Overall, societies are likely to gain from retail modernisation. It implies the use of new technologies and exploitation of economies of scale, and thus results in higher productivity, increased convenience and lower consumer prices. However, the fast roll-out of large foreign retail chains in poor countries with very traditional and low-productivity production and retail structures has the potential to destroy the livelihoods of thousands or even millions who currently earn a decent living through traditional farming or intermediary trading or sales. Moreover, manifold trade-offs need to be taken into account: what benefits certain producer or consumer groups may harm others.
Developing countries and their international development partners therefore face the challenge to mitigate the harsh effects of structural change and to assure that local stakeholders have sufficient time and opportunity to adapt to the new business environment. Ignoring retail modernisation and trying to keep modern retailers out of national markets is not desirable, because the productivity effects will fail to be realised. And it is not feasible in the long term, as an overall trend towards trade and foreign direct investment liberalisation prevails. Therefore, delaying the inevitable adaptation of local retail systems to international best practices may result in higher adaptation costs in the future. The challenge therefore is to proactively shape the way national systems adapt to the global retail revolution.
Our study “Making Retail Modernisation in Developing Countries Inclusive” reviews a wide range of policy options. It shows that governments have significant leeway for shaping retail modernisation in an inclusive way. Developing country governments display very different attitudes towards retail modernisation and liberalisation. Unconditional liberalisation prevails in many African and Latin American countries, while bureaucratic over-regulation dominates in countries like India, Malaysia and Vietnam. We argue in favour of a sequenced approach. On the one hand, productivity development and competition needs to be supported. On the other hand, we see the urge for fostering technological learning and for applying safeguards for the poor. Working collaboratively with retail corporations is, of course, a key element of such an agenda. But this study also presents a host of additional intervention options.
Public policy plays an important role in shaping this process in a way that maximises opportunities related to productivity growth and consumer convenience and, at the same time, mitigates the undesirable social and environmental effects as well as the social hardships caused by the transformation. Donor agencies can support governments in many ways as facilitators, knowledge brokers and financiers. Of course, specific policies are always dependent on the specific country context.
Creating an overall business-enabling environment will attract more corporate investment in retailing and, at the same time, it will stimulate local supply chain activities. National authorities can also shape regulations for wholesale and retail chains through
Furthermore, the public sector may encourage and support the inclusion of local suppliers in retail value chains. This includes supporting small farmers
The private sector also has a crucial role to play in this context. Companies may develop inclusive and sustainable business models. Reasons for corporates to develop and adopt inclusive and sustainable business models are:
Large retail companies have already undertaken a range of actions to improve their socioeconomic and environmental effects. These include measures to: strengthen local suppliers so that they comply with certain standards and certifications, improve social conditions in their own retail activities and in their supply chains, improve the ecological footprint of retailing in areas ranging from sustainable food production and animal welfare to energy efficiency and packaging, strengthen corporate compliance, offer surplus food products to food banks, and help communities through involvement in a range of charity programmes. Donor agencies may seek collaborations with lead firms, in order to support corporate engagement for improving the socio-economic and environmental impacts of value chains.
This blog is a part of the March 2017 series on how businesses in the FMCG sector are including the BoP in their value chain. Read more here.
For detailed information on the topic, please access the study “Making Retail Modernisation in Developing Countries Inclusive”