ROYAL HOLLOWAY, UNIVERSITY OF LONDON

FDI in Retailing in India

Efficiency arguments vs. the social constraints
Vijyendra Singh Niranjan
31-Jan-2009

This document is the dissertation research proposal for the Business Research Methods course. It
contains the title, research objective and questions, the timetable, key literature review and the
proposed chapter outline for the research.
 Dissertation Proposal

TABLE OF CONTENTS

Title of Proposed Dissertation ................................................................................................... 3

Explanation of the Title .............................................................................................................. 3

Research Objective .................................................................................................................... 4

Research Questions ................................................................................................................... 4

Method Outline and Application ............................................................................................... 5

Qualitative Research .............................................................................................................. 5

Quantitative Study ................................................................................................................. 6

Proposed Timetable ................................................................................................................... 7

Overview of Key Literature ........................................................................................................ 9

Appendix .................................................................................................................................. 13

Appendix 1 – Proposed Report Outline ............................................................................... 14

Appendix 2 – Review of Skills............................................................................................... 16

Appendix 3 – References ..................................................................................................... 18

Appendix 4 – Selective Bibliography .................................................................................... 21

M.B.A. ’09 – International Business Research Methods / MN5260 Page 2

 Dissertation Proposal

Title of Proposed Dissertation

FDI in Retailing in India – Efficiency argument vs. the Social Constraints

Explanation of the Title

This research would investigate the issue of allowing non-national companies access to

direct end-customer retailing in India. The issues that would be researched are:

1. The arguments for FDI in Indian retailing market.

a. Are (large or other) Indian companies able to provide the same level of

efficiency in a ‘protected’ market and should external players be allowed

access.

b. The sense to protect the end-consumer retail market from the efficiencies

that would accrue from competition.

2. The arguments against.

a. The ‘employment loss’ argument – that lives would be really affected by an

expanding organized retail sector.

b. The above argument also should hold for large Indian companies and still

foreign companies are not allowed access to this lucrative market.

3. Indian retailing ‘giants’ copying the Wal-Mart’s and Tesco’s.

a. Their approach to the Retail expansion.

4. Marketing implications and strategy suggestions

a. For local small firms.

M.B.A. ’09 – International Business Research Methods / MN5260 Page 3

 Dissertation Proposal

b. For large firms in India.

c. For MNC’s aspiring to enter the Indian end-customer retail market.

Research Objective

To research into the issue of what allowing FDI in the general retail sector in India would do,

and its impact on different stakeholders.

Research Questions

The following questions are proposed to be answered with this research –

 What would be the impact of allowing FDI in general retailing in India?

 Who are the different stakeholders in this sector and the strategies they may choose

to follow?

 What benefits or losses would different stakeholders get if the sector were to be

opened?

M.B.A. ’09 – International Business Research Methods / MN5260 Page 4

 Dissertation Proposal

Method Outline and Application

This study would apply a combination of qualitative and quantitative methods to the

questions raised, even though the share of information sourced secondarily would form a

major part.

Qualitative Research

This will be based on analysis of existing publicly available literature. Important source of

secondary data would be government documents and policies, academic papers, journals

and news articles. Notes would be taken and arguments would be developed both ways and

evaluated.

An analogy based comparison would be used to derive inferences of the effects of the

hypothetical situation of foreign retailers entering the Indian markets. There is literature

available analyzing Wal-Mart and Tesco’s expansion to different countries and the degree of

success achieved. Comparisons would be made if the situation were to happen in India.

A study would also be undertaken about the rise of existing companies in India, especially of

retailers like the Pantaloon Group, Reliance Industries and Bharti group which have invested

hugely in the organized retail market in India. Their rise and strategy would be studied to

account for why other international retailers should or should not be allowed to gain market

access to the country.

