Tesco Backdoors Indian Retail

Ideas and Issues International Personal Writings

New Orleans        The India FDI Watch Campaign, a project supported by ACORN International, said it all in a recent bulletin when it juxtaposed two articles a year apart.  In one case Tesco, the giant UK retailer, scoffed at the Wal-Mart backdoor entry into India as a partner with Bharti, as “illegal.”  In the piece that ran last week Tesco mimicked the strategy by tying up with another Indian mega-conglomerate, Tata Industries, known worldwide for its dominations of the global steel market, but famous in India for all kinds of heavy manufacturing from cars and trucks to whatever, and now with Tesco, big box retail.  Tesco’s recent entry into the United States markets particularly in California has been alarming already, and now another front opens in India.

    This is the report from Dharmendra Kumar in the India FDI Watch Bulletin:

Following the Wal-Mart-Bharti joint venture, Tesco has announced its plan to enter into the retail sector of India. It has also announced its joint venture with Tata. As you all know, on 22nd June, 2007, addressing Reuters Consumer and Retail Summit in London , Andre Higginson, finance and strategy director, Tesco said (on its plan to enter India and considering the strong opposition of the backdoor entry of Wal-Mart in India), "It’s baloney. It is driving a kind of frenzy. And it is illegal for us even to go into India ". He criticized the "frenzy" being whipped up among foreign retailers about entering India and said it will only launch there subject to a change to laws that prohibit non-Indian ownership.
    Here is the 180 degree change by Tesco as it embraces the “illegal.”

Tesco to enter India with cash-and-carry business

LONDON (Thomson Financial) – Tesco Plc, the UK’s largest retailer, said it is to enter the Indian market by developing a wholesale cash-and-carry business and a franchise deal with the Tata Group. "This is another exciting development for Tesco. It complements our entries into China and the United States, giving us access to another of the most important economies in the world," said chief executive Sir Terry Leahy.

Tesco plans to invest up to 60 million pounds in the first two years of the cash-and-carry venture. It said the new wholesale outlets, designed for the Indian market following local research, will carry the Tesco name and offer a range of fresh food, grocery and non-food products to small retailers, restaurants, kirana stores and other business owners.

The outlets will also provide Indian farmers and other suppliers with a route to market.

The first outlet is expected to open in Mumbai at the end of next year.

"Over the next few years we expect to have wholesale distribution hubs in Mumbai, Delhi and Bangalore. They’ll support a network of smaller cash-and-carry outlets," Philip Clarke, Tesco’s International and IT director, told reporters.

Tesco said it is also entering into an exclusive franchise agreement with Trent, the retail

arm of the Tata Group. Under the terms of this deal, for which Tesco will receive an unquantified fee, Trent will draw on the group’s expertise to support the development of its Star Bazaar hypermarket business. Tesco’s wholesale business will also supply merchandise to Star Bazaar. Trent currently has four hypermarkets, with plans to grow to 50 stores over the next five years. Tesco already sources over 170 million pounds of Indian products each year, with sourcing offices in Delhi, Bangalore and Tirupur.

India’s current laws on foreign investment prevent overseas players opening retail businesses. However, Tesco remains "very keen" on opening a retail business if these laws change, said Clarke. "If and when this [law] changes our wholesale business and the agreement with the Tata Group give us great experience of the Indian market place and consumers," he said. Tesco’s entry into India follows its entry into the United States last November with its Fresh & Easy venture and a 958 million pounds acquisition in South Korea in May.

Last month Tesco announced a major push into banking and other services with a 950 million pounds deal to buy out Royal Bank of Scotland Plc from their finance joint venture. At 8:33 a.m. shares in Tesco were up 1 pence at 395-1/2 pence, valuing the business at 31 billion pounds.