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Barun Roy: Who's afraid of Big Bad Wolf?

Source : BUSINESS_STANDARD
Last Updated: Wed, Oct 17, 2012 19:22 hrs

Even as deliberate half-truths and imagined fears continue to mislead Indians about foreign direct investment (FDI) in multi-brand retailing, recent reports from Singapore and China show that global retailing isn’t a simple case of the big fish gobbling up the small fry. Even the biggies have to fight for existence and can be gobbled up.

Carrefour, the French hypermarket major and the world’s second-largest retail group, after Walmart, in terms of revenue, has announced it will quit Singapore this December, since it feels it has no chance there of “reaching a leadership position in the medium and long term”. It tried its best to gain ground after it arrived in the country in 1997, but the competition has been just too strong, especially from the Giant chain owned by Dairy Farm, a pan-Asian retailing major that belongs to Hong Kong’s Jardine Matheson Group.

Carrefour’s decision might have been influenced by a bad global economy and a 14.3-per cent slide – to $463 million – in its 2011 global profit, but it’s tough anyway to penetrate a small market of 5.2 million people when the rivals are more entrenched with a wider network. Carrefour’s combined sales from its two outlets in Singapore – a 140,000 sq ft store at Suntec City and an 81,000 sq ft store at Plaza Singapura – reached ^100 million last year, but that’s about 10 per cent of Giant’s.

Giant operates eight hypermarkets in Singapore already and is due to open a new one – a 60,000 sq ft facility – early next year in Suntec City. One wouldn’t be surprised if it now decides to move into the space to be vacated by Carrefour. Then, there’s NTUC FairPrice with five hypermarkets, further constraining the space for Carrefour, the only global biggie to have dared so far to test the waters in Singapore. And, don’t forget the supermarkets. There are hundreds of them, of various sizes, making Singapore literally a paradise of convenience shopping.

Carrefour’s retreat in the face of growing local competition isn’t something new. In 2005, it sold its operations in Japan and Mexico. In 2006, it quit South Korea. Three years later, it left the Russian market. In November 2010, it abandoned Thailand where it had 42 stores, including 34 hypermarkets. In June this year, it pulled out of Greece. It’s still holding on to Malaysia, but isn’t quite sure of its prospects there.

Carrefour entered China in 1995 and isn’t ready to downsize its Chinese network (206 stores in 64 cities) yet. Walmart, the world’s biggest retailer that opened its first Chinese superstore in 1996 and now has 364 outlets in the country, isn’t in a cutting mood either. But they both have reportedly decided to go slow on future expansion – as also have Britain’s Tesco and Germany’s Metro AG – because, even in a big market like China, business space has shrunk considerably. Unsure about the future, the US’ The Home Depot announced last month that it would close all its big box stores in China.

In a telling twist of fortune, a Hong Kong-listed Taiwanese-French joint venture, Sun Art Retail Group, which entered the Chinese market three years after Walmart, has now overtaken the American giant as China’s topmost hypermarket chain. With a $10.8-billion total revenue earned in 2011 – 40 per cent larger than Carrefour’s – Sun Art now controls 12.8 per cent of the Chinese hypermarket segment against Walmart’s 11.2 per cent and Carrefour’s 8.1 per cent.

The wound must be particularly hurting for Walmart, since China’s retail revolution was actually triggered by its coming. Today, China has no shortage of smaller players, and even though Euromonitor International, a London-based consumer market research firm, expects the Chinese retail industry to have a market value of more than $1.4 trillion in 2012, the Western majors aren’t smiling.

All this has an important lesson for countries like India that are still unused to big time retailing. The biggies aren’t bogeys to turn away from. In fact, they should be welcomed as catalysts around which local muscle can grow. They bring in organisational, sourcing, management, and marketing techniques that make all the competitive difference and help develop a shopping culture that must form the basis of effective modern retailing.

That’s the beauty of FDI, any FDI. It’s the quickest way to build up local strength. That’s how developed Asia – not Japan and Singapore alone, but China and South Korea as well – has come to be where it is today. And, as all these countries have proven, the stronger local competition becomes, the more the foreigners will be at bay. They won’t have the power to play games, since there will be others to give them a fight. It’s only in countries that are low on self-confidence and lack the will to grow that FDI can be a real sucker. If India isn’t one of them, why should it fear Big Bad Wolf?


 

rbarun@gmail.com  




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