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Friday, February 26, 2016

Survival of Malls in India

It was some five years back when I visited a Mall in Gurgaon with some friends and afterwards, thought of sharing my take on their present and future.  It was put on my blog and my friends, who read it, were skeptical as to whether what I was preempting was really something that was reality of the future.

In this backdrop in all these years whenever I visited a Mall, whether in NCR, Delhi, Mumbai, Bangalore, Guwahati, Lucknow or any other small city my belief got confirmed.  Of late I kept reading stories of empty malls and some of them closing down, it started giving me a feel that business opportunities when not defended by viable research and when it is just following herd behavior, it is bound to result in what is happening in many of the cases.  And that is the challenge before entrepreneurs of all sizes and from all geographies, to respond and work on.

One of the issue raised in my earlier post on sustainability of malls was that many of them were involved in some kind of practices through which the transactions get recorded resulting in conversion of unaccounted cash and bringing it to the books of accounts.  This helps some of the owners of the outlets to carry on with such shops without much of risk on sales.  I am not too sure about the size of such shops in the malls but looking at the operational cost involved and the cost of bills to be borne by them, it gives me a signal that there must be some truth in this.

It is also reported that in order to escape from scorching heat, many enter a mall and spend time in air-conditioned environment.  The conversion of visitor into customer is yet another challenge for the shop owners in the malls.  Just around ten percent of the malls operating in and around Delhi are said to be successful so far as their financials are concerned.  Though Delhi is considered the best option for future growth potential for this sector and builders and marketers are eyeing for this geography, yet my skepticism sees better scope in smaller cities rather than metropolitan cities.  Bangalore, Kolkata and Mumbai have far better proportion of successful malls than Delhi but still Delhi is able to catch attention of investors as there are multiple options for the use of infrastructure put forth for shopping malls.

There are many factors that are important for Indian market environment which is visibly fast changing but it is going to take more time to get transformed into an environment where our culture gets blended with that of geographies where small shops and down-town market culture has faded away.

The factors, which traditionally determine success of a mall, could be its layout design, location, availability of brands, amenities provided, proximity with residential blocks etc.  And most of the realtors keep these in mind.  It does help them position themselves better depending on their approach and priority.  This is conventional route followed by most of them.  

The future of malls would lie in the fact that how they are able to reduce their size and cater to the needs of the masses rather than classes through adding small entrepreneurs into their portfolio by providing them an opportunity to showcase their products and services.  It would result in driving more population towards visiting the malls and possibly may allow them to explore other products available within the premises.  This complementary possibility would certainly help them grow better.  Specialty malls and theme malls are some options that are already in place but they have to be further explored and experimented in different geographical segments.  The size of the mall is also an issue to be tackled strategically as the maintenance of large size malls involves large operational expense, which has to be apportioned through corresponding increase in sale.  And as such that is a challenge.  

For metropolitan cities, specialty malls could be a better choice like exclusive malls for garments, or for different types of gadgets, or food only malls with provision of grocery outlets.  These malls should provide enough scope for small entrepreneurs to come forward and may be some kind of differential pricing for there space could be followed.  

In case of smaller cities multi brand formats which primarily focus on organizing highly unorganized retail sector in India, would be good choice. It would help in systematizing the retail sector as well as facilitate market operations for the benefits of customers and users.

The mall owners have to think differently and have to focus more on the small entrepreneurs who are bringing in innovative products and are willing to take risk.  They need a better platform to launch their products and malls could provide them that opportunity.  The proliferation of multi-national branded products and their availability through malls and exclusive outlets in many ways hinder the growth of small business segment in India. Hence initiatives have to be taken at government as well as private level to develop SME malls at different places to encourage small and medium size entrepreneurs to portray their products and services and to develop linkage with effective market. 

This place should provide them an opportunity to network with their clients and study the market for redesigning or introducing innovative products.  This has become more important in the wake of the initiative of the government through launching make in India campaign.  SME malls could be an opportune outlet for market exploration and product launches.