M.B.A. ’09 – International Business Research Methods / MN5260 Page 5

 Dissertation Proposal

Quantitative Study

A brief primary study would also be done to gauge the acceptability of big format malls and

shopping centres with end consumers as the base. A questionnaire would be drawn and be

put across as many people as would be known and statistical software would be used to

draw inferences and meaning out of the information gained.

The secondary research would help gain insight into the acceptability of big-format retailers

amongst general consumers. To make the sample size large enough, a convenience

sampling would be used. Even though the convenience sample is not representative

(Malhotra, 2008), it would make the task easier because it can be sent out to a larger group

and there would be more data to analyze using statistical software as SPSS.

M.B.A. ’09 – International Business Research Methods / MN5260 Page 6

 Dissertation Proposal

Proposed Timetable

From To Task Comments

1-Jan 30-Jan  Complete dissertation proposal

 Identify documentation for review.

Study current
1-Feb 30-Mar  Frame questions (for qualitative study)
subjects
 Get questions verified and approved

Preparation and
1-Apr 15-May None.
exams

 Write Literature review

16-May 10-Jun  Send out questions to sample audience for

comments

 Develop methodology and write

11-Jun 30-Jun
methodology sections

 Develop and Write the results section of

1-July 20-Jul
the documentation

 Extra time to complete documentation

 Complete referencing and Bibliography

20-July 5-Aug
 Seek comments from Supervisor

 Seek comments from any forum available

M.B.A. ’09 – International Business Research Methods / MN5260 Page 7

 Dissertation Proposal

 Incorporate comments and changes.

 Combine documentation
5-Aug 15-Aug
 Check language, spelling, grammar

 Format and make document coherent

 Get approval for full document from

15-Aug 25-Aug Supervisor

 Print and submit by post and email

M.B.A. ’09 – International Business Research Methods / MN5260 Page 8

 Dissertation Proposal

Overview of Key Literature

Being a topic of recent origin, there is hardly much academic literature available on this

issue. However, this research will aim to utilise the topics that are available internationally

and draw conclusions out of them while simultaneously using currently available business

sources and reports.

The Situation

In the list of banned things for FDI in India, retail stands first (SIA, 2008). Emotions are raised

when this topic comes up and the opposing view is currently strong. Even those arguing for

allowing FDI do with caution; that the entry should be ‘gradual and with social safeguards’

(Guruswamy et al, 2005). That the retail sector is estimated to be the second biggest sector

of the economy contributing over 10% of the GDP (Department of Commerce, 2005)

highlights its importance.

The sector was loosened in 2006 when the government of India opened up FDI to single

brand product retailing (Economic Survey, 2007-08). There were also some relaxations in e-

Commerce in B2B dealing with some conditions attached (SIA, 2003).

Questions however remain as to whether India would go the full way of liberalising the

retail trade in light of opening up of the economy, a policy it has followed since the 1990’s.

There have been many demands to allow full FDI in light of arguments of efficiency and the

effect FDI has played in other sectors as automobiles. There are negative reactions of

M.B.A. ’09 – International Business Research Methods / MN5260 Page 9

 Dissertation Proposal

allowing FDI in this owing to the “Wal-Martization” effect; where more and more power

(economic and otherwise) is control by fewer corporations (Ribeiro, 2005).

That major retailers would want to enter India is not a surprise going by the increasing

standards and consumer oriented mindset of the population. With the economy in the

growth path since the last decade and real consumption estimated to grow from 17 trillion

rupees to 70 trillion rupees by 2025 (Narayanswamy and Zainulbhai, 2007), it’s no wonder

big companies want a share of this pie.

Two retailing giants – Wal-Mart and Tesco already source goods worth billions of dollars

from India and both are looking to establish a presence there in light of the great

opportunities present (Elliott, 2006) and German giant Metro already has multiple outlets in

the Cash and Carry wholesale segment.

