{"id":1930,"date":"2014-01-24T22:07:39","date_gmt":"2014-01-24T16:37:39","guid":{"rendered":"http:\/\/thirdeyesight.in\/blog\/?p=1392"},"modified":"2022-11-08T09:17:02","modified_gmt":"2022-11-08T09:17:02","slug":"tesco-in-india-will-every-little-help","status":"publish","type":"post","link":"https:\/\/myechoproject.com\/TES\/tesco-in-india-will-every-little-help\/","title":{"rendered":"Tesco in India: Will every little help?"},"content":{"rendered":"<div class=\"row\">\n<div class=\"col-sm-3\"><img decoding=\"async\" class=\"img-fluid d-block lazyload\" data-src=\"https:\/\/www.thirdeyesight.in\/wp-content\/uploads\/2022\/09\/tesco-every-little-helps.jpg\" alt=\"\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\"><\/div>\n<div class=\"col-sm-9\">\n<p style=\"text-align: justify;\"><em>[This article appeared in the February 2014 print issue of <em><strong>Retailer<\/strong><\/em>, under the headline &#8220;<strong>Implications of the Tata-Tesco JV<\/strong>&#8220;]<\/em><\/p>\n<p style=\"text-align: justify;\">India is a civilisation that has borne fruit from thousands of year of international cultural exchange, commerce and investment flowing both inwards and out. It is also one that has suffered from military and as well as economic colonisation over the millennia.<\/p>\n<\/div>\n<\/div>\n<p style=\"text-align: justify;\">For those reasons, foreign investment into the country is bound to have both vociferous opponents as well as staunch supporters, and this debate is possibly most polarised in the retail sector that touches every Indian\u2019s life daily. Over the last few decades, foreign investment into the retail sector has seen flip-flops from successive governments and political parties across the spectrum, being allowed until the late 1990s, then blocked (by Congress-led UPA), then selectively allowed (by BJP-led NDA, and later by Congress-led UPA). And more recently, with pressures, protests and influences from all sides 2011, 2012 and 2013 have certainly been on\/off years during the UPA\u2019s second successive term.<\/p>\n<p style=\"text-align: justify;\">In this time Zara\u2019s joint-venture, set up in 2010, has turned out be one of the most successful and profitable in India. More recently, Ikea announced a \u20ac1.5 billion plan for the country, followed by H&amp;M\u2019s US$ 115 million proposal, while Marks &amp; Spencer identified India as its second largest potential market outside the UK. However in October 2013, the world\u2019s largest retailer <a title=\"Wal-Mart brakes, Indian JV hits the wall\" href=\"http:\/\/thirdeyesight.in\/wal-mart-brakes-indian-jv-hits-the-wall-2\/\" target=\"_blank\" rel=\"noopener\">Wal-Mart decided to call off its joint venture<\/a> amid investigations of its executives having supported or indulged in corruption and accusations that it had violated foreign investment norms. It decided to acquire Bharti\u2019s stake in the cash-and-carry JV and announced that it would not invest in Bharti\u2019s retail business.<\/p>\n<p style=\"text-align: justify;\">It was soon after, as if to compensate for Wal-Mart\u2019s blow, that India\u2019s Tata Group and British retailer Tesco announced that they would be creating a formal joint venture in India, with Tesco investing US$ 110 million. The Congress-led government went on to quickly approve the proposal, as if to visibly shake off accusations of \u201cpolicy paralysis\u201d.<\/p>\n<p style=\"text-align: justify;\">Tesco\u2019s investment doesn\u2019t look like much for a country the size of India, especially in the context of Ikea\u2019s ambitious proposal or H&amp;M\u2019s fashion retail business that is possibly less complex than Tesco\u2019s multi-product multi-brand format. However, let\u2019s keep in mind that Tesco is facing tough trading conditions in Europe, took a global write-down of US$3.5 billion last year including its exit from the US market, and merged its Chinese business with retail giant China Resources Enterprise to become a minority partner. In view of all that and the unpredictability of Indian politics, US$ 110 million looks like a reasonable if not disruptive commitment. It also does somewhat limit the downside risk for Tesco if the environment turns FDI-unfriendly after the general elections.<\/p>\n<p style=\"text-align: justify;\">Whenever Tesco expanded into new markets, it has tried to adopt a localised or partner-led approach. In India, since 2007, Tesco has had an arrangement to provide support to Tata\u2019s food and general merchandise retail business. The intent underlying the partnership was clearly to look at a joint retail business when allowed by regulations and not just at back-end operations. The existing structure has provided Tesco with an opportunity to learn about the Indian market and operating environment first-hand while working closely with Tata\u2019s retail team. Tata, in turn, has drawn upon Tesco considerable expertise of operating retail businesses in both developed and emerging markets. At the very least, the FDI inflow from Tesco will deepen this arrangement further, benefiting both partners further.<\/p>\n<p style=\"text-align: justify;\">But there are the inevitable twists in the tale. While the Tesco proposal was in the works, the new Aam Aadmi Party formed a government in surprise victory in Delhi state and announced that it would not allow foreign owned retail businesses in the state of Delhi. This strikes off one of the most lucrative metropolitan markets from the geographic target list at least in the short term. (The central government has pushed back saying that while retail is a state-subject, the decision to allow FDI by the previous Congress government cannot be reversed at will by the current AAP government, but the debate goes on.) BJP-led and BJP ally-led state governments have also indicated their unwillingness to allow foreign retailers into their markets.<\/p>\n<p style=\"text-align: justify;\">So should we even attempt to forecast what Tesco and Tata could do in this environment? I would rather not pre-empt and second-guess the future plans of business executives who are trying to read the intent of politicians who are focussed on elections 4 months in the future! However, whatever the plans, the retailers must comply with the regulations such as they are now and utilise the opportunities that exist. So it is likely that the following scenario will play out.