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Vietnam overtakes India as most attractive investment destinantion: A T Kearney survey news
02 June 2008

Mumbai: Vietnam has ended India's three-years as the most attractive emerging market destination for retail investment, pushing oi to the second place.

Vietnam's leap from fourth in the 2007 GRDI to first place in 2008 was driven by strong GDP growth, changes to the country's regulatory structure favoring foreign investors, and increasing consumer demand for modern retail concepts, said the seventh annual Global Retail Development Index (GRDI), a study of retail investment attractiveness among 30 emerging markets conducted by management consulting firm A T Kearney.

India, Russia and China, the top three countries in last year's GRDI, fell to second, third and fourth, respectively, in the 2008 GRDI.   While they remain important retail investment destinations, high real estate costs in large cities and growing competition  have decreased their attractiveness relative to prior years and forced retailers to look for opportunities in tier II and III cities.     

''The critical factors that have powered Vietnam to the top of the Index this year are rapidly growing per capita income of the Vietnamese consumer and drastically opening up of regulations for new entry,'' said Saurine M. Doshi, partner, A T Kearney India. ''India has enjoyed the peak of the Index for the past few years, mainly due to steep and consistent rise in the income levels of Indian consumers. Going forward, India's inability in opening up the FDI regulations for foreign retailers will start to hit the industry's competitiveness more than ever before,'' he added.

Published since 2001, the GRDI helps retailers prioritise their global development strategies by ranking the retail expansion attractiveness of emerging countries based on a set of 25 variables including economic and political risk, retail market attractiveness, retail saturation levels, and the difference between gross domestic product growth and retail growth.  The GRDI focuses on opportunities for mass merchant and food retailers, which are typically the bellwether for modern retailing concepts in a country. 

"India continues to be a dominant force in A T Kearney's annual GRDI report," said said Hemant Kalbag, principal, consumer industries and retail practice, at the consulting firm. "The growing challenges with doing retail business in India have caused the slippage in the rankings.  Challenges such as sky-rocketing real estate costs, lack of good commercial real estate and the complexity around regulations, especially for foreign retailers"

"These growing challenges are now starting to shrink the window of opportunity for new entrants to India.  However, most large foreign retailers with plans to be relevant in India already have offices and operations in the country.  The large domestic players have also hit the ground running and most are executing extremely aggressive growth plans," he added.

While Vietnam's $20-billion retail market pales in comparison to India or China, the absence of competition and 8 per cent GDP growth make it an attractive expansion opportunity for global retailers.  Vietnamese consumers are among the youngest in Asia, with 79 million below the age of 65, and increased their consumer spending by more than 75  per cent between 2000 and 2007. The country is growing increasingly urbanised and concentrated with more than one million people a year migrating into the two large cities of Ho Chi Minh and Ha Noi. 

The Vietnamese government is expected to remove controls on 100  per cent foreign ownership of retailers in the country and has established a new program to develop wholesale and retail real estate by 2010. The region has already seen the recent emergence of modern retail in neighboring countries such as Thailand, Philippines and Malaysia.

India and China – speed bumps on the retail highway
India continues to be one of the most attractive countries for global retailers today. The retail market opportunity is larger than ever at $510 billion, and spending patterns and consumer maturity are growing faster than most global retailers had forecast.  But challenges have emerged which could potentially slow the pace of growth for global entrants. 

Foreign players entering India today face stifling regulations, a clouded political atmosphere, soaring real estate costs and a fiercely competitive domestic retailer group.  

"The potential and growth fundamentals for the Retail business in India remains unquestioned. The recent setbacks faced by organized retail in the F&G segment and absence of clarity on increasing investment limits by multi-brand international retailers remain a challenge. High real estate costs have been a burden, however, we believe these will correct in the medium term. We are closely following the market and watching on ground changes in consumer demand for modern retail concepts, and hence, are very optimistic of sustainable growth in the coming years" said Debashish Mukherjee, Principal – Consumer Industries & Retail Practice, A T Kearney India.

In China, the countryside has turned into the next retail battleground, despite China's drop to number four in this year's GRDI.  China remains one of the fastest-growing economies in the world.  Although its per capita GDP remains low given China's large population, consumer spending has more than doubled from the mid-1990s and continues to grow rapidly in the large southern and eastern cities.

