We just discussed FDI (Foreign Direct Investment). Now let’s get to the meat of the matter in India.
India is an attractive market for companies to expand into. It is a growing market, which means that more people are increasingly able to buy more products.
FDI is also important for India, as it can give the government more money (taxes) that it can use to import the products we need (like oil for example). It can also mean that there might be some additional jobs in the country – if the company sets up manufacturing plants or factories, or even retail outlets. It means more choice for consumers like you and me.
IKEA is the world’s largest furniture retailer. It sells affordable furniture and home supplies. It opened its first store in Hyderabad, India, yesterday! But IKEA had started eyeing the Indian market in 2006. It had wanted to open 25 stores in India. It has been negotiating its terms with the Indian government since then.
What was the holdup? 100% FDI rules have the clause saying that 30% of the materials for the product must be sourced in India. Amongst other reasons, it has taken IKEA some time to find the large plots of land required for its stores, and it is taking time to find the right partners for raw materials. The Government of India has recently relaxed this rule a little, and has said that single-brand retail companies with 100% FDI can take upto 5 years to source 30% of the raw materials from India. IKEA plans to invest a lot in India. Their CEO has said that they now want to open 40 large stores in India. The new one in Hyderabad spans 400,000 square feet. Take a look at their new store!
This is fabulous news for us customers, as we now have more choice in the market for affordable home stuff. This will likely cause a shakeup in the market though, as other furniture and home supplies companies figure out how to compete with this giant.
Walmart is a multi-brand retail store. It sells products from a variety of different brands. It is a very big chain of stores, and has wanted to expand into India for a while. However, since it is multi-brand, 100% FDI is not allowed. It would have to enter India through a Joint Venture. It tried to do that, but the Joint Venture fell through.
But wait a minute! How is Amazon in India? Amazon does sell goods from multiple brands, but it is an e-commerce marketplace. This means that it connects buyers and sellers and allows them to complete transactions. It is not a store. So it is not subject to these same rules.
So what did Walmart do? They have decided to buy a sizeable piece of Indian e-commerce marketplace Flipkart. In fact, they have proposed buying 77% of Flipkart for $16 billion! This purchase was just approved by the Indian government earlier this week. They will operate as a marketplace as well here, and compete with Amazon.
There’s a lot happening in the retail and e-commerce space in India. We will be keeping a close eye on this. Write in with your thoughts at email@example.com! We would love to hear from you!
Written by: Shruti Divecha, Biyash Choksey and Sunaina Murthy