data collected will help with the study. It studies
the cause and effect relationship of the collected data with the research study. So
unless a proper analysis is done the interpretation cannot be proceeded. Hence both
are interdependent in research study.
In this chapter a detailed analysis of the collected data are analyzed with
various statistical techniques to test whether the data is collected as per objectives
stated earlier. Hypothesis are tested on the basis of findings of the study based on
which interpretations and conclusions are drawn. The main two analysis used for the
present study are Descriptive analysis and Inferential Analysis.
5.2 DESCRIPTIVE ANALYSIS ON SAMPLE
One of the commonly used analysis to find the descriptive relationship of the
given data is percentage analysis. Percentage analysis helps to compare two or more
series of data in totality as the percentage reduces everything to a common base.
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Table 5.1 Frequency Distribution of Location of the outlet
Location of the outlet Frequency Percentage
Within city 310 60.1
Suburban 127 24.6
Rural 79 15.3
Total 516 100.0
Fig 5.1 Bar Diagram representing the Location of the outlet
From the above table 5.1, 60.1 percentage of the retailers are located within
city in Tamil Nadu, whereas 24.6 percentage of the retailers are located in the
suburban area and the remaining 15.3 percentage in the rural area.
Based on the survey, the retailers are more within city than suburban and rural
areas in Tamil Nadu.
0
20
40
60
80
Within city Suburban Rural
Per
cen
tage
Location of the outlet
101
Table 5.2 Frequency distribution of the Size of the outlet in square feet
Size of the outlet in square feet Frequency Percentage
Below 1000 146 28.3
1001-2000 208 40.3
2001-3000 91 17.6
Above 3000 71 13.8
Total 516 100.0
Fig 5.2: Bar diagram representing the size of the outlet in square feet
In the table 5.2, the retailers in Tamil Nadu having size of the outlet below
1000 square feet are around 28.3 percentage, and size of the outlet between 1001 to
2000 square feet are around 40.3 percentage. The percentage of retailers having square
feet between 2001 to 3000 are 17.6 and above 3000 square feet are 13.8 percentage.
This indicates that majority of the retailers own an outlet between 1001 to 2000
square feet in Tamil Nadu.
0
10
20
30
40
50
Below 1000 1001-2000 2001-3000 Above 3000
Per
cen
tage
Size of the outlet in Square feet
102
Table 5.3 Frequency Distribution of Existence of retail outlet in years
Existence of retail outlet in years Frequency Percentage
Below 5 138 26.7
6-10 181 35.1
11-15 112 21.7
Above 15 85 16.5
Total 516 100.0
Fig 5.3 Bar Diagram representing the Existence of retail outlet in years
From the above table 5.3, the percentage of existence of retail outlets below 5
years in Tamil Nadu are around 26.7, whereas 35.1 percentage of retail outlets has
existence between 6 to 10 years. Around 21.7 percentage of retail outlets have
existence between 11-15 years and 16.5 percentage of retail outlets have an existence
of above 15 years.
Hence concluded that the majority of the retail outlets exist between 6 to 10 years.
0
5
10
15
20
25
30
35
40
Below 5 6-10 11-15 Above 15
Per
cen
tag
e
Existence of retail outlet in years
103
Table 5.4 Frequency Distribution of Number of customer’s service per
day
Number of customers service per
day Frequency Percentage
Below 50 159 30.8
51-100 178 34.5
101-200 107 20.7
Above 200 72 14.0
Total 516 100.0
Fig 5.4 Bar Diagram representing the number of customer’s service per day
From the above table 5.4, 30.8 percentage of retail outlets have customers less
than 50 per day, whereas 34.5 percentage have customers around 51 to 100 per day in
their outlets. 20.7 percentage of retail outlets have 101 to 200 customers per day and
14 percentage have above 200 customers visiting them per day. Hence most of the
retail outlets in Tamil Nadu have customers around 51 to 100 customers per day.
0
10
20
30
40
Below 50 51-100 101-200 Above 200
Per
centa
ge
Number of customers service per day
104
Table 5.5 Frequency Distribution of Amount of sales in lakhs per month
Amount of sales in lakhs per
month Frequency Percentage
Below 1 152 29.5
1-5 181 35.1
6-10 114 22.1
Above 10 69 13.4
Total 516 100.0
Fig 5.5 Bar Diagram representing Amount of sales in lakhs per month
From above table 5.5, the retail outlets having a sales turn over below one lakh
per month are around 29.5 percentage. Around 35.1 percentage of retail outlets have
a sales of about 1 to 5 lakhs, whereas 22.1 percentage of retail outlet have a sales of 6
to 10 lakhs per month. 13.4 percent of retail outlets have a sales of above 10 lakhs in
Tamil Nadu. Hence based on the findings, majority of retail outlets in Tamil Nadu
have a sales of around 1 to 5 lakhs per month.
0
10
20
30
40
Below 1 1-5 6-10 Above 10
Per
centa
ge
Amount of sales in lakhs per month
105
Table 5.6 Frequency Distribution of Number of employee in the store
Number of employee in
the store Frequency Percentage
Below 5 156 30.2
6-10 163 31.6
11-20 112 21.7
Above 20 85 16.5
Total 516 100.0
Fig 5.6 Bar Diagram representing number of employee in the store
From the above table 5.6, the percentage 30.2 percentage of retail outlets have
employed less than 5 employees in their outlets whereas 31.6 percentage of retail
outlets have around 6 to 10 employees. 21.7 percentage have employed around 11 to
20 employees in their outlets and 16.5 percentage employed above 20 employees in
their outlets.
Comparatively, most of the retail outlets employs around 6 to 10 employees
in their outlets in Tamil Nadu.
0
10
20
30
40
Below 5 6-10 11-20 Above 20
Per
centa
ge
Number of employees in the store
106
Table 5.7 Mean and Standard Deviation of FDI in retail
A. FDI In Retail Mean Std.
Deviation
Allowing FDI in retail will be a good step that
will benefit Tamil Nadu and bring in progress
for the state.
4.52 0.80
The proposed retail format of allowing only 51
percent stake in the business will protect the
domestic player from being overtaken by the
foreign company.
4.01 0.85
FDI in Retail will lead to creation of SEZs
(Special Economic Zones) which will help in
development of rural areas and promote the real
estate market.
3.77 1.07
FDI in retail will bring in wide range of
products for the consumers who have become
brand-conscious and are willing to spend.
3.55 1.20
FDI in Retail will eliminate the role of the
middlemen currently existing and will directly
benefit the producers / farmers.
3.61 1.24
From above table 5.7, allowing FDI in retail in Tamil Nadu has the highest
mean of 4.52 as most of the retailers believe it to be a good step for progress of state.
They feel 51 percent stake will protect them from being overtaken from foreign
players. Hence it has second highest mean of 4.01. As the introduction of FDI will
create SEZs, the chances of development of rural areas and real estate market are on
high. So, it has third highest mean of 3.77.
107
Table 5.8 Mean and Standard Deviation of supply chain
B. Supply Chain Mean Std.
Deviation
The existing supply chain system is insufficient to
make consumer products available on time.
Hence there is a gap in demand and supply.
4.00 0.93
FDI in retail sector will help in establishing better
and efficient supply chain system 3.57 0.93
Newer and better supply chain system will ensure
timely replenishment of stock at the retail outlets
for sale
3.38 1.07
Better supply chain system will increase the
probability of sales and hence profit by increasing
the shelf life of the goods.
3.31 1.06
Better supply chain system will help achieve
better customer satisfaction and thereby establish
customer loyalty for the retail outlet.
3.28 1.13
From above table 5.8, the retailers feel the existing supply chain system is
insufficient and there is gap between demand and supply. So it has a highest mean of
4.00. They feel FDI will help for better and efficient supply chain system and the
newer one will ensure timely replenishment of stock at the retail outlet for sale and
hence it has received second and third highest mean of 3.57 and 3.38.
108
Table 5.9 Mean and Standard Deviation of Storage facility
C. Storage Facility Mean Std.
Deviation
Cold storage facility not adequate in Tamil Nadu. 3.71 0.93
Retail shops in Tamil Nadu find it difficult to
have their own cold storage facilities. 3.42 0.97
FDI in storage facilities helps in better storage of
perishable goods. 4.04 0.88
FDI in storage helps to reduce the wastage and
transportation costs. 3.57 0.83
Better storage helps in reduction of price of the
product. 3.27 1.02
The observation for the above table 5.9 are that retailers believe that FDI will
help for better storage of perishable goods and hence it has highest mean of 4.04. With
the second highest mean of 3.71, the retailers feel there is no adequate storage
facilities in Tamil Nadu and better storage facilities helps to reduce wastage and
transportation costs and in turn reduces the losses incurred by it and so, it has received
third highest mean of 3.57.
109
Table 5.10 Mean and Standard Deviation of Government Policies
D. Government Policies Mean Std.
Deviation
Government policies in the State of Tamil
Nadu towards retail sector are adequate. 3.64 1.21
Reforms are required in the Government
policies to allow regulated FDI in retail. 3.40 1.12
The present Government policies towards
domestic retailers should be made lenient to
ease the pressure on them and give them
support.
3.12 1.16
The present Government Labour Laws should
be reviewed to safeguard the employees from
being exploited by the foreign companies.
3.15 1.21
The Government policies for profit
sharing between the foreign company and
domestic partner should be revised to prevent
100 percent of profits from leaving the country.
3.29 1.21
From the table 5.10 the observations are, retailers feel that there are adequate
Government policies for retail sector and so it has received highest mean of 3.64
which is followed by, second highest mean of 3.70 where the retailers feel more
reforms are required for Government policies related to FDI in retail and finally they
want Government to revise their policies towards FDI regarding profit sharing as they
feel entire percent will be earned by them and hence it has received the third highest
mean of 3.29.
110
Table 5.11 Mean and Standard Deviation of Competition
E. Competition Mean Std.
Deviation
Foreign investment will induce monopoly in
the retail market. 3.78 1.05
Competition is high in Tamil Nadu among
retail shops. 3.41 1.08
FDI in retail will affect the local competition in
Tamil Nadu. 3.26 1.18
FDI in retail sector motivates local competitors
to innovate cheaper products with good quality. 3.18 1.16
Foreign investment helps to bring better
technology to win the local competition. 3.21 1.18
From the above table 5.11, the highest mean value is 3.78 where the retailers
believe that FDI in retail will bring monopoly in the market. Secondly they also think,
competition is already high among themselves in Tamil Nadu and so it has received
the second highest mean value of 3.41. The third highest mean is 3.26 where the FDI
in retail market think FDI will affect the local retailers in Tamil Nadu.
111
Table 5.12 Mean and Standard Deviation of Employment
F. Employment Mean Std.
Deviation
Employment opportunities are more in service
sector. 3.64 0.94
FDI in retail creates more employment directly
and indirectly. 4.35 0.87
More employment opportunities increase the
revenue of the individual and for the economy. 3.75 0.79
Revenue will increase the standard of living of
the people. 3.37 0.97
All lead to improvement in the economic growth 3.24 1.13
The table 5.12 explains that majority of the retailers expect FDI in retail will
bring more employment opportunities and hence it has received highest mean of 4.35,
followed by second highest mean of 3.75 where they think more employment
opportunities will increase their individual and economy’s revenue. The third highest
mean is 3.64 which explains that the employment opportunities are more in service
sector.
