Summary Auchan, the French retailer plans to enter India through franchising. India has huge untapped potential in the retail sector but the Indian regulations do not permit direct FDI. Auchan plans to enter into franchise agreement with Landmark Group, which is set to terminate its agreement with SPAR in India…
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1. Introduction The French food retailer Groupe Auchan S.A. (Auchan) is one of the world’s top retail and distribution groups and the fourth largest food retailer in France with a market share of about 12 percent (Standard & Poor’s, 2011). It competes with European giants such as Carrefour and Casino. Auchan has a strong position in the hypermarket segment which contributes about 80% of the group’s revenues. In addition to intense competition, rising inflation has been holding back consumer spending in Western European markets. Auchan has expanded into several Asian countries and also in Central and Eastern Europe. India has a huge retail market but it has FDI restrictions and does not permit foreign companies into multi-brand retail. Auchan has been attempting to enter into India through a franchise agreement with Dubai-based Landmark Group. The Landmark Group, founded in Bahrain with a single shop, has grown into one of the largest retail organizations (Landmark Group, 2012). Currently, the Landmark Group operates the SPAR hypermarkets and supermarkets in India but their agreement with SPAR is set to come to an end. Auchan Groupe intends to enter into a franchise agreement with the Landmark Group until India amends its FDI policy. As of now India does not permit FDI (Foreign Direct Investment) in multi-brand retailing. 2. Rationale for choosing India India offers huge potential for the retail sector as the disposable income of the middle-class has been growing. FDI in different sectors has been increasing in India and the Indian currency (Rupee) has become strong in the international market. However, PEST analysis would help in evaluating if Auchan’s decision to enter India is a viable proposition. Political The political situation in India is unstable as it has a coalition government since no single party has clear majority. The industrial sector also faces opposition and the growth in agriculture has been slow. However, the role of the central government as the intermediary of the state governments is now ending (Mohan, 2006). This indicates that states now have autonomy while the growing middle-class favours liberalization. The business conglomerates in India have turned their attention to retailing (Deloitte, 2008). The Ministry of Commerce and Industry, Government of India, is the nodal agency for monitoring and reviewing the FDI policy in India on continued basis (Tyagi, 2010). Economic The Indian economy has undergone tremendous change. The Indian economy has recorded high growth rates and is an attractive destination for investments (IBEF, 2011). The Indian economy is expected to grow at 7.5% and is expected to contribute to the recovery of the world economy. The Gross Domestic Product (GDP) was 8.5% during 2010-11 against 8% in 2009-2010. Over the next two years India is expected to attract FDI worth USD 80 billion according to a research report by Morgan Stanley as cited by IBEF. India’s retail sector is expected to grow to $635bn by 2015 (Sengupta, 2008). At the same time, food retail is expected to grow to $1.6bn over the next five-year period (Srivastava, 2008). Social The modern cities such as Delhi, Mumbai and Bangalore show evidence of modernization and adaptation to western standards under the influence of globalization (Pick & Dayaram, 2006). Growth and development in communications technology, development of transport infrastructure, widespread availability of western
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