Best Market Entry Strategy For All International Retailers Entering India

on Feb 19, 2024 | 2392 views

Written By: Resham Daswani

Do you know how big India’s retail market is today?  It won’t be surprising to note that not only domestically, the Foreign Direct Investment Confidence Index for 2023 places India as the sixteenth-ranked country and the fourth-largest retailing market in the world.  Wow! And this market continues to grow.  Many factors enhance this growth, including the entry of international brands growing their footprints in the country.

So this blog is for those international retailers considering entry and expansion in the Indian market.  This guide has some of the best market entry strategies for all international retailers which can make a smooth entry into the country.

4 Important Market Entry Strategies For International Retails Seeking Entry in the Indian Market

Almost 8% of Indians find work in retail, which contributes over 10% to the GDP. Across all price points and demographics, the Indian market is home to several international brands.

So here are some pointers to keep in mind.

#1. Setting Up Your Brand in India

In the process of establishing a presence in India, foreign businesses should select a legal structure that is tailored to meet their specific requirements. The choice of the appropriate entity structure will assist the business in establishing itself as a powerful participant in the Indian market, which will in turn assist them in taking advantage of financial opportunities.

Foreign brands looking to do business in India have a few different options, including setting up a local subsidiary, entering into joint ventures, licencing their products to local businesses, or a mix of these.

According to India's Foreign Direct Investment (FDI) policy, which establishes conditions and licences for foreign investment, foreign brands are permitted to possess stakes in equity in Indian firms. Another option is for franchisors to enter into contractual agreements with local franchisees to allow them to acquire franchise rights.

#2. Choosing The Right Franchise Business Model To Expand Your Retail Brand

The current growth and urbanisation trends in India are well-suited to the franchising industry, which aligns with the emergence of malls that act as hubs for franchisees in affluent metropolitan areas, tier-2 cities, and tier-3 cities. Companies that can modify their products to meet the preferences of specific regions and develop fresh market segments have a perfect opportunity to capitalise on the growing customer demand and aspirations in India for their products.

The franchise industry in India has been seeing consistent expansion, with established names expanding their footprint and new franchise models sprouting across the country. By 2025, it is anticipated that the Indian franchising business will have surpassed INR 70 billion, which is equivalent to $845.09 million.

There are currently about 1.5 million individuals working in this industry, and it contributes roughly four per cent to India's gross domestic product. Even though there are already several global franchisors doing business in India, however is still a significant amount of potential for expansion. This is because franchisees only constitute a small portion of the market as a whole.

Even though there are already several global franchisors doing business in India, however is still a significant amount of potential for expansion. This is because franchisees only constitute a small portion of the market as a whole. Through the year 2025, it is anticipated that the franchising industry in India will rise at a CAGR of thirty per cent.

This growth is predicted to be driven by several factors, including the growing middle class in India, which has discretionary income, favourable government regulations, and a growing understanding of franchising as a viable business model.

#3. Foreign Direct Investment Regulation in India

Before beginning operations, the foreign stakeholder is required to analyze India's regulations regarding FDI. Even though the majority of industries have been liberalised, India continues to strictly monitor foreign investments in the retail sector.

Foreign investors are required to seek prior clearance from the relevant ministry or department to make investments that are made through the government approval route. On the other hand, investments that are made through the automatic method require the investor to only notify the RBI after the decision to invest has been made.

#4. Agreement Of Licensing

A licencing agreement is a contract that is made between two parties, specifically the party licencing and the licensee from the beginning. It is a situation in which the licensor permits the licenced party to utilise their trademark, brand name, or copyrighted technology, as well as the power to create and sell things which are owned by the licensor.

After entering into this contract, the licensee will be granted the right to make use of the intellectual property owned by the licensor.  The basic objective of a licencing agreement is to enable the licensor to make a profit from its trademarks by granting the licensee permission to make use of it and generate income.

Foreign equity in retail is restricted in India, hence many international businesses use Indian franchises and distributors.

Global retailers might cooperate with Indian enterprises through licencing. The Indian company pays the brand owner and markets and launches the brand in India. Instead of brand fees or royalties, the business's proprietor can make investments in the retail market in India to grow its brand.

Let us take an example of Reliance India.  RBLI has brought over 50 international brands to India, some with huge markets. Armani Exchange, Burberry, Marks & Spencer, and others are a few to name.

Types Of Franchise Entry Strategies in India For International Retails

Below, we will briefly go over some of the most common master franchise opportunities accessible in India.

  1. Direct Franchising: This model entails a business launching a franchise network on its own. For domestic businesses with prior expertise in the Indian market, this strategy works well. However, this might be a problem for international businesses that are just breaking into the Indian market.
  2. Master Franchising: This involves a business giving a local entity the sole authority to build a foreign brand. In many cases, the franchisor puts a lot of money into it. Whether it's through developing a system of sub-franchises or establishing their stores, the master franchisee is tasked with growing the business's name recognition.

Also read: Top Master franchises to Consider in India

To Conclude,

Foreign companies looking to break into the Indian market need to be mindful of the legal structure they adopt to enter the country. With the right paperwork and approvals, international companies can own a stake in Indian companies according to the country's foreign direct investment legislation.

There are several pathways into the Indian market for international brands, including setting up a local subsidiary, forming a joint venture, or licencing their products to local businesses. Given the rising purchasing power, disposable income, and urbanisation patterns in India, franchising presents a promising business strategy.

Reach out to the expert at Sparkleminds if you are an international retailer wanting to grow your business in the Indian market.  You can also connect with us on our website to find out about the latest franchise opportunities in different sectors of the Indian market.

Disclaimer: The brands mentioned in this blog are the recommendations provided by the author. FranchiseBAZAR does not claim to work with these brands / represent them / or are associated with them in any manner. Investors and prospective franchisees are to do their own due diligence before investing in any franchise business at their own risk and discretion. FranchiseBAZAR or its Directors disclaim any liability or risks arising out of any transactions that may take place due to the information provided in this blog.

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