112
Table 5.13 Mean and Standard Deviation of Joint Ventures
G. Joint Ventures Mean Std.
Deviation
Joint venture in retail sector is a welcome
change in Tamil Nadu. 3.91 1.08
It helps to use the optimum resources of both
the firms. 3.38 0.90
Foreign firm collaborating with local firm
enhances the brand name and reputation. 3.09 1.02
It promotes imported goods at a cheaper price. 3.02 1.09
It is a win-win situation for both the firm. 3.09 1.12
The observations from the above table 5.13 are, the retailers welcome FDI in
retail by means of joint ventures in Tamil Nadu and hence it has received highest
mean value of 3.38. By means of joint ventures the optimum resources of both the
firms will be utilized and hence it has second highest mean value of 3.38. Thirdly
there is a tie in mean of 3.09 where the retailers feel by collaborating with foreign
firm their brand name will increase and hence it will be a win-win situation for both.
113
Table 5.14 Mean and Standard Deviation of Inflation
H. Inflation Mean Std.
Deviation
FDI in retail sector will help in curbing the
inflation as the prices of farm produces will be
controlled due to efficient transportation and
storage.
3.86 1.04
FDI in retail will promote free and fair
competition thereby sharply lowering inflation. 3.24 0.96
FDI in retail sector will bring in lot of cash flow
which will help the Government in building
better infrastructure spurring development and
economic growth.
3.03 1.04
By introducing FDI in retail, the tax revenues
from the MNCs will increase for the
Government which will further reduce the
budget deficit.
3.08 1.08
From the above table 5.14, the highest mean value is 3.86 where the retailers
feel FDI in retail will help in curbing inflation by means of transportation and storage
and it is followed by second highest mean value of 3.24 in which they expect that FDI
will promote free and fair competition by lowering inflation. The chances of reduction
in budget deficit is possible because of the earnings from foreign firms in forms of tax
revenues and so it has third highest mean value of 3.08.
114
Table 5.15 Mean and Standard Deviation of Exchange rate
I. Exchange Rate Mean Std.
Deviation
Allowing FDI in retail will improve the Foreign
Exchange Reserves in India due to the cash
inflow from the foreign company.
4.02 1.03
The cash inflow from FDI will strengthen /
stabilize the Indian Rupee in the global market. 3.48 0.98
Improved exchange rate will reduce the foreign-
debt burden of India. 3.07 1.06
The above observation from the table 5.15 are, the retailers think that the value
in foreign exchange reserves will improve due to the cash inflow from the foreign
company and hence it has highest mean of 4.02. This improved cash flow will stabilize
the Indian rupee value globally and thus it has second highest value of 3.48 and finally
the mean of 3.07 explains improved exchange rate will reduce the foreign debt burden
of India.
115
Table 5.16 Mean and Standard Deviation of Systemized Retail
J. Systemized Retail Mean Std.
Deviation
FDI in retail sector will promote
Systemized retail outlets. 3.59 1.13
More Systemized retail outlets are
required in India to cater to the growing section
of consumers who have more buying power.
3.36 1.05
Consumers will find better shopping
experience and value for money in a
Systemized retail outlet than in a Non-
Systemized retail.
3.09 1.12
Systemized retail will ensure controlled
quality and price of the product which will
benefit both consumers and the retailers.
3.04 1.09
Systemized retail will help consumers
make informed decision about the various
products before buying.
3.16 1.15
The above table 5.16 explains that the highest mean is 3.59 where the retailers
expect FDI in retail sector will promote systemized retail outlets. The second highest
mean is 3.36 which explains that there is more need of systemized retail outlets to
cater consumer needs. Systemized retailing will help the consumers to get information
about various products before buying and hence it has received the third highest mean
with value of 3.16.
116
Table 5.17 Mean and Standard Deviation of Financial Impact
K. Financial Impact Mean Std.
Deviation
FDI will improve the market value of a retail
outlet 3.75 1.01
FDI improves the profit figure/margin of the
retail outlet. 3.28 1.00
It helps all classes of people in financial growth 3.07 1.07
FDI increases the number of people with steady
income in retail sector 3.04 1.12
FDI helps in the overall financial growth in this
sector 3.05 1.06
The table 5.17 explains that, the retailers perceive FDI will improve their
market value of the retail market and hence it has received highest mean value of 3.75.
The second highest mean value is 3.28 because they feel FDI in retail once stabilized
will improve their profit margin. The third highest mean value is 3.07 since it helps
all classes of people to improve their growth financially.
117
5.3 INFERENTIAL ANALYSIS ON SAMPLE
Inferential analysis is used when a difference between two groups are to be
studied. In this study the various statistical tools used to infer the data with the stated
hypothesis are One way ANOVA, Friedman test, Correlation analysis and Regression
Analysis.
HYPOTHESIS I
Null Hypothesis: There is no significant difference between location of the outlet
with respect to the factors of FDI in retail towards financial impact
118
Table 5.18: ANOVA for significant difference between location of the outlet
with respect to the factors of FDI in retail towards financial impact
Factors of FDI
Location
of the
outlet
F value P value
Within
city Suburban Rural
FDI In Retail 19.85b 18.46a 19.52b
5.352 0.005** (4.12) (3.73) (4.18)
Supply Chain 17.79 17.06 17.32
1.839 0.160 (3.80) (3.69) (4.09)
Storage
Facility
18.23b 17.95ab 17.23a 2.970 0.050*
(3.17) (3.10) (3.88)
Government
Policies
16.92 16.27 15.86 2.159 0.117
(4.34) (4.83) (4.78)
Competition 16.97 16.6 16.61
0.418 0.659 (4.38) (4.62) (4.97)
Employment 18.18 18.17 18.41
0.126 0.882 (3.81) (3.44) (3.72)
Joint Ventures 16.59 16.1 16.7
0.866 0.421 (4.01) (3.45) (3.86)
Inflation 13.22 12.82 12.89
0.560 0.572 (4.06) (3.89) (3.90)
Exchange Rate 10.70 10.09 10.18
2.281 0.103 (2.99) (3.06) (3.06)
Systemized
Retail
16.45 15.95 15.58 0.957 0.385
(5.39) (5.59) (5.35)
Financial
Impact
16.35 15.76 15.37 1.444 0.237
(5.22) (4.92) (4.98)
Note: 1.The value with in bracket refers to Standard Deviation (SD)
2. ** Denotes significant at 1percent level
3. Different alphabet between location of the outlet significant at 5
percent level using Duncan Multiple Range Test (DMRT)
119
Since P value is less than 0.01, the null hypothesis is rejected at 1 percent level
with regard to the FDI in retail. Hence there is significant difference between location
of the outlet with respect to the FDI in retail.
Based on Duncan multiple test, the suburban significantly differs within city
and rural at 5 percent level, but there is no significant difference between within city
and rural with respect to the FDI in retail.
Since P value is less than 0.05, the null hypothesis is rejected at 5 percent level
with regard to storage facility. Hence there is significant difference between location
of the outlet with respect to the storage facility.
Based on DMRT, the within city significantly differs with rural at 5 percent
level, but there is no significant difference between within city and suburban with
respect to storage facility.
There is no significant difference between location of outlet with all factors of
FDI except FDI in retail and storage facility since P value is greater than 0.05. Hence
null hypothesis is accepted at 5 percent level of significance.
120
HYPOTHESIS II
Null Hypothesis: There is no significant difference between the existence of retail
outlet with respect to the factors of FDI in retail towards financial impact.
Table 5.19: ANOVA for significant difference between existence of retail
outlet with respect to the factors of FDI in retail towards financial impact.
Factors of FDI Existence of retail outlet in years F
value P value
Below 5 6-10 11-15 Above 15
FDI In Retail 19.17a 19.23a 19.17a 20.76b
3.588 0.014* (4.29) (3.81) (4.00) (4.14)
Supply Chain 17.25a 17.28a 17.50a 18.61b
2.799 0.040* (3.88) (3.76) (3.67 (3.97)
Storage
Facility
17.38a 17.77ab 18.49bc 18.91c 5.061 0.002**
(3.66) (3.00) (3.27) (3.00)
Government
Policies
15.37a 16.74b 17.21b 17.48b 5.287 0.001**
(5.27) (4.19) (3.73) (4.65)
Competition 16.20a 16.36ab 17.50bc 17.94c
4.140 0.006** (5.20) (4.15) (4.15) (4.35)
Employment 17.51a 18.04ab 18.63bc 19.16c
4.172 0.006** (4.65) (3.24) (3.08) (3.42)
Joint Ventures 16.12a 15.94a 17.31b 17.16b
4.292 0.005** (3.98) (3.59) (3.58) (4.31)
Inflation 12.48a 12.33a 14.01b 14.39b
8.618 <0.001** (4.16) (3.83) (3.57) (4.09)
Exchange
Rate
9.72a 10.08a 11.18b 11.59b 10.222 <0.001**
(3.34) (2.99) (2.52) (2.70)
Systemized
Retail
15.12a 15.41a 17.79b 17.48b 8.223 <0.001**
(5.61) (5.20) (5.08) (5.40)
Financial
Impact
14.86a 15.25a 17.50b 17.79b 10.819 <0.001**
(5.30) (4.85) (4.87) (4.82)
121
Note: 1.The value with in bracket refers to Standard Deviation (SD)
2. ** Denotes significant at 1 percent level
3. * Denotes significant at 5 percent level
4. Different alphabet between experiences in retail outlet significant at
5 percent level using Duncan Multiple Range Test (DMRT)
Since P value is less than 0.01, the null hypothesis is rejected at 1 percent of
level with regards to all factors of FDI except FDI in retail and supply chain. Hence
there is significant difference between existence of the retail outlet with respect to all
factors of FDI except FDI in retail and supply chain.
Based on DMRT, the below 5 years significantly differs with 11-15 years and
above 15 years at 5 percent level, but there is no significant difference between 6-10
years and 11-15 years with respect to storage facility, competition, and employment.
The retail outlets with existence of below 5 years may not be in position to
have separate storage facility, and it will be difficult for them to compete with
experienced retail outlets and similarly the number of employees employed will also
be less than compared to retail outlets with existence of 11-15 years and above 15
years and hence there is significant difference between them.
Based on DMRT, the below 5 years and 6-10 years significantly differs with
11-15 years and above 15 years at 5 percent level with respect to joint ventures,
inflation, exchange rate, systemized retail, financial impact but there is no significant
difference between them. Below 5 years significantly differs with 6-10 years, 11-15
years and above 15 years with respect to government policies at 5 percent level.
122
Since P value is less than 0.05, the null hypothesis is rejected at 5 percent of
level with regards to FDI in retail and supply chain. Hence there is significant
difference between existence of the retail outlet with respect to FDI in retail and
supply chain.
Based on DMRT, the below 5 years, 6-10 years and 11-15 years significantly
differs with above 15 years at 5 percent level with respect to FDI in retail and supply
chain.
.
