Formats for Entry into Indiaby Udit Jain on June 20, 2007
Formats for Entry into India
Direct participation in Indian retail business is still not permitted under India’s regime of FDI controls. A few international retailers in India have adopted different strategies for operating in India. These strategies and models include the following:
1. Franchise agreements: Franchising is the most widely used entry route by international retailers. Some fast food retailers have entered India through the master franchise route, while Pizza Hut has entered India through multiple regional franchises.
2. Cash & carry wholesale trading: 100 percent FDI is allowed in wholesale trading, which involves building of a large distribution infrastructure to assist local manufacturers. The business model is built such that the wholesaler deals only with smaller retailers and not consumers. Metro AG, Germany was one of the first significant global players to enter India through this route. Shoprite of South Africa has effectively used a combination of cash and carry wholesale trading and franchising to set up their first hypermarket in the suburbs of Mumbai.
3. Strategic licensing agreements: This route involves the foreign company entering into a licensing agreement with a domestic retailer. Mango, the Spanish apparel brand has entered India through this route with an agreement with major Brands, a departmental store in Mumbai.