AskHarishBijoor

Small is beautiful and Big is cheaper

By Harish Bijoor

Q: What is the real impact of FDI in retail, and when do we see it all happen?

-Kumar K Rajapalayam, Hyderabad

A: Kumar, this question is as contemporary as it comes. FDI in retail has just been announced. This is really a policy intent drawn out and announced as a go-ahead document. Retail in many ways is a “State” subject, and its implementation will depend a lot on what the individual states with their individual political agenda will allow or not.

The road-map for retail in India has however been laid out clearly in this policy announcement. 51% FDI in Multi-brand retail and a 100% FDI (up from the current 51%) in Single-brand retail. This move was first conceptualized 16 years ago, hotted up as a point of debate three years ago, and has today culminated in a decision that simply says “get going guys”!

I am really impressed at the fact that the UPA government took courage to sanction a go-ahead through a Cabinet decision, despite the fact that elections in Uttar Pradesh are round the corner, and despite the fact that UPA-allies have opposed the move. This is a bold move. A move that accelerates the process of liberalization that started trundling on in India 1984 onwards.

This move is good for the farmer and the consumer. The farmer will hopefully have access to a better supply-chain mechanism that gets him to channelize his produce of grain and fruit and vegetables to the big city markets without wastage, and the consumer gets a better variety, a bigger choice of options to shop at, and hopefully better prices. The fact is that bigger chains are able to offer cheaper prices, cheaper by as much as 3-7% over current prices offered by smaller retailers. Scale counts. While small is beautiful, big is cheaper.

I am equally excited by the riders put into the policy. One particular point of excitement is the fact that investments need to be channelized for the benefit of local industry. The fact that retailers will need to source 30% of their requirements from SME’s, is a good one. This boosts the sagging SME manufacturing sector. And I hope this really translates into business for real and existing small scale manufacturing units rather than new ones created just to fill in the blanks of this policy.

The minimum investment of 100 Million USD is another good move. This ensures businesses with serious long-term intent entering the space with adequate back-end infrastructural investments.

I do believe this policy threatens and impinges the 14.6 million small mom and pop retail outlets in India. This policy for sure brings about a kind of Retail Darwinism in the country, where only the fittest will survive and the others will fall by the wayside. This will happen first in the 42 big one million plus population towns of India. And at a later stage, expect this retail revolution to go deeper into the hinterland.

Small retail intermediaries are bound to be hit by this decision, as the effort to make the supply chain leaner results in the small links in the chain snapping to make way for the bigger links to facilitate cost-efficient deliveries.

Kumar, expect to see the real fruits of this policy decision to touch our lives three years hence. Retail investments are low gestation investments in many ways and take time to fructify and deliver.

Q: With a young Cyrus Mistry anointed to head the Tata group, will the Tata group look and feel younger in its profile?

-Rahul P Kolihara, Mumbai

A: Rahul, that’s a loaded question in itself. What makes you think that the Tata Group is “older” in its profile? Look at the profile of the large number of people who work for Tata Consultancy Services, and you will be jolted by the young and the aggressively young.

That apart, if you mean the Tata Group looks older in profile, and will Cyrus Mistry get it looking younger, I do believe all this will take time. This sure is a big move. Cyrus Mistry is likely to be all of 44 when he takes charge of the House of Tatas. That sure is an infusion of young blood. To put it in perspective, Cyrus Mistry and Rahul Gandhi are well nigh of the same age bracket. One is attempting to head this country, and another is anointed to head one of the country’s biggest business empires.

The age of leadership in India is and has to progressively go downwards in its push. The forties is today the age of dynamic and alive leadership. Just wait as you see the thirties capture this slot,  later than sooner.

And what does age bring to the party? A certain degree of dynamism. A certain willingness to take risks. A certain bravado that will have groups make mistakes and learn, rather than depend on sure-shot approaches that are really not so sure-shot anymore in any case. And that again is a paradigm in itself. May or may not be true.

Age is again what you make of it. If you peep into the House of Tatas you will see that some of the boldest and bravest decisions were made by people who were not so young after all. RK Krishna Kumar of the Tatas led the Tetley acquisition brigade when he was not exactly a sprightly forty. Look around the Tata Sons Board and you have names that have done it all aggressively thus far, despite the age counter not being on their side. Age is therefore in many ways a number. Age is also a paradigm. A paradigm of our making.

The author is a brand-strategy specialist & CEO, Harish Bijoor Consults Inc.