123
HYPOTHESIS III
Null hypothesis: There is no significant difference between the number of customers
per day with respect to the factors of FDI in retail towards financial impact
Table 5.20: ANOVA for significant difference between the number of
customers per day with respect to the factors of FDI in retail towards financial
impact
Factors of
FDI
Number of customers service per day F
value P value
Below
50 51-100
101-
200
Above
200
FDI In
Retail
19.33a 18.96a 19.34a 21.14b 5.219 0.001**
(4.26) (3.72) (4.29) (3.75)
Supply
Chain
17.47a 16.99a 17.66a 18.85b 4.131 0.007**
(3.86) (4.00) (3.41) (3.67)
Storage
Facility
17.7 17.85 18.2 18.79 2.089 0.101
(3.66) (3.11) (2.77) (3.46)
Government
Policies
15.72a 16.99bc 16.37ab 17.89c 4.514 0.004**
(5.15) (4.06) (4.14) (4.51)
Competition 16.70a 16.46a 16.31a 18.76b
5.425 0.001** (5.09) (4.19) (4.01) (4.32)
Employment 17.91a 17.98a 18.33a 19.29b
2.691 0.046* (4.57) (3.17) (2.81) (3.81)
Joint
Ventures
16.31 16.3 16.35 17.56 2.153 0.093
(4.12) (3.54) (3.55) (4.32)
Inflation 12.64a 12.75a 13.16a 14.69b
5.109 0.002** (4.16) (3.95) (3.41) (4.18)
Exchange
Rate
9.85a 10.28ab 10.79b 11.85c 8.178 <0.001**
(3.36) (2.99) (2.36) (2.74)
Systemized
Retail
15.74a 15.97a 15.70a 18.47b 5.112 0.002**
(5.68) (5.37) (4.88) (5.35)
Financial
Impact
15.44a 15.69a 16.28a 17.97b 4.612 0.003**
(5.41) (4.99) (4.56) (5.15)
124
Note: 1.The value with in bracket refers to Standard Deviation (SD)
2. ** Denotes significant at 1 percent level
3. * Denotes significant at 5 percent level
4. Different alphabet between number of customers per day significant
at 5 percent level using Duncan Multiple Range Test (DMRT)
Since P value is less than 0.01, the null hypothesis is rejected at 1 percent level
with regards to all factors of FDI in retail, except storage facility, employment, and
joint ventures. Hence there is significant difference between number of customer
service per day with regard to all factors of FDI except storage facility, employment,
and joint ventures.
Based on DMRT, below 50 significantly differs with 101-200 and above 200
customer service per day at 5 percent level, whereas there is no significant difference
between below 50 and 51-100 customer service with respect to exchange rate.
Below 50 customer service per day significantly differs with 51-100 and above
200 at 5 percent level, but there is no significant difference between below 50 and
101-200 customer service per day with respect to government policies.
Below 50 customer service per day significantly differs with above 200
customer service per day at 5 percent level but there is no significant difference
between below 50, 51-100,101-200 customer service per day for FDI in retail, supply
chain, competition, inflation, systemized retail and financial impact.
Since P value is less than 0.05, the null hypothesis is rejected at 5 percent level
with regards to employment. Hence there is significant difference between number of
customer service per day with regards to employment.
125
Based on DMRT, Below 50 customer service per day significantly differs with
above 200 customer service per day at 5 percent level but there is no significant
difference between below 50, 51-100,101-200 customer service per day for
employment.
There is no significant difference between number of customers per day with
all factors of FDI except storage facility and joint ventures, since p value is greater
than 0.05. Hence null hypothesis is accepted at 5 percent level with respect to storage
facility and joint ventures.
126
HYPOTHESIS IV
Null Hypothesis: There is no significant difference between size of the outlet with
respect to factors of FDI in retail towards financial impact
Table 5.21: ANOVA for significant difference between size of the outlet
with respect to factors of FDI in retail towards financial impact
Factors of FDI
Size of the outlet in square feet
F value P value Below
1000
1001-
2000
2001-
3000
Above
3000
FDI In Retail 19.23a 19.39a 18.99a 20.69b
2.773 0.041* (4.21) (3.87) (4.26) (3.94)
Supply Chain 17.59a 17.14a 17.15a 19.08b
5.025 0.002** (3.70) (3.94) (3.61) (3.70)
Storage
Facility
17.73a 17.73a 18.21a 19.13b 3.752 0.011*
(3.76) (2.92) (3.04) (3.36)
Government
Policies
15.90a 16.43a 16.70a 18.38b 5.018 0.002**
(5.15) (4.31) (3.67) (4.51)
Competition 16.71a 16.26a 17.07a 18.39b
4.096 0.007** (4.85) (4.43) (4.23) (4.18)
Employment 17.81a 18.00a 18.18a 19.73b
4.920 0.002** (4.65) (3.24) (2.97) (3.29)
Joint Ventures 16.35a 16.09a 16.53a 17.89b
3.983 0.008** (4.03) (3.74) (3.56) (3.97)
Inflation 13.02a 12.36a 12.86a 15.54b
12.021 <0.001** (4.2) (3.83) (3.33) (3.94)
Exchange Rate 10.04a 10.09a 10.59a 12.32b
11.690 <0.001** (3.27) (3.04) (2.46) (2.39)
Systemized
Retail
16.03a 15.58a 15.75a 18.87b 7.133 <0.001**
(5.5) (5.46) (4.64) (5.45)
Financial
Impact
15.32a 15.80a 15.65a 18.82b 8.648 <0.001**
(5.31) (5.01) (4.44) (5.02)
127
Note: 1. The value with in bracket refers to Standard Deviation (SD)
2. ** Denotes significant at 1 percent level
3. * Denotes significant at 5 percent level
4. Different alphabet between size of the outlet significant at 5 percent
level using Duncan Multiple Range Test (DMRT)
Since P value is less than 0.01, the null hypothesis is rejected at 1 percent level
with respect to all factors of FDI except FDI in retail and storage facility. Hence there
is significant difference between size of the outlet with regards to all factors of FDI
except FDI in retail and storage facility.
Based on DMRT, Below 1000 square feet significantly differs with above 3000
square feet at 5 percent for supply chain, government policies, competition,
employment, joint ventures, inflation, exchange rate, systemized retail, and financial
impact whereas there is no significant difference between below 1000, 1001-2000 and
2001-3000 square feet.
Since P value is less than 0.05, the null hypothesis is rejected at 5 percent level
with respect to FDI in retail and storage facility. Hence there is significant difference
between size of the outlet with regard to FDI in retail and storage facility.
Based on DMRT, Below 1000 square feet significantly differs with above 3000
square feet at 5 percent for FDI in retail and storage facility whereas there is no
significant difference between below 1000, 1001-2000 and 2001-3000 square feet.
128
HYPOTHESIS V:
Null hypothesis: There is no significant difference between amount of sales per
month with respect to all factors of FDI in retail towards financial impact
Table 5.22: ANOVA for significant difference between amount of sales
per month with respect to all factors of FDI in retail towards financial impact
Factors of FDI
Amount of sales in lakhs per month F
value P value Below
1 1-5 6-10
Above
10
FDI In Retail 19.56a 18.83a 19.53a 20.72b
3.751 0.011* (3.86) (4.02) (4.19) (4.21)
Supply Chain 17.57ab 16.83a 18.09b 18.41b
4.080 0.007** (3.90) (4.02) (3.21) (3.86)
Storage Facility 17.72 17.78 18.47 18.46
1.893 0.13 (3.69) (2.93) (3.13) (3.41)
Government
Policies
16.03 16.48 17.11 17.29 1.855 0.136
(5.13) (4.47) (3.63) (4.66)
Competition 16.49a 16.34a 17.01a 18.55b
4.478 0.004** (4.97) (4.42) (3.92) (4.39)
Employment 17.97a 17.78a 18.40a 19.55b
4.199 0.006** (4.57) (3.25) (2.99) (3.47)
Joint Ventures 16.64ab 15.85a 16.64ab 17.57b
3.639 0.013* (4.07) (3.77) (3.22) (4.34)
Inflation 13.10a 12.46a 13.15a 14.49b
4.437 0.004** (4.25) (4.15) (3.03) (4.10)
Exchange Rate 9.94a 10.19ab 10.84b 11.78c
7.235 <0.001** (3.35) (3.06) (2.40) (2.69)
Systemized Retail 16.03a 15.52a 16.39a 17.97b
3.541 0.015* (5.72) (5.50) (4.70) (5.41)
Financial Impact 15.72a 15.53a 16.45ab 17.51b
2.967 0.032* (5.55) (4.94) (4.65) (5.09)
129
Note: 1. The value with in bracket refers to Standard Deviation (SD)
2. ** Denotes significant at 1 percent level
3. * Denotes significant at 5 percent level
4. Different alphabet between amount of sales per month significant at
5 percent level using Duncan Multiple Range Test (DMRT)
Since P value is less than 0.01, the null hypothesis is rejected at 1 percent level
with regards to supply chain, competition, employment, inflation and exchange rate.
Hence there is significant difference between amount of sales per month with regards
to supply chain, competition, employment, inflation and exchange rate.
Based on DMRT, 1-5 lakhs significantly differs with 6-10 and above 10 lakhs
at 5 percent, whereas there is no significant difference between below 5 lakhs, above
5 and 10 lakhs with respect to supply chain.
Below 1 lakh significantly differs with 6-10 and above 10 lakhs at 5 percent,
but there is no significant difference between below 1 and 1-5 lakhs with regard to
exchange rate.
Below 1 lakh significantly differs with above 10 lakhs at 5 percent for
competition, employment and inflation.
Since P value is less than 0.05, the null hypothesis is rejected at 5 percent level
with regards to FDI in retail, joint venture, Systemized retail and financial impact.
Hence there is significant difference between amount of sales per month with regards
to FDI in retail, joint venture, Systemized retail and financial impact.
Based on DMRT, 1-5 lakhs significantly differs with above 10 lakhs at 5
percent for joint ventures.
130
Below 1 lakh significantly differs with above 10 lakhs at 5 percent, but there
is no significant difference between Below 1 lakh, 1-5 lakhs and 5-10 lakhs for
financial impact.
Below 1 lakh significantly differs with above 10 lakhs at 5 percent whereas
there is no significant difference between Below 1 lakh, 1-5 lakhs and 5-10 lakhs for
FDI in retail and systemized retail.
There is no significant difference between amount of sales per month with
regards to storage facility and government policies, since P value is greater than 0.05.
Hence null hypothesis is accepted at 5 percent level of significance.
131
HYPOTHESIS VI
Null Hypothesis: There is no significant difference number of employees in the store
with respect to all factors of FDI in retail towards financial impact.
Table 5.23: ANOVA for significant difference number of employees in
the store with respect to all factors of FDI in retail towards financial impact
Factors of FDI
Number of employee in the store F
value P value Below
5 6-10 11-20
Above
20
FDI In Retail 19.04a 19.51a 19.12a 20.54b
2.849 0.037* (4.28) (3.81) (3.92) (4.20)
Supply Chain 17.10a 17.55a 17.16a 18.81b
4.251 0.006** (4.21) (3.57) (3.60) (3.64)
Storage Facility 17.64 18.11 17.99 18.51
1.356 0.255 (3.68) (2.78) (2.90) (3.83)
Government Policies 15.25a 17.48b 16.52b 17.47b
8.011 <0.001** (5.34) (3.78) (3.67) (4.79)
Competition 15.96a 17.36b 16.01a 18.48c
7.990 <0.001** (5.09) (4.07) (4.11) (4.22)
Employment 17.42a 18.51bc 18.10ab 19.26c
5.172 0.002** (4.57) (3.17) (2.69) (3.74)
Joint Ventures 16.29a 16.57ab 15.91a 17.45b
2.772 0.041* (4.05) (3.90) (3.07) (4.22)
Inflation 12.44a 13.15a 12.88a 14.34b
4.377 0.005** (4.51) (3.73) (3.43) (3.93)
Exchange Rate 9.55a 10.85ab 10.37b 11.58c
9.999 <0.001** (3.51) (2.63) (2.71) (2.69)
Systemized Retail 15.23a 16.82b 15.25a 18.00b
6.832 <0.001** (5.91) (5.00) (5.03) (5.27)
Financial Impact 14.89a 16.40bc 15.93ab 17.67c
5.964 0.001** (5.73) (4.28) (4.99) (5.12)
132
Note: 1. The value with in bracket refers to Standard Deviation (SD)
2. ** Denotes significant at 1 percent level
3. * Denotes significant at 5 percent level
4. Different alphabet between number of employees in the store
significant at 5 percent level using Duncan Multiple Range Test (DMRT)
Since P value is less than 0.01, the null hypothesis is rejected at 1 percent level
with regards to all factors of FDI except FDI in retail, storage facility, and joint
ventures. Hence there is significant difference between number of employees in the
store with respect to all factors of FDI except FDI in retail, storage facility, and joint
ventures.
