Thursday, December 14, 2006

A Looming Threat for Global Retailers in India

By now most people who read my blog would be aware that Wal-Mart is finally entering India via a 50:50 Joint Venture with Bharti. Very shortly, TESCO will also be making another big splash on entering India with another tie-up. While this bodes good news to Indian economy and increases foreign investment in India, there is a looming threat to all the organized retailers: A severe talent shortage.

Talent Shortage in India

I had briefly mentioned about this talent shortage in my previous article. But the crisis is really BIG. Global giants really have a big problem on their hands - when it comes to rapid expansion in India.

This is a surprising challenge for Organized retailers - especially global retailers in India is shortage of talent. Yes, for all the population that exists in India and for all the shops, India has a serious shortage of experienced people resource for retailing. Number of people experienced in managing complex supply chain, people who have basic merchandising skills, people with store planning skills are very few. As a result, most of the existing retail stores have poorly organized merchandise, inadequate inventory, and excessive inventory - leading to lost sales and increased capital requirements. (see: Increasing Sales in a Retail Store - An Indian Context ) Global retail giants will have to spend substantial resources in terms of time & money to train local workforce and bring them on par with their global standards.

If finding store managers is a challenge, the bigger challenge is to find the adequate workforce for store clerks, cashiers, sweepers, helpers etc. The problem here is not that of availability - but that of availability of the right kind of people - and the cultural divide that exists between the potential employees and their employers.

To understand the talent crisis, take a look at the demand for workers. Currently the Indian retail sector - both organized and unorganized employees close to 40 million workers. Of which only 1.8 million workers are employed in the organized retail sector. Most of these workers are also shop owners - India has an estimated 30 million shops & kiosks. A vast majority of the people who are employed in the stores lack the skills to work in an organized retail sector.

Retailers Association of India estimates that an additional 2 million workers will be needed in next two years - this is to meet the requirements of the existing planned expansion in the retail sector. Hiring and training in such large numbers in such a short time will be a challenge for even the biggest retailers.

Hiring the Right Talent

Most people who work in retail shops are school dropouts from mainly rural background, they do not speak English nor do they understand the sophisticated IT systems. Added to this there is a social stigma for working at a shop. Indian society does not give respect for such professions.

All this implies that global retailers must develop a unique strategy to hire and train their shop floor staff. As a result most workers treat working at a retail outlet as a temporary job - till they find a better one in an "office". This implies that employee turnover will be very high - as much as 40% per year. At such rates of turnover, people management becomes a big challenge. Global retailers will have to develop unique organization development strategies, employee retaining strategies and also have a plan to improve the image of working in shop - i.e., remove the stigma of working in a shop.

Global giants will also face a challenge when it comes to recruiting the quality talent in India - as most of the shop floor workers are not well educated, they will not be aware of companies such as Wal-Mart or TESCO or Target. On the contrary - every villager in India has heard of Reliance, Tatas, and the likes. Thus the battle for hiring the right talent will be doubly difficult for global retailers.

Cultural Divide

MNC’s have the tendency to hire the best talent. In India they will do the same. So the companies will hire the top MBAs to manage their operations. But these people often tend to come from the upper castes and they have a social stigma when it comes to dealing with people from lower castes - the shop floor workers. This social barrier will cause a lot of operational problems. In addition, people in the corporate headquarters will have cultural barriers when it comes to dealing with their local managers in India. Thus this double cultural barriers can deliver a knockout blow to any global giant.

Global retailers will have to cast a wide net to get the right kind of talent. In urban areas, most of that talent will come from school dropouts and are slum dwellers. Making a good salesmen out of them will involve intensive training and above all extraordinary management skills. Retailers need to invest a lot in soft skills training, behavioral training, customer orientation, sales training, etc. And at the end of the day, these workers who live in slums or shanty houses without basic facilities - will have to dress up and come to work in sparkling air conditioned retail outlets.

Global retailers will have to expand beyond the metro cities - to tap into new markets and hire the right talent. Here in second tier cities and towns, English is not a primary language. It is always the local language of the state: Kannada, Tamil, Telgu, Marathi, Hindi, Gujarthi, Punjabi, and 20 other languages. Global retailers must build the capability to carry out operations in multiple languages, train its staff to speak in both local language, national language (hindi) and if required in English. Even though the shop floor employees need not know multiple languages, the store managers definitely need to know.

Closing Thoughts

Global retailers may be eyeing Indian markets eagerly and few are hustling for that elusive first mover advantage - but they face a huge challenge in India. Success in Indian retail segment will be a hard won battle - battle not against competition, but a battle against the business environment. This implies that success in India will depend on prudent leadership and their ability to overcome the cultural differences to create a talented workforce.

Also see:

Global Retail Giants are Eager to Enter India
Increasing Sales in a Retail Store - An Indian Context
Wal-Mart is in Trouble in UK too!
Trans-cultural Business Failure - Wal-Mart Exists Germany
Partnerships for Increasing Business Opportunities


Pinaki Ranjan said...

Hi Arun

Those were wonderful thoughts. I agree that the cultural barrier is going to be very important factor and talent shortage the most important challenge in retail.

The only way to overcome this problem, to my mind, is to hire experienced professionals with multifunctional experience with multi-tasking ability. Ideally, it should be a blend of hardcore marketing/sales, essential IT skills, sound knowledge of rural India and finnaly thorough knowledge of the economy.


Ashwin said...

Hey ur blogs r true gives a reality check......
i personally felt all his things while working for a retail store...

& keep Blooging