The Indian government’s recent decision to permit foreign investment in multi-brand retail has evoked a mixed response. While the industry is very gung ho about it and has applauded the decision there are concerns on the fate of small traders and middlemen. While much has been said about how the decision will help farmers and bring down prices and improve quality, one set of issues that got lost among all the shrill voices is the challenges that Indian retailers and suppliers will face in compliance to sustainability norms in the face of globalization.
The Indian market presents a unique opportunity for many global retailers because of low costs, price sensitivity, and hyper-competition. The Indian market has been a breeding ground for new innovation and hence will offer foreign players opportunities to test their products and strategies in the most low cost and adverse conditions. Already leading companies such as GE have set up their research centers in India and are testing their products in India before taking them abroad. Companies like Unilever are trying out their new products like the dry shampoo in India before launching them elsewhere. Similarly companies like Coca Cola are launching new innovative products in India.
According to a recent Accenture report, “Arguably the single most important issue for retailers today is the environment. Once considered a niche playing field, green retailing has moved from ‘nice to have’ to ‘must have’ as both customer and regulatory demands tighten for the industry.”
The increasing awareness about sustainability practices in emerging markets is reflected in the number of incidents coming out on human rights violations among the supply chain of various industries. For example, Nike, Apple, Nestle, and GAP have all faced flak for their human rights abuses by their suppliers in developing countries. According to a recent article in the Economic times, major global retailers have been accused of using bonded labor for manufacturing garments in factories in Tirupur. The concerns were raised by NGOs based in the Netherlands and the rumblings have carried as far as the European parliament.
Sustainability is still an emerging trend among Indian retailers and is being led by retailers such as Woodlands and Puma who opened their sustainable store last year.
According to the India Carbon Outlook, “Sustainability is becoming part of the core business strategy of many organizations as they understand the business drivers behind it, the cost savings and the huge opportunities. Large organizations with global supply chains are now paying more attention their complete value chains. It is not the clearly not the strongest who survive but the ones who are able to adapt the quickest.”
Some of the global sustainability standards which are likely to change the face of Indian retail with the entry of FDI are-
- Standards on stakeholder engagement, labor law, corruption, etc.
- Standards on corruption, taxation, fairness, human rights
- Standards on water usage, energy consumption, sustainability reporting, emissions, etc.
- Standards on supply chain management, sourcing, etc.
- Standards on packaging and waste management, biodegradability, etc.
Compliance to global sustainability standards is a key strength that differentiates global retailers from their Indian counterparts and which they will seek to leverage in order to gain competitive advantage in a price sensitive market.
The big questions that arise about Indian companies in the wake of liberalization are-
- Are Indian manufacturers ready for enhanced sustainability standards- and how quickly can they implement and comply with them?
- Also are the existing domestic retailers having the mechanisms and infrastructure to compete with the sustainability norms followed by the likes of Wal-Mart and Tesco?
There is a very real and pressing need for all the firms associated with the retail Industry — the suppliers, the talent providers, and the ancillary service providers to ramp up their sustainability practices in the wake of the current situation. And IT is a very key enabler in standardizing sustainability practices, controlling and monitoring energy usage and carbon emissions, and maintaining operational efficiency.
There is a huge opportunity for mobile and ICT solutions in Indian retail. ICT Solutions based on technologies like M2M, smart buildings, etc., being offered by many telecom companies have a great potential in the industry to monitor usage patterns, recue emissions, and spawn new innovative and sustainable products. For example, according to an article in Indian Management, Visi Coolers installed at most retailers for soft drink vending can send feedback to the server at the parent company on how many times the door was opened in a day or the fluctuations in temperature and energy usage as a result.
Hence ICT is a key enabler for sustainability and it can help the companies adapt quickly to the new standards of sustainability thereby ensuring a more level playing field.
Sridhar Manthripragada is a senior associate consultant, Sustainability Research and Innovation, for Infosys Ltd.