Bangkok Post | 2 Nov 2007
Retail revolution on hold
Indian protests against home-grown conglomerate are a sobering lesson for prospective foreign investors
As Thai retail entrepreneurs start to look at international markets to expand their businesses, they need to be aware that even the world’s biggest retail groups with powerful local partners sometimes struggle to overcome local resistance.
Protests by small shop operators against big chains are hardly unique to Thailand, where they have led to the planned enactment of tougher regulations for retail expansion. In India, for example, one of the country’s largest conglomerates has been brought to heel by community opposition.
Central Group, Thailand’s largest retailing business, has already announced plans to enter markets such as Vietnam and India, and at one point was contending to buy Robinson Department store in Singapore.
Meanwhile, the company is seeking Thai government assistance to negotiate with India to open its service sector, which the Delhi government has been vigorously defending against foreign investors.
Indian Commerce Minister Kamal Nath said in an interview with the Bangkok Post earlier this year that services were a very sensitive area and it would be difficult to open up to foreign retailers.
"Look at your country," he said. "There have been protests across the nation against hypermarkets, and that is when a majority of retailing is controlled by the modern trade in Thailand. But in India 97% of retailing is controlled by small retailers. Can you imagine what will happen if we opened our markets for retail?
"We have to make sure that we do not replace or displace these small retailers, but we have allowed freedom in the cash-and-carry type of stores."
Despite this, the two countries have been working on a free trade agreement that would open up various sectors in each country, and discussions about retailing have been considered.
Commerce Minister Krirk-krai Jirapaet has admitted that such talks have taken place and that many retailers have strategic partners ready to invest in India.
"They want to know the progress of the Thailand-India free trade agreement and whether it involves liberalising the retail sector," he said earlier this year.
Suthichart Chirathivat, executive director of the Central Group, said Central needed more details on the liberalisation on India’s service sector to conduct a feasibility study on overseas investment.
Although it is too early to estimate the size of the group’s investment in India, markets with potential are Mumbai, Chennai and Calcutta, where demand for Thai goods is high, he said earlier this year.
However, the recent experience of Reliance Industries, India’s largest conglomerate, has been a sobering one for local and foreign businesses alike.
Plans by Reliance to invest around US$6 billion to create a "supermarket revolution" in its home country have been derailed by major opposition from small traders fearful of losing their livelihoods and politicians worried about losing votes.
Shopkeepers, traders and political groups in various states have been staging protests against the establishment of large retail stores such as Reliance Retail.
The protests have forced the company’s retail arm, Reliance Retail, to slow down its ambitious store introduction schedule first outlined last year. It has delayed plans to open shops in north and east India after protests from traders and attacks on stores.
Last month Reliance fired 1,000 retail employees and froze operations in India’s most populous state, Uttar Pradesh, and in eastern Orissa state after violent protests by small traders there.
It has also put on hold plans to open outlets in communist-ruled West Bengal in eastern India.
The protests have also reflected wider social tensions in India, where private investment to fuel the booming economy frequently leads to opposition from traders scared of new retail competition and villagers worried about the loss of their land to multinational factories.
The fears of protests and uncertainties have led other foreign retail giants such as Carrefour and Tesco to shelve their investment plans in India.
Reliance Retail had planned to invest more than $5.5 billion in its venture, which would include hypermarkets, supermarkets, and discount and department stores.
Large companies account for only 3% of India’s $350-billion retail market, which analysts estimate could double by 2015.
But the company has become a lightning rod for protests against modernising the retail business in some Indian states, while being welcomed elsewhere.
In Uttar Pradesh, the company has so far failed to persuade the state government to reopen the stores, originally closed because of law-and-order problems after protests.
Home to about 170 million people, the northern state is one of the most crowded regions on earth. It is roughly the size of the UK yet only five nations, including India itself, have a higher population.
In another blow for Reliance, around 15 stores in Noida and Ghaziabad, two booming middle-class towns on the outskirts of New Delhi, were shut last week on police orders, although staff have not yet been sacked there, a Reliance executive said.
Reliance Retail had launched 300 stores across 12 states since last November with a workforce of 6,000 employees, but has since slowed down dramatically.
Reliance’s woes underline the obstacles facing big retailers in modernising India’s small shopkeeper landscape of 15 million "mom-and-pop" outlets.
Such concerns have deterred other Thai entrepreneurs from going abroad.
"We always get invitations from people to join in building community malls in China, Vietnam, India and Malaysia, but we feel we are not ready for all this. Why move out when there is enough opportunity to grow within our own borders?" said Nopporn Witoonchart, chief executive officer of SET-listed Siam Future Development Plc.
"Yes we are studying various markets, but why should we take the risk of moving into unknown markets when we can do business here?"
For now, he said, the focus would be on investing about two billion baht annually in opening new properties across Bangkok over the next year. He said SF would not take on the risk of investing in new markets unless it was very sure about what it was getting into.
But others are more determined, saying that the problems seen in India are in only one segment of the retail market, which is supermarkets.
"Retail comprises many segments and the problems in India is based on a certain segment and we have expertise in a different one," said Tos Chirathivat, the chief executive of Central Retail Corp.
"You cannot get a more greenfield market than India today in this part of the region and we sure are interested in setting up a department store there."