FDI in single-brand retail: Easing of sourcing norm may open doors for Apple Stores

KOLKATA | NEW dELHI: The government decision on Monday to relax local sourcing norms for foreign brands keen to open own stores in the country has almost paved the way for Apple Stores as companies with ‘cutting-edge’ technology can possibly avoid local sourcing for up to eight years. The Cupertino, California-based maker of iPhones and Mac computers is now looking to initiate talks with the government and put up details of its technologies and patents it holds to show it’s a maker of cutting-edge technology products, a person aware of the development said.
A note issued by the prime minister’s office on Monday said, “It has now been decided to relax local sourcing norms up to three years and a relaxed sourcing regime for another five years for entities undertaking single brand retail trading of products having ‘state-ofart’ and ‘cutting edge’ technology.” An email sent to Apple India did not elicit any response as of press time on Monday.

The person quoted earlier said a clarification on the definition of ‘cutting-edge technology’ will be welcome. It remains a grey area as the Foreign Investment Promotion Board (FIPB) had last month denied exemption from 30% local sourcing norms to Apple while approving its application to open own stores.

The nodal agency for clearing foreign direct investment (FDI) proposals, instead, asked the Department of Industrial Policy and Promotion (DIPP) to incorporate a definition of the term ‘cutting edge’ in FDI policy framework. Chinese smartphone maker LeEco, which too had applied for retail FDI, is now hopeful that its application will get fast-track approval. LeEco India chief operating officer (smart electronics business) Atul Jain said the company will eventually meet the sourcing norms since it soon plans to start local manufacturing.

He said the government’s intention is clear that it wants to make a strong impetus to investment and encourage more technology brands to enter India and hence the lack of definition of cuttingedge should not be a stumbling block. LeEco plans to open 5-10 company-owned stores in the country, Jain said. Apple has no immediate plans to manufacture or source products from India, except refurbish iPhones that it plans to sell as company-certified pre-owned handsets.

But the government is not much in favour of refurbished phones. As per industry estimates, sales from exclusive stores account for 15% of smartphone sales for brands that have such franchiseerun outlets while around 50-55% of smartphones are sold from neighbourhood multi-brand stores, 15% from large retail chains, and balance 15-20% from ecommerce marketplaces.

Apple CEO Tim Cook during his recent visit had told his India team how company-owned stores are vital for Apple’s long-term plans since it would set benchmarks in sales and services, even though he does not want to disrupt the existing distribution and retail network as multi-brand stores still accounts for a large share of overall sales in India.

Chinese brand Xiaomi, which had earlier sought an exemption from local sourcing norms to set up own stores, recently told the government that it does not need the waiver any more since it is already manufacturing in India. Xiaomi said it was studying the changes.