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German retailer not welcome in India
By Raju Bist
MUMBAI - When
German company Metro AG, one of the world’s leading
merchandisers, recently set foot into India, it found
the traditional Indian greeting namaste (welcome) was
missing. That is because big-box merchandising has come
to India for the first time, bringing with it the fears
of dislocations that have emanated out across the world
from retailers like Costco, Wal-Mart and Carrefour.
India does not allow multinational investment in
retailers and thus Metro has had to set up as a
distributor instead. Nonetheless, as the country's
economic reforms continue to spread, it is questionable
how long it will be before the big retailers start to
knock at India's door. Certainly, at the least, and if
Metro's operations spread, they should lead to a
detiering of India's outdated and cumbersome trade
channels.
At a gargantuan 6,300 square meters,
the first Metro Cash & Carry Distribution Centre,
located in the south Indian city of Bangalore, is by far
India's biggest sales outlet, with around 50 sections
for product categories like furniture, luggage, clothing
and household appliances. More amazing for the Indian
retailer are the prices - between 30 percent and 45
percent less than the government-set Maximum Retail
Price (MRP). Indian retailers have never enjoyed these
kinds of discounts from wholesalers or even
manufacturers.
Dr. Hans-Joachim Korber, chairman
and CEO of the Dusseldorf-based Metro AG, said at the
opening of the distribution centre: "We are firmly
convinced that this concept will be successful in India
and useful for the country, all the more so as it
contributes to supporting the domestic economy. We are
glad to see that so many of you are attending. We view
this as the sign of an active interest in the first move
of the Metro Group into the Indian market."
A
few days later, Korber’s enthusiasm was rudely shaken.
Local traders, apprehensive that their businesses were
under threat, turned out in droves to protest Metro’s
Indian incursion. The Bangalore Retailers' Combine
released half-page ads in local newspapers, comparing
the German giant to a modern-day East India Company, the
trading outfit which eventually paved the way to the
establishment of British rule in India. Many other
wholesale associations too lodged their tirades.
Egging them on was the Swadeshi Jagran Manch
(SJM) or Nationalist Awareness Forum, an affiliate of
the ruling Bharatiya Janata Party. The SJM espouses the
unhindered encouragement of domestic industry and has
agitated intensely against privatization. This, even
though Metro - which sells only in bulk and against cash
- guarantees distinct advantages for various segments of
the Indian business community, particularly those
belonging to retailing, catering and hotels:
The
Metro Cash & Carry distribution system promises much
greater efficiency than India's multi-layered supply
chain. Retailers can purchase goods more flexibly and at
more favorable prices compared with traditional
procurement sources.
Customers can now
considerably reduce their inventories, with Metro doing
all the warehousing for them.
Suppliers,
particularly those belonging to Karnataka, the state of
which Bangalore is the capital, stand to gain. At Metro,
90 percent of the 17,500 items offered are produced in
this region or purchased through local suppliers.
Customers can source all their requirements
under one roof.
Suppliers to the Bangalore
center can gain the opportunity to export their goods to
other Metro countries and market them through Metro’s
different sales divisions.
Producers and
suppliers would be able to advertise their products in a
fortnightly newsletter "Metro Mail".
With annual
sales of 51.5 billion euros (US$59.7 billion) in 2002,
the Metro Group ranks among the top five international
trading companies. It has more than 2,300 outlets in 28
countries with a worldwide staff of around 240,000.
Metro's economic activities cover four business areas:
cash & carry, food retailing, nonfood specialty
stores and department stores. Some 47 percent of its
sales stem from its cash & carry business. Luckily
for Metro, foreign direct investment is not allowed in
the retailing sector in India except in the
cash-and-carry format. This arrangement basically
eliminates the wholesaler so that products are available
at very competitive prices at all cash-and-carry stores.
Methodical like any other German company, Metro
prepared intensively for its entry into the Indian
market, studying Indian trade structures ever since
economic liberalization began in the early 1990s. Two
feasibility studies were prepared with detailed analyses
of customer structures in several major Indian cities.
Qualitative analyses of the Indian market were made as
well.
In 2000, India's Foreign Investment
Promotion Board okayed Metro's plan to open business
activities, amended in 2002 to allow for
business-to-business sales. At this stage, the company
decided to establish the center for Metro Cash &
Carry in Bangalore. This was followed by a period of
intensive preparations involving the Metro team in India
as well as senior executives from the German, British,
Vietnamese, Chinese and Romanian operations.
