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Category: International Finance Sub-category: Foreign Investment
Document type: news
Earlier in 2012, India allowed 100% foreign direct investment in single brand retail with a condition that at least 30% of the products must be sourced from the domestic SMEs in case of more than 51% FDI.
However, expressing concern over the 30% sourcing clause for foreign firms to operate single brand stores in India independently, global sportswear major Adidas has said recently that this condition will be difficult to meet for it as well as its sister concern Reebok.
Subhinder Singh Prem, the managing director of Adidas, India said that both the brands are already sourcing a large part of their products locally and are now moving on to larger manufacturers targeting economy of scale. He also added that when they are integrating their systems as well as manufacturers, it will become even more difficult for them to follow the sourcing clause. Moreover, they said that they might take a couple of months to completely understand the decision of the government over FDI.
Currently, both Adidas and Reebok operate in India through franchise route.
The sourcing clause has drawn flak from a lot of international retailers who are interested to enter India on their own, including Scandinavian furniture retailer IKEA.
According to the observations made by IKEA, they have found that the conditions applied to local sourcing from SMEs might be difficult for them to live up to.
In fact, at present, a lot of companies cannot attract private equity investments because of the clause that the investing company should own the brand. However, analysts say that incentives should also be given to the SMEs if they have to cater to other companies.
External links:
Adidas AG is a German sports apparel manufacturer and parent company of the Adidas Group, which consists of the Reebok sportswear company, TaylorMade-Adidas golf company (including Ashworth), and Rockport. Besides sports footwear, the company also produces other products such as bags, shirts, watches, eyewear, and other sports- and clothing-related goods.
Reebok International Limited, a subsidiary of the German sportswear company Adidas since 2005, is a producer of athletic shoes, apparel, and accessories. The name comes from the Afrikaans spelling of rhebok, a type of African antelope or gazelle.
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