The point to be proven is that FDI in Indian retail would
be beneficial. Foreign Direct Investment, or what we call the FDI, is the
investment by a company in production in another country either by buying a
firm or expanding the company’s extensions by turning into a partner. Multinational
companies often enjoy the many favors the country is willing to let them
experience. They give out cheaper wages in to labor; enjoy special investment
privileges such as tax exemptions offered by the government as an incentive to
gain tariff-free access to the markets of the country. This is generally beneficial for the firms
since they cut down on the transportation costs and can achieve great economies
of scale.
Let’s take a case study as an example.
Wal-Mart is the largest retail store in the United States,
and is larger than any other retail chain in the world. The company is also the
dominant retail store in Canada, Mexico, and the United Kingdom. After Wal-Mart
came into the global market of the United States, the government supported it
with financial aid and it ended up owning a controlling interest in the
country’s market. It turned into a monopolistic one. Initially, it began
trading stock as a publicly held company and was soon listed on the New York
Stock Exchange.
Wal-Mart continued to grow rapidly and later, became a
dominating factor in the American market. With the establishment of a MNC in
the country, small firms were overtaken and later thrown out of business. Labor
was cheap and Wal-Mart had cash flow into its pockets. They started influencing
government policies lenient to their firm bargaining over retail prices and
taxes. Wal-Mart
does not charge a slotting fee to suppliers for their products to appear in the
store but instead, it focuses on selling more popular products and provides
incentives for store managers to drop unpopular products and influences
manufacturers to supply more popular products. This MNC functions on
non-pricing strategies.
The factors that made America a suitable place is that it
has well connected roadways that make it suitable for costumers to travel to
the retail shops. The population is well above poverty that they can afford
decent goods from a branded retailer.
The scenario of Wal-Mart in India was originally
considered to be the same. But after further research on its possible impacts
on the Indian market, economists came up with conclusions that it effects would
not be as drastic as in the USA. Let’s see how. India is a country with almost
60% of its population marginally around the poverty line. The rate of
affordability is comparably low, in accordance to their daily income and
average cost of living. Wal-Mart in India would be a rather high stake market
for most of the Indian population. Disconnected localities, less transportation
and affordability would affect the cash flow for any MNC.
Generally in India after raw materials are produced,
middle-men buy it off the farmers and pass it on to a whole-sale retailer. Take
a 1kg bag of rice. If the farmer agrees to sell it off at Rs 5/- , it passes
through many levels of labor to reach the retailer. While it passes, value of
the good rises since transportation costs, labor and work force are
additionally added. The retailer would probably sell it at Rs 10/-. Wal-Mart’s
basic agenda in the Indian market is to eliminate middle-men. This would result
in excessive profits to the firm. Then, they buy the raw material off the primary
sector at a higher price and would reduce the prices of the goods in the
markets that benefit both producer and consumer mutually. Since the firm satisfies costumers’ wants,
demand for the brand goods increase. Other organized retail firms should heavily
compete to keep up with the MNC.
The entire retail in India runs on a profit-gaining
basis, making it an impossible situation if an MNC like Wal-Mart is established
in our country. To avoid this situation,
the ruling government would be equally affected, thus, they illegally
pressurize political parties to go against Wal-Mart in Indian retail and pass
resolutions in the assembly against it. They illegitimately display
dissatisfaction with the MNC’s introduction in the country that would likely
affect the market causing it to drastically suffer and unemployment rise. The
lower personas involved, not aware of the fact that MNC’s bring in profits,
consider them to over-throwing and protest against their establishment in the
country as well. The arguments have been overthrown but still do exist.
Wal-Mart opened in India in collaboration with Bharti
Airtel, holding a share of about 51% and entered retail through ‘Easy day’
shops. It is making quite a little profit though it would not be as successful
as it is in the USA. Indian market and economy would be benefited from Wal-Mart
since money loss would be terminated and prices might fall. Value of currency
within the boundaries could increase. It would increase the importance of
Indian market in the global economy.
Thus, increasing MNC’s like Wal-Mart would be beneficial
for the country’s economy against all other personal supportive arguments to
pocket high profits that suffer the market.
Any other perspective to the issue?
