The Indian retail sector has been opening up to foreign direct investment over the past decade, with majority foreign ownership now allowed in both single-brand and - with certain caveats - multi-brand retail. With its growing middle class and vibrant young consumers, India is a lucrative destination for foreign retailers, many of whom have already entered the market or are in the process of doing so (e.g., Walmart, Carrefour, Tesco). However, making profit on investment in Indian retail is a challenging undertaking due to the sheer diversity of ethnic, cultural and religious groups, lack of supply chain infrastructure and regulatory complexities.
Organized retail in India has grown fast over the past decade, reaching up to 6 percent of the total retail market today, by varying estimates. Experience of early entrants - both local and foreign - has shown that supply chain inefficiencies can significantly erode retailers' profits.
To thrive in the Indian market, retailers should consider the following supply chain strategies:
Prepare to Deal with Very Fragmented Supply Chain Networks
Retail supply chains in India include a large number of intermediaries, resellers and distributors facilitating collaboration between retailers on the one end and farmers or consumer goods manufacturers on the other. Fragmentation issues make it difficult for retailers and their suppliers to effectively collaborate on forecasting, replenishment and inventory management.
Get the Supply Chain Network Right: Avoid Regulatory Quagmire
In India, the tax system has a major impact on supply chains. A complex web of state, federal and city taxes adds extra cost when building an inter-state supply chain. To reduce this complexity and facilitate inter-state trade, the government plans to introduce the new Goods and Services Tax (GST), which may go into effect as early as spring 2013 and will integrate state taxes into a national system. The GST is bound to expedite development of regional transportation and warehousing hubs.
Be Ready for Surprise Infrastructure Spending
Patchy back-end infrastructure is an omnipresent issue for Indian supply chains, with critical importance in the retail sector where disruptions can have an immediate impact on customer satisfaction. Before setting up shop, retailers need to thoroughly evaluate logistics capabilities and service providers available in the area. Indian third-party logistics and service providers vary widely in levels of supply chain process maturity, regional scope and service capabilities. As a result, retailers may have to invest in their own warehouses or additional equipment.
Train and Retain
One of the major challenges is lack of trained personnel at many stages of the supply chain. Retailers must continuously invest in training and incentives of personnel, to a higher degree than in other markets. They also may need to invest in their partners' training, to ensure consistent quality of contracted services.
The growth momentum is very strong in the Indian retail sector. Both domestic and foreign investors are expected to continue their expansion in this sector in 2013 and beyond. However, they need to be aware that this market is very diverse and complex, and supply chain represents a major hurdle to establishing effective operations and achieving profitability. Retailers that think supply chain first will be poised to achieve competitive advantage in this fast-growing market.
Keywords: supply chain, supply chain management, supply chain risk management, supply chain planing, logistics in India
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