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FDI push: From luxury apparel to perfumery labels, top 40 global brands may soon enter India

The new FDI norms have not only relaxed the local sourcing requirement but also take care of the sales volume hurdle posed by the previous brick-and-mortar first requirement before permitting direct online retailing. Both these restrictions had made a lot of brands balk at entering the Indian market.

twitter-logo BusinessToday.In        Last Updated: August 30, 2019  | 12:41 IST
FDI push: From luxury apparel to perfumery labels, top 40 global brands may soon enter India
The Modi government on Wednesday relaxed foreign direct investment (FDI) norms for foreign single-brand retailers

Following the government's decision to relax the FDI norms for single brand retail, as many as 40 different global retailers may be lining up to enter the country in the next two years. As ASSOCHAM Senior Vice President Niranjan Hiranandani pointed out on Thursday, the norms have been made flexible, enabling major single brand retailers to integrate their Indian operations with their global supply chain. "With the US-China trade war remaining unabated, India could be the best possible alternative for the global firms offering them operational efficiency and scale," he added.

Sources in the know told the Business Standard that a number of UK-based companies in the bath and body space, Japanese apparel and athleisure brands, electronics companies from Indonesia, and a French outdoors brand are all planning to start online operations in India over the next 12-18 months. In addition, premium cosmetic labels from South Korea and a few of the biggest US-based lingerie brands may also be eyeing an entry.

One of the measures announced by the Union Cabinet on Wednesday was to allow single brand retailers to have online-only models as opposed to earlier, when they were not allowed to have a digital store unless they had a brick-and-mortar presence. Now the physical presence can come in within two years of starting online retail. Many global retailers had hitherto refrained from entering India due to exorbitant real estate costs.

The new FDI norms also take care of the sales volume hurdle posed by the earlier brick-and-mortar first requirement, which according to industry insiders made a lot of brands balk at coming to India. Without an e-commerce platform to sell products, achieving volume sales becomes impossible. While bigger brands can manage this situation, mid-range to smaller brands find it difficult to sustain.

"There are a certain number of stores a brand can open. A lot of factors go into opening a physical store. To create volumes, online retail is required. This will help a lot of brands enter India," Kumar Rajagopalan, chief executive officer, Retailers Association of India (RAI), told the daily. According to him the next few years, at least 40 new international brands in various categories would make an entry.

The previous 30 per cent sourcing clause had similarly deterred several foreign players, especially electronics brands because most of its devices and components are manufactured in China. But the new norms now make the world's fastest-growing smartphone market even more attractive to foreign brands, especially against the backdrop of the ongoing US-China trade war. iPhone maker Apple, for one, is reportedly ready to leverage on the new norms and start direct online selling in the next few months.

Experts say that allowing foreign retailers to set up online stores will not only promote healthy competition, but also lead to employment generation in sectors such as logistics, digital payments, customer care and product skilling. Furthermore, global companies can now consider building out an alternative supply chain in the country, allowing India to compete with major global manufacturing hubs in South and Southeast Asia.

Also read: Modi govt to woo foreign firms like Apple to capitalise on US-China trade war

Also read: Apple plans to start online stores in India, leveraging on relaxed FDI norms

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