Much has been written about the various relationship break-downs that have happened in the Indian retail sector in recent years. The biggest, most recent one is between Bharti and Wal-Mart, and the three-way conflict playing out at McDonald’s. Other visible ones include Aigner, Armani, Jimmy Choo, and Etam, while Woolworth’s faded away more quietly because, rather than as a retail brand, it was mainly involved in back-end operations with the Tata Group.
I think it’s important to frame the larger context for these relationship upsets. Most international companies, non-Indian observers as well as many Indian professionals are quick to blame the investment regulations as being too restrictive, and being the main reason for non-viability of participation of international brands in the Indian consumer sector.
However, India with its retail FDI regulations is not the only environment where companies form joint-ventures, nor is it the only one where joint-ventures break up. Regulations are only one part of the story, although they may play a very large role in specific instances. In most cases, FDI regulations are like the mother-in-law in a fraying marriage: a quick, convenient scapegoat on which to pin blame.
Many of the reasons for breaking up of partnerships can be found in the reasons for which they were set up the first place. The main thing to keep in mind is that the break-down is inevitably due to the changes that have happened between the conception of the partnership to the time of the split. The changes can fall into the following categories, and in most cases the reasons behind the break are a combination of these:
- External factors, including regulations, economic conditions or politics which could fundamentally change the operating environment, close off existing opportunities or open new ones, and raise questions about the logic of the partnership.
- Internal factors, including differences between the partners in terms of overall business strategy, scale expectations, operating methodologies, desire for management control, margin and return expectations, or investment capability.
- Changed perceptions, primarily around the strengths and support that each party expected the other to bring into the relationship and finding out that the reality differs from their initial perception on one or both sides.
According to Third Eyesight’s estimates, more than 300 international companies are currently operating in the Indian retail sector across product categories, if we count only those that have branded stores, shop-in-shop or a distinct brand presence in some form, not merely availability through agents or distributors.
Of these, about 20 per cent operate alone, while other others work with Indian partners, either in a joint-venture or through a licensing or franchise arrangement. The relationships that have broken up in the last decade are only about 5 per cent of the total brands that have come in, and in many cases the international brand has stayed in the market by finding a new partner.
So there’s life after death, after all. And my advice to those who’re feeling particularly defensive or pessimistic because of a few corporate break-ups: take time for a song break. Fleetwood Mac (“Don’t Stop”, “Go your own way”) or Bob Dylan (“Don’t Think Twice, It’s All Right”) are good choices!
About the Author: Devangshu Dutta is chief executive of Third Eyesight (www.thirdeyesight.in), a specialist management consulting firm focussed on the consumer sector.