Reliance Retail model very risky’

Reliance Retail model very risky'

NEW DELHI, OCT 8:  Even as Reliance readies its ambitious retail plans, a global management guru has sounded the first discordant note to such mega retailing plans in India. The critic: Prof Mohanbir Sawhney, the director of Center for Research in Technology & Innovation at the Kellogg School of Management who was once named one of the 25 most influential people in e-business by BusinessWeek.

Speaking to FE on the sidelines of National Management Convention of the All India Management Association, he said, "The capital intensive business model of companies like Reliance Retail makes their ventures very risky. Three years down the line we may see these ventures going in for a spin-off (stake sell out)."

Reliance Retail's Delhi CEO Navneet Saluja, however, disagrees, "In India, there is space for everyone to flourish. The retail industry may adopt the cash-and-carry model for villages and small towns. Local kiranas will be allowed to source from large retail stores in such places," he said.

But, it's not just Reliance that is in the professor's sight. Bharti's retailing foray FieldFresh is also under the scanner, particularly its plans to conduct trials, cultivate crops and store products in its own cold storages before marketing these, all by itself.

Risk Factors

• Capital intensive business models of firms like Reliance Retail are very risky • Retail giants may go in either for a spin-off or outsourcing of major operations • Wal-Mart has a model more suited to US customers. I doubt it will be successful in India • The experiment of Wal-Mart in South Korea, Germany and Japan fared badly

"In the medium to long run, Bharti and Reliance may be forced to outsource non-core functions like cold storage and logistics and concentrate on its core competency. Overall, I see the outsourcing model trickling down to all sectors in the future," Sawhney said.

He criticized India's plans to attract retail majors like Wal-Mart. "The experiment of Wal-Mart in South Korea and Germany fared badly. In China and Japan, the company is still struggling. This shows Wal-Mart has a model more suited to US customers. I doubt it will be successful in the highly-localised Indian market," he said.

Monday, October 09, 2006