Don’t miss the latest developments in business and finance.

Ambitious thinking

Image
Business Standard New Delhi
Last Updated : Jun 14 2013 | 5:14 PM IST
Mukesh Ambani's ultra-ambitious plans for a retail venture involving a total investment of Rs 25,000 crore, are on a scale that match what he had intended for his telecom venture, and comparable also to his programme for setting up large special economic zones in several states. As in the case of the refinery at Jamnagar, the key business logic hinges on using scale to achieve lower unit costs""and therefore critical cost advantages in a low-margin business. Mr Ambani spelt these out last week at the Reliance Industries meeting of shareholders, and the plan in its awesome totality would appear to put him in a league of his own when it comes to thinking big.
 
The implicit message in the plan is that the Indian retailing business is in for a period of sustained change: the small grocery shops and corner stores that have dominated retailing so far will increasingly have to compete with larger, more organised delivery systems that offer the added advantage of air-conditioned comfort and greater shelf space for more brands. So far this debate has taken place in the context of opening up retail trade to foreign direct investment""which brings a variety of extraneous elements into the calculus and therefore confuses issues. If Wal-Mart (which has been keen to enter India) is no different from Trent and Shopper's Stop or Pantaloons, other than in the nationality of its ownership, the coming transition in Indian retailing has nothing to do with foreign investment. Equally, the opposition to large retail chains might be recognised as being misplaced, and slowly die out""as happened with regard to the insurance sector. That might even persuade the government, at some stage in the not distant future, to go ahead and allow FDI in the retail business. The more competition there is, the better it will be for the consumer.
 
The irony is that protests have come more from consumers, who in fact stand to gain because large chain-stores tend to lower costs while offering greater choice and guarantees that the brands on the shop shelf are authentic, not "duplicates". These are major pluses, and in any case consumers always have the choice of going elsewhere. The fact is that the people who should fear the opening up of the retail sector are producers who will now face retail traders, who have comparable negotiating power and offer the bait of large volumes. Indeed, the marketers of consumer brands will have to reckon with the growing phenomenon of store brands. As should be obvious, all these too are pro-consumer developments.
 
In its policy response, the government has focused largely on the question of foreign investment""with the opening up to take place in stages. Global retailers will initially be allowed into single-product stores, then retail stores that meet a minimum size stipulation and are confined to the big cities. These restrictions do not make sense when large domestic players, who now have the ability to face strong competition, are setting up chain stores of their own. The issue then boils down to a matter of political judgement, as to what the best time to address the issue is. The government might find that even an early decision will not ruffle too many feathers.

 
 

Also Read

First Published: Jul 03 2006 | 12:00 AM IST

Next Story