Why Kamal Nath cannot afford not to allow FDI in Building Material / Home Improvement Sector retail ?
I S Narula, President and CEO, ISHANYA talks to R S Roy, Editorial Director, indiaretailing.com
I S Narula has a record of pioneering leadership in the Indian retail industry having held CEO and Chairman level positions across industry. He is the former president of Arcus Stores and a member of the board of directors of Turner Morrison Ltd. Narula is an SEP graduate from Graduate Business Scholl Stanford University, USA, has Suma Cum Laude MS degree from Utah State University and an honors engineering degree from BITS, Pilani
The issue of Foreign Direct Investment (FDI) has been debated time and again as the Indian Government has been under pressure to open up further. The policy makers continue to explore areas where FDI can be invited without hurting the interest of local retail community. Addressing the high powered industry and media meet at the release of India Retail Report 2007 and launching of www.indiaretailing.com Mr. Kamal Nath, Commerce & Industry Minister Government of India, gave firm indication on opening up of certain retail sectors for foreign direct investment (FDI).
The four sectors are electronic goods, Office equipments & stationery, sports goods, and building material.
While most of the segments have been well researched in terms of size and scope with performance of key players and their expansion plans and the findings have been adequately presented in the India Retail Report 2007, the need was felt to delve deeper into the subject to understand the reasoning and implications of opening these sectors to global players.
From his series of meetings and discussions, R S Roy presents excerpts of his interview with I S Narula, President and CEO, ISHANYA to gather his view on FDI in the Building Material / Home Improvement Sector Retail Sector in India and its potential benefits.
R S Roy : What is your opinion of FDI in Retail – specially the building material sector?
It is ridiculous to put a cap on FDI in Retail. As it is internationally proven that the fears being expressed against FDI, due to political reasons, are unfounded. Local retail, local industry and supply chains have shown dramatic improvement with the entry of foreign competition in countries like China and Brazil etc. What ever the stated fears about FDI in Retail, they do not in any case apply to building material and home improvement sector.
R S Roy : What has been the international experience for FDI in Retail of building materials?
I S Narula : Local retail, local industry and supply chains have shown dramatic improvement with the entry of foreign competition in countries like China and Brazil etc. What ever the stated fears about FDI in Retail, they do not in any case apply to building material and home improvement sector.
After having entered China, a large percentage of their international sourcing is being done from there. Entrance of international retailers in this field will ensure improvement of quality standards in this sector and will result in definite increase in exports of products going into construction and interiors industry.
Companies like IKEA are already procuring substantial amount of their merchandise through India. B & Q International sources 70-80% from within China for its retail chain in China.
R S Roy : Do you think, if FDI is allowed, global retailers will invest in India opening up stores? What about local competition?
I S Narula : Internationally, even in countries Thailand and Malaysia, the bulk of such material goes through the organized sector. Experience has shown that retailers such as Home Depot, B & Q, IKEA etc charge extremely reasonable prices by virtue of their efficient procurement, supply chain management and volume purchasing. This dramatically reduces input costs to the construction / interior activities, thereby improving efficiency of the system.
R S Roy : How then, the retail scenario will be different then what it is today ? finally what is your overall recommendation on FDI in this sector?
I S Narula : Currently this sector is totally disorganized in the country, with spurious material and dubious prices being more the rule rather than the exception. Customers get materials of which they can neither be sure of the quality of being charged the correct prices, unlike the more organized sectors such as apparel, shoes, FMCG sectors etc. There is great need to bring this sector into the organized retailing with or without FDI, in the interest of improvement of efficiency and quality of the entire construction industry
The organized manufacturers of this category of materials also find it difficult to deal with the traditional distribution channels as there are a lot of unethical practices. There is a huge amount of leakage of revenue due to the distribution and current retail structure of this sector.
Already most of the large retail aspirants such as Reliance, Future Group, Shoppers, and Life Style have initiated their home / building material formats, which are going to be rolled out within this year. Therefore there is no logic of restraining FDI in this sector? FDI will only accrete the process of encouraging organized retailing.
The organized manufacturers of this category of materials also find it difficult to deal with the traditional distribution channels as there are a lot of unethical practices. There is a huge amount of leakage of revenue due to the distribution and current retail structure of this sector.
Whenever India has opened its doors to international competition, we have stood to gain by it, in any given sector. I, therefore strongly endorse FDI, and even more strongly endorse FDI in Retail and wholehearted endorse, FDI in construction and home improvement sector.