Construction work started six months ago.
While
the Indian retailer stands to gain in many ways, those
protesting the project feel the pricing structure is too
good to be true. The SJM accuses Metro of indulging in
predatory pricing. This, it argues, is aimed at wiping
out competition and establishing a monopoly. The prices
at Metro, says the SJM, are unrealistically low for it
to make any profits. The game plan, it adds, is to
suffer initial losses in order to establish a
stranglehold later on.
But the Metro Cash and
Carry India country manager and managing director, Harsh
Bahadur, says the Metro process eliminates middlemen,
and is therefore able to offer products at low prices
due to improved efficiency in its supply chain and
buying in bulk. Another senior official at Metro accuses
the wholesale lobby of engineering the protests.
The anti-Metro protests would have been ignored
by most had they been led by anybody other than the SJM.
For, even though some mock the SJM for its "nuisance
value", there are many who believe that the social
organization is doing yeoman service for the country. In
particular, they have a very high regard for its
crusading convener, S Gurumurthy, a practicing chartered
accountant who penned a series on articles on what he
perceived to be sharp business activities of the
fast-growing Reliance Group. The exposes came to the
attention of then finance minister VP Singh and at one
stage there was a danger that the Reliance bubble would
burst.
It was Gurumurthy who had led tirades
against US seeds giant Cargill, whose Bangalore offices
were ransacked last December by protesters who accused
the company of a variety of sins including using
genetically modified products and trying to build a seed
monopoly in India. Later, he shifted his attention to
Kentucky Fried Chicken, leading the fast-food retailer
to close its Indian operations after protests of cruelty
to chickens.
More recently, Gurumurthy has twice
played peace broker, ostensibly in the cause of national
interest. It was he who brought together two warring
brothers of the Bajaj Group, one of India's largest
manufacturers of two-wheelers, and smoothly sorted out
the division of assets between them. He also engineered
a thaw between the professional management at L&T,
one of Asia's largest engineering companies, and the
leading industrialist Kumar Mangalam Birla, eyeing its
cement business. Gurumurthy convinced L&T to sell
the cement division to Birla rather than to a
multinational corporation.
The slightly-built
Gurumurthy is an interviewer's delight, spouting
anti-big business quotes even while giving the
impression of being a modern-day Don Quixote railing
against the relentless forces of globalization. "The
Western belief - that the government will do nothing and
the market will do everything - is wrong," he says. "In
India, the delivery mechanism is not just the market; it
is the family, it is the community, it is the state and
the market."
It is not clear if the SJM was able
to influence the Karnataka government about limiting the
scope of Metro’s operations but the German wholesaler -
a major force abroad in fresh farm produce such as
vegetables, fruits, poultry and meat products - is not
allowed to trade in these items in the state. Chairman
Korber had made his feelings clear at the inauguration
when he had said: "We are a little bit disappointed that
we still have the state government restrictions which do
not allow us, up to now, to sell to our customers fresh
products like fruits and vegetables. But we are
confident that this hindrance will be solved soon in
good cooperation with the government." So confident was
he about the "cooperation" that he immediately announced
the opening of a second center in Bangalore.
The
second Metro center is expected to throw open its doors
in the last week of November.. The capital expenditure
for establishing the first two centers and headquarters
in India totals about Rs1.76 billion. Each of the two
Bangalore centers is to employ around 300 local people.
Including headquarters Metro Cash & Carry India will
totally employ 750. The company intends to open similar
distribution centers in the Indian cities of Hyderabad,
Chennai and Delhi.
The reasons for Metro's love
affair with India, one of the world’s fastest-growing
economies, are apparent. In March, Finance Minister
Jaswant Singh had predicted gross domestic product
growth of 6 percent. Leading economists are now revising
their figures upward, to 6.5 percent. According to
retail consultants KSA Technopak, organized retailing in
India is expected to jump to Rs350 billion by 2005-06
from the current Rs180 billion.
Many observers
feel the protests are politically motivated and don’t
believe the agitation will have any significant impact
on Metro's India operations. Said Swati Dixit, studying
for her bachelors in business administration at a
reputed south Mumbai college, "There is no point in
shouting. This is a part and parcel of the inevitable
process of the opening up of world markets. Metro's
success will eventually make the way for other large
international players."
(Copyright 2003 Asia
Times Online Co, Ltd. All rights reserved. Please
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