Trade Policy Note Final-rev08 - Development

Annex 5D: Distribution services
Liberalizing distribution services is seen as a means of increasing productivity, lower
prices, greater product choice and distribution formats, and technological innovation.
However, small domestic competitors cannot compete with large retail chains thus
eliminating employment opportunities for the poor. The concentration of ownership at
the world level can operate so as to marginalize small producers. Developing
countries must devise policies in this sector that provide benefits for all, in the face of
further requests for liberalization.
Strategic Role of Distribution Services
Distribution services are closely linked with other services such as transport,
packaging, warehousing, financial services and commercial real estate development
and have become a vehicle in international trade and competitiveness. The
distribution chain has become shorter, and a direct relationship between producers
and retailers has emerged, driven by enabling technologies and the desire to lower
transaction costs. Rapid diffusion and incorporation of new business methods and
technologies have brought about fundamental institutional and organizational changes
related to procurement, inventory control, management methods and payment
formula. The presence of large international retailers can become an avenue for
increasing exports, incorporating domestic suppliers into the global procurement
network, as well as being conducive to the improvement of local worker skills,
especially in logistics, marketing and management.
Concentration of Ownership
Ownership in both retail and wholesale sectors has become highly concentrated. The
top 200 retailers account for 30 per cent of worldwide retailing sales. The growing
presence of foreign retailing conglomerates in many developing countries is
transforming highly competitive markets, with tens of thousands of small firms
competing in the different market segments, into a situation in which a small number
of firms control most of the industry turnover. This has led to smaller local suppliers
being forced out of the market.
The distribution sector accounts for a sizeable share of non-agricultural employment
in developing countries – for example 6-7 percent in India – and it is significantly
higher than in developed countries. 152 Small shops play a crucial social role as
employers of poor people who migrate from rural to urban areas,: they perform
therefore a crucial social role that big chains would be unable to perform. Moreover,
shifting the social status of people from that of shop owners to that of shop employees
has the effect of shrinking the middle class, with negative social and political
implications.
The dominance of large firms in the distribution service sector is having a profound
impact on the wholesale segment of the market, and on local suppliers of goods, in
particular in the farm sector. Developing country suppliers of foodstuffs find
themselves bearing the brunt of price competition among distribution chains while
152 See UNCTAD, Distribution Services, TD/B/COM.1/EM.29/2, (Geneva, 2005).
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