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The Franchise Agreement with International Company - Case Study Example

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The main idea of this study is to analyze the Auchan idea to enter into a franchise agreement with Landmark Group. The author assesses the rationale for choosing India, the justification for the entry mode, competitive advantage through entry mode…
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The Franchise Agreement with International Company
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Download file to see previous pages 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.
The 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 a 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 favors 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 a continuing 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 goods and rising real estate prices have challenged the traditional habits and practices in India. Consumerism has influenced the buying habits of the Indian consumer. India has become the “next big thing” for the world’s leading retailers (Deloitte, 2008). Consumer spending in India is expected to be strong.
India uses advanced telecommunications technology and is much advanced in different modes of communication such as broadband and mobile technology. The retail sector uses advanced technology globally and India offers the necessary infrastructure to handle this. India offers immense potential in the retail sector despite government constraints and regulations. Consumer spending, technology, the economic situation, and the political environment are all conducive to the growth of the retail sector in India. Thus, Auchan could consider expansion into India. ...Download file to see next pagesRead More
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