More Power to You!

The example of opening Foreign Direct Investment to transnational retailers in Thailand has mixed learning. When Thailand faced its economic crisis in 1997, retailers found it very difficult to find funds for their expansion. Bank funding became scarce consequent to the economic turmoil the country was in. Once FDI was allowed multinational retailers came in with their investments in Thailand. Retailers like Tesco Lotus, Big C, Makro, 7 Eleven, etc. made inroads into the length and breadth of country with their expansion. Their growth percolated into the upcountry and rural areas of the country as well.

The market that was thus once open to foreign investment freely was later restricted by the military run government in 2007 to protect ‘small and medium’ and ‘mom and pop retailers’. The government’s ire was also ignited by the highhanded behavior of transnational retailers who charged a marketing fee for products from suppliers, which impacted the profitability of domestic traders and manufacturers. This impact in fact added to the economic woe already caused by the global recession to Thailand’s export economy. Large retailers tend to get their commitments from small suppliers by making them pay an ‘engagement fee’ often and even in India we have instances of large retailers charging what they call ‘listing fee’ for every product-line or category. A one time fee though, this adds to the problems of small suppliers and manufacturers. Every time a manufacturer introduces a new product, the listing fee needs to be paid. Large retailers have to tread carefully as they get into the shores of a new country. The positive role played by transnational retailers relates to the increase in consumption they truly enable, while making consumers happy, for sure.

Research shows that the small retailers have been losing their competitive teeth since the time they have been protected. Protection came in the form of restrictive conditions on the expansion of transnational retailers by virtue of controlling their zones of expansion and their hours of operation. There is a respite that has come to small and mom and pop retailers by controlling the growth of multinational retailers, thus providing a competition free environment to them. A researcher observes that the more policies are implemented to restrain the growth of multinational retailers, the weaker local retailers may become, laden with the inability to compete with large retailers at all. Analysts observe that the focus ought to be on making small and mom and pop retailers more competitive by training them and by building management capability in them to analyze business performance professionally and take decisions to improve their business accordingly. They also believe that small retailer transformation and support programmes should be implemented rather than restricting larger retailers who ultimately will have the capability to benefit a country’s economy, increasing consumption with lower prices in the long term.

For all the efforts our Government of India is taking to sustain growth in a consumption economy, we shall give a standing ovation and clap. After all we need both hands to do that!

- Dr. Gibson G. Vedamani