It's not just Swedish furniture maker Ikea that is upset at India's 30 per cent local sourcing clause for single brand retailers wishing to set up shop here. Swiss watch companies are recoiling as well.
“It's not going to be a Swiss watch if components are sourced from here,” says a hassled international watchmaker keen to set up operations in India. Companies in the watch industry note that the clause will kill their ‘Swiss made' brand appeal.
Mr Debraj Sengupta, Country Head, Swiss Army Watches, Victorinox India, noted, “None of the foreign brands have shown interest in single brand retail as it is not lucrative. The brand has to be Swiss made. It cannot be made in India”.
Japanese and Swiss watch companies who rely heavily on fine technology also point out that India has yet to catch up with fine craftsmanship needed for the watch industry.
Mr Niladri Majumder, Head Sales and Marketing, Seiko India said, “Some high-end watches need as many as 450 different parts and even within Seiko there are only nine master craftsman who can produce such watches. It is difficult to find technicians who are trained extensively in such fine skills,” he points.
Seiko is currently present in India through a franchise arrangement, and has said that it will continue with this model. It says the move to source from the local market may pose problems for many luxury brands. “We are still evaluating the option and may not set up a manufacturing base in near term,” Mr Majumder said.
Key clause
Last month, the Department of Industries and Policy and Promotion had removed restrictions on foreign investment in single-brand retail. But it was mandatory for foreign firms to source 30 per cent of their requirements from small and medium enterprises.
Mr Raja Sekhar, CFO, Ethos Swiss Watch Studios said, “The stipulation - that a minimum of 30 per cent of the sourcing is to be done from Indian small scale industry — will not kill any brand, it is just that the brands might not opt for increasing their holdings beyond 50 per cent in Indian operations if they do not find suitable sourcing opportunities here. In effect, this will maintain the status quo.”
World Wealth Report 2011 states that in India all high net-worth individuals have a tendency to spend on customised luxury, while 98 per cent spend on expensive watches followed by jewellery and precious stones (at 90 per cent).