Publish Date : 12/10/2005 11:12:00 AM   Source : Business News Onlypunjab.com

India tops a list of 30 new markets attracting global retailers, according to a study by the consulting firm A.T. Kearney.

For the past four years, A.T. Kearney has published the Global Retail Development Index (GRDI), a survey that it says will help retailers prioritize their global development strategies. The index ranks 30 emerging countries based on more than 25 macroeconomic and retail-specific variables.

The index not only provides an annual snapshot of how the opportunities in emerging markets stack up but also offers insights into changing trends, the analysis says. A slight change in position from one year to the next may not seem significant, but over the course of a few years, the company says, it becomes apparent just how important these subtle indicators can be.

So, India has overtaken Russia to take the lead spot this year, and six of the top 10 most promising regions are in Eastern Europe, according to this year's report. India has steadily risen on the GRDI, with its underserved $330 billion retail market growing by 10 percent on average per year over the past five years.

"This market is among the most fragmented in the world; the combined market share of the top five retailers totals less than two percent," the report notes.

Despite India's population of more than one billion which, it is predicted, could overtake China's by 2050, and although more than 30 percent of the population falls below the poverty line, "increasing mobility among the middle and upper classes, coupled with greater urbanization, results in growing demand for retail goods. Combined, these factors provide a favorable backdrop for a retail market poised for growth," the company says.

Although these favourable conditions have been in place for some time, a recent change in the regulatory landscape makes India that much more attractive, the report contends. Previous foreign direct investment rules prohibited direct ownership by foreign retailers, forcing them to enter India via franchises.

Recent legislation relaxes these rules; proposals under consideration call for ceilings of either 26 percent or 49 percent ownership."International retailers eagerly pacing the sidelines will likely be quick to take advantage of these more favourable FDI rules," according to the report, which adds that Wal-Mart, Carrefour, Tesco and Casino are among those actively seeking local partners.

Additionally, foreign retailers currently operating through franchises, such as Marks & Spencer and the Benetton Group, will most likely switch to a hybrid model. Levi is already taking advantage of shifting demographics and growing interest in branded products, and has laid out plans to build 300 stores in India by 2008. At the same time, leading domestic retailers, such as Pantaloon, Westside and Big Bazaar, are ramping up their business by increasing their scale and enhancing their logistics and technology processes, the report notes.

Still, there are many obstacles to conducting business in India, A.T. Kearney says. Inadequate infrastructure, for example, means that 40 percent of perishable food produced in the country rots during transportation due to a lack of refrigerated distribution networks. India is also not a homogeneous market.

With 28 different states, and a plethora of languages, customs and traditions, developing local market knowledge and choosing the best store locations will be critical. Indeed, India's retailing landscape has more than 12 million mom-and-pop stores that are not likely to idly watch their businesses erode as foreign companies encroach on their territory. But gaining early-mover advantage could make tackling all of these issues worthwhile.Pakistan makes its first appearance on the GRDI and rounds out this year's index in the number 30 spot. Pakistan's high market saturation score reflects one of the least concentrated retail sectors in the world.

In fact, the only identifiable chain is state-owned Utility Stores Corporation, which holds just 0.3 percent of the market. With strong GDP growth averaging just over six percent for the past three years, and Islamabad determined to attract foreign investment, up-and-coming Pakistan is beginning to capture retailers' attention, the report says. SHV Makro plans to open 30 stores, and Spinney expects to open six to eight.

In addition, Metro will open its first Cash & Carry outlet by the end of this year, with plans to build 20 more outlets in the longer term. While Pakistan holds significant promise, questions about political stability and geopolitical tensions will likely make foreign entrants cautious.

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