After Ikea, the world’s second-largest apparel retailer Hennes & Mauritz (H&M) is taking a cautious approach about entering India.
Like many other global players, the Swedish retailer too is studying the norms put forth by the government while approving up to 100 per cent FDI in single brand retail. Riders like mandatory 30 per cent local sourcing from SMEs with revenues not exceeding Rs 5 crore has been a major cause of concern for these giants.
The company operates around 2,500 stores across 43 countries posting revenues of around $19 billion. The government is keen on boosting domestic manufacturing, but the global majors are sceptical and are not actively speeding up to enter the market on their own.
While H&M already sources finished goods worth around Rs 2,200 crores from Bombay Rayon and Rs 1,100 crores from Gokaldas Exports, the size of manufacturers (Rs 5 crore) that these companies are now expected to work with is a major hurdle to their entry. Keeping the size of their operations in mind, compulsory 30 per cent sourcing from SMEs having initial investment of merely Rs 25 to Rs 5 crore in plant and machinery is not viable, since these small units won’t be able to handle the large requirements. And if they plan to source the requirement by working with numerous SMEs, uniform quality standards would be an issue of concern.
In other countries, primarily China, US and the UK, Bulgaria, Latvia, Malaysia and Thailand, H&M plans to add 275 new stores this year.