Reebok India, the US-based footwear and apparel manufacturer Reebok International's subsidiary, has sought the Centre's permission to import branded footwear products from its overseas manufacturing bases and undertake retail trading of the products through its distributors.
The move, according to sources, comes in wake of the ongoing tussle with its Indian financial partner Phoenix Overseas, over a change in the shareholding of the venture, which has ceased to produce footwear for the international giant. For the past one year, Reebok has either been outsourcing shoes from Punjab-based manufacturers or importing from neighbouring markets such as China, the source said.
The source claimed that in the recent past, Reebok's imported products have accounted for almost 30 per cent of its sales volumes in India. Reebok executives were, however, not available for comment.
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The source also claimed that imports were working out cheaper than domestic outsourcing for Reebok. While labour in India is cheap, cost inputs are increasing due to constant changes in design and style of the products, low volumes and quality improvement. In fact, Phoenix has cited this as one of the reasons for ending the outsourcing pact.
Government sources said that in its application to the Foreign Investment Promotion Board (FIPB), Reebok has said that it would not undertake direct retail trading -- barred under law -- but instead import products and stack them at warehouses. This will be sold directly to distributors/ dealers, who will then retail the products.
The modus operandi will ensure that the company will be able to bring in a larger range of products, which local manufacturers are unable to deliver.
It could not be ascertained how much of its domestic sales volume Reebok intends to import.
Government officials said that as per the original foreign collaboration agreement signed with the Cetnre, Reebok has to manufacture a substantial part of its footwear in India.
At present, Reebok holds 93.15 per cent in the subsidiary, following a government approval in December 1997 to increase its holding from 80 per cent to 95 per cent. But contrary to an understanding reached with Phoenix at that time that the partners will revert to their original 80:20 shareholding within three years, in July 2000 Reebok sought government nod to increase its shareholding to 100 per cent.
Phoenix, however, objected to the proposal. As per Indian regulations on foreign direct investment (Press Note 18), the Indian partner's consent is must for such cases.
The FIPB directed the partners to settle the issue before it could be considered on merit again, and Reebok came back seeking permission to maintain its shareholding at 93.15 per cent in the face of further opposition from Phoenix. The case was later closed until the legal issues were sorted out by the companies. There remains a status quo as of now, the sources added.