The future for malls is not bleak if its format is changed and instead of its concentration it is expanded in the length and breadth of the country.


[published in SME World July 2015 Issue]

Wednesday, February 10, 2016

Startup India Action Plan: Provisions and Prospects

In the month of January, the prime minister of India, Narendra Modi launched Startup India Action Plan to encourage entrepreneurship and to facilitate startups. This Action Plan consists of detailed scheme of things and addresses the issues relating to obstacles which generally entrepreneurs have been facing. The bureaucratic hassles, problems in raising finances, and availability of networks to reach out to the customers have affected the conversion of idea into reality for many new starters. The fight between big and small, old and new has also been one of the deterrent to start a new venture. 

Ever since the NDA Government took the office they have been pushing the industry and inviting foreign investments to boost economic growth. It has also created a positive market perception and corporates have welcomed the initiatives, though the hassles like passing of GST Bill by the parliament has posed political challenge and discouraged industry as a whole. It was around six months back when from the rampant of the red fort, the prime minister called upon youth to start up and stand up for starting new ventures and instead of being an employee (job seeker) to become employers (job provider). 

In that direction, the Action Plan focuses on simplification of procedures in starting new ventures and provision of funding and industry-academia collaborations through various schemes and incentives. As mentioned in the document – Startup India is a flagship initiative of the Government of India, intended to build a strong eco-system for nurturing innovation and Startups in the country that will drive sustainable economic growth and generate large scale employment opportunities. The Government through this initiative aims to empower Startups to grow through innovation and design. The initiative attempts to cover almost all sectors of economy spread in all parts of the country, rural or urban areas, big or small cities. 

Technology is a big differentiator in increasing the performance and efficiency in modern day enterprises and encouraging youth to effectively use it for convenience, economy and speed. It is proposed that a Startup mobile app shall be launched on 1st April 2016, which shall smoothen the processes of registration and compliance. The App shall have backend integration with the ministry of corporate affairs and registrar of firms for tracking applications, downloading digitized registration certificate, and filing compliances (and checking clearances, approvals or/and registrations). This app could also be used as a platform to discuss and disseminate information, suggestions and ideas and to apply for different schemes under startup initiative. It shall speedup registration process and interactions between all stakeholders through web-based interface.

Startup mobile app shall help in self certifying the compliance of labor and environment laws which removes the provision of inspection and verification for such startups for 3 years of their inception. However in case of any credible and verifiable complaint regarding violation of any of the labor laws, they may be inspected. These labor laws are identified as – The Building and Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996; The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979; The Payment of Gratuity Act, 1972; The Contract Labor (Regulation and Abolition) Act, 1970; The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; and The Employees’ State Insurance Act, 1948. Only random checks are to be done if startups fall under the Central Pollution Control Board certified ‘white category’ so far as environment laws are concerned which are identified as The Water (Prevention & Control of Pollution) Act, 1974; The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003; and The Air (Prevention & Control of Pollution) Act, 1981. 

Ease of doing business has been felt and stated as one of the major concerns of industry and entrepreneurs both from within the country or coming from other parts of the globe. The Action Plan proposes the establishment of Startup India Hub to create an enabling environment through collaborative approach by following hub and spoke model. It is proposed that the collaboration shall be between central and state governments, Indian and foreign venture capitalists, angel networks, banks and financial institutions, incubators, legal partners, consultants, universities and research and development institutions. All these agencies shall collaborate in mentoring startups through various programs and also encourage private organizations which are aspiring to foster innovation. The hub shall facilitate the process of financing, feasibility testing, and management evaluations apart from providing business structure advisory, marketing skills, and technology commercialization. 

