To comply with FDI norms, Pavers transfers brand to Mauritius JV

British footwear company Pavers England has complied with an Indian government condition to operate a single-brand retail chain with 100% foreign investment.

The premium shoe company, with around 100 stores in the UK and Ireland, has registered anew its intellectual property to comply with local rules that require a firm applying for a venture with 100% overseas investment to be the owner of the brand, including its trademark.

When Pavers entered the Indian market in 2007 through Mauritius-based Pavers Foresight Smart Ventures Ltd, its $60 million (around Rs.330 crore today) 50:50 venture with the Foresight Group UK, the Pavers brand was registered under and owned by Pavers England Ltd in India.

However, the application earlier this year to the department of industrial policy and promotion (DIPP) for a fully foreign-owned chain of stores was made by the Mauritius-based firm.

“The company has now transferred the brand name to the Mauritius-based company Pavers Foresight Smart Ventures Ltd that has been making investments in the Indian market,” said a person familiar with the matter, who declined to be named.

In India, Pavers has 25 exclusive stores operating through a master franchisee and 65 concession stores.

After the brand registration, the company filed fresh papers with DIPP two weeks ago and is awaiting its response, said the person cited above. The DIPP said in an emailed response to a query from Mint that it hadn’t received “any formal communication from Pavers as yet”.

Retail industry experts say the clause requiring the investor company to also own the brand is limiting plans of global retail brands keen to set up shop in India.

For instance, in June, DIPP rejected a proposal by Dutch firm Zara Holding BV on similar grounds, according to a PTI report. Zara had sought to set up a venture with 51% foreign equity participation for single-brand retail for its apparel brand Massimo Dutti, owned by one of its units.

Most international firms are structured in a fashion where their intellectual property is held by a separate firm while operations are conducted by various holding firms in different countries.

A retail sector analyst at a consulting market research firm said the clause was perhaps included to ensure international quality standards of a product.

“The issue is that many international brands from the US and Europe are marketed through their dealers and distributors in the Asia-Pacific region,” the person said on condition of anonymity, adding that the clause would require companies to alter their global business model to operate in India.

Pavers already claims to be fulfilling a condition to source 30% of the value of products from India. It is seeking to invest an additional $20 million in the Indian market.

The brand ownership clause in the policy is aimed at ensuring transparency, according to Pallavi Shroff, senior partner at law firm Amarchand Mangaldas.

“It is better when the brand owner invests in a country rather than a master franchisee,” Shroff said. “It enables the brand owner to better protect its brand.”

So far the change in foreign direct investment policy to allow 100% overseas funding in single-brand retail has elicited a feeble response from investors due to lack of sufficient clarity and restrictive clauses. According to the retail analyst cited above, so far DIPP has received only two applications for single-brand retail, from Swedish furniture maker IKEA, and Pavers.

With IKEA, the 30% local sourcing norm is the bone of contention between the furniture maker and the commerce ministry.

The government has so far said it will not ease the sourcing

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