Business Question

‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬

Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University

College of Administrative and Financial Sciences

Assignment 2
Introduction to International Business (MGT 321)
Due Date: 01/11/2025 @ 23:59
Course Name: Introduction to International
Business
Course Code: MGT-321

Student’s Name:

Semester: First

CRN:

Student’s ID Number:

Academic Year:2025-26-1st

For Instructor’s Use only
Instructor’s Name: Dr. Majed Helmi
Students’ Grade:
Marks Obtained/Out of 10

Level of Marks: High/Middle/Low

General Instructions – PLEASE READ THEM CAREFULLY
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Restricted – ‫مقيد‬

The Assignment must be submitted on Blackboard (in Word format only) via the allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented; marks may be reduced for poor
presentation. This includes filling in your information on the cover page.
Students must mention the question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism; the work should be in your own words, copying from students or other resources
without proper referencing will result in ZERO marks. No exceptions.
All answers must be typed using Times New Roman (size 12, double-spaced) font. No pictures
containing text will be accepted and will be considered plagiarism.
Submissions without this cover page will NOT be accepted.

Learning Outcomes:
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LO1: Explain the historical fragmentation of India’s retail sector and evaluate its
advantages and disadvantages.
LO2: Assess the role of foreign direct investment (FDI) in transforming retail structures,
supply chains, and consumer markets in emerging economies.
LO3: Identify key stakeholders affected by FDI in India’s retail sector and analyze who
stands to gain and who stands to lose.
LO4: Examine the political, cultural, and regulatory factors that shape India’s policies
toward foreign retail investment.
LO5: Propose effective entry strategies for foreign retailers that balance political
constraints with economic opportunities.

Case study
Please read Case 9: “FDI in the Indian Retail Sector” available in your book International
Business: Competing in the Global Marketplace (13th ed.), at page no.637, and answer the
following questions:
1. What explains the fragmented nature of India’s retail sector? What are the benefits of this
system? What are the costs? (2 Marks)
2. How might investment by foreign retailers change retailing in India? What are the potential
benefits of such FDI? (2 Marks)
3. Who stands to lose from FDI into India’s retail sector? Who stands to gain? (2 Marks)
4. Why has India been so slow to change its laws regarding foreign ownership of retailers? What,
if anything, can foreign retailers do to influence the laws in a way that benefits entry? (2 Marks)
5. Given the political and economic realities in India, what is the best entry strategy for a foreign
retailer? (2 Marks)
References should follow the APA citation style.

Restricted – ‫مقيد‬

Cases

637

FDI in the Indian Retail Sector
Historically, the structure of retailing in India was very
fragmented, with a large number of very small stores
serving most of the market. Supply chains were also
very poorly developed and fragmented. As recently as
2010, larger format big box stores, chain stores, and
supermarkets only accounted for 4 percent of retail sales
in the country (compared to 85 percent in the United
States). This might sound like an ideal opportunity for
efficient foreign retailers such as Walmart, IKEA, Tesco,
and Carrefour. In theory, these multinational enterprises could enter the market and transform India’s
retail space, making it more efficient and bringing modern retail formats, technology, and supply chains to the
country. This would benefit consumers and producers,
from farmers to manufacturers. For example, it has been
estimated that up to 40 percent of the food produced by
Indian farmers is currently wasted because chronically
underdeveloped supply chains mean that food rots
before it reaches the market.
In practice, small-store owners in India have a long
history of using their political power to lobby the government to impose restrictions on direct investment by foreigners in the retail space. Like incumbents everywhere,
their goal has been to limit competition and protect their
businesses and jobs. Until 2011, foreign multi-brand retailers such as Costco, Tesco, and Walmart were forbidden
from owning retail outlets in the country. Even singlebrand retailers such as IKEA and Nike had to partner
with a local retailer, were limited to a 51 percent ownership stake, and had to go through a lengthy bureaucratic
approval process.
By 2011, the Indian federal government had come to
the conclusion that foreign investment in retailing was
needed to improve India’s supply chain, increase consumer choice, and help farmers bring their products to
market. This view was supported by much of Indian
industry, which saw the modernization of the retailing
sector as an important condition for continued economic
development. Clearly, the government believed that
greater foreign capital and technology would help India
grow its economy.
In late 2011, the Indian government announced a plan
to reform foreign direct investment regulations. The plan
was to allow foreign multi-brand retailers such as Walmart
and Tesco to open retail stores, although they would
be limited to a 51 percent ownership stake. At the same
time, the government stated its intention to allow singlebrand retailers to set up wholly owned stores, although
anything over a 49 percent foreign ownership stake would
still require formal government approval. These plans
were greeted with strong opposition from small retailers
and rival political parties, and the government was forced
to temporarily shelve them.