Arguments for allowing FDI

Sobel and Dean (2008) have argued that despite contrary belief, Wal-Mart has statistically

insignificant impact on the local small business sector in the US and have used Schumpeter’s

theory of Creative Destruction that even though it may cause some individual business’s to

fail, these are offset by entry of other businesses elsewhere in the economy. Thus, in their

thoughts, Wal-Mart is simply an evolution over other forms.

There are arguments that these big superstores are simply a better way of resource

utilisation in the economy and should therefore be good for the economy.

M.B.A. ’09 – International Business Research Methods / MN5260 Page 10

 Dissertation Proposal

Moreover, even the big retailers have failed elsewhere. Going with its price competition has

not been successful for Wal-Mart in Germany, where it, along with other retailers was

forced to increase prices (Andrews, 2000). Its ignorance of the competitive German market

could be another reason (Knorr and Arndt, 2003). Tesco, even though successful in many

other international destinations, had failed in France in 1996-97 (Dunn et al, 2003). Thus,

even if such big companies were to enter India, success would not be guaranteed.

Arguments against allowing FDI

There is growing evidence that ‘Wal-Mart does not bear the full economic and social costs

of its business practices’ (Irvin and Clark, 2006 ) and thus it is the community that has to do

the balancing act and bear the brunt of having a Wal-Mart nearby. This may not be a good

option for developing countries like India which may not be able to take additional social

burden. Each worker in Wal-Mart replaces about 1.4 from the labour market (Neumark et

al, 2007) and the practice followed by in respect to payments for employees has not been

great (Greenhouse, 2002). Studies have also shown that small towns lose about 47% of their

retail trade after about 10 years of a Wal-Mart opening nearby (Stone quoted by Stone,

1997)

Moreover, competing for good is not a necessary assumption in this case. Often companies

with deep pockets would want to wipe out competition and then play as a monopolist. The

erosion of traditional industry boundaries and with companies as Microsoft, Wal-Mart,

Tesco and Intel knowing the ecosystem much better (Moore, 1997), competition would

M.B.A. ’09 – International Business Research Methods / MN5260 Page 11

 Dissertation Proposal

often fall to pieces even if it was there. What happens after the entire competition is wiped

out? Is a monopolist situation better for the country?

The Indian Scenario

The retail scenario in India is in a phase characterised by Supply Chain management,

Operations, Technology and processes (Ernst and Young in Sreejith and Raj 2007). The

increasing purchasing power of the Indian middle class is seen as a great source of money

that can push the profits of retailers up by giving consumers more choice.

The foremost company that is trying to become the Wal-Mart and Tesco of India is the

Pantaloon Group operating its stores under the ‘Big Bazaar’ banner which has already

established a major presence across many important cities. Following it closely are the

Reliance Group and the Bharti group, whose tie-up with Wal-Mart has also come under

criticism even though the government has given a go-ahead for the deal (Economic Times,

2007). Other international retailers are thus open to such a joint venture where they would

get to manage the back-end operations.

M.B.A. ’09 – International Business Research Methods / MN5260 Page 12

 Dissertation Proposal

Appendix

The following are the Appendices attached to this report –

1. Appendix 1 – Proposed Report Outline

2. Appendix 2 – Review of Skills

3. Appendix 3 – References

4. Appendix 4 – Selective Bibliography

M.B.A. ’09 – International Business Research Methods / MN5260 Page 13

 Dissertation Proposal

Appendix 1 – Proposed Report Outline

The following are the proposed sections that would be outlined in the document. These

would change with more research that would follow, but the theme would remain.

1. Introduction

An introduction to the research questions, the report, and the contents of the

report.

2. Allowing Open Market Access

A key literature review arguing for allowing FDI in the sector and the benefits that

would ensue because of this step.

3. Restricting Markets

A key literature review arguing against allowing FDI in the retail sector and analyzing

the reasoning given there.

4. Where Imitation ends

Compare similarities and dissimilarities with Wal-Mart, Tesco and other international

retailers with those of their organized Indian counterparts.

