My Newspaper Vendor and FDI in Retail...

Today I again got to see my Newspaper vendor of over three years, after more than six months gap!

He has got used to being my vendor so much so that he doesn’t even consider it necessary to visit me and collect the payments on a regular basis.  That always created a problem for me since I have to keep the amount in cash with me all the weekends, expecting him to come for collection.  He of course, wouldn’t accept cheque payments.  I was however, willing to bear this inconvenience because I am generally a loyal customer who hardly changes his suppliers or brands unless I have compelling reasons to do so!

Of late, he has been giving me a rather very compelling reason to change him! He used to supply the newspapers at around 8.00 am on all days. I adjust all my morning chores so as to be ready by that time so that I get at least 50 minutes to read my papers.  But for the last one month, he started supplying the papers at around 8.30 and some days it was only supplied after I left home at 9.00.

Two things I hate in my life are getting up in the morning even one minute earlier than what is really necessary and stepping out of home without having read the day’s newspapers!  In this world of instant messages and live news, who wants to sit and read a newspaper in the evening? By then the entire focus of attention would have changed to new breaking news.

Finally, I decided enough is enough and prodded our security staff to find me another supplier.  They found a guy who was willing to supply the papers by 7.00 in the morning.  It was too tempting an offer to which I immediately latched on to. He began supplying from the very next day and I requested the security to inform my existing vendor to discontinue.  I got two sets of papers for a week, before the old guy was finally conveyed with the message to discontinue! 

He met me in the morning today and tried to promise to mend his ways.  I conveyed my helplessness now that the other person is supplying too.  Finally, he grudgingly agreed to discontinue the supply and also promised to give the account and collect his dues in couple of days! Meanwhile, I got to know that the new vendor is now supplying to many more houses in our society, who were equally miffed with the existing vendor!

Have I done a mistake by changing the vendor? Have I taken away the right to livelihood of that vendor when I brought another vendor in his place?  The fact that this new vendor has not only got my order but also orders from many others in my housing society, since his timing of supply is more suitable to them as well, aggravated the loss of the previous vendor. 

My need to get the service on terms suitable to me, or his right to continue getting his business- which one should get preference over the other?  To me the answer was obvious!  And to my simple mind, same logic applies to all other businesses including multi brand retail as well!

All these years, this vendor has enjoyed monopoly in distributing newspapers within our Housing Society and has become complacent in the absence of any competition. When it was not convenient to him to supply the papers by usual time, he just changed the time of his supply, not making any effort to meet the requirements of his customers!  Now that there is a competition, he is willing to make that extra effort to meet his customers, find their needs and adjust to that.

This has been the situation in almost all businesses in India prior to the liberalisation and globalisation measures initiated in 1991.  We needed licenses from Government to commence any business.  Licenses were refused on the ground of increasing competition and capacity! Businesses thrived under the protection of government and politicians without any competition whatsoever.  There was no need to adjust to market conditions or innovate or increase efficiency in operations.  However, with opening up of the economy and the partial removal of the License Raj, competition began affecting the existing businesses.  We heard loud protests from Left and Right wings of political spectrum in the name of ‘Anti- neo colonialism’ and ‘Swadeshi’ respectively.  In short, they all wanted to continue the protection enjoyed by Indian businesses at the cost of economic growth and efficiency.

We all know what followed. At least those who are beyond their teenage must know the revolutionary changes and growth those simple (half-hearted) measures brought to India, that India came to be discussed as the new economic super power.

Even if they don’t agree to the economic growth etc, at least they would know the difference in terms of availability of choices, be it in TV channels, mobile phone services, airlines, shopping malls, eateries or many other such areas that affect their everyday life! 

The competition and infusion of foreign capital has not weakened Indian economy or Industries.  It only weeded out unfits and made rest of the players stronger

In continuation of the liberalisation measures, India had opened up its multi brand wholesale sector for foreign investment.  As a result, multinational companies like Walmart, Carrefour, Metro etc have already registered their presence in many Indian cities by way of wholesale Cash & Carry operations.  However, efforts by successive governments (which included both NDA and UPA) to open up multi brand retail sector was always resisted by the political parties, keeping in mind the protection of nearly 40 million people working in these neighbourhood shops, also known as Kirana shops.

As a result, these the retail trade in India, which account for nearly 15% of GDP, has failed to change according to the time by taking full advantage of the growth of economy.   Except for a minute portion of new generation enterprising traders, most of the shops remained in the age old mould, making it a very inefficient sector.

Have you ever considered, why we have high inflation (significantly contributed by fruits, vegetables and other food items) on the one hand and farmer suicides on the other? It simply means, the high prices that consumers are forced to pay for these products are not reaching the producers, i.e., farmers.  A lot of it is being sucked out by the long chain of middlemen who thrive in the absence of organised markets for agricultural produce.

FDI or Foreign Direct Investment (which is in fact different from the entry of multinational retail chains) in multi brand retail sector or even entry of the Walmarts of the world is not going to make any significant change in the sector, at least for many years in the beginning; much in the same way as the super malls have hardly affected any small shops in the neighbourhood.  

No existing shopkeeper is likely to lose his business for the simple reason that he will be catering to a different set of consumer needs like proximity, small quantities, credit, home delivery etc.  So long as they provide these niche value add, not much diversion of customers will take place from neighbourhood store to large retails shops.   As an aside, if all the supporters of the political parties who are now opposing the FDI policy, remain true to their ideology and keep away from the ‘MNC chains’, the small shop owners have nothing  to fear!

The new large stores or chains will only partly absorb the growth opportunities provided by an estimated 12 to 15% year on year growth! At least for now, not more than 53 large cities (with more than one million of population) and 5 or 10 other cities that may be notified by states and UTs with no city having more than one million population will be eligible to have these stores!

What these chains will make, in my opinion is a cultural shift.  Trading will shift from a caste and family based activity to more professional activity over the years.  The choice available to the consumers (even if limited), will force the service providers to change, like the Newspaper vendor!  In order to retain the business he will innovate and make it competitive and niche.  They will be forced to find ways to eliminate multi-layer middlemen and reduce the gap between farm/factory prices and retail prices.

As for the loss of job for middlemen and the traders who are not willing to adapt to new changes, well, there will always be some collateral damage to any change.  In every business some failure do occur. No one has a right to remain in a business that he is not capable of running efficiently and competitively.  Adapt or perish is the only survival mantra for any service provider; traders being no exception. 

To conclude, the new retail chains or FDI in retail (much same as my new newspaper vendor) is neither a panacea nor a livelihood shattering evil step.   It is merely a small part of overall reforms of our economy to ensure its growth and efficiency so as to meet the demands of an every growing and demanding population. 

PS: For a more serious and technical discussion on FDI in retail please read my post 'Foreign Direct Investment in Multi Brand Retail Trading- Some Basics'