Despite India’s growth potential, the apparel sector has seen relatively low FDI inflows, amounting to approximately $700 million over the past decade. Several challenges deter foreign brands from entering or expanding in India:
• Finding Local Partners: The need for local partnerships is crucial due to restrictions on foreign equity and sourcing requirements.
• E-commerce Restrictions: The inability to operate online stores for MBRT entities limits the growth potential for brands seeking to leverage digital channels.
• Regulatory Uncertainties: Changes in government policies and complex regulations can create an unpredictable business environment.
• Local Sourcing Challenges: The 30% local sourcing requirement for both SBRT and MBRT presents logistical and quality control issues.
Despite these challenges, brands such as Decathlon, H&M, and Zara have thrived in India by embracing local sourcing. Collaborating with Indian manufacturers allows foreign brands to meet sourcing requirements while benefiting
from cost efficiency, quicker adaptation to market trends, and a lower carbon footprint.
Decathlon: After transitioning to single-brand retail in 2013, Decathlon now operates 129 stores in India. The brand supports India’s ‘Make in India’ initiative by sourcing products locally.
Successful Examples
H&M: Entered India in 2015 and rapidly expanded by meeting the 30% local sourcing requirement through partnerships with local suppliers.
Proposed Changes to FDI Policies for Foreign Brands
India’s FDI policies are relatively stricter compared to countries like Vietnam, Singapore, and Bangladesh,
which offer fewer restrictions and more incentives for foreign investors. For instance:
Vietnam: Allows 100% foreign ownership and fewer local sourcing requirements.
Singapore: Offers tax incentives, grants, and streamlined regulatory frameworks.
Bangladesh: Provides tax holidays, duty-free machineryimports, and export incentives.
Easy Entry Route for Foreign Brands: The Advantage of Partnerships Given the complexities of FDI regulations, many foreign brands opt for joint ventures, licensing agreements, or franchising rather than the SBRT route. These partnerships allow global brands to enter the Indian market while adhering to local laws. In joint ventures, foreign companies collaborate with Indian businesses, sharing equity and operational control. Licensing agreements provide a flexible entry method, where Indian firms manage the brand’s marketing, sales, and distribution.
Conclusion
India’s apparel retail sector presents a wealth of opportunities for international brands due to its large, young, and increasingly affluent consumer base. Despite challenges posed by FDI regulations, global brands can successfully navigate these hurdles through strategic partnerships, local sourcing, and compliance with India’s unique market conditions. Easing FDI policies could significantly enhance growth prospects, making India an even more attractive destination for global apparel brands. The shift towards sustainable fashion, digital retailing, and innovative technologies such as AI and AR further adds to the potential for success in India’s dynamic retail environment.
