The world's second-largest apparel retailer Hennes & Mauritz (H&M), which usually enters large markets on its own, is not so sure about opening shop in India despite finding the market "interesting".
Earlier this month, India relaxed laws allowing foreign retailers to wholly own their businesses with the rider that they source 30% of their products from SMEs with revenues not exceeding Rs 5 crore. Until then, foreign investment was limited to 51% or retailers were forced to franchise.
But the Swedish retailer is not entirely convinced by the norms which make it mandatory for the foreign retailer to source from small and medium industries in India, a retail executive in India said.
"India is one of the many interesting markets for H&M, but we have yet to decide if, and in that case when, we would open stores there," Hacan Andersson, H&M's press officer said. He, however, did not comment on the new sourcing norms.
The Stockholm-headquartered chain operates around 2, 500 stores across 43 countries posting revenues of 128.8 billion kronor (around $19 billion). Another Swedish giant Ikea, which too was keen on entering the Indian market with 100% control of operations, has been non-committal. It is still studying the guidelines -- the SME sourcing being a contentious issue.
"If a supplier can meet the sort of volumes required by a global retailer the size of H&M, it will not be defined an SME," Amit Bagaria, chairman of retail planning consultancy Asipac Projects, says.
"The opening up of the market has not really moved the needle for foreign retailer interest so far," Raghav Gupta, principal at management consulting firm Booz &, says. The government, on its part, introduced the local sourcing norm to expand domestic manufacturing.
"It's a deal breaker. Clearly, the government didn't think through this policy," said another retail consultant on condition of anonymity, who is negotiating with a couple of overseas brands to facilitate their India entry.
Experts say it is not a tall order for multi-billion dollar global retailers to source as much as 30% of their India sales from domestic manufacturers. H&M, for instance, already sources finished goods from the around Rs 2,200-crore Bombay Rayon and Rs 1,100-crore Gokaldas Exports.