Based on DMRT, Below 5 significantly differs with 6-10 and Above 20 at 5
percent, whereas there is no significant difference below 5 and 11-20 with regard to
employment and financial impact. Below 5 significantly differs with 11-20 and above
20 at 5 percent but there is no significant difference between below 5 and 6-10 with
respect to exchange rate.
Below 5 significantly differs with above 20 at 5 percent, whereas there is no
significant difference between below 5, 6-10 and 11-20 with regard to supply chain
and inflation. Below 5 significantly differs with 6-10, 11-20 and above 20 at 5 percent
for government policies. Below 5 significantly differs with 6-10 and above 20 at 5
percent but there is no significant difference between below 5 and 11-20 for
competition.
Below 5 significantly differs with 6-10 and above 20 at 5 percent for
systemized retail whereas there is no significant difference between below 5 and 11-
20.
133
Since P value is less than 0.05, the null hypothesis is rejected at 5 percent level
with regard to FDI in retail and joint ventures. Hence there is significant difference
between the number of employees in the store with respect to FDI in retail and joint
ventures.
Based on DMRT, Below 5 significantly differs with above 20 at 5 percent level
whereas there is no significant difference between below 5, 6-10 and 11-20 for joint
ventures.
Below 5 significantly differs with above 20 at 5 percent for FDI in retail but
there is no significant difference between below 5, 6-10, and 11-20.
There is no significant difference the number of employees in the store with
regards to all factors of FDI except Storage facility as the P value is greater than 0.05.
Hence null hypothesis is accepted at 5 percent level of significance for storage facility.
134
HYPOTHESIS VII
Null Hypothesis: There is no significant difference between mean ranks towards
factors of FDI on Financial Impact
Table 5.24: Friedman test for significant difference between mean ranks
towards factors of FDI on Financial Impact
Factors of FDI Mean Rank Chi Square Value P value
Supply Chain 5.19
294.912 <0.001**
Storage Facility 5.81
Government
Policies 4.70
Competition 4.69
Employment 6.12
Joint Ventures 4.27
Inflation 4.48
Exchange Rate 5.6
Systemized Retail 4.13
Note: ** Denotes significant at 1 percent level
Fig 5.7: Friedman test for significant difference between mean ranks
towards factors of FDI on Financial Impact
5.195.81
4.7 4.696.12
4.27 4.485.6
4.13
01234567
Mean Rank
Mean Rank
135
Since P value is less than 0.01, the null hypothesis is rejected at 1 percent level
of significance. Hence concluded that there is significant difference between mean
ranks towards factors of FDI on Financial Impact. Based on mean ranks, Employment
(6.12) is the most important factor towards financial impact followed by Storage
facility (5.81), Exchange rate (5.60), supply chain (5.19), Competition (4.69),
Government policies (4.70), inflation (4.48), joint ventures (4.27) and Systemized
retail (4.13).
With the introduction of FDI in retail sector, the retailers expect the
employment opportunities to increase the most as the chances of direct and indirect
logistics and infrastructure will be on rise. Next to employment opportunities, comes
storage facilities as in India as we are in need of adequate storage facilities to stock
the perishable goods and the surplus production of goods here.
Retailers have ranked the factor, Exchange rate on third as it plays a major role
in the growth of the economy. With FDI in retail, the retailers expect a stabilization
in the exchange rates which can increase their revenue through exports and reduce
costs incurred by imports. Then comes supply chain as for any retailer a proper supply
chain helps to maintain the demand and supply curve. A delay in the distribution of
goods can lead to loss for them.
Competition survives in all fields. Because of the competition from foreign
markets the retailers expect their domestic ability to increase as they have to meet the
advanced retail market of foreign countries. Recently the inflation of food products
and the economy was on high as there was artificial rise on prices of goods, so to
curtail the same the retailers expect FDI in Retail sector.FDI in retail can come into
India through joint ventures. Finally it can help the retailers to systemize their markets
with a proper billing system, voucher books, inventory records and so on.
136
CORRELATION COEFFICIENT BETWEEN FACTORS OF FDI IN
RETAIL TOWARDS FINANCIAL IMPACT
Table 5.25: Pearson Correlation Coefficient between factors of FDI
towards Financial Impact
Factors of
FDI
FDI in
Retail Inflation
Exchange
Rate
Systemized
Retail
Financial
Impact
FDI in
Retail 1.000 0.356** 0.275** 0.297** 0.383**
Inflation - 1.000 0.697** 0.708** 0.729**
Exchange
Rate - - 1.000 0.714** 0.694**
Systemized
Retail - - - 1.000 0.841**
Financial
Impact - - - - 1.000
Note: 1. ** denotes correlation is significant at 1 percent level.
The Correlation coefficient between the FDI in Retail and Inflation is 0.356
which indicates 36 percentage positive relationship between FDI in Retail and
Inflation and is significant at 1 percent level. The Correlation coefficient between the
FDI in Retail and Exchange Rate is 0.275 which indicates 28 percentage positive
relationship between FDI in Retail and Exchange Rate and is significant at 1 percent
level. The Correlation coefficient between the FDI in Retail and Systemized Retail is
0.297 which indicates 30 percentage positive relationship between FDI in Retail and
Systemized Retail and is significant at 1 percent level. The Correlation coefficient
between the FDI in Retail and Financial Impact is 0.383 which indicates 38 percentage
positive relationship between FDI in Retail and Financial Impact and is significant at
1 percent level.
137
The Correlation coefficient between the Inflation and Exchange Rate is 0.697
which indicates 70 percentage positive relationship between Inflation and Exchange
Rate and is significant at 1 percent level. The Correlation coefficient between the
Inflation and Systemized Retail is 0.708 which indicates 71 percentage positive
relationship between Inflation and Systemized Retail and is significant at 1 percent
level. The Correlation coefficient between the Inflation and Financial Impact is
0.0.729 which indicates 73 percentage positive relationship between Inflation and
Financial Impact and is significant at 1 percent level.
The Correlation coefficient between the Exchange Rate and Systemized Retail
is 0.714 which indicates 71 percentage positive relationship between Exchange Rate
and Systemized Retail and is significant at 1percent level. The Correlation coefficient
between the Exchange Rate and Financial Impact is 0.694 which indicates 69
percentage positive relationship between Exchange Rate and Financial Impact and is
significant at 1 percent level.
The Correlation coefficient between the Systemized Retail and Financial
Impact is 0.841 which indicates 84 percentage positive relationship between
Systemized Retail and Financial Impact and is significant at 1 percent level.
138
Table 5.26 Pearson Correlation coefficient between factors of FDI and
FDI in Retail
Factors of FDI FDI In Retail
Supply Chain 0.480
Storage Facility 0.256
Government Policies 0.136
Competition 0.273
Employment 0.250
Joint Ventures 0.228
Note: 1. ** denotes correlation is significant at 1 percent level
The correlation coefficient between supply chain and FDI in retail is 0.480
which indicates there is positive relationship of 48 percent and is significant at 1
percent level. The correlation coefficient between storage facility and FDI in retail is
0.256 which indicates 25 percent of positive relationship and is significant at 1
percent. The correlation coefficient between government policies and FDI in retail is
0.136 which indicates 13 percent of positive relationship and is significant at 1
percent. The correlation coefficient between competition and FDI in retail is 0.273
where there is 27 percent of positive relationship between them and is significant at 1
percent. The correlation coefficient between employment and FDI in retail is 0.250
which indicates there is 25 percent of positive relationship and is significant at 1
percent. The correlation coefficient between joint ventures and FDI in retail is 0.228
which indicates 22 percent of positive relationship and is significant at 1 percent.
139
Table 5.27 Pearson Correlation coefficient between primary and
secondary factors of FDI
Factors of FDI Inflation Exchange
Rate
Systemized
Retail
Financial
Impact
Supply Chain 0.466 0.394 0.479 0.514
Storage Facility 0.473 0.467 0.543 0.524
Government
Policies 0.447 0.476 0.543 0.520
Competition 0.475 0.501 0.608 0.612
Employment 0.502 0.463 0.513 0.538
Joint Ventures 0.626 0.399 0.532 0.539
FDI In Retail 0.356 0.275 0.297 0.383
Note: 1. ** denotes correlation is significant at 1 percent level
The correlation coefficient between supply chain and inflation is 0.466 which
explains that there is 46 percent positive relationship between supply chain and
inflation and is significant at 1 percent. The correlation coefficient between supply
chain and exchange rate is 0.394 which indicates 39 percent positive relationship
between them and is significant at 1 percent. The correlation coefficient between
supply chain and systemized retail is 0.514 and has a positive relationship of 48
percent between them and is significant at 1 percent. The correlation coefficient
between supply chain and financial impact is 0.514 that indicates there is positive
relationship of 51 percent and is significant at 1 percent.
The correlation coefficient between storage facility and inflation is 0.473
which explains that there is 47 percent positive relationship between storage facility
and inflation and is significant at 1 percent. The correlation coefficient between
storage facility and exchange rate is 0.467 which indicates 48 percent positive
relationship between them and is significant at 1 percent. The correlation coefficient
between storage facility and systemized retail is 0.543 and has a positive relationship
140
of 54 percent between them and is significant at 1 percent. The correlation coefficient
between storage facility and financial impact is 0.524 that indicates there is positive
relationship of 52 percent and is significant at 1 percent.
The correlation coefficient between Government policies and inflation is 0.473
which explains that there is 47 percent positive relationship between government
policies and inflation and is significant at 1 percent. The correlation coefficient
between government policies and exchange rate is 0.476 which indicates 48 percent
positive relationship between them and is significant at 1 percent. The correlation
coefficient between government policies and systemized retail is 0.543 and has a
positive relationship of 54 percent between them and is significant at 1 percent. The
correlation coefficient between government policies and financial impact is 0.520 that
indicates there is positive relationship of 52 percent and is significant at 1 percent.
The correlation coefficient between competition and inflation is 0.475 which
explains that there is 48 percent positive relationship between competition and
inflation and is significant at 1 percent. The correlation coefficient between
competition and exchange rate is 0.501 which indicates 50 percent positive
relationship between them and is significant at 1 percent. The correlation coefficient
between government policies and systemized retail is 0.608 and has a positive
relationship of 60 percent between them and is significant at 1 percent. The correlation
coefficient between government policies and financial impact is 0.612 that indicates
there is positive relationship of 61 percent and is significant at 1 percent.
The correlation coefficient between employment and inflation is 0.502 which
explains that there is 50 percent positive relationship between employment and
inflation and is significant at 1 percent. The correlation coefficient between
employment and exchange rate is 0.463 which indicates 46 percent positive
relationship between them and is significant at 1 percent. The correlation coefficient
141
between employment and systemized retail is 0.513 and has a positive relationship of
51 percent between them and is significant at 1 percent. The correlation coefficient
between employment and financial impact is 0.538 that indicates there is positive
relationship of 54 percent and is significant at 1 percent.