5. What shoppers want

A quantitative analysis of the preferences of consumers would be done in this

section. A sample survey would be used to determine the consumer preferences in

terms of big retailers.

6. Balancing out

Key ideas for and against would be explained and balanced against each other.

7. The Options

M.B.A. ’09 – International Business Research Methods / MN5260 Page 14

 Dissertation Proposal

Various marketing and strategic options available with different players would be

discussed in this section.

8. Conclusion.

Appendix

A. References.

B. Selective Bibliography.

C. Synopsis of major organized retail players in India.

D. Quantitative Data – Questionnaire, sampling, etc.

E. Summary on strategy and alliances formed by non Indian retailers.

M.B.A. ’09 – International Business Research Methods / MN5260 Page 15

 Dissertation Proposal

Appendix 2 – Review of Skills

This list contains a review of the skills that are identified to be required for executing this

research project. This would also act as a template for additional skills to be added, if the

need is felt that such a skill would be a requirement during the course of executing the

research.

# Skill requirement Comment

Undergoing SPSS training through the Computer Centre.

Completed 2 courses out of 3 regarding analysing data and

generating Summary and Inferential statistics.

1 SPSS
Will be attending the third session to have a general idea of

hypothesis testing and inferring the results from the SPSS

software for Linear Models.

Have detailed knowledge from past experience. Would be

2 MS Word attending course on Advanced Word techniques for

dissertations from IT Centre.

Have knowledge about MS Excel 2007 and have attended

3 Excel
session on generating graphs for MS Excel.

Have a strong computer science background and

Internet awareness and comfortable using the computer and navigating the internet
4
computer usage and collecting information and taking notes from web-sites

including Google Scholar.

M.B.A. ’09 – International Business Research Methods / MN5260 Page 16

 Dissertation Proposal

Have attended the lectures on the Qualitative and

5 Business Research Skills
Quantitative Business Skills sessions

Lacking in this skill. Need to find more information on how

Survey making and
6 to develop questionnaires as well as to use publicly available
building questionnaires
web-sites to conduct surveys as surveymonkey.com

The research covers multiple areas including Marketing,

Strategy, Retail and Supply Chain and it is intended that

more subject specific knowledge would be developed while

Subject specific this research is in progress. Have already covered sessions

7
knowledge on Strategy and basic Marketing during the first term MBA

programme. Am aware of Retail and Supply chain issues

from the past work experience in the IT domain supporting

major retail companies.

As of now, there is a general confidence in having most of the skills necessary for executing

this research project and acquiring other skills do not pose a challenge in terms of time and

criticalness of acquiring them.

M.B.A. ’09 – International Business Research Methods / MN5260 Page 17

 Dissertation Proposal

Appendix 3 – References

 Andrews, E. L., 2000, ‘Germany Says Wal-Mart Must Raise Prices’, Sept-09-2000,

New York Times

 Business Line, 2008, ‘Kamal Nath defends retail FDI policy’, Feb-09-2008, available at

http://www.thehindubusinessline.com/2008/02/09/stories/2008020952401000.htm

, [21-Jan-2009]

 Department of Commerce, Government of India, 23-Feb-2005, Press Release on ‘FDI

in Organised Retail to generate Employment, but should not displace ongoing Retail

activities’, available at

http://commerce.nic.in/PressRelease/pressrelease_detail.asp?id=1673, [21-Jan-

2009]

 Dunn, A., Mason, O., Scraff, D., Towers, D., 2003, ‘Market entry plan for Tesco in

Switzerland’, 2003-04, available at http://www.towers.fr/essays/international-

business.html, [16-Jan-2009]

 Economic Survey (2007-08), Ministry of Finance, Government of India, New Delhi,

2008 available at http://indiabudget.nic.in/es2007-08/seconomy.htm [21-Jan-2009].

