Global chains are pushing India to lift restrictions that prevent them from opening stores in the country. The move could lead to sweeping changes in a country where more than 95 percent of the retail trade is handled by local stores.
Leading the courtship is Wal-Mart. In May, John Menzer, head of Wal-Mart’s international division traveled to India and met with Prime Minister Manmohan Singh. This week, Singh, who is in Washington for talks with US officials, plans to meet with Wal-Mart CEO Lee Scott and possibly visit one of the company’s supercenters.
Other global retailing giants, including the British chain Tesco and France’s Carrefour, have also been lobbying for an end to rules that bar foreign direct investment in India’s retail sector.
Chain stores account for only about 3 percent of retail sales in India. Independent stores and kiranas “family-run stalls” make up the rest.
Because of the relative lack of large supermarkets and superstores, most Indian families still shop at neighborhood stores on a daily basis—rather than the big once-a-week shopping trip that has come to dominate consumer habits in much of the West.
Opponents of lifting the restrictions, including key political parties in the fragile coalition that makes up Singh’s government, argue that opening the country to global chains would undermine the Indian tradition of local self-reliance espoused by Mahatma Gandhi. They also contend that, because so many people—70 million—make a living through their own homegrown retail operations, opening the country to multinational chains would create a flood of unemployment.
Wal-Mart and other global retailers are buying more Indian-made goods and are using the potential of even greater purchases as a lure to persuade officials to lift the restrictions on foreign retail expansion.
But recent history suggests the chains’ interest in Indian goods will last only as long as the country has rock-bottom labor costs. Manufacturing has become highly mobile. Over the last few years, retailers have been shifting production from Latin America to China, where labor costs are lower. US retailers bought $65 billion in goods from China last year. But now, with China expected to revalue its currency, raising the cost of exports by about 10 percent, many retailers—including Wal-Mart, Target, and the Gap—are turning to India. Wal-Mart recently established an 86-employee purchasing office in Bangalore.
“Retailers could shift the fall season to India,” Norbert Ore, committee chairman of the Institute for Supply Management told Bloomberg News. “We’ve gotten into a virtual world where buyers can quickly move to the lower-cost country.”
Wal-Mart has 1,600 stores outside of the U.S., in Argentina, Brazil, China, Germany, Mexico, South Korea and the United Kingdom.