The Role of Foreign Direct Investment in Retail Sector – An Analysis

Until the year 2011, FDI or foreign direct investment was not permitted in this multi-brand retail industry, forbidding foreign business enterprises from any ownership in this highly competitive supermarket, stores that are convenience for custome...

By: Admin | Update: 2016-10-21 10:59:12

The Role of Foreign Direct Investment in Retail Sector – An Analysis

Until the year 2011, FDI or foreign direct investment was not permitted in this multi-brand retail industry, forbidding foreign business enterprises from any ownership in this highly competitive supermarket, stores that are convenience for customers or any other retail outlets. Even most of the single-brand retail was allowed a partial ownership. For instance, in the month of January 2012, India permitted total foreign direct investment or FDI in single-brand stores, but inflicted the demand that the single-brand retail owners would have to source a certain portion of their goods from the Country. Former Prime Minister of India Manmohan Singh thought that this would be one of the most advantageous steps for consumers as well as farmers.

In the past few years, foreign direct investment was only concerned with the highly industrialized countries; less developed or developing countries were overlooked, not to mention United States of America was one of the lucrative destinations in the world in receiving of highest FDI, after U.S. comes other developed countries like France, Iceland, Switzerland, Poland and so on. Now, the situation has changed, during the course of time, foreign direct investment has become a pivotal part in every country, more especially with the rapidly developing countries, like India, China, Malaysia etc. This is due to the following reasons:

  • Hiring cheap labor, which is convenient.
  • Availability of raw materials that is uninterrupted.
  • Low cost of production compared to other developed countries in the world.
  • Quick and convenient market perforation.

Retailing is beyond doubt one of the largest private industries in the world. Liberalizations in foreign direct investment have caused a huge restructuring in this industry. The benefit of foreign direct investment in retail sector is undeniable, which superimposes its huge cost factors. Liberalizing the retail sector to FDI will not only expand employment opportunities in a country but also helps accumulating foreign currencies, which is good for a developing economy. It also enables a country’s product and/or service to make a free access in global market.

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