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October 22, 2006

How one foreign retailer is getting around India's FDI limits - legally

Businessworld has an article describing how Australian retailer Woolworth has structured a partnership with the Tatas that allows it to tap the Indian consumer durables market without having to enter into a local joint venture or franchisee relationship.
Woolworths may not be selling anything directly to Indian consumers, but it will have unhindered access to the Indian market through its partner, Tata group’s Infiniti Retail.

This is how it works. Infiniti will set up Croma, a chain of consumer electronics outlets across India.

...Woolworths, on its part, has set up Woolworths India, a sourcing company in India. This company will source and supply all the consumer electronics that will sit on Croma’s shelves. Croma will buy all its merchandise only from Woolworths India and the latter will not sell its products to any other company. “What we have is two companies working jointly as one unit,” says Roger Corbett, independent consultant and former CEO, Woolworths. It will sell to Infiniti at a fixed profit margin already agreed upon by both parties. That’s Woolworths part of the bargain.

Together, they have created Indian retail’s most innovative business model.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.