"This year's GRDI is a continuing indication of the excitement and growing global awareness of the retail and luxury segment boom in India. The survey respondents clearly are noting what many of our important domestic India clients already have been acting upon vigorously--that there's a rapidly changing set of demands and desires from consumers that is affecting not only the most major cities but beginning to be felt across the country", said John Kurtz, Managing Director (South-East Asia), A T Kearney.

Seven Middle Eastern and North African countries among Top 20
With seven countries among the top 20 in the 2008 GRDI, the Middle East / North Africa region is clearly the world's hottest region for retail expansion. The strong Euro supporting investment in the region, consumer familiarity with modern retail concepts and petrodollar wealth are the primary factors making the region an attractive retail destination. With more than $9 trillion flowing into the region by 2020, infrastructure investments will spur consumer and retail growth over the next decade, according to A T Kearney.    

Among the gulf countries, Saudi Arabia, with a robust 9  per cent growth rate and low retail consolidation - less than 7  per centof the market is held by the top 5 retail players - is among the most attractive global retail destinations.  

North Africa has three countries in the top 15 rankings this year – Morocco, Algeria and Tunisia.  These countries are, on average, projected to grow by more than 6  per centin 2008 and are benefiting from tourism, trade with Europe and period of political and economic stability. 

''European retailers are especially well suited for expansion in the Middle East and North Africa because of  proximity and consumer familiarity with their brands,'' said Robert Ziegler, a partner with A T Kearney in Dubai.  ''However, laws in some markets make entry difficult and lead to low brand diversification and limited consumer choices.'' 

Latin American resurgence
Prospects for retail expansion in Latin America, led by Brazil, grow stronger as political and economic stability return to the region.  GDP and retail sales growth are increasing and higher commodity prices are providing purchasing power.  Five countries from the region - Chile, Brazil, Mexico, Peru and Colombia - all appear in the GRDI top 20 this year, up from only one country in 2005.  

Brazil tops A T Kearney's Retail Apparel Index, an analysis of the 30 most attractive emerging market retail destinations for apparel retailers, that is included for the first time with the 2008 GRDI. (See: Brazil is most attractive emerging market for apparel retailers looking to invest abroad)

While Eastern and Central Europe as a whole remain attractive for retail investment, the window of opportunity for large-scale supermarket and convenience store build-outs will likely close over the next year or two, according to the GRDI.  The opportunity for entry into Eastern Europe is for wave-2 retailers - do-it-yourself, consumer electronics and apparel retailers - as multi-level fashion malls and mixed-use centers are cropping up throughout the region.  Nine of the 12 Eastern European countries in last year's GRDI Index retained a presence on the 2008 Index of 30 countries.

As emerging markets continue to evolve, GRDI's Window of Opportunity analysis provides line-of-sight to the current and future state of each of these markets.  

''The 2008 GRDI shows that using the 'window of opportunity' measurement we introduced in 2006 continues to be crucial,'' said Ben-Shabat, a partner at A T Kearney. ''Markets typically progress through four stages as they evolve from emergence to maturity, usually over the course of five to 10 years. Using the GRDI, retailers can carefully evaluate these markets to identify their individual focus areas.''

A.T. Kearney Global Retail Development Index, 2008
Country 2008 Rank
2007 Rank
Change
Vietnam
1
4
+3
India
2 1
-1
Russia
3 2 -1
China
4 3 -1
Egypt
5 14
+9
Morocco
6 15 +9
Saudi Arabia
7 10
+3
Chile
8 6
-2
Brazil
9 20
+11
Turkey
10 13 +3
Mexico
11 9
-2
Algeria
12 25 +13
Malaysia
13 8
-5
Peru
14 22 +8
Indonesia
15 24 +9
Bulgaria
16 12
-4
Ukraine
17 5 -12
Tunisia
18 11
-7
Colombia
19 30 +11
United Arab Emirates
20 18 -2
Latvia
21 7 -14
Romania
22 27 +5
Slovenia
23 17 -6
Thailand
24 16 -8
Macedonia
25
N/A
N/A
Philippines
26
23 -3
Guatemala
27
N/A N/A
Argentina
28
29 +1
Honduras
29
N/A N/A
Lithuania
30
28
-2

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Vietnam overtakes India as most attractive investment destinantion: A T Kearney survey