A relaxation of the laws on foreign direct investment (FDI) in India has opened the door for Tesco to trade under its own brand in the country for the first time.
Under new legislation, foreign retailers can now own up to 51% stake in multi-brand retail businesses in the country.
However, retailers will have to make a minimum investment of $100m in infrastructure and source 30% of goods from local small enterprises. Retailers will also be restricted to trading in India’s 51 cities which have a population of more than a million.
The move is set to ramp up competition in the country as international retailers including Walmart, Carrefour and Tesco will go head-to-head.
Tesco, Walmart, and Tata Group, the owner of Tesco’s joint venture partner Trent with which it runs its franchise operation Star Bazaar in the country.
A Tesco spokesman said: “Tesco welcomes this positive development but we await further detail on the conditions. We are hopeful that it will allow more Indian consumers, businesses and communities to benefit from world-class retail investment.”
Walmart operates a wholesale joint venture with the Bharti Group and said it would have to study the policy fully and evaluate before finalising its future course of action.
Concreteplatform chief executive Tristan Rogers says: “Franchising and joint ventures are established trading formats for retailers, and whilst these formats work on the principle of feeding two mouths, it doesn’t necessarily mean they are not favourable trading models. Local law, taxation, HR and recruitment are all the responsibility of the local partner, as is the rent, rates and point of sale expenditure. For the brand, the only impact is a lower performance than anticipated on a lower margin product, but it’s still product sales and it is still margin.
He adds: “So, with the red tape cut, it will only be the retailers who know already that the market is performing at a level that warrants the investment, or one who has pockets deep enough to invest ahead of the curve. The news that India has lifted the restriction does not mean more profit. The only immediate benefactor will be India, who may hope to see an influx of foreign investment into infrastructure and staff markets.”