In dept analysis of Indian unorganized markets and its threat to the growing organized sector & comparative analysis on Indian and Chinese retail markets

Abstract

In late 80’s, India and China were considered to be third world countries. They both accounted for nearly one-third of the world’s population but did not have enough resources to fulfill the requirement of their growing numbers. Consequently, both these countries were facing sever recession and foreign investors hesitated to invest in these countries. But today a complete turnaround of these economies have take place and both are now one of the fastest growing economies of the world. Thanks to LPG (Liberalization, Privatization and Globalization) that the countries which were in huge trade deficit have the high trade surpluses and are attracting an avalanche of FDI. This has resulted in a tremendous job creation in both these economies which has raised the standard of living their citizens. This has resulted in the growth of strong middle class which has ample disposable income to spend not only for the daily necessities but also for luxurious commodities like- jewelry, cars, etc. Owing to this, the entire retail industry is booming in both these countries. But still today the majority of domestic retail sales in both these economies are in the hands of un-organized retailer. In India, the organized retail sector account for mere 3% of the total retail sales but in China organized retailers account for 20% of the total retail sales. In my report I will discuss the factors why these un-organized retailers with limited resources are giving stiff competition to organized retailers with deep pockets in India. I will also discuss the types of un-organized retailers, their common characteristics and illustrate one such distribution network in the un-organized apparel industry of India. I will focus upon- The strong Relationship Bonds that these un-organized retailers have with their customers which are very difficult to break and consequently these hinder the growth of the organized retailers in India. I will also discuss the tax advantage these un-organized retailers have and how this tax-advantage offsets theeconomies of scale the organized retailing giants in India have. This report also analyzes the retail boom in China retail markets and discusses why organized retailers are rapidly increasing their presence in Chinese domestic market when compared with Indian market. This retail boom in Chinese and Indian economies throws up some startling similarities and some stark difference. I will discuss these differences in detail and try and answer why Chinese goods cheaper than Indian goods ?