Wednesday, February 22, 2012

Target in India: Undermining the Case for "Headquarters Effects" of Outward FDI in Retail?

India's recent decision to indefinitely put off opening its market to foreign direct investment (FDI) in retail disappointed many. But that does not mean that foreign retailers are not busily taking advantage of opportunities in India. Much has been written about Wal-Mart and similar multinational, "multibrand" retailers' entry into the country via wholesale warehouse stores. But there is another way that these companies appear to have become  involved in the Indian economy: offshoring of headquarters operations. This article details how Target is using a team of several thousand talented Indian architects, IT engineers, and other skilled workers to plan and execute its entry into Canada. Several colleagues and I wrote a working paper that explored the links between outward investment and U.S. employment. One topic we explored is the extent to which affiliate activity leads to job growth in the U.S. by creating more work for retailers' headquarters staff ("headquarters effects"). Target's model for its Canada expansion would certainly appear to attenuate such effects. The key question is whether Target and other multinationals follow this strategy frequently, or whether it is an exceptional case. This is a question we will certainly be exploring.

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