What FDI in Retail Means for IT?

While the impact of FDI in aviation may not make much of a difference to the IT industry from the point of view of business opportunities, the impact of FDI in retail will surely create many ripples and assure a continuing stream of revenue, as well as long-term stability of demand. Think about accounting and inventory management, or point-of-sale applications, or even using check-out counters which have support for NFC. Each of these things which are not necessarily computerized in the case of local retailers, present a big demand for products and solutions to the Indian IT sector as far as the needs of foreign retail giants are concerned.

The use of accounting and billing solutions, many of which would be developed by Indian developers, would be ideal candidates to ensure compliance and regulatory requirements. Inventory management will bring about better management of the supply chain. However, it's not necessarily a win-win for successful adoption to take place. There are bottlenecks which need to be eliminated. Because of the growing number of the middle-class economic segment, many foreigners are learnt to have set up shop in India, many of which are IT sector startups. They have based their decision to invest mainly because their native countries no longer were lucrative enough whereas shortcomings could be easily identified and addressed in the Indian economy. However, they did have to face several roadblocks, especially in order to understand the difference in human resource and challenges such as lack of sufficient infrastructure in India.

Manufacturers of consumer electronics, with a few exceptions, are reluctant to set up production facilities in India because of the information technology agreement (ITA) of the WTO. The ITA helps ensure that prices stay low by prohibiting levying of import duty, which in the case of the ITA, covers several consumer electronics' items which are in heavy demand in India but not manufactured locally on a large scale. This is one of the key reasons why manufacturers consider to base their production facilities in China, since products manufactured there, with cheap labor costs, can be sold here without levying import duty. At the meeting of the Information Technology Agreement (ITA) Committee on 1 November 2012, India placed on record its serious reservations on the initiative to expand the ITA product coverage. It said that in recent consultations, its stakeholders have pointed to problems regarding relevance of the proposed products, their multiple uses, and possible difficulties in processing at customs. India recalled that at the ITA Symposium earlier this year, it noted that its manufacturing activity dipped because of the ITA.

Walmart had issued a statement regarding FDI in India on September 14, 2012. Besides describing the benefits that FDI in retail would bring to the Indian economy, the release also stated that Walmart is willing and able to invest in back-end infrastructure that will help reduce wastage of farm produce, improve the livelihood of farmers, lower prices of products and ease supply-side inflation. What this might mean for the Indian IT industry is that retail giants about to invest in India (not necessarily Walmart) may look up to IT-enabled solutions that will help address such of the tasks as mentioned above.

Inventory management solutions, combined with tracking systems and surveillance/monitoring of warehouses and godowns, can help reduce farm produce wastage. It is beyond doubt that in India, an unforgiving amount of foodgrains and other such farm produce are left neglected beyond shelf life in godowns,docks,etc. and never reach the needy. The Indian IT industry can benefit by making easy-to-use devices/applications utilising low power, to connect rural farmers with the rest of the world, so that they (farmers) are aware of the market trends and rates.

The connectivity and telecom infrastructure in most rural areas are on a path of constant improvement thanks to the immense scope of expansion compared to the saturated urban markets. All of this will also bring in a degree of accountability and transparency, which will in turn bring down prices and probably reduce short-term inflation but most probably not long-term.

The complex scale of operations of such a large network of stores also brings with itself career opportunities in the IT sector in India. About a year ago, WalmartLabs India was learned to have opened a technology center in Bangalore to hire approximately 100 technologists. WalmartLabs is based in the heart of Silicon Valley. The business unit creates platforms, products and businesses around social and mobile commerce to support Walmart's global strategy of seamlessly integrating the shopping experience between brick-and-mortar stores and e-commerce.That means a higher number of available jobs in IT.

The Middle East is considered to be an area which has some of the world's best infrastructure mainly due to heavy inflow of foreign investment and exports of oil and petroleum products. In this connection, we had an interaction with Vivian Jamal, Director of Business Development at the Bahrain Economic Development Board. Here are excerpts:

Q> Please provide examples of the impact of FDI in Bahrain

A>Bahrain has highly developed commercial links with a number of world economies. Many international companies have established a presence in Bahrain due to its attractive environment and pioneering commercial advantages, including the 2006 Free Trade Agreement between Bahrain and the USA, which was the first such agreement between the US and a Gulf state to be signed and ratified. As a nation, and as part of the GCC, Bahrain also has existing and pending FTAs with Singapore, the EFTA, Australia, the EU, India, New Zealand, Pakistan, South Korea and Turkey. Over the course of 2011, the EDB attracted over US$300 million of new foreign investment. This came primarily in the banking and manufacturing sectors, with over 20 new companies establishing operations in Bahrain, including BASF, Geneva-based asset managers, Notz Stucki, Canara Bank and JBF Industries from India and the global law firm DLA Piper.

Indian investment at a glance:

AIRTECH: The factory is located in the Bahrain International Investment Park on a 7,000 sq m site, manufacturing central air conditioners and air conditioning components. It is 100% owned by Indian investors.

Ambature International Garments Co. WLL: A factory located in Ma'ameer producing readymade garments. This project is 100% owned by Indian investors. The factory employs 1,300 people.

P. Maghanmal & Brothers: Located in North Sitra Industrial Area, it is a storage company and is 100% Indian owned.

JBF Industries: The $200 million investment will create a new plastics factory to produce polyester film used in the manufacturing of electronics, food and packaging materials, and create 300 new jobs for the Kingdom. Construction of the new JBF facility in Bahrain is expected to be completed by the end of 2012 with an estimated production capacity of 9,000 tonnes in the first phase.

Please shed some light on the investment by IT industry giants in Bahrain.

Leading international ICT businesses choose to take advantage of Bahrain's favorable business environment and base their Middle East enterprises in the Kingdom. Microsoft, WIPRO, Tech Mahindra, Software AG, Netgear, Hewlett Packard, Zain (Vodafone), Ericsson and Tata Consulting Services all have offices in Bahrain.

How do you think introducing FDI into the retail and aviation sectors will impact IT? Will it hopefully drive up demand for IT vendors? Let us know your opinion by writing to us at pcquest@cybermedia.co.in