India’s Single-Brand Retail Confusion
Aug. 7 – India first introduced its single-brand retail (SBR) policy back in 2006, and it has evolved to the point where the country now allows for 100 percent foreign direct investment (FDI) into the SBR market (compared to just 51 percent FDI in the multi-brand retail market). However, despite being seemingly straightforward, the policy has undergone some scrutiny as of late.
The problem with the SBR policy basically arises from the ambiguity brought upon by the definition of a “sub-brand” – a concept that is closely influenced by a company’s branding strategy – and if single brand retailers that sell various “sub-brands” inherently become multi-brand retailers (subjecting them to different policies).
“The single-brand retail FDI policy may not have been drafted to encompass different organization’s various brand strategies,” comments Cyril Abrol, partner at leading Indian law firm Remfry & Sagar.
To add to the confusion, “[A house brand is] either the branded house strategy or the house of brands strategy…the former promotes reliability and keeps all products under a single brand, but the latter is often employed to use diverse brands to penetrate different segments of the market,” Abrol added.
Since the concepts are similar yet have such different legal implications, the Indian government has recently been trying to deliberate a definition for single-brand retail, and has sought to make an example out of worldwide retailer Marks & Spencer (M&S).
After selling its various sub-brands in its retail locations throughout India since 2008, the Finance Ministry recently asked the Department of Industrial Policy & Promotion (DIPP) to look into M&S for violations of the country’s single-brand retail policy by way of selling its sub-brands.
M&S initially entered the Indian market without disclosing their various associated and sub-brands, leading to these accusations.
A spokesperson from M&S responded to the matter, saying: “Under our single brand license in India, we only sell M&S products, including our sub-brands, which are only available to buy at M&S.”
The hope is for the Indian government to actually define “single brand retail” through this case with M&S. However, such developments do little to ease foreign trust in India’s business landscape, even after single-brand retail giant IKEA was granted admission into the country earlier this year.
“This [move] is creating a controversy where there is none,” according to Saloni Nangia, president of Technopak Advisors, who also spoke on the negative aspects of the DIPP’s move. “Such government action could create roadblocks for serious foreign investors.”
Indian Commerce and Industry Minister Anand Sharma Sharma did note, “We have kept it simple…we have said that whether you are a brand owner or not, but have a legal agreement with the brand owner, it is fine. But you have to file a list of products.”
Despite that, the M&S case is still ongoing, and future developments should help guide and streamline the process and definitions.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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