Sunday, November 27, 2011

FDI in Indian Retail : Dream, Nightmare or Both

300 years ago British East India Company entered Indian market with a contemporary FDI.* That was a terrible mistake by that time’s decentralized India. Obviously, entry of Walmart, Carrefour, Tesco, IKEA, etc cannot have that level of Imperialistic interest over Indian Geography. But, indeed their target is the market share over the diversified Indian demography. Introduction of FDI in multi brand retail is an opportunity for people to expect something more from the buying experiences, new jobs and a direct impact to achieve a better livelihood. A threat for our neighborhood Kirana shop and established players like D-Mart, Big Bazaar, etc.

Once all hurdles are cleared**; this is will be interesting to see how the transition phase will be going along. The time before materialization of first selling operations by foreign retailers will be the most strategic phase. Today, Indian Retail Sector is a turbulent ship. Players with wrong strategies or weak fundamentals were perished severely in past. Subhiksha, Indiabulls, are such examples. Reliance retail hasn’t made its mark that prominent in this sector, although they have got a robust boosting from the parent group. But also players like D-Mart have a prominent mark in the regions where they operate. They are strategically most correct value retailers. Also, Big Bazaar which I think has the most prominent mark in the retail space (citation needed). What these existing players will be doing in the phase when the giants will step up in Indian retail space. CEOs must have sleepless night while I’m writing this blog. Existing players have two options before the new giants meet someone else approach them and have the most strategic ambitious Joint Venture like Bharti has JV with Wal-Mart; Tata Retail has the same with Tesco. Else, have a self-expansion plan so that the outside giants will avoid entering the kingdom of local giants and will seek other strategic left over locations e.g ambitions of Reliance group. And we have an abundance of such locations. Afterall we are the second largest market with growing purchasing power

As of now no company will take decision to open their value store at the same place where another player is already into operations. It is tough for existing players to further expand their expansion plans when interest repo rates are so high. They are already staring at theirs’ withheld plans from past. The current turbulent phase of global economy is indeed not the right time when government got so proactive for this decision. This is not going to tame high inflation we have today. But, todays’ high inflation has government made realize that essential commodities must have been cheaper if in past the decision of this date would have been made. 

Before going any further let us have a broad, high Level Categorization of Multi-Brand Retail with mentions of domestic players and foreign giants

Value Retail – Huge Super Markets (A-Z Departmental Stores)
                Indian Player- Big Bazaar, Reliance Mart
                Foreign Giants- Wal-Mart, Tesco

Premium Retail – Sophisticated retail outlets, mostly specialized into certain product categories medium to large size wise
                Indian Player- Shopper Stops (Apparel)
                Foreign Giants- IKEA (Home Furnishing)
Note: - IKEA is considered as a single brand retailer, which has also got clearance of 100% FDI.

Convenience Stores- Neighbourhood Mom and Pop stores, small format chains
                Indian Player- More, Reliance Fresh, Kirana Stores (mostly unorganised retail)
                Foreign Giants- Seven Eleven

Players in above broad categories in Indian retail segment have fierce competition for market share within their group as well as from outside. They are already struggling with various cost elements which is eating up their profit margins. Many ambitious ventures are being shut down in different segments. They cannot create sufficient demand for their lying inventories which mostly includes the products not commodities.

When it comes to commodities, it is apparent that those who are involved with these commodities (less producing more distributing) are going to be direct beneficiaries. It depends on how the benefit will be passed to the grass root level of peasants and farm owners, etc. Currently, we have networks of middlemen and agro-based industries who are actual beneficiaries of the business. Players will have a fierce competition of bulk buying from these distributors. They will be selling more quantities to single buyers. ***

This all happens in the retail business, but FDI will increase the intensity of these practices. Follow this link for the prototype economic model of a hypothetical GupiansLand covering before and after scenarios of a wealthy external retail player induction into the eco-system.

