Reliance Retail-A Case in Point
Have been trying to write this post for a long time now, sometimes you want to write something, it’s on all mind all the time but still you dont end up doing it.Anyway, without further delay:
Reliance has entered the retail sector. The strategy is to run the business on economies of scale, eliminate the middlemen, offer higher price to the farmers with a definite bulk business. It will offer vegetables/fruits at half the price of the wholesale cost.
It will be using the special economic zones as stocking and distribution hubs in order to reduce the overheads etc. The SEZ policy itself is a subject of debate-both in principle and in execution.
SEZ’s are treated as foreign territories as far as trade, tariff and duties are concerned. They can source any raw material, capital goods without any approval/licence. Therfore they have full access to domestic markets, get taxation benefits. In order to put things in perspective, these SEZ’s were formed after the licence raj inorder to develop the Indian industries. However as things stand today, they are becoming more of a “lagal land grabbind phenomenon”. The Ambanis, DLF etc will have no disincentive in shifting the existing projects to these and enjoy the tax benefits.
This is what Reliance is exactly planning to do. Use the SEZ’s as distribution hubs.The fact that there are going to be 400 such SEZ also makes it all the available, unlike in a country like China where there are only 5-6 SEZ’s.
With the track record that Reliance has and the reputation it enjoys, am not sure what does the future have in store. They could eliminate the middlemen, be the sole buyer for the farmers and then they could start arm twisting them. All this since they could have the monopoly in the segment for at least some time. Is the law/s affecting the various sections in the society clearly defined and the machinery effective.
I am not saying that don’t let a reliance come up, all that I want I say is that don’t let them exploit someone else.The reason that we will have to be more sensitive to the issue is:
With the growth rate that India has, which very few countries in the world today have, with the population which very few countries in the world have..the problem of “Haves and the Have Not’s” will only increase and the implications for the same could be much more grave than what can immediatley meets the eye.
Which is why we talk about corporate social responsibility today.This concept did not exist in India few years ago.I just hope that we wake up to the challenges faster, lest the situation is out of our control someday.
posted by shikha @ 10:48 AM
3 Comments:
Hey Shikha,
Landed up on your blog from a Cal blog a couple of days before and then suddenly land here from Alternatve Perspectives. Serendipidity?
Anyway, what you say about Reliance sounds interesting, however, I rememeber a friend who worked for ITC e-choupal, and her description of how even ITC manipulated pricing on its portal to ensure a better deal for itself. Also, myself have witnessed several cases in UP where the middlemen have crept back into the game using their better logistics and working hand in hand with the local administrative-political machinery to resetablish their hegemony over the grain trade.
Secondly, unplanned and unregulated introduction of new market systems into a primitive economic structure is liable to produce more market distortions than benefit the proiducer and the consumer. As an exampleI did point out the price hike in pulses last year due to trading on the MCDEX and the fact that the FCI failed to efficiently collect in a harvest at minimum government support prices this year.
Still, the fact that business is worried about this growing divide between haves & have nots is a clear indication that things have got to change. nothing galvanizes the most indolent and callous than a real or pewrcieved threat to their existense. I believe that the biggest victory of the market mechanism is that when government and business realise that there is nothing short of actual reform that can bring a tarnsition/ head off this possible confrontation of the future.
Here's a topic I love to talk about (endlessly? ;)
Firstly (m'aam?), don't be afraid of the changes - they could turn out to be not-so-good (or as good as Reliance would want them to be), but again perhaps not-so-bad either (for the general masses). And here's why:
1. Even if Reliance can come up with supply chain efficiencies to match the World's #1 Retailer Walmart, it cannot hope to usurp the Indian retail market is 300B USD strong. My own take is Reliance actually poses a challenge to the current breed to supermarts and/or speciality stores - Foodworld, Shopper's Stop, Wills Lifestyle Malls and the thousands of Mom-n-Pop-infested malls that have sprung up. The baju mein nukkad ki dukan is in fact the last one endangered. Now, assume - worst-case, Reliance Retail is a super-duper hit in the 1st 2 years. What happens? Reliance Raj? Nope. Retail is a segment where copycats spring to action soonest. So you'll see many more retailers setting up shop in India, and some would even better Reliance services. You might question - why don't they come right now? For the simple reason that noone is really sure of how Indians will react to "shop-all-under-one-roof-concept". So Reliance is infact taking a risk that many others would have foregone for safer investments.(Not taking any credit away from RR who dared to venture where not even fools like to tread ;)
Secondly, Reliance will serve to - I hope - improve supply chain efficiencies. And by this, I mean not how quickly you can transport goods from point A to point B, but things like completely eradicating India's inefficient ration-shop system where either you donot get anything or what you get is not palatable. You might argue as to how is this possible at all? As follows: A good Retail operation that is just in its dealings could make the GoI (Govt. of India of course) to think of a legislation wherein it outsources the retail distribution, to ration-card holders, to one of the retailing firms (could be Reliance, but my gut says sooner or later Tatas will jump in too, and better the Ambanis) So you see the positive effect of retailing, where a common man, who, though entitled to 15 kgs of sugar, always had to purchase sugar in the black market (or what our normal shops are anyhow) is now able to buy it all in a supermarket that is swanky, well-serviced, and corruption-free, since its a service-provider's venture, who cannot afford to work with corruption and efficiency at the same time. Govt has the option of replacing this retailer altogether if it finds any malpractices.
Finally (though I wanted to say more), a quick look at what other things have improved. The fat of the land, middlemen, have to find means of staying afloat. So what do they do? Build similar supply chains, that work at a more granular, micro/smaller level. You cannot drive a person out of business. You can always mend his ways of doing business though. In this case, it will force those who took demand to be natural to rethink on this aspect, since somebody else could now be servicing what used to be his share of demand.
Lastly (did I already say so), if this happens, I'll no longer have to work on greasing foren supply chains, and can head back home.
Hi all..this was a bleak post..i shall am posting the positive side today/tomorrow
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