India is known to be the second largest populated country where “the old and the new, the traditional and the modern, and the local and the international coexist—sometimes comfortably sometimes not “. Here is a list of risks that companies will have to face while setting up a clothing brand in India.
Tough competition from local brands:
International brands will be put in a situation to face a competition from both the local brands in India and the global brands in India. The local brand such as TATA opens outlets through their zudio stores where the products fit the modern trends that equals the global brands and with none of the products costing more that 15 dollars( INR 1300 approx). The report from the World Economic forum in January, 2019 says that India will become the third largest consumer market and quadrupled household spending by 2030. The TATA group have also started shifted their focus on the trend conscious globalised population are building models with value proposition with is much stronger than international brands. Therefore international brands might have to face the risk heavy competition and a lag in the market with local brands which follows similar strategies as primark.
Currency fluctuation :
India is a country that continues to experience a fluctuation in its currency value with decline in the rupee. India is facing this fluctuation in currency which has an impact on its economy due to Wider current account deficits(CAD), low foreign exchange reserve, high fiscal deficit and higher inflation. This is a risk for clothing brands since the companies will have to face a decline in their income due to this fluctuation and primark will also be put in a situation to pay more for the imported goods reducing their profit margin.
Water scarcity and environmental risk :
The World Business Council for Sustainable Development states that water does not just provide a sustainable and peaceful environment but it is very much essential for any kind of business to operate. All apparel industries are the users of the maximum amount of water for business and they will be under threat as water scarcity in India is seeing a depletion in its groundwater putting it’s primary businesses at stake. The textile and fashion industry requires large amount of water to convert from fibre production to finished products. Hence it is a great risk for clothing industry to invest in India as it is facing a big water scarcity. India is among the 17 countries has extreme levels of water scarcity with the northern part which has a plenty of business hubs facing severe ground water depletion.
The environmental scenario of India also pose risk to international clothing brands as India is facing a dramatic change in climate for past decade which has resulted in floods, storms, cyclones and other natural disasters. India is deemed vulnerable to climate change impacts, adding it to the countries in the global climate risk index.
Understanding Indian Consumer:
India is a very diverse country with a vast mixture in the consumer pool. The Indian market varies from region to region in terms of usage, preferences, brands, tastes etc. And this serves as a risk because it is impossible to cover the expectations of each region being a foreign brand and also unlike in UK and other countries where the sizes are numbered from 6,8,10-12, the sizes in India ranges from from small(s) below to XL(Extra large) and beyond. Therefore customization in clothing to fit Indian consumers also becomes a risk. This is important to be considered as a risk because as Mr. Biyani, the CEO, Future Group and Managing Director of Pantaloon Retail, India puts it “Indian Consumers, unlike people elsewhere, demand ideas and solutions that are uniquely Indian.”
Bureaucratic barriers and taxes:
International brands will have to face the challenges of rampant bureaucracy at all levels since Foreign investors generally face challenges while dealing with of dealing bureaucracy at federal, state and local government. Due to India’s poor infrastructure intricate tax payment systems ,complicated tax and slow legal system therefore there is a delay and a sharp learning curve. For example, in the year 2015 the government introduced a new service tax with only a notice of two weeks notice which left the company dangling to cope with the accounting software which was not updated for the change. Though India has opened its borders for international trade for the exporting and importing of goods there are several layers of bureaucracy which makes it inefficient and challenging to move goods. Though the government creates special economic zones like streamlined exporting, setting up market in India is a risk considering the fact that “the ground reality is still an uphill task”. Businesses which operate in India pay up-to 33 tax payments a year . And apart from this headline corporation tax companies also will have to pay sales tax, dividend tax, property tax, fuel tax, vehicle tax, VAT and excise duty. The world bank stated that India’s tax system is so complex that it accounted about 214 on average in the preparation and payment of taxes with the GST( Goods and services tax) being the most complex of them all as the second highest tax rate in the world among 115 countries.
Infrastructure risks :
Business functions and operations are built on the core service of infrastructure. In a country like India which has underdeveloped and insufficient infrastructure which includes poor warehousing facilitates, uneven distribution of electricity, no safety standards etc. There is a potential risk which can have an impact on businesses due to poor amenities, ignorance and corruption.
Economic and political risks :
Foreign investors generally do not have control over the external events in India which affects their investments and plans in the country. The major political and economic risks include quick and unpredictable changes with regard to foreign investment, import and ownership but slow government decisions due to unstable political scenario. International brands will have to face various issues which include :
1)cultural problems, delays or legal disputes due to local partners and suppliers
2)labour unrest and industrial action
3)disruption of normal business due to social and political unrest
4)corruption and bureaucratic inefficiency
5)unexpected delays and cost-overruns due to overlapping governmental jurisdiction
6)fluctuation in interest, inflation and currency rates.
The risks might seem like a big barrier for international clothing brands to begin their businesses in India but these are risks can be overcome with various strategies.