Fdi a Boon or Bane
The direct FDI impact in the short term from retail chains will be modest. If you look at the numbers -- as per [financial information services firm] CEIC Data -- FDI in 2008 was in the ballpark of US$35 billion and declined in 2009 and 2010. FDI in 2011 came in at around US$27 billion or so. So if we ask the question: Will international retail chains in the shorter term -- an 18-to-24 month horizon -- bring in US$8 billion to get back on track, the answer is probably not.
Large retail chains when they venture abroad do so in three phases. In Phase One, they often set up a test case/pilot project. This can be done through a partnership with local chains (with risk and revenue sharing), or a few flagship stores that serve as brand broadcasters. The chains employ this initial-phase entry strategy to learn lessons about the local markets. They assess demand, test merchandizing strategies and set up operational capabilities. In this phase, they bring in some investment to cover their set-up costs and for establishing their sourcing (supply) footprint. This usually takes 18-to-24 months.
In the second phase, firms expand their demand footprint; they open more stores and increase both the scale of operations (volume of products sourced) and scope of products that they feature. There is considerable investment in this phase in the form of real estate acquisition, putting in operational infrastructure, establishing sourcing relationships, establishing supply chains and massive logistics capabilities. This is volume-independent investment -- that is, investment meant to gear up for volumes of business to come, but not calibrated to the current volume of business.
In the third phase, the investment keeps pace with the rate of expansion. As volumes grow and urban and semi-urban retail locations get saturated, companies look for new locations and bring in investment that is calibrated to growth in volumes. It is in the second phase and the third phase -- which come
Large retail chains when they venture abroad do so in three phases. In Phase One, they often set up a test case/pilot project. This can be done through a partnership with local chains (with risk and revenue sharing), or a few flagship stores that serve as brand broadcasters. The chains employ this initial-phase entry strategy to learn lessons about the local markets. They assess demand, test merchandizing strategies and set up operational capabilities. In this phase, they bring in some investment to cover their set-up costs and for establishing their sourcing (supply) footprint. This usually takes 18-to-24 months.
In the second phase, firms expand their demand footprint; they open more stores and increase both the scale of operations (volume of products sourced) and scope of products that they feature. There is considerable investment in this phase in the form of real estate acquisition, putting in operational infrastructure, establishing sourcing relationships, establishing supply chains and massive logistics capabilities. This is volume-independent investment -- that is, investment meant to gear up for volumes of business to come, but not calibrated to the current volume of business.
In the third phase, the investment keeps pace with the rate of expansion. As volumes grow and urban and semi-urban retail locations get saturated, companies look for new locations and bring in investment that is calibrated to growth in volumes. It is in the second phase and the third phase -- which come