International retailers may not rush in to acquire a 100 per cent stake in their Indian ventures, even if the government fully opens up the single-brand retail sector to foreign direct investment (FDI).
Since retailing in India has a lot of complexities in terms of local laws, property issues and so on, foreign firms would prefer to go with local partners, say domestic companies, some of which have tie-ups with foreign retailers.
“I don’t think any international retailer would immediately want to increase his stake even if he is allowed to do so...Because most partners respect the contribution of each other. Unless the Indian partner is weak, he would not want to do it,” said a top executive with Reliance Retail.
Mukesh Ambani-owned Reliance Retail has several joint ventures (JVs) with foreign retailers. It has a JV with the UK’s Marks & Spencer, wherein the latter holds a 51 per cent stake, an equal venture with Grandvision of the UK for Vision Express stores, and another one with US-based Office Depot, a global provider of office products and stationery.
“Because of the peculiar nature of Indian real estate, it’s most likely that foreign retailers would want to tie up with Indian real estate companies or retailers,” said Bhaskar Bhat, managing director of watch maker and retailer Titan Industries.
He is also a director with Tata’s retail arm, Trent, which has a JV with Spain’s Inditex group for fashion brand Zara. Trent is also in the process of forming another JV with Inditex group to set up the latter’s Massimo Dutti stores in India.
“Everyone would love to have the full control, but in India, they prefer to have local partners, given the complexities in opening stores,” said B S Nagesh, vice-chairman of Shoppers Stop, which runs departmental stores, hypermarkets and specialty stores. “At least for the first three to five years, they want to understand local markets and then look at buying out the Indian partners. ..Many a time, they would not like to go on their own if the partnership works well.”
More From This Section
India currently allows 51 per cent FDI in single-brand retail and 100 per cent in wholesale operations. The government is considering opening fully its single-brand retail sector to FDI in a bid to speed up its reform process. Despite approval from the Committee of Secretaries, the Cabinet is yet to clear the FDI in multi-brand retail.
According to government estimates, after FDI was allowed in single-brand retail in 2006, around Rs 906 crore was received between April 2006 and May 2010.