Posted by: John Elliott | May 14, 2007

Reliance Retail arouses Wal-Mart style opposition

Wal-Mart (WMT) is not alone in facing opposition to its plans for retail stores in India. In a foretaste of what could happen when it starts operations here next year, some 300 wholesale middle-men and street vendors armed with bamboo sticks last Saturday raided three stores run by Reliance Retail, the country’s fastest growing supermarket chain.

Claiming that the stores were killing their jobs, they smashed glass windows and ransacked a soft drinks bar in Ranchi, capital of the northern Indian state of Jharkhand. Their protests had been building for a couple of weeks and they were angry when, as they marched through the city, they found that the stores had been closed as a precautionary measure. People who went shopping today (May 14) found themselves protected by the Jharkhand Armed Police (JAP), a paramilitary force that fielded 20 guards at each outlet.

This was not the dream of Mukesh Ambani, chairman of Reliance Industries (RIL), one of India’s two largest business groups, when he launched a $5 billion country-wide chain of supermarkets five months ago. So far about 140 Reliance Fresh neighborhood stores covering a total of more than 370,000 square ft have been opened in 17 cities, directly linked with farms for the supply of fruit and vegetables.

This has especially upset middlemen who have traditionally handled the produce between farms and shops. Street vendors, who sell fresh produce from barrows, are also affected but Reliance allows them to buy direct from its depots in order to offset their protests.

Opposition to Reliance has built up in four states and, as often happens in India, vested interests and political parties are encouraging the action. In Ranchi, a group of wholesalers are said to be behind the protests and today they were backed by George Fernandes, a veteran politician and former defense minister who arrived in the city and pledged his support “against injustice.” In West Bengal a leftist political party will lose a political base if government-run wholesale markets are run down. In the southern states of Kerala and Tamil Nadu, local politicians are believed to be in the lead.

Unwittingly however, this has focused attention on an issue which the Indian government has conveniently ignored until now – that there is no real difference between the threat to existing jobs posed by foreign retail groups – which are banned from direct investment – and Indian groups like Reliance which operate without investment restrictions.

Both offer much-needed efficient retailing to India’s bazaars with new levels of quality and low prices. Both will also eventually replace many of the existing small players, who range from wholesalers and other middle-men to mom-and-pop shops and street vendors. The immediate risks to jobs have been exaggerated – many mom-and-pop shop owners say they do not lose business when a Reliance Fresh store opens nearby – but in the long term there will be job losses.

This is the problem that the government should be tackling instead of tinkering with regulations that currently allow companies like Wal-Mart to set up wholesale operations linked to Indian partners’ retail stores. Arguably, if companies like Reliance can modernize the retail industry themselves, there is no need to allow foreign direct investment in at all. Or, if FDI is needed but there is concern about job losses, then the speed at which both Indian and foreign groups open up could be restricted. Either way, a coherent policy is needed.



Responses

  1. Dear Mr.Jhon,
    I agree the Indian Govt. needs to make up it’s mind about the level of penetration the organise retailers should be allowed.
    The reason for not allowing Wall mart like stores is fully understood as these big players -with their Deep Pockets and well developed Supply chain can litrally KILL local -small and midium players. Remember enterance of Coke and Pepsi in Indian market has KILLED all Indian Soft Drinks Companies .Big American companies -with deep pockets can use their reserve funds and developed supply chain can take a hit of few billion$ to create monopoly -the same is done by cola companies-selling at a lower price than the cost -to kill the Indian compitition.
    I am not against a healthy compitition but these giants by using hi handed tecticks are not working with a level of plying field .By shielding Indian Companies for a while and allowing MNCs would make Indian company ready to face the compitition

  2. A follow-up on Mr. John Christiansen’s comment.

    Apparently John does not understand the concept of regulating foreign investment in a country. Calling Indians hypocrites for not allowing non-Indian companies in the retail market shows his naivety. A little less American Idol type reality TV shows and a little more WSJ will do him a lot of good.

    And as for OUTSOURCING, a major chunk of it is being done by big American companies (read – Accenture, IBM, GE, Dell and several more) opening offices in India and hiring Indian talent. Jobs are no longer bound by national boundaries. With the globalization drive sweeping the world, companies get the work done where it can be completed in the most economical manner. Now it’s India and China. Later it may move on to some place else.

  3. I Just want to point out to Mr.John that he must not be furious on INDIANS for AMERICAN Companies outsourcing jobs to INDIA. He must understand what drives the whole outsourcing industry. It is American customers who want services and products at chaeper price and most of all it is American company management who makes the decision to send work offshore. So, Who is to be blamed?…Mr. John you decide.

  4. Dear Mr.Roxbury,
    The primary reason why there is a lot of opposition to the opening of WalMart in India is that there is threat to the jobs of vegetable and fruit vendors who live on the very meagre money they earn from selling the items. Also the problem of population below the poverty line is a major set back to these ambitious projects though they aim at upper middle class and high income groups. Hwever you are to keep in mind that the latter group is only a tiny portion of the population of india.I agree that the politicians and intrest groups are seen on the forefront and I too oppose this(the involvement of political parties). I also agree with Mr.Elliott that the govt of india steps in and slow down the growth of retail sector as any society is better responsive to slower changes than faster ones.

  5. This is with regards to Mr. John Roxbury’s comment above.

    Why call Indians hippocrites when a lot of ‘educated’ Americans themselves opposed outsourcing initially ?

    It all boils down to the so-called “job security”. People tend to naturally oppose anything that might result in their jobs being lost. They just need to realize that things like these are a part of evolving business processes.

  6. If Americans could spell, their jobs would not get outsourced!

  7. Mom and pop stores will suffer some job losses as a result of this mass-retailing. However, it will not be as much as its projected now. That’s because, major retailers like Reliance and Walmart will go to only big or median cities and not smalls towns or rural areas. India may have a large and increasing middle class, but its the rural segment which needs to get an uplift, if Indian economy were to become a force to reckon with.For that to happen, these middle men and politicians in big cities need to be taken out of the pciture, so that farmers in rural area get their due. Quite sadly, this is some thing every “arm-chair” economist is losing sight of. Needless to say, power hngry politicians like G. Fernandes use this for their gains.

  8. Amazing how the INDIANS can RIOT about this but have no qhams about OUTSOURCING and taking AMERICAN jobs.
    Conventially also the GOVT ruling about no non-indian company being allowed to go it alone. What hippocrites


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