The Indian market is an exciting one with great potential
for many foreign retailers. Many of
the UK's High Street retail brands such as
Marks & Spencer, Monsoon and Hamleys have entered the
subcontinent. However, the retail sector in India is heavily
protected from direct foreign investment. This is especially
so for multi brand retailers, despite recent moves to liberalise
As a result, for many foreign retailers the most
attractive market entry strategy is one which involves
a third party relationship of some kind.
Single brand retailers are subject to no restrictions on their
ability to hold shares in an Indian company. Nevertheless
experience shows that direct investment into the Indian market is
not for the faint hearted or those with capital or resource
restraints. Despite its great commercial promise, India is a
hostile environment for foreign retailers who are not
"chaperoned" by an Indian partner. Local
operators jealously guard their domestic market through a
cocktail of legal, logistic, political and commercial
devices, some of which can , at best, be described as
exceedingly robust and would generally not be permitted in markets
such as the US and the EU. There is no denying that the
black market is in rude health in India, which can create
real problems for US companies under the Corrupt Foreign Practices
Act and British companies under the Anti-Bribery
Act. Add to that restrictions on the import of textiles
and a judicial system that is slow, expensive and at times
unpredictable and it is perhaps easier to understand why few
foreign retailers go it alone in India.
Joint ventures are sometimes used by foreign retailers entering
the Indian market. These can make it much easier for foreign
retailers to exploit the Indian market, if the local partner has
the appropriate expertise, capital and connections. However,
the bigger , wealthier and better connected the local partner the
more difficult it will be if the joint venture breaks down and the
reality is that retail joint ventures do not have a record of being
particularly long lived in India. There are also legal restrictions
on the number of shares that can held by foreign retailers, which
unbalance the terms of the joint venture or sub-ordinate equity
In 2011 the present Government made efforts to allow large
international supermarket chains and other multi-brand
retailers to enter the Indian market without an Indian partner, but
had to withdraw the proposed legislation due
to vigorous opposition from political parties, middle men
involved in retail trade and small family businesses. As a
result direct investment in multi-brand retail remains prohibited
for foreign retailers with the exception of wholesale cash and
The "single brand retail" sector was opened up
to foreign direct investment in 2006, and again at the beginning of
this year. However, it is subject to various complex
"hidden restrictions" on sourcing and the like which make
such a market entry very complicated to implement.
It is perhaps because of these undeniable difficulties that many
retailers entering the Indian market chose to do so by way of a
franchise arrangement - sometimes combined with a manufacturing or
retail joint venture or sub-ordinated equity arrangement.
This is especially so since 2010, when restrictions on
royalties and other forms of payments that Indian
franchisees are able to make in foreign exchange,were
removed. The structuring of franchising or licensing
arrangements in the retail sector in India require careful
consideration and must take into consideration not only the diverse
cultural, religious, linguistic , political and
economic differences in the country but also the myriad of
of legal restraints and requirements that impact upon
retailers. Nevertheless, it is the author's experience that
with the right advice retailers can develop and implement an
effective strategy for the Indian market using a franchising
or licensing based approach and so establish a long term
vigorous income stream in one of the world's fastest growing
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
Whilst trade and barter have existed since early times, the modern practice of forming business relationships through the means of contract has come into existence only since the industrial revolution in the West.
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