Why India is Allowing Chinese Fast-Fashion E-Commerce Giant Shein to Re-Enter its Market
Shein, the Chinese online fast fashion behemoth, is re-entering the India market after a nearly three-year ban, with the assistance of a strategic alliance with Reliance Retail. We delve into the reasons behind the Indian government’s approval of this comeback and explore the potential opportunities that can arise from this unique form of retail partnership.
Indian officials have clarified to media and industry that the licensing agreement between Shein, the Chinese fast fashion giant, and Reliance Retail Ventures Limited (RRVL), the retail unit of Reliance Industries, does not require approval from the Government of India’s FDI Proposal Review Committee. This is because Shein does not intend to make any equity investment in an Indian company.
Since June 2020, India’s Ministry of Electronics and Information Technology has banned several Chinese mobile apps from operating in the country after escalating tensions on the Himalayan border. Tax and customs scrutiny has also heightened following recent audits of well-known Chinese firms and companies linked with Chinese investments in India.
Meanwhile, under the Consolidated FDI Policy (amended October 2020) and the Foreign Exchange Management Non-Debt Instrument Rules (amended October 17, 2020), restrictions have been placed on foreign direct investment (FDI) coming in from overseas entities or citizens belonging to countries that share a land border with India.
Besides India, Shein has encountered backlash in the United States due to its Chinese affiliation and concerns that it engages in use of forced labor.
With its current headquarters in Singapore, Shein is actively preparing for an initial public offering (IPO) scheduled for the second half of this year.
What’s in the Shein deal with Reliance
Overseen by Reliance Industries chairman Mukesh Ambani’s daughter Isha Ambani, the Shein deal with RRVL encompasses various aspects.
Shein has granted a license for its technology and trademarks to Reliance Retail, and the two companies will collaborate on establishing a domestic e-commerce retail platform exclusively catering to Indian customers, offering Shein branded products. The platform will be managed by RRVL’s subsidiary, which is a 100 percent Indian-owned company. The Indian app will be separate from Shein’s global app, ensuring data isolation and security within India.
Payments to Shein will be sourced solely from the profits generated by the Indian company, without any fixed predetermined amount.
The partnership with Reliance Retail also presents opportunities for Shein to leverage their sourcing capabilities, warehousing facilities, and logistics infrastructure. Reports suggest that Shein may utilize this partnership for sourcing for the Middle East and other markets.
Currently, 93 percent of Shein’s sourcing is derived from China; however, the collaboration with RRVL aims to incorporate the participation of 25,000 micro, small, and medium enterprises (MSMEs).
Separately, RRVL also completed its INR 28.5 billion (US$344.07 million) purchase of German retailer METRO AG’s India cash and carry business this month.
Why India is giving the go-ahead
India’s approval of the Shein-RRVL partnership aligns with the country’s focus on fostering domestic economic growth, local production, job creation, and tax revenue generation. In turn, the partnership with RRVL allows Shein to distance itself from political scrutiny.
The timing may also be opportune. India is working to build up manufacturing and R&D capacity in textiles and apparel, through setting up mega textile parks, production-linked incentives for manmade fiber (MMF) apparel, MMF fabrics, and products of technical textiles, as well as export-oriented support.
With plans to diversify its supply chain and establish a manufacturing base in Turkey, Shein – on its part – appears to be seeking to reduce its reliance on China while moving forward with its global business development.
Moreover, the Shein-RRVL partnership prioritizes data security – a key concern for the Indian government, ensuring that Indian consumer information remains within India by isolating the Indian platform from Shein’s global app.
Overall, the Shein-Reliance collaboration holds significant potential for both parties, addressing market needs and opportunities while navigating various challenges. However, it must be noted that if Shein were to make FDI investments into the Indian market, either in the textile supply chain or other sectors, it will trigger the government screening process under the FDI Policy [vide Press Note 3(2020)].
Introducing the retailer Shein
As of 2022, Shein is the world’s largest fashion retailer. It was initially established in October 2008 in Nanjing as ZZKKO, operating as a cross-border e-commerce business. The founder, Xu Yangtian, also known as Chris Xu, has maintained a reclusive image.
Shein has gained immense popularity among millennial and Generation Z consumers over the last decade, primarily due to its affordable and trendy offerings of women’s wear and other apparel. This widespread appeal has resulted in jumps in the company’s valuation. However, Shein has also faced numerous controversies related to environmental impact, labor practices, design infringement, and health concerns associated with its products, sales, and merchandising activities.
Initially, the company operated as a drop shipping business, accepting customer orders without keeping stock on hand. It primarily engaged in reselling products purchased from the wholesale market and did not partake in the design and manufacturing processes.
However, a major shift occurred in 2014 when the company revamped its business model. Shein established its own supply chain system, leading to its transformation into an integrated fast-fashion retailer. This shift allowed Shein to have greater control over the entire process, from sourcing to manufacturing and distribution.
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