Barriers to Entry and Foreign Advantage and Disadvantages
Barriers to Entry
While India has gone through economic reform and seems like a good potential for investment, they are still dedicated towards protecting domestic businesses in several areas (The World Bank, 2011). The dormancy of the government to change regulations on the foreign direct investment (FDI) for retail companies has created a large barrier to entry for companies that want to involve themselves in this industry (Thathoo & Kacheria, 2007). While the government has been relatively progressive in reducing regulations for single-brand retailers, this is not the case for multi-brand retailers who are not permitted to partake in FDI in India. The government is fearful that multi-brand retailers will take away business from the traditional unorganized form of retailing in India that employs approximately 33 million people (The World Bank, 2011).
The other choice for foreign retailers that want to move into India is to set up a cash and carry wholesale distribution system, which is permitted to have 100% foreign ownership. A wholesale distribution system is only regulated to sell to other retailers and not to any final customers (Thathoo & Kacheria, 2007).
In addition to the regulatory provisions on FDI, India’s rate for import tariffs is set quite high at 36.8% for several retail products (Anne Reiss & Biswas, 2007). This makes exporting an unattractive option for entry into the Indian retail sector. Furthermore, there are 109 commodities that must be certified by the Bureau of Indian Standards before they are allowed in the country. These procedures can be seen as protectionist measures rather than a method for ensuring the quality of goods entering the country (The World Bank, 2011).
Advantages and disadvantages to foreign investment
There are several advantages and disadvantages to investing in India; however, it will become apparent that the disadvantages do outweigh the advantages for the retail sector. A large disadvantage
While India has gone through economic reform and seems like a good potential for investment, they are still dedicated towards protecting domestic businesses in several areas (The World Bank, 2011). The dormancy of the government to change regulations on the foreign direct investment (FDI) for retail companies has created a large barrier to entry for companies that want to involve themselves in this industry (Thathoo & Kacheria, 2007). While the government has been relatively progressive in reducing regulations for single-brand retailers, this is not the case for multi-brand retailers who are not permitted to partake in FDI in India. The government is fearful that multi-brand retailers will take away business from the traditional unorganized form of retailing in India that employs approximately 33 million people (The World Bank, 2011).
The other choice for foreign retailers that want to move into India is to set up a cash and carry wholesale distribution system, which is permitted to have 100% foreign ownership. A wholesale distribution system is only regulated to sell to other retailers and not to any final customers (Thathoo & Kacheria, 2007).
In addition to the regulatory provisions on FDI, India’s rate for import tariffs is set quite high at 36.8% for several retail products (Anne Reiss & Biswas, 2007). This makes exporting an unattractive option for entry into the Indian retail sector. Furthermore, there are 109 commodities that must be certified by the Bureau of Indian Standards before they are allowed in the country. These procedures can be seen as protectionist measures rather than a method for ensuring the quality of goods entering the country (The World Bank, 2011).
Advantages and disadvantages to foreign investment
There are several advantages and disadvantages to investing in India; however, it will become apparent that the disadvantages do outweigh the advantages for the retail sector. A large disadvantage