FDI in Retail: 30% Sourcing from Small-Scale Sector Restricts Luxury Brands.

NEW DELHI: The Indian government may be mulling to allow 100% FDI in single brand retail, but the stipulation of 30% sourcing from the small-scale sector might be the spoiler for luxury brands in the country.

Luxury houses find this clause restrictive. Ravi Thakran, group president, South, Southeast Asia and West Asia at French luxury house LVMH, said that a number of their brands, which operate through separate joint ventures, would like to increase their stake.

But they will have to stick to only 51% for now because of the mandatory 30% local sourcing clause, which is seen as a hindrance. The mandatory clause will make it very difficult for any brand to comply with such a condition.

"It is going to be a challenge for most brands. I don't know if brands will change their global manufacturing processes for India," said Sanjay Kapoor, managing director of Genesis Luxury, the joint venture partner of Burberry in India, which also represents other luxury brands like Canali, Jimmy Choo and Bottega Veneta.

Abhay Gupta, executive director at Blues Clothing, that represents Versace in India, feels this will act as an indirect trade barrier for these companies.

"There's only a limited range of inputs that could be sourced from India like embroidery, but luxury brands then should have products of that kind too," said Gupta. Burberry, for example, has very little manufacturing in India, for embroidery.

The Indian luxury market is growing at 20% a year and is expected to grow to $14.7 billion by 2015, up from $5.8 billion today. But this size still doesn't measure up to countries like China.

"The scale of the Indian market is small at the moment for it to make sense of the luxury brands to start manufacturing in India, only for India," said Neelesh Hundekari, principal at consulting firm AT Kearney.

There are other issues as well like finding quality raw materials, workmanship and even intellectual property rights.

"They will need to find the right vendors in India and train them but that will take a long time," said Hundekari. Many brands are also worried about exposing their IPR in India.

Source : economictimes.indiatimes.com