The correlation coefficient between joint ventures and inflation is 0.626 which
explains that there is 63 percent positive relationship between joint ventures and
inflation and is significant at 1 percent. The correlation coefficient between joint
ventures and exchange rate is 0.399 which indicates 40 percent positive relationship
between them and is significant at 1 percent. The correlation coefficient between joint
ventures and systemized retail is 0.532 and has a positive relationship of 53 percent
between them and is significant at 1 percent. The correlation coefficient between joint
ventures and financial impact is 0.539 that indicates there is positive relationship of
54 percent and is significant at 1 percent.
The correlation coefficient between FDI in retail and inflation is 0.356 which
explains that there is 36 percent positive relationship between FDI in retail and
inflation and is significant at 1 percent. The correlation coefficient between FDI in
retail and exchange rate is 0.275 which indicates 28 percent positive relationship
between them and is significant at 1 percent. The correlation coefficient between FDI
in retail and systemized retail is 0.297 and has a positive relationship of 30 percent
between them and is significant at 1 percent. The correlation coefficient between FDI
in retail and financial impact is 0.383 that indicates there is positive relationship of 38
percent and is significant at 1 percent.
142
REGRESSION ANALYSIS OF ADJUSTMENT ON FACTORS OF FDI
IN RETAIL TOWARDS FINANCIAL IMPACT
Regression Analysis helps to determine and study the relationship between
two or more variables. In simple regression test, only one independent and one
dependent variable is studied. In multiple regression test more than two independent
variables are studied. The main core of regression analysis is framing a mathematical
expression to find values of dependent variable on the basis of independent variable.
It is thus designed to examine the relationship of a variable Y to a set of the
other variables X1,X2,X3………..Xn. The most commonly used linear equation in
regression analysis is
Y=b1X1+b2X2+………..+bnXn+b0
Y is the dependent variable
X1, X2…… and Xn are independent variables and b1, b2… and bn are
coefficient of the variables.
In this study, the dependent variable is Financial impact and the independent
variables are FDI in retail, Supply Chain, Storage Facility, Government Policies,
Competition, Employment, Joint Ventures, Inflation, Exchange Rate and Systemized
Retail.
Dependent Value : Financial Impact (Y)
Independent Value : 1. FDI in Retail(X1)
2. Supply Chain(X2)
3. Storage Facility(X3)
143
4. Government Policies(X4)
5. Competition(X5)
6. Employment(X6)
7. Joint Ventures(X7)
8. Inflation(X8)
9. Exchange Rate(X9)
10. Systemized Retail(X10)
Multiple R Value : 0.881
R Square Value : 0.776
F Value : 174.924
P Value : <0.001**
144
Table 5.28: Variables in the Multiple Regression Analysis
Variables
Unstandardized
Coefficients
Std.
Error
of B
Standardized
Coefficients
t
value P value
Constant 7.301 0.997 7.320 <0.001**
X1 0.101 0.035 0.071 2.891 0.004**
X2 0.100 0.041 0.067 2.441 0.015*
X3 0.031 0.048 0.017 0.640 0.522
X4 0.040 0.035 0.031 1.134 0.257
X5 0.139 0.036 0.109 3.818 <0.001**
X6 0.082 0.042 0.053 1.948 0.052
X7 0.097 0.044 0.065 2.188 0.029*
X8 0.193 0.054 0.134 3.596 <0.001**
X9 0.165 0.064 0.086 2.589 0.010**
X10 0.507 0.041 0.477 12.36 <0.001**
Notes: 1. ** Denotes significant at 1 percent level
2. * Denotes significant at 5 percent level
The Multiple Correlation coefficient is 0.881 measures the degree of
relationship between the actual values and the predicted values of the factors of FDI
in retail towards financial impact. The predicted values are obtained as a linear
combination of FDI in retail, Supply Chain, Storage Facility, Government Policies,
Competition, Employment, Joint Ventures, Inflation, Exchange Rate and Systemized
Retail. The coefficient value of 0.881 indicates the relationship between financial
impact and ten independent factors as quite strong and positive.
The coefficient of Determination R-square means the goodness-of-fit of the
estimated Sample Regression Plane (SRP) in terms of the proportion of the variation
145
in the dependent variables explained by the fitted sample regression equation. The
value of R square is 0.776, which means that about 77.6 percentage of the variation
in factors of FDI in retail towards financial impact is explained by the estimated SRP
which uses Systemized retail, Inflation and Competition as the independent variables
and R square is significant at 1percent level.
The multiple regression equation is
Y=n7.301+0.101X1+0.100X2+0.031X3+0.040X4+0.139X5+0.082X6+0.097X7+0.
193X8+0.165X9+0.507X10
The coefficient of X1 is 0.101 represents the partial effect of FDI in retail
on financial impact, holding the remaining factors as constant. The positive sign
implies that the effect is positive and the financial impact will increase by 0.101 for
every unit of increase in FDI in retail and this coefficient value is significant at 1
percent level.
The coefficient of X2 is 0.100 represents the partial effect of supply chain on
financial impact holding the remaining factors as constant. The positive sign implies
that the effect is positive and the financial impact will increase by 0.100 for every unit
of increase in supply chain and this coefficient value is significant at 5 percent level.
The coefficient of X3 is 0.031 represents the partial effect of storage facility
on financial impact holding the remaining factors as constant. The positive sign
implies that the effect is positive and the financial impact will increase by 0.031 for
every unit of increase in storage facility and this coefficient value is not significant at
5 percent level.
The coefficient of X4 is 0.040 represents the partial effect of Government
policies on financial impact holding the remaining factors as constant. The positive
146
sign implies that the effect is positive and the financial impact will increase by 0.040
for every unit of increase in government policies and this coefficient value is not
significant at 5 percent level.
The coefficient of X5 is 0.139 represents the partial effect of Competition on
financial impact holding the remaining factors as constant. The positive sign implies
that the effect is positive and the financial impact will increase by 0.139 for every unit
of increase in competition and this coefficient value is significant at 1 percent level.
The coefficient of X6 is 0.082 represents the partial effect of Employment on
financial impact holding the remaining factors as constant. The positive sign implies
that the effect is positive and the financial impact will increase by 0.082 for every unit
of increase in employment and this coefficient is not significant at 5 percent level.
The coefficient of X7 is 0.097 represents the partial effect of Joint Ventures on
financial impact holding the remaining factors as constant. The positive sign implies
that the effect is positive and the financial impact will increase by 0.097 for every unit
of increase in joint ventures and this coefficient is significant at 5 percent level.
The coefficient of X8 is 0.193 represents the partial effect of Inflation on
financial impact holding the remaining factors as constant. The positive sign implies
that the effect is positive and the financial impact will increase by 0.193 for every unit
of increase in inflation and this coefficient is significant at 1 percent level.
The coefficient of X9 is 0.165 represents the partial effect of Exchange rate on
financial impact holding the remaining factors as constant. The positive sign implies
that the effect is positive and the financial impact will increase by 0.165 for every unit
of increase in exchange rate and this coefficient is significant at 1 percent level.
147
The coefficient of X10 is 0.507 represents the partial effect of Systemized retail
on financial impact holding the remaining factors as constant. The positive sign
implies that the effect is positive and the financial impact will increase by 0.507 for
every unit of increase in systemized retail and this coefficient is significant at 1
percent
148
STRUCTURAL EQUATION MODEL ON FDI IN RETAIL TOWARDS
FINANCIAL IMPACT
BASIC INTRODUCTION ON SEM
A large segment of management research in recent years has used structural
equation modeling (SEM) as an analytical approach that simultaneously combines
factor analysis and linear regression models for theory testing. With this approach,
latent variables (factors) represent the concepts of a theory, and data from measures
(indicators) are used as input for statistical analyses that provide evidence about the
relationships among latent variables.
THE VARIABLES USED IN THE STRUCTURAL EQUATION MODELING
I. Observed, endogenous variables:
1. Supply chain
2. Storage Facility
3. Government Policies
4. Competition
5. Employment
6. Joint Ventures
7. Inflation
8. Exchange Rate
9. Systemized Retail
149
10. Financial Impact
II. Observed, exogenous variables:
1. FDI in Retail
III. Unobserved, exogenous variables
1. e1: Error term for Supply Chain
2. e2: Error term for Storage facility
3. e3: Error term for Government Policies
4. e4: Error term for Competition
5. e5: Error term for Employment
6. e6: Error term for Joint Ventures
7. e7: Error term for Inflation
8. e8: Error term for Exchange Rate
9. e9: Error term for Systemized Retail
10. e10: Error term for Financial Impact
Hence the number of variable in the SEM are
150
Number of variables in your model: 21
Number of observed variables: 11
Number of unobserved variables: 10
Number of exogenous variables: 11
Number of endogenous variables: 10
151
152
Table 5.29: Variables in the Structural Equation Model Analysis
Variables
Unstanda
rdized
Coefficie
nt
S.E.
Standardize
d
coefficient
t value P value
Supply
chain
<--
-
FDI in
Retail 0.452 0.036 0.480 12.430 <0.001**
Storage
Facility
<--
-
FDI in
Retail 0.206 0.034 0.256 5.998 <0.001**
Govern
ment
Policies
<--
-
FDI in
Retail 0.152
0.049 0.136 3.112 0.002**
Compet
ition
<--
-
FDI in
Retail 0.304 0.047 0.273 6.438 <0.001**
Employ
ment
<--
-
FDI in
Retail 0.228 0.039 0.250 5.864 <0.001**
Joint
Venture
s
<--
-
FDI in
Retail 0.217
0.041 0.228 5.326 <0.001**
Inflatio
n
<--
-
Supply
chain 0.167 0.034 0.175 4.906 <0.001**
Inflatio
n
<--
-
Storage
Facility 0.177 0.039 0.160 4.517 <0.001**
Inflatio
n
<--
-
Governme
nt Policies 0.117 0.029 0.146 3.991 <0.001**
Inflatio
n
<--
-
Competiti
on 0.122 0.030 0.152 4.096 <0.001**
Inflatio
n
<--
-
Employme
nt 0.087 0.035 0.088 2.444 0.015*
Inflatio
n
<--
-
Joint
Ventures 0.453 0.034 0.481 13.317 <0.001**
Exchan
ge Rate
<--
-
Supply
chain 0.091 0.029 0.129 3.162 0.002*
Exchan
ge Rate
<--
-
Storage
Facility 0.147 0.033 0.179 4.425
<0.001**
Exchan
ge Rate <--
-
Governme
nt Policies 00
.115 0.025 0.194 4.612
<0.001**
153
Variables
Unstanda
rdized
Coefficie
nt
S.E.
