Financial Daily from THE HINDU group of publications
Wednesday, Feb 15, 2006
Foreign Direct Investment
Marketing - Retailing
Columns - Zero Base
A jingle called `single brand'
The one-page document, available on http://dipp.nic.in, speaks of a 51 per cent cap ``with prior Government approval''. And it espouses many aims. Such as: "attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices."
Three conditions have been laid down. One, products to be sold should be of a `single brand' only. Two, products should be sold under the same brand internationally. And three, `single brand' product-retailing would cover only products which are branded during manufacturing.
What is singularly visible is `single brand' right from the application stage, the starting point. The process begins with seeking permission from the Secretariat for Industrial Assistance (SIA) in DIPP.
"The application would specifically indicate the product/product categories which are proposed to be sold under a `single brand'. Any addition to the product/ product categories to be sold under `single brand' would require a fresh approval of the Government," read the guidelines. The latter clause introduces the much-dreaded `approval' system, while at the same time offering an apparent leeway to add more products as a sequel to `single brand'.
But what is single brand retailing? Examples cited were of Sony and Nokia, when the Union Cabinet had given its nod to FDI in retail on January 24, ahead of the World Economic Forum.
Brands can be classified in many ways. Such as, product and service, single and multiple, best seller and unknown, foreign and local, and so forth.
There are also the loved and unloved, as www.lovemarks.com informs: "Lovemarks.com is an initiative of the advertising agency Saatchi & Saatchi that features a classification of brands around the world".
Among the brands most `loved' by the visitors are Absolut, Apple, Coca-Cola, Audi and Web site browser Opera, informs the site.
"There are two main types of brand manufacturer brands and own-label brands," explains www.tutor2u.net. "Manufacturer brands are created by producers and bear their chosen brand name. The producer is responsible for marketing the brand. The brand is owned by the producer."
These are what the new FDI guidelines cover, when insisting that `single brand' product-retailing would cover only products which are branded during manufacturing.
The other type, own-label brands, are created and owned by businesses that operate in the distribution channel often referred to as `distributors', explains Tutor2u. Common examples are of departmental stores selling grocery under own labels, though the items might have been sourced from suppliers in bulk.
With the emphasis of the new retail FDI regime on manufacturing, are own-labels out? The answer isn't yet clear, say experts, especially with regard to `store brands' or `private labels' branded during the manufacturing process.
Presumably, the Government is averse to the idea of accommodating non-manufacturers in its new FDI policy.
Which only means that any foreign investment flowing into retail may not directly benefit suppliers of locally-produced labelled goods.
Let us not forget that global retail majors such as Wal-Mart, Gap, JC Penney, Ikea and Tesco source heavily from developing countries.
"Wal-Mart's food exports from India could soon exceed those of its textiles procurement, which for the time being represent 65 per cent of the $1.5 billion worth of goods that the company sourced last year," informs the 4th edition of the PricewaterhouseCoopers From Beijing to Budapest: Winning Brands, Winning Formats 2005-2006.
One learns that in China, Wal-Mart exports about $18 billion worth of goods a year, and the sourcing from the Dragon Land multiplied by five when it was permitted to set up retail operations in the country.
"The company sources 85 per cent of merchandise for its Chinese retail operations locally through domestic suppliers or global suppliers manufacturing locally. Metro also sources $1 billion worth of goods from China," informs PwC's report.
`How Can Wal-Mart Sell a Denim Shirt for $11.67?' asks a June 2005 posting on www.nlcnet.org. It tells the story of production in Bangladesh of how the mark-up on the shirt is "260 to 290 per cent, or $8.42 to $8.67, which is 38 times more than they pay the workers to make the shirt."
Can Wal-Mart replicate the China model in India? Seems doubtful, given the ambiguity in the current FDI policy, apparently in conflict with one of the avowed aims of `encouraging increased sourcing of goods from India'.
Also remote is the possibility of a large format retailer turning into a manufacturer for all the items that are put on the shelves, because of diseconomies of smaller scale. In the alternative, will the DIPP allow job working as a variation of manufacture?
On www.weforum.org, the site of the World Economic Forum, catch up with the views of Hans-Joachim Koerber, Chief Executive Officer, Metro, in an article titled `Ringing in India's retail revolution'.
According to him, the first challenge for foreign retail companies was the FDI barrier.
"International experience has shown that the entry of organised retailers who invest in the supply chain of developing economies has always paid off for the local population.
When international retailers and wholesalers do come to India, their first job will be to determine which format they will employ," he said.
Wonder if the new format that comes with a jingle called `single brand' will find audience among the global retail giants.
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