This prototype model has derived that inclusion of FDI in the ideal scenario taken will not only reduce the commodity cost but inclusion of new innovative products will help the overall turnover of the industry not going in red, but in green. As derived in the prototype, FDI will help in enhancing purchasing power of potential consumers as well as it will create new consumers. Therefore, industry will grow. This will be achieved only when implications of FDI policy will have a direct positive impact over the grass root of macro-economic variables. Government has to ensure people living around poverty line are the actual beneficiaries.
Some will evolve and some will emerge, Some will survive and some will get extinct, some will rule and some struggle. Economy will be drastically transformed at the macro level. As a consumer, we are excited about our higher purchasing powers which will emerge post FDI. As a citizen, we should also expect this should be a win-win scenario.
The political debate which will circle around the Kirana stores(family owned convinience stores) will definately become a national debate. Does our economy will have enough room for everyone. Or this category of retailers will face a severe wipe-out.

Just some Virtual Real and Ideal Thoughts

* East India Company's arrival in India was also an FDI. This FDI turned political and India became a british colony. Taking the economic exploitation by Britishers side apart, the FDI resulted in infrastructural developments as well. That FDI indeed made grouped decentraqlized India a Nation as well. indeed a long debate, altough thanks to @nikhilkardale for letting people identify 300 years back we had our first FDI
**As of now Cabinet has given approval to the proposal of allowing FDI in multi brand retail. The National Drama over this decision is yet to be witnessed in coming months
***Governments control over floor pricing of commodity will help in saving of interest of farm owners. However, government failed miserably in past maintaining such policies. This has resulted in wastage of grains due to improper distribution or farmers throwing away their produce on roads as they have no buyers and lack of storage facilities. We look forward that FDI in retail could bring down some infrastructural revolutions as well to the economy.

Friday, November 25, 2011

FDI in Retail: A Prototype Micro-Economic Model

GupianLand's Economy Prototype Model w.r.t FDI

Disclaimer:- The prototype model is a virtual scenario considering a set of ideal solutions only. A pure hypothesis or a random attempt of some thought experiments using what if analysis tools. Economy has got several random variables, and other possibilities cannot be denied. In this model some economic factors have been considered silent or constant.

Lets consider this scenario of GupianLand having regions namely Twitter and Facebook.

Twitter region has Distributor @JinnyBoi, Shop @Cjethmalani and one customer @TheMasakkali with a buying budget of 100 Rs.

Similarly Facebook Region has Distributor @Funjabi_Gabru, Shop @_stoic_ and customer @AbidiRuby.

Farmer @aseemrastogi2 is in Twitter region who supplies to @JinnyBoi
Farmer @TheAngrezJailer in Facebook region supplies to @funjabi Gabru

Hence, each region has respective demand of commodities worth Rs. 100

Before Week 1:-

Every week Masakkali goes shopping and shop Cjethmalani earns 10 Rupees of profit from the sales. This is his local income not considering his overheads and other expenses. This means Cjethmalani bought commodity worth Rs 90 from Distributor @JinnyBoi. Lets say that time @JinnyBoi also earned Rs. 10 of profit. This Means @JinnyBoi sold commodity in Rs. 80. aseemrastogi2 had invested Rs. 70 for that much of commodity. That Rs. 70 of FA is outside this micro economy. Similarly, earning of Customer Masakkali is sourced from outside this micro economy.

Micro economy of region FaceBook is exactly mirror image of region Twitter. (refer illustration)

As we know, in each region each Farmer, Distributer and shopkeeper are earning Rs. 10 each for every transaction made by customers worth Rs. 100.

GupianLand Government Allows FDI

Suddenly, the privacy of these two parallel micro economies functioning together is intruded by a third shop @ViralSSS , which is a bit far from both TheMasakkali and AbidiRuby. Obviously, TheMasakkali and AbidiRuby will give a damn to ViralSSS if he is selling that commodity at the same price i.e. Rs 100. He will have no income.

Shops @Cjethmalani and @_Stoic_ were earning Rs. 10 every week. Hence, that is the target earning for @ViralSSS.

Week 1:-

@ViralSSS will arrange funds from outside source to buy the stocks which can cater both TheMasakkali and AbidiRuby. @ViralSSS invested Rs. 180 to buy that stock from Funjabi_Gabru and JinnyBoi. Now he offered same commodities at Rs. 95 to both TheMasakkali and AbidiRuby. Now TheMasakkali and AbidiRuby have a benefit of Rs. 5 with this deal. So they managed to take extra efforts to reach out for buying at W. Hence, with the double turnover, @ViralSSS is managed to earn what shops @Cjethmalani and @_stoic_ used to earn every week.

