A government has finally let in foreign retailers, but major players are still worried about their prospects. In conversations with the India representatives of global retail powerhouses, it is easy to detect a sense of indifference, if not despair.
But shouldn't these people be over the moon? The government has after all granted their wish and a long-pending one at that. Companies such as Wal-MartStores Inc, the world's biggest retailer, have long been lobbying to enter India.
Yet, it is obvious why retailers are not ecstatic. The government's welcome mat to multinational supermarkets is riddled with riders. Under the new rules, foreign multi-brand retailers must invest at least $100 million and half that amount must be ploughed into back-end infrastructure in rural areas.
That's not all. State governments will decide if they want foreign players and stores will be permitted only in cities of at least 1 million people. Retailers must also source 30% of the value of goods purchased from small- and mid-sized domestic suppliers.
Investments should not worry these deep-pocketed companies. Neither would a sluggish start. "I think it is a matter a time before states realise the commercial advantages and allow these companies," says Shushmul Maheshwari, CEO of research agency RNCOS. So the rub may well be the 30% sourcing diktat. Though it is not unusual of multinationals to rub shoulders with small players, they fear that procurement condition poses many difficulties.
The country head of a global luxury goods brand says in "our line of business craftsmanship and quality are top priorities". "The 30% condition restricts those priorities. We are not going to change our business model because we cannot compromise on our priorities," the official says, asking not to be named because she is not authorised to speak to the media.
Gunjan Gupta, creative director, Wrap, a luxury and lifestyle brand, says there is a huge cultural gap that has to be bridged in India. Gupta, a high-end crafts and furniture designer who works with traditional artisans and craftsmen, says the problem is that "our requirements are first world and their work is third word".
Quality apart, the actual sourcing itself could pose a hurdle to some companies, particularly single-brand retailers. Where and what will a French perfume maker procure from India?
No Other Option
Still, many analysts believe the government cannot be faulted for laying down tough conditions in light of the fierce political opposition that greeted the reforms. Fear of running into resistance had forced the government to pull out several similar initiatives in the past.
Footwear company Pavers England supports the 30% rule, perhaps the lone multinational player to do so. "India is not a manufacturing country like China. The Chinese invite to foreign retail was a boon because the companies were already sourcing majority of the products (sold) from the country and they invested money in improving infrastructure. The result was that the country used the resources and know-how of foreigner players," says Ravi K Mehrotra, chairman of Foresight Group, which has partnered Pavers to bring the brand to India.
But shouldn't these people be over the moon? The government has after all granted their wish and a long-pending one at that. Companies such as Wal-MartStores Inc, the world's biggest retailer, have long been lobbying to enter India.
Yet, it is obvious why retailers are not ecstatic. The government's welcome mat to multinational supermarkets is riddled with riders. Under the new rules, foreign multi-brand retailers must invest at least $100 million and half that amount must be ploughed into back-end infrastructure in rural areas.
That's not all. State governments will decide if they want foreign players and stores will be permitted only in cities of at least 1 million people. Retailers must also source 30% of the value of goods purchased from small- and mid-sized domestic suppliers.
Investments should not worry these deep-pocketed companies. Neither would a sluggish start. "I think it is a matter a time before states realise the commercial advantages and allow these companies," says Shushmul Maheshwari, CEO of research agency RNCOS. So the rub may well be the 30% sourcing diktat. Though it is not unusual of multinationals to rub shoulders with small players, they fear that procurement condition poses many difficulties.
The country head of a global luxury goods brand says in "our line of business craftsmanship and quality are top priorities". "The 30% condition restricts those priorities. We are not going to change our business model because we cannot compromise on our priorities," the official says, asking not to be named because she is not authorised to speak to the media.Gunjan Gupta, creative director, Wrap, a luxury and lifestyle brand, says there is a huge cultural gap that has to be bridged in India. Gupta, a high-end crafts and furniture designer who works with traditional artisans and craftsmen, says the problem is that "our requirements are first world and their work is third word".
Quality apart, the actual sourcing itself could pose a hurdle to some companies, particularly single-brand retailers. Where and what will a French perfume maker procure from India?
No Other Option
Still, many analysts believe the government cannot be faulted for laying down tough conditions in light of the fierce political opposition that greeted the reforms. Fear of running into resistance had forced the government to pull out several similar initiatives in the past.
Footwear company Pavers England supports the 30% rule, perhaps the lone multinational player to do so. "India is not a manufacturing country like China. The Chinese invite to foreign retail was a boon because the companies were already sourcing majority of the products (sold) from the country and they invested money in improving infrastructure. The result was that the country used the resources and know-how of foreigner players," says Ravi K Mehrotra, chairman of Foresight Group, which has partnered Pavers to bring the brand to India.
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