India pips China as retail destination

Second most attractive emerging market.

India has moved up three notches in the 2004 Global Retail Development Index and is the second most attractive destination among 30 emerging markets for retailers.

While Russia remained the most attractive destination, India has overtaken China, which is ranked third by management consultancy AT Kearney in its retail benchmark study.

"Despite obstacles such as stringent foreign direct investment rules and regulations, India's attractiveness among global retailers is cemented by its second place position," the report said.

The rising retail investment was driven by consumer spending power, it said, adding that eastern Europe and India had emerged as the leading investment destinations.

It said a number of international giants, including Wal-Mart and Carrefour, were considering entry into India if the investment regulations, which bar foreign investment in the sector, were removed.

"Until reforms pass, successful global retailers will have to adapt and enter using different formats," the report said, citing the example of Planet Sports India, which operates franchise stores for Marks & Spencer.

The AT Kearney report identified purchasing power, new formats, time of entry and pace of expansion, retail expertise and IT infrastructure as the guiding factors for retailers entering a particular market.

For domestic companies, the key to compete against international players lies in the knowledge of the retail and supply markets, low overheads, support from the local community and understanding of domestic politics and economies, it added.

While India, which clocked a score of 88 points on the index, was low on market attractiveness due to its large rural population, it made up through a high score on market saturation, indicating lower saturation level. In fact, the Indian market was the least saturated among the 30 emerging markets identified for the index.

India had a score of 72 on the time-pressure measuring the urgency for retailers to enter the market. Countries like Russia and Slovakia had the maximum 100 points on this scale, while China registered 90 indicating greater urgency to invest compared to India.

On the whole, the European countries fared better than the Asian markets on this count. India was also viewed more susceptible to economic and political risk compared to economies like China, but was better placed than Russia.

"India's market-attractiveness score is relatively low because of its large rural population, but it earns high marks in other areas. Retail sales per capita has increased by one-third between 1999 and 2003. Also, its retail market is fragmented, with the top 10 companies holding about 2 per cent of the marketshare," the report said.

Why it's placed second

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• Very low market saturation puts India on top

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• Lower political and economic risk than Russia, Vietnam, Turkey & Indonesia

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• Fragmented retail market

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• Not as hot as Russia or Slovakia for immediate entry, and large rural population reduces attractiveness