Standardize
d
coefficient
t value P value
Exchan
ge Rate <--
-
Competiti
on 00
.132 0.025 0.221 5.219
<0.001**
Exchan
ge Rate <--
-
Employme
nt 00
.115 0.030 0.157 3.808
<0.001**
Exchan
ge Rate <--
-
Joint
Ventures 00
.130 0.029 0.186 4.496
<0.001**
Systemi
zed
Retail
<--
-
Supply
chain 00
.198 0.044 0.158 4.548
<0.001**
Systemi
zed
Retail
<--
-
Storage
Facility 00
.294 0.050 0.201 5.863
<0.001**
Systemi
zed
Retail
<--
-
Governme
nt Policies 00
.214 0.038 0.202 5.681
<0.001**
Systemi
zed
Retail
<--
-
Competiti
on 00
.336 0.038 0.316 8.796
<0.001**
Systemi
zed
Retail
<--
-
Employme
nt 00
.110 0.046 0.085 2.411 0.016*
Systemi
zed
Retail
<--
-
Joint
Ventures 00
.418 0.044 0.335 9.576 <0.001**
Financi
al
Impact
<--
- Inflation 00
.157 0.051 0.122 3.058 0.002**
Financi
al
Impact
<--
-
Exchange
Rate 00
.352 0.076 0.203 4.637
<0.001**
Financi
al
Impact
<--
-
Systemize
d Retail 00
.465 0.039 0.478 11.863
<0.001**
154
Note: 1. ** denotes significant level at 1 percent level
* denotes significant level at 5 percent level
Here the coefficient of FDI in Retail is 0.452 represents the partial effect of
FDI in Retail towards supply chain, holding the other variables as constant. The
estimated positive sign implies that such effect is positive that supply chain would
increase by 0.452 for every unit increase in FDI in retail and this coefficient value is
significant at 1 percent level.
The coefficient of FDI in Retail is 0.206 represents the partial effect of FDI in
Retail towards storage facility, holding the other variables as constant. The estimated
positive sign implies that such effect is positive that storage facility would increase
by 0.206 for every unit increase in FDI in retail and this coefficient value is significant
at 1 percent level.
The coefficient of FDI in Retail is 0.152 represents the partial effect of FDI in
Retail towards government policies, holding the other variables as constant. The
estimated positive sign implies that such effect is positive that government policies
would increase by 0.152 for every unit increase in FDI in retail and this coefficient
value is significant at 1 percent level.
The coefficient of FDI in Retail is 0.304 represents the partial effect of FDI in
Retail towards competition, holding the other variables as constant. The estimated
positive sign implies that such effect is positive that competition would increase by
0.304 for every unit increase in FDI in retail and this coefficient value is significant
at 1 percent level.
The coefficient of FDI in Retail is 0.228 represents the partial effect of FDI in
Retail towards employment, holding the other variables as constant. The estimated
155
positive sign implies that such effect is positive that employment would increase by
0.228 for every unit increase in FDI in retail and this coefficient value is significant
at 1 percent level.
The coefficient of FDI in Retail is 0.217 represents the partial effect of FDI in
Retail towards joint ventures, holding the other variables as constant. The estimated
positive sign implies that such effect is positive that joint ventures would increase by
0.217 for every unit increase in FDI in retail and this coefficient value is significant
at 1 percent level.
The coefficient of Supply chain is 0.167 represents the partial effect of supply
chain towards inflation, holding the other variables as constant. The estimated positive
sign implies that such effect is positive that inflation would increase by 0.167 for every
unit increase in supply chain and this coefficient value is significant at 1 percent level.
The coefficient of Storage Facility is 0.177 represents the partial effect of
storage facility towards inflation, holding the other variables as constant. The
estimated positive sign implies that such effect is positive that inflation would increase
by 0.177 for every unit increase in storage facility and this coefficient value is
significant at 1 percent level.
The coefficient of Government Facilities is 0.117 represents the partial effect
of government policies towards inflation, holding the other variables as constant. The
estimated positive sign implies that such effect is positive that inflation would increase
by 0.117 for every unit increase in government policies and this coefficient value is
significant at 1 percent level.
The coefficient of Competition is 0.122 represents the partial effect of
competition towards inflation, holding the other variables as constant. The estimated
positive sign implies that such effect is positive that inflation would increase by 0.122
156
for every unit increase in competition and this coefficient value is significant at 1
percent level.
The coefficient of Employment is 0.087 represents the partial effect of
employment towards inflation, holding the other variables as constant. The estimated
positive sign implies that such effect is positive that inflation would increase by 0.087
for every unit increase in employment and this coefficient value is significant at 5
percent level.
The coefficient of Joint Ventures is 0.453 represents the partial effect of joint
ventures towards inflation, holding the other variables as constant. The estimated
positive sign implies that such effect is positive that inflation would increase by 0.453
for every unit increase in joint ventures and this coefficient value is significant at 1
percent level.
The coefficient of Supply chain is 0.091 represents the partial effect of supply
chain towards Exchange rate, holding the other variables as constant. The estimated
positive sign implies that such effect is positive that exchange rate would increase by
0.091 for every unit increase in supply chain and this coefficient value is significant
at 5 percent level.
The coefficient of Storage Facility is 0.147 represents the partial effect of
storage facility towards Exchange rate, holding the other variables as constant. The
estimated positive sign implies that such effect is positive that exchange rate would
increase by 0.147 for every unit increase in storage facility and this coefficient value
is significant at 1 percent level.
The coefficient of Government Policies is 0.115 represents the partial effect of
government policies towards Exchange rate, holding the other variables as constant.
The estimated positive sign implies that such effect is positive that exchange rate
157
would increase by 0.115 for every unit increase in government policies and this
coefficient value is significant at 1 percent level.
The coefficient of Joint Ventures is 0.130 represents the partial effect of joint
ventures towards Exchange rate, holding the other variables as constant. The
estimated positive sign implies that such effect is positive that exchange rate would
increase by 0.130 for every unit increase in joint ventures and this coefficient value is
significant at 1 percent level.
The coefficient of Supply chain is 0.198 represents the partial effect of supply
chain towards Systemized Retail, holding the other variables as constant. The
estimated positive sign implies that such effect is positive that systemized retail would
increase by 0.198 for every unit increase in supply chain and this coefficient value is
significant at 1 percent level.
The coefficient of Storage facility is 0.294 represents the partial effect of
storage facility towards Systemized Retail, holding the other variables as constant.
The estimated positive sign implies that such effect is positive that systemized retail
would increase by 0.294 for every unit increase in systemized retail and this
coefficient value is significant at 1 percent level.
The coefficient of Government policies is 0.214 represents the partial effect of
government policies towards Systemized Retail, holding the other variables as
constant. The estimated positive sign implies that such effect is positive that
systemized retail would increase by 0.214 for every unit increase in government
policies and this coefficient value is significant at 1 percent level.
The coefficient of Competition is 0.336 represents the partial effect of
competition towards Systemized Retail, holding the other variables as constant. The
estimated positive sign implies that such effect is positive that systemized retail would
158
increase by 0.336 for every unit increase in competition and this coefficient value is
significant at 1 percent level.
The coefficient of Employment is 0.110 represents the partial effect of
employment towards Systemized Retail, holding the other variables as constant. The
estimated positive sign implies that such effect is positive that systemized retail would
increase by 0.110 for every unit increase in employment and this coefficient value is
significant at 5 percent level.
The coefficient of Joint Ventures is 0.418 represents the partial effect of joint
ventures towards Systemized Retail, holding the other variables as constant. The
estimated positive sign implies that such effect is positive that systemized retail would
increase by 0.418 for every unit increase in joint ventures and this coefficient value is
significant at 1 percent level.
The coefficient of Inflation is 0.157 represents the partial effect of inflation
towards Financial impact, holding the other variables as constant. The estimated
positive sign implies that such effect is positive that Financial impact would increase
by 0.157 for every unit increase in inflation and this coefficient value is significant at
1 percent level.
The coefficient of Exchange Rate is 0.352 represents the partial effect of
exchange rate towards Financial impact, holding the other variables as constant. The
estimated positive sign implies that such effect is positive that Financial impact would
increase by 0.352 for every unit increase in exchange rate and this coefficient value is
significant at 1 percent level.
The coefficient of Systemized Retail is 0.465 represents the partial effect of
systemized retail towards Financial impact, holding the other variables as constant.
The estimated positive sign implies that such effect is positive that Financial impact
159
would increase by 0.465 for every unit increase in systemized retail and this
coefficient value is significant at 1 percent level.
Table 5.30: Model Fit Summary
NOTE
From the above table 5.30, the calculated chi–square/df value is 3.753 which
is less than 5 that indicates it is perfectly fit as suggested by hair et al.,1998. The GFI
( Goodness of Fit Index) value and AGFI ( Adjusted Goodness of Fit Index ) value is
greater than 0.9 which represent it as a good fit suggested by Hair et al .,1998 and
Daire et al., 2008 . The calculated CFI (Comparative Fit Index) value 0.945 is greater
than 0.90 which means it is perfectly fit as suggested by Hu and Bentler., 1999 and
also the RMR (Root Mean Square Residuals) value is 0.056 which is less than 0.08 as
suggested by Hair et al., 2006 and RMSEA (Root Mean Square Error of
Approximation) value is 0.065 which is less than 0.08 which indicates it is perfectly
fit as suggested by Hair et al., 2006.
Variable Value Suggested value
Chi-square value 86.328
Chi-square / df 3.753 <5.00 ( Hair et al. ,1998 )
GFI 0.958 >0.90 (Hair et al. 2006)
AGFI 0.919 >0.90 (Daire et al., 2008)
CFI 0.945 >0.90 (Hu and Bentler, 1999)
RMR 0.056 <0.08 (Hair et al., 2006)
RMSEA 0.065 <0.08 (Hair et al., 2006)
160
5.4 MODEL BASED ON RETAILER’S PERCEPTION TOWARDS
FINANCIAL IMPACT ON FDI IN RETAIL SECTOR IN TAMIL NADU
161
FDI in retail leads to a cause effect relationship, a model is developed
from the findings with the help of rating scale based on the mean value calculated
from questionnaire. Retailers feel that there is no proper supply chain system in Tamil
Nadu and hence there is a gap in demand and supply. This leads to major loss of
produces as they are unable to deliver them to consumers on time. Similarly, the
retailers are in need of adequate storage facilities to store the perishable produce in
Tamil Nadu. Without adequate storage systems they are unable to store either the
excess produce or perishable goods. Hence, both these factors leads to food inflation
and a need for a systemized retailing. With FDI coming into retailing sector, the
retailers perceive that the supply chain will be channelized and storage facilities will
be adequate to store the produce which will curtail the food inflation and helps the
retail outlets to become systemized with efficient administration system. Thus both
these factors have a direct effect leading to positive financial impact for retailers.
Employment has indirect effect on FDI in retail towards positive financial
impact, as it will help to generate more employment opportunities in retail sector
directly by working in the outlets and indirectly by means of logistics, warehousing,
processing, procuring farm produce, and so on. Higher Employment leads to increase
in revenue both to the individual and as retail sector as a whole. Similarly Government
will earn maximum through tax revenues which in-turn develops the economy of the
state.
162
CHAPTER VI
CONCLUSION AND FUTURE SCOPE OF RESEARCH
6.1 INTRODUCTION
The conclusion is the main part in the research work which is intended to
help the reader in understanding the crust of the research work after they have finished
reading the paper. A conclusion is not merely a summary or a re-statement of the
research problem but a synthesis of key points.
6.2 SUMMARY
Retail industry in India is one of the developing sectors at a global level. In
today’s world everything is available in a hand’s reach due to the advancement of
technology and innovative retail strategies. E-retailing is gaining popularity and the
products are delivered at our door step without physical shopping. So with the
introduction of FDI in retail there will be a definite impact on the growth of retailers
with the introduction of new products, innovative technologies, increased amount of
storage facilities, and proper supply chain but at the same time it may lead to
monopoly or oligopoly because of more foreign players in the markets. The main
purpose of this study is to understand whether there will be an impact in the retail
sector within Tamil Nadu after the introduction of FDI.