This strategy by @ViralSSS, has effected @Cjethmalani and @_stoic_ very badly.

Also, TheMasakkali and AbidiRuby now have Rs. 5 extra to spend. @ViralSSS is a more prosperous guy, as he is backed by an unlimited source of money coming from some external source.

Week 2:-

Next time when TheMasakkali and AbidiRuby visited @ViralSSS, they got some new merchandise at the store. @ViralSSS communicated benefits of this merchandise. TheMasakkali and AbidiRuby bought that. So they did Rs. 105 of transaction since they had Rs. 10 extra saved from the commodities.

So by this time, @ViralSSS has not only made a double turnover but also achieved a profit almost equal to @Cjethmalani and @_stoic_. That Rs. 10 of value added merchandise is something which yields maximum profit. Since it has got the least acquisition cost but because of their unique nature they are sold at a premium.

 Week 3:-

Shops @Cjethmalani and @_stoic_ are now effected by the opportunity loss of two transactions. Now they need some counter strategy to tackle the new player @ViralSSS, who is prosperous than them and has done sufficient damage to the business. @Cjethmalani and @_stoic_ decide to sell their goods at Rs 95 as well so that they can match the cost benefit of @ViralSSS.

This week @Cjethmalani and @_stoic_ retained their respective customers but they have a profit of Rs. 5 only. They had tough 3 weeks.

Week 4:-

@ViralSSS is aggressive. He cannot tolerate TheMasakkali and AbidiRuby not going elsewhere. At this point of time @ViralSSS is having Rs 190 worth of unsold commodity and Rs. 10 worth of value added merchandise. Now W has to take a vital decision. If he will further reduce the sales price of commodity he will earn TheMasakkali and AbidiRuby, but this will have a bad impact on his business for long run. As everytime they will seek that pricing. This time @ViralSSS makes a limited period offer to provide that merchandise at a discounted price if commodities worth Rs. 95 are bought from him. This week TheMasakkali and AbidiRuby bought stuffs worth Rs. 98 from W. Since that merchandise was sold at Rs 3 instead of Rs. 5.

Week 5:-

Now these shops come to know about a new product in demand by TheMasakkali and AbidiRuby. This new product has become a part of TheMasakkali and AbidiRubys lifestyle. Now they are regular buyers of it. The increased purchasing power has enhanced their spending habits. Now, shops @Cjethmalani and @_stoic_ are also buyers of the same product which @ViralSSS sells. Another outside distributor @LegRJ of the product is now accessible to @Cjethmalani and @_stoic_ as well. Now @LegRJ sells the products to @Cjethmalani and @_stoic_. But their acquisition cost is higher than that of @ViralSSS. And they have to sell this product at more attractive price to TheMasakkali and AbidiRuby.

Now TheMasakkali and AbidiRuby are the free decision makers in this market. As they are the one who represents limited demand in a micro economy which suddenly experienced new players inducing new products and additional supplies.

Week 6:-

@ViralSSS is now facing implications of his strategy taken in Week 1. He has to maintain Rs. 200 worth of commodity inventory (excluding applicable promotion/discounts) to avoid opportunity loss at any point of time. Inventory carrying cost is now a burden on @ViralSSS shop. @Cjethmalani and @_stoic_ have advantage on this part, as their inventories levels are lower and they have adopted to the changed market scenario with lesser profits w.r.t those commodities. However, newer products introduced in market are compensating their respective losses. A perpetual innovations carried out at product level has given opportunity to these shops to explore newer avenues and to compensate their reduced margin for commodities.

In this market place @Cjethmalani ,@_stoic_ and @ViralSSS has to maintain stock levels so that they will have sufficient inventory to cater these customers. Now these customers have become very wise and they are random in their buying behaviors.

Week 7:-

Distributers @JinnyBoi and @funjabi_Gabru are now also have an advantageous position. Previously each distributer had one buyer. Now each distributer has got two buyers.

There is a net increase in the demand for the commodity. @JinnyBoi and @funjabi_Gabru are getting more prosperous. Now they are enjoying the benefits of an extra buyer in the micro economy. They do negotiate to figure out win-win deals. They do bulk buying to get quantity discounts. Distributors have double inventory turnover. Hence they are willing to provide discounts. This extra money is now carried forward to the farmers who have got his income significantly increased.

