With norms eased, Japan retailers too eyeing India

Written by MG Arun | Vaishnavi Bala | Mumbai | Updated: Oct 2 2012, 04:50am hrs
Cos like 7-Eleven, Lawson cutting China exposure

Its not just Walmart of the US, the UK's Tesco or Carrefour of France that are upbeat on a liberalised Indian multi-brand retail sector. A host of large Japanese retailers are eyeing an entry into Indian retail at a time when Japan is reducing its exposure to China, a one-time favourite, and looking to invest more in destinations like India, Indonesia and Vietnam.

Convenience stores operator 7-Eleven, owned by Japan's top retailer Seven & i Holdings, and Lawson, Japans second-largest convenience store chain, are understood to be scouting for joint venture partners in India, while other large retailers like hypermarket and supermarket player Aeon, electronics chain Yamada Denki and department store operator Isetan Mitsukoshi Holdings are likely to turn their sights on the country soon, sources said.

Japanese firms are looking at opportunities to enter the Indian retail market, now that FDI (foreign direct investment) in multi-brand retail has been allowed, said a person with knowledge of the development. Earlier this month, the government allowed 51% FDI in multi-brand retail, allowing major overseas retailers to open stores in India.

Tensions between China and Japan arose after a dispute regarding islands in the East China sea. Many Japanese companies curtailed operations in China after protesters targeted Japanese production sites and offices.

We are definitely seeing some interest from Japanese players after the FDI relaxation, said Mohit Bahl, partner, transaction services at consulting firm KPMG. Apart from multi-brand ventures with Indian partners, they are also eyeing single-brand retail. He said that chains like 7-Eleven and Lawson are among those keen to enter India. Companies would be looking at entering through a joint venture format, he added.

Seven & i Holdings has been on an expansion drive overseas and in 2012 alone, it said it would buy 129 convenience stores in the US. It clocked revenues of 4,786,344 million yen ($61.37 billion) in FY12.

Lawson, which has its genesis in Ohio but is now a Japanese firm, has been looking at the Indian market for some time now.

In March, the company said it planned to open a training centre in Singapore to develop personnel for its expansion into India. There was also talk about the company tying up with the Future Group to enter the country.

Japan has not been new to investing in India, with its auto companies like Suzuki, Honda, Mitsubishi and Toyota having decades of presence in the country, along with electronics majors like Sony, Sharp and Panasonic. Its investments look a giant leap with pharma company Daiichi Sankyo acquiring Ranbaxy Laboratories in 2008, followed by the entry of logistics firms like Nippon Express, Mitsubishi Logistics and Hitachi Transport System.

The proposed $90-billion Delhi-Mumbai Industrial Corridor, to be built with financial and technical aid from Japan, is a showcase project for its investments in India.

Japanese companies, however, are likely to be cautious in their retail entry, given the political rhetoric around FDI in retail. Companies would like to wait and watch before they invest, said Seiji Ota, a partner with BMR Associates. They may be a bit cautious about the conditions set forth, but like in the case of single-brand retail, there could be further easing. For multi-brand retail, the government has set a mandatory 50% FDI allocation in back-end infrastructure and compulsory 30% procurement from small and medium enterprises. However, although the government had stipulated earlier that 30% be sourced from SMEs in single-brand retail, this provision was later dropped.