Indian business has suffered because of weak protective measures affecting intellectual property rights. Though our corporates are maturing and spreading their wings to other parts of the world, their IPRs have not been protected effectively. There have been instances of infringements and duplicity in many cases. Ignorance and loopholes in the system have marred innovation, ownership registrations and rights. While the launch, the prime ministers asked to combine IP (intellectual property) and YP (youth property). Startup Intellectual Property Protection scheme is proposed to facilitate filing of patents, trademarks and designs. It is proposed that the process of patent application and registration shall be fast tracked through the use of technology and the panel of facilitators. These facilitators be allowed to appear on behalf of Startups at hearings and contesting opposition. The Government has really gone steps further in encouraging startups for their innovations to be patented by agreeing to bear all costs involved of facilitators for any number of patents, designs or trademarks. The startups shall pay only statutory fees and the Government shall provide 80% rebate on filing for patents, helping them to develop their idea into reality during formative years. 

A fund with initial corpus of Rs. 2,500 crore shall be created by the Government to provide funding support to the startups which shall make it Rs 10,000 crore in 4 year time (Rs 2,500 crore every year). It shall be fund of funds and would participate through SEBI registered venture funds and would not directly invest into startups. Its management shall be through a board drawn from industry, academia and successful startups and the LIC shall be a co-investor in this fund. 

We have grown with the success stories of individuals, organizations and nations all across. These stories have enthused a sense in us to make us believe that if we keep putting our efforts towards the cause we are bound to succeed. Many times we also get carried away with the glamor of the prestige successful individuals enjoy. We tend to overestimate the influence of external factors for their success and ignore their beavering journeys. We also forget that the proportion of success is much less than failure. Former president of India, Abdul Kalam said - Don’t read success stories, you will get only message, read failure stories, you will get ideas to get success. It is so apt for the entrepreneurs who take risk and put efforts to initiate their business enterprise or startup (as it is called these days).

A well recorded and referred report prepared by Bloomberg concluded that 80% of the startups don’t see 18 months of life. It suggests that the failure rate is too high so far as new ventures or startups are concerned. Though we do not have absolute data on failure of entrepreneurs or businesses, it is believed that many startups do not survive long and sustain growth. Yet there are good number of them who survive and stand the challenge of time through responding to market forces.

The Action Plan provides ample scope for disruption through innovation and safeguard for failures. It believes in the spirit of experimentation and learning through them rather than the force of fear of failure. Safe exits are proposed if the venture does not reap good fruits. The Insolvency and Bankruptcy Bill 2015 has facilitating provisions to voluntary closure of businesses. The Action Plan provides various tax exemptions to the Startups. They would be exempted from income tax for 3 years. Overall the kind of tax exemptions this proposal provides are remarkable and it is viewed by many entrepreneurs as a positive step towards encouraging youth to venture to experiment and to give wings to their dream. 

Some other key initiatives which the Action Plan presents include Atal Innovation Mission with Self-Employment and Talent Utilization program, calling for integration between DST and MHRD with IITs, IIMs, NITs and other research and academic institutions of national importance through 18 Technology Business Incubators, 7 Research Parks at IITs in line with the model developed by IIT Madras, developing Biotechnology sector, organizing Annual Incubator Grand Challenge for identifying 10 incubators who have potential to become world class, Uchhattar Avishkar Yojana with Rs 250 crore per annum for very high quality research amongst IIT students. 

After going through the details of the action plan I have no hesitation in saying that it shall be successful in changing the laid-down attitude of youth who were afraid of the bottlenecks and risk involved in experimenting the idea. I would like to applaud this initiative of the Government and feel that the most important aspect of this plan is to develop an ecosystem where industry, academia and the Government are aligned together to foster the spirit of innovation of entrepreneurship. As Nikesh Arora of Softbank says - 2015 was the year of tremendous funding – and a shakeout. 2016 to be the year of execution for Indian startups, I too feel that 2016 and 2017 would be years of Startups and would expound the dreams of many unsung heros. 

May be we shall have to wait a while when from its present third place in the world of startups, we gradually march towards gaining first position. 

(The author is a Professor at University of Delhi and can be reached at vkshro@gmail.com)