The literature reviews are collected based on the concepts of FDI in India,
retail marketing concepts and FDI in Retail and a research gap has been identified
163
Based on the gap this study is titled as, “A Study on retailer’s perception about the
financial impact of Foreign Direct Investment in retail sector in Tamil Nadu”
The research design is based on - the primary data, collected with the help
of questionnaire and secondary data - journals, articles, and other publications relating
to FDI in retail. Sample size was determined and the survey was conducted on 516
organized and un-organized retail outlets within Tamil Nadu using the questionnaire
based on ten factors such as Supply Chain, Storage Facility, Government Policies,
Competition, Employment, Joint Ventures, Inflation, Exchange Rate, Systemized
Retail and Financial impact. Convenience Sampling method and random sampling
method was used to conduct the survey.
After the data was collected, various statistical tools were used to study the
descriptive and inferential analysis regarding the factors of FDI in retail affecting
financial impact. The factors of FDI were tested using ANOVA test, Friedman test,
correlation co-efficient and Multiple Regression Analysis and SEM analysis. Finally,
CFA confirmatory analysis was applied and found goodness of fit for this study. Some
of the important findings are that, there is a significant difference between all factors
of FDI in retail except location of the outlet. There is a positive relationship between
systemized retail and financial impact followed by inflation towards financial impact.
Employment is the most important factor for FDI in retail. Systemized retail is most
influencing factor for financial impact.
Overall there is a positive relationship between the factors of FDI in retail
towards Financial Impact.
164
6.3 MAJOR FINDINGS AND SIGNIFICANT OUTCOME
(Table 5.1) - Based on this study, 60 percentage of retailers are located
within city in Tamil Nadu.
(Table 5.2) - Based on this study, 40 percentage of the retailers have an
outlet of area with 1001-2000 square feet.
(Table 5.3) - Based on this study, 35 percentage of the retail outlets have an
existence of around 6 to 10 years in Tamil Nadu.
(Table 5.4) - Based on this study, 35 percentage of retail outlets have an
average number around 51-100 customers visiting their outlet per day.
(Table 5.5) - Based on this study, 35 percentage of the retail outlets in Tamil
Nadu have a sales around Rs. 1 to 5 lakhs per month.
(Table 5.6) - Based on this study, 32 percentage of the retail outlets has
employed around 6 to 10 employees.
(Table 5.7) - Based on this study, retailers in Tamil Nadu feel allowing FDI
in retail will be appreciable step for the progress of retail sector and the economy and
hence it has highest mean value of 4.52.
(Table 5.8) - Based on this study, with highest mean value of 4.00, the
retailers feel the existing supply chain system is inefficient to deliver the goods on
time to the consumer and hence there is gap in demand and supply.
(Table 5.9) - Based on this study, the retailers with highest mean rank of 4.04
feel that FDI will help in better stocking of perishable goods in Tamil Nadu.
165
(Table 5.10) - Based on this study, the government policies are ample in
Tamil Nadu for retail sector and hence it has received highest mean value of 3.64
(Table 5.11) - Based on this study, with the highest mean value of 3.78, the
retailers fear that there will be chances of monopoly due to induction FDI in retail
sector
(Table 5.12) - Based on this study, the retailers feel that there will more
employment generation directly and indirectly in Tamil Nadu because of FDI in retail
hence it has highest mean value of 4.35.
(Table 5.13) – Based on this study, most of the retailers feel Joint venture will
be a welcome change in Tamil Nadu with a highest mean value of 3.91
(Table 5.14) - Based on this study, the retailers feel that with the help of FDI
in retail the inflation will be controlled due to the efficient transportation and storage
facilities and it has received highest mean value of 3.86.
(Table 5.15) - Based on this study, the fluctuations in the foreign exchange
reserves will be improved due to the cash flow from the foreign company and hence
it has highest mean value of 4.02
(Table 5.16) - Based on this study, the FDI in retail sector will help in
systemized form of retailing and hence it has received mean value of 3.59
(Table 5.17) - Based on the study, most of the retailers feel the market value
of retail outlet will be enhanced after FDI, so it has a mean value of 3.75
(Table 5.18) - There is significant difference found between location of outlet
with respect to FDI in retail at 1 percent level. Based on DMRT test the suburban
significantly differs within city and rural. There is significant difference between
166
location of outlet with respect to storage facility at 5 percent level. Based on DMRT
test there is significant difference between location of the outlet with respect to the
storage facility. Hence concluded that FDI in retail will be more effective in within
city (19.85b) followed by rural (19.52b)
(Table 5.19) - There is significant difference between existence of retail outlet
with respect to all factors of FDI except FDI in retail and supply chain at 1 percent
level. Based on DMRT retail outlets with below 10 years of existence differs with
outlets with above 10 years of existence. There is significant difference between
existence of the retail outlet with respect to FDI in retail and supply chain at 5 percent
level. Based on DMRT test below 15 years of existence of retail outlet significantly
differs with above 15 years of existence. Hence concluded that FDI in retail will play
a major role for retail outlets having existence of above 15 years (19.16c), followed
by 11-15 years (18.63bc) and 6-10 years (18.04ab)
(Table 5.20) - There is significant difference between number of customer
service per day with regard to all factors of FDI except storage facility, employment,
and joint ventures at 1 percent level. Based on DMRT test below 50 customers per
day significantly differs with above 200 customers per day. There is significant
difference between number of customer service per day with regards to employment
at 5 percent level. Based on DMRT test below 50 customers per day significantly
differs with above 200 customers per day. Hence concluded that FDI in retail is the
most effective factor for retail outlets with above 200 customers (21.14b) followed by
outlets with 101-200 customers per day (19.34a)
(Table 5.21) - There is significant difference between size of the outlet with
regards to all factors of FDI except FDI in retail and storage facility at 1 percent level.
Based on DMRT test below 1000 square feet significantly differs with above 3000
square feet. There is significant difference between size of the outlet with regard to
167
FDI in retail and storage facility at 5 percent level. Based on DMRT test below 1000
square feet significantly differs with above 3000 square feet. Hence concluded size of
retail outlet with more than 3000 square feet will be most effective for FDI in retail
(20.69b) followed by outlets with 1001-2000 square feet (19.39a)
(Table 5.22) - There is significant difference between amount of sales per
month with regards to supply chain, competition, employment, inflation and exchange
rate at 1 percent level. Based on DMRT test below 5 lakhs significantly differs with
above 5 lakhs turn-around of sales. There is significant difference between amount of
sales per month with regards to FDI in retail, joint venture, Systemized retail and
financial impact at 5 percent. Based on DMRT test retail outlets with retail sales of
below 1 lakh significantly differs with above 10 lakhs. Hence concluded that retail
outlets with above 10 lakhs of sales turn over (20.72b) will be more beneficial because
of FDI in retail followed by below 1 lakh (19.56a)
(Table 5.23) - There is significant difference between number of employees
in the store with respect to all factors of FDI except FDI in retail, storage facility, and
joint ventures at 1 percent. Based on DMRT test retail outlets with below 5 employees
significantly differs outlets with above 5 employees. There is significant difference
between the number of employees in the store with respect to FDI in retail and joint
ventures at 5 percent. Based on DMRT outlets with below 5 employees significantly
differs with above 20 employees. Hence concluded that FDI in retail is most effective
factor for retail outlets having above 20 employees (20.54b) followed by outlets with
6-10 employees (19.51)a
(Table 5.24) - Based on Friedman Test there is significant difference
between mean ranks towards factors of FDI on Financial Upliftment. Based on mean
ranks, Employment (6.12) is the most important factor towards financial upliftment
followed by Storage facility (5.81), Exchange rate (5.60), supply chain (5.19),
168
Competition (4.69), Government policies (4.70), inflation (4.48), joint ventures (4.27)
and Systemized retail (4.13).
(Table 5.25) - Based on correlation analysis there is significant difference
between factors of FDI in retail at 1 percent where correlation between systemized
retail and financial impact is 0.841 and correlation between inflation and financial
impact is 0.729. This indicates that there is strong relationship between financial
impact with systemized retail and inflation.
(Table 5.26) - There is significant difference between factors of FDI and FDI
in retail at 1 percent where the correlation between supply chain and FDI in retail is
0.480, followed by correlation between competition and FDI in retail which is 0.273.
This indicates strong relationship between supply chain and competition with respect
to FDI in retail.
(Table 5.27) - There is significant difference between primary and secondary
factors of FDI in retail at 1 percent level where the correlation between joint ventures
and inflation is 0.626 followed by correlation between competition and financial
impact at 0.612. This indicates that joint venture will help to control inflation and
competition between foreign and domestic retailers will have positive financial
impact.
(Table 5.28) - Based on Regression analysis, there is a significant relationship
between financial impact and ten independent factors at 1 percent level and the
coefficient value is 0.881 which indicates strong and positive relationship between
them. Systemized retail(X10) is the most influencing factor with value of 0.507 for
every unit increase in financial impact followed by Inflation(X8) with value of 0.193
and Exchange rate (X9) with value of 0.165.
169
(Table 5.29) - Based on SEM analysis, there is significant difference found
between financial impact and all factors of FDI in retail at 1 percent level. Systemized
retail is the most important factor with highest value of 0.465 for every unit increase
in financial impact, followed by joint venture with value of 0.453 for every unit
increase in inflation.
(Table 5.30) - From the above table, the calculated chi–square/df value is
3.753 which is less than 5 indicates that it is perfectly fit as suggested by hair et al.,
1998. The GFI ( Goodness of Fit Index) value and AGFI ( Adjusted Goodness of Fit
Index ) value is greater than 0.9 which represent it as a good fit suggested by Hair et
al .,1998 and Daire et al., 2008 . The calculated CFI (Comparative Fit Index) value
0.945 is greater than 0.90 which means it is perfectly fit as suggested by Hu and
Bentler., 1999 and also the RMR (Root Mean Square Residuals) value is 0.056 which
is less than 0.08 as suggested by Hair et al., 2006 and RMSEA (Root Mean Square
Error of Approximation) value is 0.065 which is less than 0.08 which indicates it is
perfectly fit as suggested by Hair et al., 2006
6.4 SUGGESTIONS
a. A healthy discussion must be held by the Government of India with a
panel committee members representing all sectors of the industry to
analyse the impact of FDI and to understand its outcome rather than
creating fear in minds of retailers, farmers and MSME’s.
b. The Government of Tamil Nadu has to take an initiative to educate all
retailers both in urban areas and rural areas about FDI, in collaboration
with Retailers Association. This will help to give a fair picture to the
retailers as most of them are not aware of the entire concept of FDI with
its clauses and hence they are unable to analyse the proper outcome.
170
c. As most of the retailers feel that FDI in retail will promote systemized
retailing, the government must take some measures regarding relaxation
of local taxes since majority of retail shops are without proper inventory
and bill books due to cumbersome tax process and heavy tax charges
including sales tax, service tax, VAT.
d. As 50 percent of investment is invested in backend infrastructure, the
retailers expect increase in employment opportunities which acts as the
ray of hope towards the growth of individual and economy. Hence the
Government must have a written clause of agreement with the investors to
fulfil their norms to protect the interest of common man and retailers.
e. Government can collectively buy all farm produce from the farmers and in
turn on basis of percentage agreed with both the parties (foreign and
domestic retailers) it can distribute products evenly. By this way both
farmers and local markets will be safe guarded as farmers will earn their
reward without hindrance of middlemen and local retail markets will be
getting their produce continuously.
f. The Government of Tamil Nadu must adopt a system like China by
allowing the foreign players only in SEZ’s where local retailers will not
be affected.
g. Though Tamil Nadu has many manufacturing industries we are unable to
deliver the expected results due to frequent power cuts, heavy capital
investment, and obsolete machineries. The Government have to take steps
soon to rectify the above issues by allotting some capital funds and
provide necessary utility requirements by which we can create export
expansion rather than import substitution.