Week 8:-

Rs. 200 (initial face value of the commodity) of extra inventory is now a part of this micro economic eco-system. (This is the minimum amount of unsold extra inventory at any given point of time)

Also, the farmers have become prosperous as well because of they had to increase yield of their farm/resources to cater this demand. That investment (actually induced by @ViralSSS) has made these farmers a potential consumer as well. This means a positive implication of @ViralSSS coming into this eco system was introduction of new consumers.

These new consumers are buying those new series of products which were were introduced in the economy by @ViralSSS. Demand for new innovative products is increasing. With every drop in the Price of commodities, our primitive consumers have got more purchasing powers.

Week 9:-

Implications of developments observed in Week 8 are:-

1. Commodity prices are finally settled at a lower price level in the economy of two unit of commodity consumers.

2. Economy is now evolved as a product oriented economy having 4 potential product consumers (Primitive consumers and the now prosperous farmers having better purchasing powers)

Economy is now pumped with money from outside sources which is represented by the value of unsold inventory lying with shops @Cjethmalani ,@_stoic_ and @ViralSSS. But, the value addition features of the new products have given a better profit yield to these shops. Since, the extra amount of money invested has been well compensated by new consumers evolved and profit margins of new products and services perpetually being introduced to the system.

Week 10:-

What if in Week 7, the middle men i.e distributors had gone greedy. What if they did exploitation of the farmers by asking them to produce extra crops but not giving them their fair share? What if they had gone corrupt and decided to keep most of the extra income generated in Week #7 with themselves only?

What would have been the Week of economy? If such earnings by the Distributors goes out of circulation, Dealer is keeping that (black) money with himself. On the other hand poor shops are struggling hard to attract consumers. These three shops are fighting it hard to win the best pie of the limited market demand for commodity and products.

Unaware of this scenario, peasants worked hard to get additional yields over the illusion of high demand. There will be dead inventories everywhere with peasants, distributers and shops. Distributers are wealthy, the black money with them will be hedged for this loss. Poor peasants wouldn’t have buyers for their yield. Shops are overloaded with dead stock. Consumers can only consume as per their capacity. Shops will try to sell their commodities with minimum profit. Money saved with consumer might not be consumed for other products as they are also in abundance by now.

Also, let’s assume Government comes in rescue to bail out these entities. To do so, Government had to cut its expenses as well. Such austerity measure means our primitive consumers @TheMasakkali and @AbidyRubi have lesser income now. Hence, there will be a sudden drop in the demand for the commodities and the products. There will be bears crawling all around the system.

Peasants and consumers will have their worst phase. Peasants will have no work as there is no demand for their farm produce. Consumers will have lesser money to spend. Shop keepers will be just waiting for their returns on investment with that huge pile of inventory, which is now slow moving. Since that bail out, they are now functioning at a lower turnover (w.r.t era before @ViralSSS arrived)

The outsider @ViralSSS might decide to quit this economy. Failure of W will discourage others outsiders to pump money into this economy. It will take time for the economy to run like before.

And that black money will remain black and idle doing no good to anyone. Perhaps Distributors transferred that money into bullions and real estate. Such black money got absorbed into such investments and is out of circulation from the economy.

If there is a law stating conservation of money, then by principle, first Corruption (absorption of money) at one link in the chain has resulted in depreciation for every other entity.

Just Some Virtual Real and Ideal Thoughts

Thursday, November 17, 2011

Concept Document: Tweet Fixing

What is Tweet Fixing?

Use of social media networking sites like Twitter to initiate a spontaneous word of mouth advertising platform for an underlying concept/ cause/product. As we know that everyday some topics trends like a wildfire on Twitter and people start discussing them to make spontaneous trends. We must have experienced our timelines trending on what opinion leaders have spoken all about. Needless to know how cricketers’ or #babyB goes trending in Indian timeline; but trending of an unknown girl wearing blue bra or Vivek Oberoi also trending with #babyB enumerates the power of people on Twitter. That power can be well channelized into some concept/ cause / product through a paid medium of Tweeples (People on Twitter) for promotion.

Such Tweeples will be referred as Secret Advertisers in the following part of this document and beyond as well.

