CS Final :: World Trade Organisation-International Trade, Joint Ventures & Foreign Collaboration : June 2007

337

337

RPG Enterprises set–up the Food World (FW) chain of supermarkets in the early 1990s. FW outlets sold food and grocery items in a clean and air–conditioned stores and provided a quality shopping experience.

DFI was established by a Scottish surgeon with five Hong Kong businessmen in 1886 to provide the expatriate Europeans in Hong Kong with uncontaminated cow’s milk at reasonable price. It forayed into new retail formats, like, hypermarkets, health & beauty stores, etc. As of early 2006, DFI operated 3,160 retail outlets (supermarkets, hypermarkets, convenience stores, health & beauty stores, home furnishing and restaurants) across various countries in Asia with a total sales amounting to US $5.5 billion.

In August, 1999, RPG entered into a joint venture with DFI. RPG hived off its FW division as Food World Supermarkets Ltd. (FWSL) with 49% stake being held by DFI and 51% stake by RPG. DFI also obtained 49% stake in RPG Guardian Ltd. which owned the health and glow stores. By the year 2000, there were 38 FW stores across different cities in Southern India, and 12 health and glow stores in Chennai and Bangalore.

In June, 2000, both the partners reportedly planned to enter into a new joint venture to open hypermarkets in India and to set up a company called Great Wholesale Club Ltd. (GWCL) with 49% stake–holding by DFI and 51% by RPG. DFI was not permitted to make additional investment in retail sector in India. But, Government of India allowed both partners to enter into an agreement for ‘cash and carry’ wholesale trading. In June, 2001, the partners cancelled the agreement for wholesale business. RPG set up GWCL as a wholly–owned subsidiary of Spencer’s (an RPG group company) and opened GIANT, the first hypermarket in India in Hyderabad. Although government rules did not permit DFI to enter into a new joint venture with RPG, DFI thought RPG had committed a breach of trust by opening its own hypermarket.

The GIANT, with an area of 50,000 sq. ft. offered a wide range of products at low prices in an air–conditioned and clean environment. It was thought by analysts that it will eat into FWSL business. However, according to RPG, FW targeted neighbourhood customers looking for convenience, whereas GIANT’s target customers were institutions and small retailers, wedding contractors, who looked for value through bulk buying.

After RPG opened the GIANT, there were more reports that the relationship between RPG and DFI had become strained. By 2003, there were 89 FW outlets but there was little expansion between 2003 and 2005. It was reported that there was poor understanding between the partners and that they were fighting over issues of control.

In 2004, DFI bought a stand–alone supermarket that too was called GIANT from an entrepreneur based in NOIDA. (This entrepreneur had previously sued RPG for violation of the GIANT trademark. To this, Raghu Pillai, President, RPG’s retail business, responded by saying — “Nobody can claim trade mark rights on a generic name like GIANT. They can only claim copyrights on the logo.”) Later in 2004, DFI filed a suit against RPG for infringement of the brand name GIANT.

After the controversy over the name GIANT, RPG decided to change the name of its hypermarkets to ‘Spencer’s Hypermarkets’. Raghu Pillai said — “There were many claimants for GIANT brand name in India. While our logo styling for GIANT is copy righted in India to us, we decided that we would concentrate on building the business rather than fight battles in court…”.

In May, 2005, RPG and DFI announced their decision to split. RPG got 49 of 93 FW outlets. DFI got 44 DFI stores, rights to “Food World” brand name, and corporate identity of the FW stores. DFI also got control of 30 health and glow stores owned by RPG Guardian Ltd.

After the split DFI had to find a local partner who would buy–out RPG’s stake in joint venture, if it wanted to retain its presence in the Indian retail sector.

Answer the following questions :