<\/p>\n<p style=\"text-align: justify;\">Tata and Tesco have said that the proposed joint-venture looks at \u201cbuilding on the existing portfolio of Star Bazaar stores in Maharashtra and Karnataka\u201d. These are both states where Trent has multiple locations, so a certain critical mass is available. Since current government policy requires the investment to be directed at creating fresh capacity, new stores would also be opened in these states, though the expansion plans look modest, with 3-5 new stores every financial year.<\/p>\n<p style=\"text-align: justify;\">But with the 50 percent investment in back-end also being a regulatory requirement, new procurement, processing and logistics infrastructure which could service stores within these states as well as in other states are is likely to be built. Tesco\u2019s wholesale subsidiary currently supplies merchandise to Star Bazaar stores across states \u2013 this relationship is likely to continue as some of Tata\u2019s stores are in states that are not within the FDI ambit. The product mix proposed includes vegetables, fruits, meat, fish, dairy products, tea, coffee, liquor, textiles, footwear, furniture, electronics, jewellery and books.<\/p>\n<p style=\"text-align: justify;\">The norms earlier required FDI proposals to ensure that 30 per cent of product sourcing would be domestic, from small-midsized enterprises. However, in August 2013, the government relaxed this requirement to be applied only at the beginning of the joint-venture operations, and that this requirement would not include fruits and vegetables, an area where Tesco has focussed significant energy. So the immediate focus would be on meeting the domestic sourcing requirements in other categories, and creating a viable business model and scale through an appropriate product mix.<\/p>\n<p style=\"text-align: justify;\">The partners are likely to continue working on improving the performance of the existing Star Bazaar stores which are 40,000-80,000 sq ft in size. However, Tata has also launched a new convenience store format, Star Daily sized at about 2,000 sq ft focussed on fresh foods, groceries and essential items. Retailers with foreign investment are now also permitted to open stores in cities with populations under one million from which they had been prohibited previously, so the new small format can provide significant expansion opportunities and more volume for the back-end operations to reach critical mass quicker.<\/p>\n<p style=\"text-align: justify;\">Would there be a change of name on the store fascia? Unlikely, since Tesco has been operating stores under other brands as well in markets outside the UK and a \u201cTesco\u201d name appearing on the fascia may not significantly change the consumer\u2019s perception of the store. Other than in lifestyle categories or overtly brand-driven products (such as fashion), most Indian consumers focus on utility, quality, local relevance and price as significantly more important purchase drivers than an international name. In fact, a trusted Indian name like Tata carries as much weight or more weight in many categories than an international brand would. So the stores may carry a joint by-line, but the focus is likely to remain on the existing brand names.<\/p>\n<p style=\"text-align: justify;\">And what of several other retailers who are interested in the Indian market? Will they draw inspiration from Tesco and take their plunge into the market, urged on by the outgoing government eager to demonstrate results during its final months?<\/p>\n<p style=\"text-align: justify;\">Wal-Mart, for one, seems to have returned to the table, having set up a new subsidiary, perhaps preparing the ground for a retail launch with another partner. A European retailer, remaining nameless for now, is being mentioned as being the next proposal in the FDI pipeline.<\/p>\n<p style=\"text-align: justify;\">However, it is likely that most will remain in the wait-and-watch mode until the outcome of the national elections is clear. The real issue is not the regulations themselves as much as the unpredictability of the regulatory environment. Policies are being made, turned around, and twisted over in the name of politics, without a clear thought given to the real impact on the country, the economy and the industry of either the original policy formulation or its reversal.<\/p>\n<p style=\"text-align: justify;\">Until that dust settles down, we should expect no dramatic changes in the near term, no sudden rushes into the market. But then, we could be wrong \u2013 policy and politics have taken unexpected twists earlier, and could do so again!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Tesco and the Tata Group have announced their joint-venture in India. To figure out how it will grow needs us to pre-empt and second-guess the future plans of business executives who are trying to read the intent of politicians who are focussed on elections 4 months into the future.<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[25,27,212,215,33,60,36,37,43,44,46,47,48,1],"tags":[564,401,592,537,146,216,292,276,163,240,58,112,80,593,59,190,191,69,164,147,165,584,166,195,71,583,65,202,301,488,594,407,408],"class_list":["post-1930","post","type-post","status-publish","format-standard","hentry","category-apparel","category-branding","category-consumer","category-food-grocery","category-footwear","category-india","category-lifestyle-fashion","category-marketing","category-retail","category-soft-goods","category-strategy","category-supply-chain","category-textiles","category-uncategorized","tag-bharti","tag-carrefour","tag-cash-and-carry","tag-convenience-stores","tag-fdi","tag-food-grocery","tag-food-and-grocery","tag-foreign-investment","tag-franchise","tag-franchising","tag-global","tag-global-business","tag-global-sourcing","tag-hypermarkets","tag-india","tag-india-entry-strategy","tag-indian-market","tag-indian-retail-sector","tag-international-brand","tag-international-brands","tag-joint-venture","tag-master-franchise","tag-modern-retail","tag-modern-retailing","tag-organized-retail","tag-preferred-market-entry-route","tag-retail","tag-retail-boom","tag-retailing","tag-supermarkets","tag-superstores","tag-tesco","tag-wal-mart"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Tesco in India: Will every little help? - Third Eyesight<\/title>\n<meta name=\"robots\" content=\"index,follow\" \/>\n<link rel=\"canonical\" href=\"https:\/\/myechoproject.com\/TES\/tesco-in-india-will-every-little-help\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Tesco in India: Will every little help? - Third Eyesight\" \/>\n<meta property=\"og:description\" content=\"Tesco and the Tata Group have announced their joint-venture in India. 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