 Economic Times, 2007, ‘No fault in Bharti-Wal-Mart deal: Govt’, 15-Jan-2007,

available at http://economictimes.indiatimes.com/articleshow/1202454.cms,

accessed 06-Jan-2009

 Elliott, J., 2006, ‘Why there are no Indian Wal-Marts’, May 25- 2006, Fortune,

available at

http://money.cnn.com/magazines/fortune/fortune_archive/2006/05/15/8376903/in

dex.htm , accessed 24-Jan-2009

M.B.A. ’09 – International Business Research Methods / MN5260 Page 18

 Dissertation Proposal

 Greenhouse, S., 2002, ‘Suits say Wal-Mart forces workers to Toil Off the Clock’, June

25-2002, The New York Times

 Guruswamy, M. et al, (2005), “FDI in India’s Retail Sector: More Bad than Good”, ,

Economic and Political Weekly, Volume XL No 7, Feb 12-18,2005, pages 619 to 623.

 Irvin, E. G., Clark, J., 2006, ‘The local costs and benefits of Wal-Mart’, Feb-23-2006,

The Ohio, State University, available at

http://aede.osu.edu/programs/ComRegEcon/retail.htm., [17-Jan-2009]

 Knorr, A., Arndt., A., 2003. ‘Why Did Wal-Mart Fail in Germany?’, Institute for World

Economics and International Management, pp. 1-35.

 Malhotra, N. K., (2008), ‘Marketing Research – An Applied Orientation’, Fifth Edition,

Pearson Education, pp. 370 - 373

 Moore, J., 1996, ‘The Death of Competition: Leadership and Strategy in the Age of

Business Ecosystems’, Harper Business, ISBN 0887308503, 978088730850

 Narayanswamy, S., Zainulbhai, A., 2007, ‘India’s Consumer Evolution’, Business

Standard, May 7, 2007, available

http://www.mckinsey.com/mgi/mginews/indiaconsumerevolution.asp, accessed 21-

Jan-2009

 Neumark, D., Zhang, J., Ciccarella, S., 2007, ‘The Effects of Wal-Mart on Local Labor

Markets’, Discussion Paper No. 2545, Institute for the Study of Labor (IZA), Bonn

 Ribeiro, S., 2005, ‘The costs of “Walartization”’, Jan 16, 2005, available at

http://www.zmag.org/znet/viewArticle/7074 , accessed 25-Jan-2009

 SIA (Secretariat for Industrial Assistance, Department of Industrial Policy and

Promotion, Government of India), 2003, ‘Manual on Foreign Direct Investment in

India – Policy and Procedures’, Government of India, p. 50

M.B.A. ’09 – International Business Research Methods / MN5260 Page 19

 Dissertation Proposal

 SIA (Secretariat for Industrial Assistance, Department of Industrial Policy and

Promotion, Government of India), (2008), ‘Press Note 7(2008) – Annex’, 31-Mar-

2008, Government of India

 Sobel, R.S., Dean, A. M., 2008, ‘Has Wal-Mart buried Mom and Pop? The impact of

Wal-Mart of self-employment and small business establishments in the United

States’, Economic Inquiry (ISSN 0095-2583), Vol. 46, No. 4, October 2008, 676–695

 Sreejith, A., Raj, J., 2007, ‘Organized Retail Market Boom and the Indian Society’,

International Marketing conference on Marketing and Society, IIMK, 8-10 April, 2007

 Stone, K. E., 1997, ‘Impact of the Wal-Mart phenomenon on Rural Communities’,

Proceedings: Increased Understanding of Public Problems and Policies - 1997.

Chicago, Illinois: Farm Foundation, Iowa State University.

M.B.A. ’09 – International Business Research Methods / MN5260 Page 20

 Dissertation Proposal

Appendix 4 – Selective Bibliography

 Alexander, N., Myers, H., 2000, ‘The retail internationalisation process’, International

Marketing Review, Year: 2000 Volume: 17 Issue: 4/5 Page: 334 – 353, Publisher: MCB

UP Ltd

 Angela R., Luis A., 2002, ‘The entry of Wal-Mart in Brazil and the competitive

responses of multinational and domestic firms’, International Journal of Retail &

Distribution Management, Volume 30, Number 1, 2002 , pp. 61-73(13), Publisher:

Emerald Group Publishing Limited

 Beaver, W. R., 2005, ‘Battling Wal-Mart: How Communities can Respond’, Robert

Morris University - Department of Social Sciences, Business and Society Review, Vol.