How Tweet Fixing will work?

Such advertising campaign will be full-fledged projects. There will be a core committee of creative Twitter Consultants who will provide their consultancy for scripting how the topic has to be initiated on Twitter. A lifecycle of the campaign has to be designed covering introduction, growth, maturity and decline phase of the campaign. They will analyze and plan correct timing for launching the campaign. The designed campaign will be then executed by the Secret Advertisers strictly following the predetermined protocol(Protocol includes Plan B as well!). A moderator for secret advertisers will have a constant watch on the timeline to ensure correct execution of campaign, if they need to switch to plan B or to suspend the campaign if suddenly any real storm of topics like #babyB appears between people.

Below is the basic prototype of how timeline will function to start a successful campaign, you may find Philip Kotler also liking this prototype:-


Secret Advertisers :- @ThePopularGirlonTwitter , @AnIntelligentBoy, @AnyTimeCritic, @ScriptedStalkers (1 to N), @popularGirl’sFemalefriend (1 to N) , @Moderator @Campaigncatalysts

Real People :- @RealStalkers @RealOpinionLeaders @followerCounters @EarlyFollowers, @laggards

Pre-requisites:- designed campaign has to have genuine public interest catching contents. Secret Advertisers should have good audience in timeline and they must be real people as well (if not, they should thoroughly behave like real people). They should be also talking about other topics before, during and after the campaign to maintain their level of authenticity.

Note:- Induction of Artificial Intelligence should be avoided in this early phase.

Timeline Skeleton

Topic Initiater -@ThePopularGirlonTwitter starts sharing her views related to campaign.

@scriptedStalker(s) and @popularGirl’sFemalefriend (s)starts interacting with her and carry forward the conversation.

@RealStalkers also join the conversation and starts spreading the campaign to the real unscripted conversations.

@AnytimeCritic intervenes with his scripted counter point of view on the campaign.

@AnIntellegentBoy comes up with solid scripted points in favor of the campaign

Identified @followercounters are followed and unknowingly involved into discussion by @thepopulargirl @Herfreind @scriptedstalkers and @campaigncatalysts

@realopinionleaders will jump in the conversation.

@earlyfollowers will follow them

Above is a complicated twitter cycle which has to be performed with intelligent combinations and strategies to pull out real conversations from people.

All above entities keep themselves involved into discussions. @Moderator is keeping eye on the timeline and will be interactively using Twitter APIs to statistically monitor the flow and direction of the campaign.

Secret advertisers will initiate and actively participate in the growth of the campaign. If the campaign is successful, the maturity stage (refer product life-cycle curve) of the campaign will not require secret advertisers to tweet more frequently on the topic. The Twitter engine will carry forward the conversation in the targeted region of campaign. This will be a testing time for @moderator to keep a watch on the timeline so that he can instruct secret advertisers on how and when to perform changes in their respective tweet frequencies for the campaign. In the decline phase @laggards will also join the conversation in the campaign followed by the kickoff of the new campaign.

Last but not the least; throughout the campaign @Moderator has the responsibility to ensure that the campaign is progressing in the positive direction.

Every entity (people) in the Twitter will have their own audience to reach. Tendency of people on Twitter is to be reached and be heard. The campaign will be using this open secret of Twitter. Although, introduction and growth phase of the campaign could be artificial or scripted. But, those who understand the soul of twitter will be convinced that maturity phase of the campaign will be the real spontaneous discussion on the campaign.

This spontaneity of the campaign will carried forward to other social networking platforms like Fakebook (read Facebook) and outside the internet world as well.

Is Tweet Fixing Ethical?

When the idea was in raw phase, I asked myself the same question and also floated this query in my timeline. The element of social responsibility in the proposal has to ensure concept/ cause / product should qualify to be genuine fundamentally. Power of twitter is so smart that a fake underlying campaign cannot move into a positive direction. Secret advertisers will only be introducing the campaign to the timeline. Gradually the discussion will grow spontaneous with real people being involved with the real feedbacks and opinions. Tweet fixing will help to let people follow a direction for what topic to discuss. In social media networking we cannot control what content is delivered by the target audience who is also a part of this mass communication.

Just some ‘Virtual Real and Ideal’ thoughts

copyright- Rajeev Srivastava