SIBSA Digital Pvt. Ltd./Alamy Stock Photo

In early 2012, the Indian government managed to
secure approval for plans to allow foreign single-brand
retailers to open wholly owned stores, but imposed the
requirement that a single-brand retailer had to source
30 percent of its inventory from India. One of the first
retailers to respond to these changes was IKEA, which
announced it would invest $1.9 billion and set up
25 stores in the country. More generally though, many
analysts viewed the 30 percent sourcing requirement as a
major impediment to entering India. Both Apple and
Nike, for example, would have to establish significant
production facilities in the country in order to meet that
requirement and set up their own brand stores.
In early 2018, the government modified the 30 percent
requirement, giving single-brand retailers five years after
their initial entry to reach the 30 percent figure. The government also allowed single-brand retailers to establish
wholly owned subsidiaries without having to go through
the cumbersome government approval process.
In late 2012, the federal Indian government allowed
foreign investors to open multi-brand retail stores in
India, but limited ownership to 51 percent. Moreover, in a
nod to the strength of the political opposition, the federal
government made this requirement subject to approval by
individual states within the country, allowing some to opt
out. Several states have done so, which reduces the attractiveness of India as a market for foreign retailers.
At the same time, India has allowed 100 percent ownership of online retail marketplaces in India. Amazon
took advantage of this to enter the country in 2014 and
has committed to invest $5 billion in India. Unlike in
the United States, however, Amazon does not sell goods
it has taken ownership of because that would classify
the company as a multi-brand retailer, limit its ownership stake in Indian operation to 51 percent, and require
it to take an Indian partner. Instead, Amazon only sells
goods offered through its marketplace platform by third

638

Part 7

Cases

parties. However, Amazon is investing heavily in fulfillment centers and logistics infrastructure to enable it to
deliver goods efficiently to Indian customers. Its investment may help to boost the efficiency of supply chains
in the country.

Case Discussion Questions
1.
2.

Sources
Greg Bensinger, “Amazon Plans $3 Billion Indian Investment,”
The Wall Street Journal, June 7, 2016; Vibhuto Agarwal and
Megha Bahree, “India Retreats on Retail,” The Wall Street
Journal, December 8, 2011; “India Online,” The Economist, May 5,
2016; Newley Purnell, “Jeff Bezos Invests Billions to Make
Amazon a Top E-Commerce Player in India,” The Wall Street
Journal, November 19, 2016; and K.R. Srivats, “Cabinet Okays
100% FDI in Single Brand Retailing via Automatic Route,”
Business Line, January 10, 2018.

3.
4.

5.

What explains the fragmented nature of India’s
retail sector? What are the benefits of this system?
What are the costs?
How might investment by foreign retailers change
retailing in India? What are the potential benefits
of such FDI?
Who stands to lose from FDI into India’s retail
sector? Who stands to gain?
Why has India been so slow to change its laws
regarding foreign ownership of retailers? What,
if anything, can foreign retailers do to influence
the laws in a way that benefits entry?
Given the political and economic realities in India,
what is the best entry strategy for a foreign retailer?

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