India sourcing: From hurdle to ambition

From a business hurdle to a compelling goal, from a mandatory condition to a self-driven ambition, from the need to power micro, small and medium enterprises (MSMEs) to a so-called job-creating engine: Sourcing of goods from India has gone through many shifts and transitions for most stakeholders. If marquee global brands found it tough to do business in India because of the stiff sourcing rules some 10 years ago, many of them are now counting sourcing of Indian goods and exporting them to multiple countries as their key deliverable. From mandating 30 per cent sourcing of Indian products from day one for any company with more than 51 per cent foreign direct investment (FDI), the government’s ask is now compliance within five years of setting up single-brand retail business. While the stated government objective earlier was to ensure growth of micro and small businesses through the mandatory sourcing norms, the focus has now shifted to employment and income generation across the ecosystem.

 
What really changed in a decade that sourcing and exports became the primary narrative for Walmart Inc, when its chief executive Doug McMillon came visiting early May? Whether it was his meeting with Prime Minister Narendra Modi or interactions with Walmart partners in India, $10 billion was the signature number that stayed on. The CEO of the world’s largest retail chain reiterated the company’s belief that it could meet $10 billion worth of export annually from India by 2027, up from about $3 billion now. Contrast it with what happened exactly 10 years ago. Back in 2013, Walmart and the Bharti group had broken their joint venture as the mandatory 30 per cent sourcing norm for their expected multi-brand retail foray was one of the conditions that just got too tough to comply with. Even as 51 per cent FDI in multi-brand retail was allowed by the United Progressive Alliance (UPA) government, Walmart let the opportunity pass by breaking the JV and deciding to be on its own in cash-and-carry business. Now, sourcing from India is not mandatory for Walmart either as a cash-and-carry business or an online marketplace through Flipkart, which the Bentonville-based chain had acquired in 2018. Yet, Mr McMillon listed Flipkart, PhonePe, sourcing and technology as the key focus areas for Walmart in India in his media interviews during his recent visit. Cash-and-carry business was not on the list, by the way.

 
Seattle-based e-commerce firm Amazon is also stepping up its sourcing target from India. Again, it doesn’t need to comply with any mandatory condition in this area, but it is deepening its sourcing in India through a scheme called Amazon Global Selling in India. During his 2020 visit, Amazon founder Jeff Bezos had promised cumulative export of made-in-India goods worth $10 billion by 2025. Last year, the target was raised to $20 billion in the same timeline.
 

As for Apple, another multinational that struggled in entering the Indian retail market for years over sourcing norms, recently opened two stores in the country. The conditions for FDI in single-brand retail were tweaked to include manufacturing as part of the 30 per cent mandatory sourcing, enabling the entry of Apple stores. Till the rules were tweaked, the question that always came up was: What component can Apple source from India? As a multinational, Apple is now at the forefront of manufacturing through its multiple contract manufacturers. Even Indian conglomerates such as the Tata group have joined the Apple manufacturing ecosystem, capturing the turnaround sourcing story. Even as Apple CEO Tim Cook was in India to open the company’s first two India stores earlier this year, he went from one state to another discussing alliances for manufacturing hubs.

 
Swedish furnishing major Ikea, which almost had to drop the idea of opening stores in India more than 10 years ago due to what it described as tough single-brand retail conditions, including the mandatory sourcing norms, is not talking about those hurdles now. Ikea has been sourcing products from India for over two decades and now has stores in Hyderabad, Bengaluru and Mumbai. On sourcing from India, the company says it has doubled the volume in the last three years. The numbers have not been disclosed. Ikea talks about expanding exports to 29 global markets, including supply to all its stores in India. According to Marius Martinaitis, Ikea’s managing director, purchasing and logistics area, South Asia, global and local sourcing from India has provided its supply partners the opportunity to enter the global value chain and resulted in economic, social, people and environmental growth in the region.

 
If home furnishing accessories such as bed and bath textiles have been the biggest growth segment for Ikea in terms of sourcing recently, other categories are also seeing a pick-up. Walmart, for example, is looking at sourcing toys, bicycles, supplements and even some exotic fish, beyond the usual categories — apparel, homeware, jewellery, etc. Japanese sportswear firm ASICS is looking at India as a sourcing hub ahead of setting up stores in the country. Even Beijing-based Xiaomi is exploring India sourcing and has recently entered a tie-up with an Indian manufacturer for an audio product, according to reports. Seoul-based and Delaware-incorporated South Korean e-commerce major Coupang is also considering India as a sourcing hub. It has begun its India sourcing journey with mangoes and is believed to be looking at other categories, too. Coupang, which doesn’t have any retail ambition in India, has its attention focused on growing the consumer-facing retail business locally in South Korea.

 
It appears that the ‘Make in India’ campaign, along with the production-linked incentive scheme, played a role in energising the sourcing movement in the country. The easing of the mandatory sourcing conditions of course was an enabler for brands like Apple and Ikea. But it’s still only a small beginning and, to become a top sourcing destination, India must build on its supply chain logistics and fill the wide infrastructure gaps.