171
6.5 LIMITATIONS
a) This study is conducted within Tamilnadu.
b) The study is basically about the perception from the retailer’s point of
view about FDI in retail sector in Tamilnadu.
6.6 SCOPE FOR FUTURE WORK
FDI in retail is a very recent step announced by the previous Central
Government and since it has not been implemented completely throughout there are
more scope for research scholars to provide new ideas relating to how FDI in India
can be successful without harming the interests of local players (retailers, farmers and
consumers, small industries).
6.7 CONCLUSION
Retail sector contributes around 14 percent to the Gross Domestic
Product (GDP) of the country. So it is a gradual step for the Central Government to
introduce FDI in retail sector both single brand and multi brand retailing. Initially
retail sector was a small family owned business in the form of general stores catering
to the needs of the small sector of consumers. Slowly the concept of department stores,
convenience store and super markets were introduced which had its effect on small
general stores initially but they still tried to maintain their momentum in the market
by studying the changing needs of consumers and stocking the goods as per the
requirements but in small quantities. Similarly, there might be a setback on local
retailers because of FDI initially, but gradually they will understand the new strategies
and upgrade themselves.
172
Based on the study, Retailers feel that supply chain and storage facility
will help to reduce the food inflation and control the rate of rupee in foreign markets
and hence systemized retail and inflation has a positive relationship towards financial
impact. They perceive that the employment opportunities will increase directly and
indirectly and it is concluded as the most important factor for FDI in retail. Of all the
factors, Systemized Retail is derived as the most influencing factor towards financial
impact. All the factors are positive and as per Goodness to fit test the study indicates
a perfect fit technically.
Though retailers have a positive perception towards FDI in retail because
of the supply chain and storage facility, they still fear that the market will be
monopolized by foreign retail markets and hence the local markets will be affected.
Most of the retailers are ignorant about consequences after FDI in retail sector in
Tamil Nadu.
It is in hands of the Government of Tamilnadu to help the local retailers
by providing education about the latest markets. They can reduce the taxes on service
sector to motivate them to learn the new market trends within a particular time span
to face the competition. They have to tackle the situation with proper foresight rather
than avoiding the same as allowing FDI in retail will earn a better income to the state
and to an individual.
Finally, the consumers are considered as God for retail sector so ultimately
it is in the hands of the cosumers to decide from whom they want to purchase from.
So the retailers who are competitive enough can to understand the need of consumer
perfectly can always survive in the market.
173
REFERENCES
A. BOOKS, JOURNALS AND ARTICLES
1. Aggarwal, V. (2008), The Era of Retail Revolution: Contribution to
Economy. In Research in Management and Technology, Ed. by Aneet and Ramanjeet
Singh, Deep and Deep Publications Pvt. Ltd., Pg. 429-442
2. Aqeel, A. and Nishat, M. (2004). The Determinants of Foreign Direct
Investment in Pakistan, PIDE-Journal Articles, Pakistan Institute of Development
Economics, vol. 43, no. 4, pg 651-664.
3. Arpita Mukherjee Dr, Divya Satija, Tanu M.Goyal, Murali, Mantala K,
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APPENDICES
Annexure I: Questionnaire
1. Name of the Retailer:
2. Location of the Outlet
3. Size of the outlet (sq. Ft.)
Below 1000 sq. Ft. 1000 – 2000 sq. Ft. 2000 – 3000 sq. Ft. Above 3000 sq.
Ft.
4. How many years has this retail outlet been in existence?
Less than 5 years 5 – 10 Years 10 – 15 Years More than 15
Years
5. Average number of customers that you service in a day
Below 50 50 – 100 100 – 200 Above 200
6. Average amount of sales in a month
Below 1 Lakh 1 Lakh – 5 Lakh 5 Lakh to 10 Lakh Above 10 Lakh
7. Number of employees in the store
Below 1 Lakh 1 Lakh – 5 Lakh 5 Lakh to 10 Lakh Above 10 Lakh
Within City In the Suburb In Rural Area
190
S A = Strongly Agree, D A = Disagree
A = Agree, SDA = Strongly disagree
NDA = Neither agree Nor Disagree
S.
No. A. FDI In Retail SA A NDA DA SDA
1
Allowing FDI in retail will be a good
step that will benefit Tamilnadu and
bring in progress for the state.
2
The proposed retail format of allowing
only 51% stake in the business will
protect the domestic player from being
overtaken by the foreign company.
3
FDI in Retail will lead to creation of
SEZs (Special Economic Zones) which
will help in development of rural areas
and promote the real estate market.
4
FDI in retail will bring in wide range of
products for the consumers who have
become brand-conscious and are
willing to spend.
5
FDI in Retail will eliminate the role of
the middlemen currently existing and
will directly benefit the producers /
farmers.
B. Supply Chain SA A NDA DA SDA
6
The existing supply chain system is
insufficient to make consumer products
available on time. Hence there is a gap
in demand and supply.
7
FDI in retail sector will help in
establishing better and efficient supply
chain system
191
8
Newer and better supply chain system
will ensure timely replenishment of
stock at the retail outlets for sale
9
Better supply chain system will
increase the probability of sales and
hence profit by increasing the shelf life
of the goods.
10
Better supply chain system will help
achieve better customer satisfaction
and thereby establish customer loyalty
for the retail outlet.
C. Storage Facility SA A NDA DA SDA
11 Cold storage facility not adequate in
Tamilnadu.
12
Retail shops in Tamilnadu find it
difficult to have their own cold storage
facilities.
13 FDI in storage facilities helps in better
storage of perishable goods.
14 FDI in storage helps to reduce the
wastage and transportation costs.
15 Better storage helps in reduction of
price of the product.
D. Government Policies SA A NDA DA SDA
16
Government policies in the State of
Tamilnadu towards retail sector are
adequate.
17
Reforms are required in the
Government policies to allow regulated
FDI in retail.
18
The present Government policies
towards domestic retailers should be
made lenient to ease the pressure on
them and give them support.
19
The present Government Labour Laws
should be reviewed to safeguard the
employees from being exploited by the
foreign companies.
192
20
The Government policies for profit
sharing between the foreign company
and domestic partner should be revised
to prevent 100% of profits from leaving
the country.
E. Competition SA A NDA DA SDA
21 Foreign investment will induce
monopoly in the retail market.
22 Competition is high in Tamilnadu
among retail shops.
23 FDI in retail will affect the local
competition in Tamilnadu.
24
FDI in retail sector motivates local
competitors to innovate cheaper
products with good quality.
25
Foreign investment helps to bring
better technology to win the local
competition.
F. Employment SA A NDA DA SDA
26 Employment opportunities are more in
service sector.
27 FDI in retail creates more employment
directly and indirectly.
28
More employment opportunities
increase the revenue of the individual
and for the economy.
29 Revenue will increase the standard of
living of the people.
30 All lead to improvement in the
economic growth
G. Joint Ventures SA A NDA DA SDA
31 Joint venture in retail sector is a
welcome change in Tamilnadu.
32 It helps to use the optimum resources
of both the firms.
193
33
Foreign firm collaborating with local
firm enhances the brand name and
reputation.
34 It promotes imported goods at a
cheaper price.
35 It is a win-win situation for both the
firm.
H. Inflation SA A NDA DA SDA
36
FDI in retail sector will help in curbing
the inflation as the prices of farm
produces will be controlled due to
efficient transportation and storage.
37
FDI in retail will promote free and fair
competition thereby sharply lowering
inflation.
38
FDI in retail sector will bring in lot of
cash flow which will help the
Government in building better
infrastructure spurring development
and economic growth.
39
By introducing FDI in retail, the tax
revenues from the MNCs will increase
for the Government which will further
reduce the budget deficit.
I. Exchange Rate SA A NDA DA SDA
40
Allowing FDI in retail will improve the
Foreign Exchange Reserves in India
due to the cash inflow from the foreign
company.
41
The cash inflow from FDI will
strengthen / stabilize the Indian Rupee
in the global market.
42 Improved exchange rate will reduce the
foreign-debt burden of India.
J. Systemized Retail SA A NDA DA SDA
43 FDI in retail sector will promote
systemized retail outlets.
194
44
More systemized retail outlets are
required in India to cater to the
growing section of consumers who
have more buying power.
45
Consumers will find better shopping
experience and value for money in an
systemized retail outlet than in an
unorganized retail.
46
Systemized retail will ensure controlled
quality and price of the product which
will benefit both consumers and the
retailers.
47
Systemized retail will help consumers
make informed decision about the
various products before buying.
K. Financial Impact SA A NDA DA SDA
48 FDI will improve the market value of a
retail outlet
49 FDI improves the profit figure/margin
of the retail outlet.
50 It helps all classes of people in
financial growth
51 FDI increases the number of people
with steady income in retail sector
52 FDI helps in the overall financial
growth in this sector
195
Annexure II: LIST OF PUBLICATIONS
1. Dhanya R and Dr. S Ramachandran (2012), Analysis of Green Banking
towards Sustainable Development, VelTech DR.RR&DR.SR Technical University,
National Conference, ISBN NO:978-81-8424-794 -7,Vol (1), 2012, Pg. 99-102
2. Dhanya R and Dr. S Ramachandran (2012), Advertising Ethics in India,
SRM University, National Conference, ISBN NO: 978 93 81195 161,2012, Pg.82-84
3. Dhanya R and Dr. S Ramachandran (2012),Article on analysis and
impact of consumer preference toward investment in gold, National conference , Sri
Sankara Arts and Science college, Kanchipuram, International seminar, ISBN NO:
978-93-80371-06-1, 2012, Pg. 7-10
4. Dhanya R and Dr. S Ramachandran (2013), A study on FDI in single
brand retail in India, International journal of Functional Management, SSM
Educational and Research foundation , Salem, ISSN NO:2319-1406,Vol.2(2),2013,
Pg. 82-85
5. Dhanya R and Dr. S Ramachandran (2013), Are farmers the real
benefitters of FDI in retail in India?, Indo Global Journal of Applied Management
Science, ISSN NO 2320 7892, Vol.1(3), 2013, Pg. 44-47
6. Dhanya R and Dr. S Ramachandran (2014), A study about Foreign
Direct Investment in Retail Sector in China, Indian journal of Applied Research,
Ahmedabad, ISSN : 2249-555X, Vol. 4(3), 2014, 233-234 (Impact factor: 2.1652)
7. Dhanya R and Dr. S Ramachandran (2012), A Study about Foreign
Direct Investment in Retail Trade-An Overview, Middle-East Journal of Scientific
Research, ISSN 1990-9233, Vol.12 (12), 2012, Pg.1625-1627 – (SCOPUS Indexed
Article)
196
8. Dhanya R and Dr. S Ramachandran (2014), A study about Foreign
Direct Investment in Indonesia.
VITAE
R. Dhanya was born in Coimbatore, Tamil Nadu. After completing the
schooling from Perks Matriculation Higher Secondary School and Avinashilingam
Girls higher secondary school, Coimbatore, she did her graduation in commerce and
business management from Avinashilingam University, Coimbatore in the year 2007
and also a recipient of gold medal. She has completed her post-graduation in business
administration from Anna University, Chennai in the year 2009. She has 3 years of
experience in BPO’s and has received certificate for best employee awards thrice.