Update: Foreign Investment in Retail - OK, Perhaps a Bit Less Than Half Full

I noted the other day that the Indian government is going ahead with the further liberalization of "single brand" retailing - to 100% foreign equity from the current 51% limit - despite backtracking on efforts to allow any amount of foreign equity in "multi-brand" retailing.

With a catch. Foreign retailers that opt for 100% equity in single brand retailing must source 30% of the goods sold in the retail outlets from Indian small-scale producers.

Here are some quotes from the Economic Times:

"'It is going to be a challenge for most brands. I don't know if brands will change their global manufacturing processes for India,' said Sanjay Kapoor, managing director of Genesis Luxury, the joint venture partner of Burberry in India, which also represents other luxury brands like Canali, Jimmy Choo and Bottega Veneta." .  .  .

and also:

"'The scale of the Indian market is small at the moment for it to make sense of the luxury brands to start manufacturing in India, only for India,' said Neelesh Hundekari, principal at consulting firm AT Kearney."

As cross-border lawyers representing companies entering India and many other countries, we have found that foreign equity liberalization is often only part of the story - other restrictions can impede investment opportunities. For example, some years ago in Japan a liberalization to foreign retailers was in effect blocked by the ability of local Japanese retailers to veto a foreign retailer's entry on a number of very broad grounds.

Foreign Investment in India - Half Empty for Retail, But More than Half Full Overall

Our clients and contacts have been expressing concern over some backtracking on the Indian cabinet's announcement of a further expected opening to foreign investors in the retail sector. Our view is that the spat over retailing should in no way overshadow the fact that foreign investors can hold up to 100% equity in the vast majority of industry sectors, and that many of these sectors are open through a streamlined automatic approval process.


The current retail status: 51% foreign equity is allowed in "single brand" retailing (think Armani) but no foreign equity allowed in "multi-brand" retailing (think Walmart). Walmart was still able to enter India through a joint venture in back-end operations and distribution even though its Indian partner, Bharti, owns 100% of the front-end retailing.

The November announcement was that 51% foreign equity would soon be allowed in multi-brand retailing and that the 51% in single-brand would be increased to 100%.

As with many countries, retail raises sensitive political issues due to the large numbers of small local retailers (and their bigger counterparts) that feel threatened by a foreign influx of retail sales. An outcry in India after the announced liberalization caused the Indian cabinet to put the multi-brand change on hold, and the foreign and local press have been spilling a lot of ink over this.

Not ideal, though we heard today that the Indian government is still moving ahead with the change to allow 100 per cent foreign direct investment in single brand retail.

Audit 4: Take a Second Look at Arbitration for Contract Dispute Resolution

Whatever the type of your cross-border agreements, it is dangerous to assume that a court judgment from a convenient and familiar local court would be enforceable against a foreign party with assets in another country. 

It is one thing if the foreign party has in-country assets (say in the US) that can be attached locally (such as in domestically enforcing a US court judgment against assets in the US). If is another matter if one needs to rely on the generosity of foreign courts to enforce a judgment.

There are generally no treaties that will require the enforcement of a foreign court judgment (except among certain groups of countries), and local courts may look to uncertain concepts such as whether the foreign court offers reciprocal enforcement and may require a re-litigation of the underlying issues.

Audit 3: Online Business: Terms and Conditions, Privacy Policies and Marketing Practices

Sales terms and conditions are also embedded in web sites, whether or not your company’s site is e-commerce enabled. Many companies do not focus on the fact that these terms need to comply with cross-border laws and regulations. 

Opt-in and opt-out rules and a maze of privacy and data protection requirements in Europe and elsewhere also present lurking enforcement and liability problems if local-country rules have been ignored. Marketing rules in many countries also need some attention.

We suggest pulling your company further out its “home country centric” approach, especially if you have an important customer or supplier base in multiple countries. Your counterparts will also appreciate your international savvy and professionalism as a result.

Audit 2: "Internationalizing" Your Sales Terms and Conditions

We see too many companies depend on inadequate sales terms and conditions for their international sales. Do you really think that a judgment in a Chicago court can be readily enforced in China or India, and what about those warranty and limitation of liability provisions – are these unenforceable or do they otherwise fail to take into account local law requirements?

If distributors are also involved, these terms can also be inconsistent with the distributor agreement terms, leading to confusion and heightened liability. 


As a first step, and for a low fixed price, we assist clients by gathering together their purchase order or sales terms, analyzing them, and then offering options for implementing best-practice changes (with foreign local law adjustments) along with clear budgets.

Audit 1: Optimizing International Agency and Distribution Agreements

Businesses large and small appoint international agents and distributors to get their products to market. We often see that these relationships may be based on a US form agreement, on agreements that may be out-of-date or – even riskier – relationships based on a handshake. This is dangerous territory in Europe, parts of Latin America, the Mideast and parts of Asia that protect local dealers and can make termination very expensive.

Far better to keep your company out of local courts and help limit the impact of local dealer protections, such as by creating a best-practice cross-border distribution and agency agreement templates with adjustments for key international markets. Laws may also limit your ability to set prices and designate territories, as well as require unexpected taxation on revenues. The small amounts invested in agreement optimization can be repaid many times over in improving your dealer relationships, avoiding disputes and allowing early termination if necessary.