110, No. 2, pp. 159-169, June 2005

 Chaudhary, R., 2007, ‘The Apna Bazar Cooperative: From Single PDS Outlet to a

Retail Chain—A Case Study’, International Journal of Rural Management.2007; 3:

287-301

 Chaze, A., 2006, ‘India: An Investor's Guide to the Next Economic Superpower’, John

Wiley & Sons (Asia) Pte., ISBN 0470821949, 9780470821947, 321 pages

 Colla, E., Dupuis M., 2002, ‘Research and managerial issues on global retail

competition: Carrefour/Wal-Mart’, International Journal of Retail & Distribution

Management, Volume 30, Number 2, 2002 , pp. 103-111(9), Emerald Group

Publishing Limited

 Gupta, D., 2006, ‘Retailing in India and the Role of the Marketing Mix’, European

Retail Digest, 2006, Oxford Institute of Retail Management

M.B.A. ’09 – International Business Research Methods / MN5260 Page 21

 Dissertation Proposal

 Humby, C., Hunt, T., 2003, ‘Scoring Points: How Tesco is Winning Customer Loyalty’,

Kogan Page Publishers, ISBN 074943578X, 9780749435783, 276 pages

 Halepete, J., Iyer, K.V. S., Park, S. C. , 2008, ‘Wal-Mart in India: a success or failure?’,

International Journal of Retail & Distribution Management, Year: 2008 Volume: 36

Issue: 9 Page: 701 – 713, Emerald Group Publishing Limited

 Kelly, J., 2000, ‘Every Little Helps: An interview with Terry Leahy, CEO, Tesco’, Long

Range Planning, Volume 33, Issue 3, June 2000, Pages 430-439

 Mohan, V. K., Pinakapani, P., Giri, M. S. R., 2008, ‘Dynamics of Retail Markets’, ICFAI

University Journal of Services Marketing, Vol. 6, No. 3, pp. 18-28, September 2008

 Mukherjee, A., Patel, N., Virmani, A., 2006, ‘FDI in Retail Sector, India’, Academic

Foundation, ISBN 8171884806, 9788171884803, 200 pages

 Kumar, N., 2005, ‘The Global Retail Challenge’, Business Strategy Review, Vol 16, No.

1 pp 5 – 13, Year 2005, London Business School

 Kaur, P., Singh, R., 2007, ‘Uncovering retail shopping motives of Indian youth’, Young

Consumers: Insight and Ideas for Responsible Marketers, Year: 2007 Volume: 8 Issue:

2 Page: 128 - 138

 Singh et al., 2006, ‘Market Entry and Consumer Behavior: An Investigation of a Wal-

Mart Supercenter’, MARKETING SCIENCE.2006; 25: 457-476

 Soderquist, D., 2005, The Wal-Mart Way: The Inside Story of the Success of the

World's Largest Company’, Thomas Nelson Inc, ISBN 0785261192, 9780785261193,

210 pages

 Srivastava, R. K., 2008, ‘Changing retail scene in India’, International Journal of Retail

& Distribution Management, Year: 2008 Volume: 36 Issue: 9 Page: 714 - 721

M.B.A. ’09 – International Business Research Methods / MN5260 Page 22

 Dissertation Proposal

 Arnold, S. J., Fernie J., 2000, ‘Wal-Mart in Europe: prospects for the UK’,

International Marketing Review, Year: 2000 Volume: 17 Issue: 4/5 Page: 416 - 432

M.B.A. ’09 – International Business Research Methods / MN5260 Page 23