Manish Nangia and Dr. Harish Handa
FDI in retail, the primary focus would be on the effects of FDI on various organizations. In order to initiate this discussion, we would initially present an overview of Indian retail Industry. Then, talk about the entry options of foreign players prior to FDI Policy. For those brands which adopt the franchising route as a matter of policy, the current FDI Policy will not make any difference. They would still rely on innovative structuring of franchise arrangements to maximize their returns. Consumer durable majors such as LG and Samsung, which have exclusive franchisee owned stores, are unlikely to shift from the preferred route right away. However, should a foreign investor tie up with an existing retailer or look to others not necessarily in the business but looking to diversify is to be seen. An arrangement in the short to medium term may work wonders but what happens if the Government decides to further liberalize the regulations as it is currently contemplating. The foreign investor must negotiate its joint venture agreements carefully, with an option for a buy-out of the Indian partner’s share if and when the regulations so permit. They must also be aware of the regulation which states that once a foreign company enters into a technical or financial collaboration with an Indian partner, it cannot enter into another joint venture with another Indian company or set up its own subsidiary in the same field without the first partner’s consent if the joint venture agreement does not provide for a ‘conflict of interest’ clause. In effect, it means that foreign brand owners must be extremely careful whom they choose as partners and the brand they introduce in India.