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The Curious Case of McDonald’s in India

By Gyan Prakash

It was in November 2011 that New Delhi tweaked its FDI policies with respect to single-brand retail permitting up to 100% foreign ownership in the sector and hence, doing away with the 51% cap which existed earlier. The GoM thought it would pave the way for investments into the country amidst an ever falling rupee and a constantly depleting foreign reserve both of which stand reversed today. But the events that unfurled in the wake of this change were more dismal than they were salutatory.

Apart from IKEA’s proposal to invest $1.9 billion in India to set up 25 retail stores, the sector remained relatively deserted if we see from FIPB’s perspective. The only big news that circulated in certain sections of media was the spat between Vikram Bakshi, former MD of Connaught Plaza Restaurants Limited (CPRL) and McDonald’s India Private Limited (MIPL). CPRL continues to run 154 outlets under the franchise in north and east India while the matter is sub judice in CLB and London Court of International Arbitration (LCIA). Both sides have already bid to buyout each other’s stake in the 50:50 JV at self-proclaimed valuations.

But what exactly went wrong with this a decade and a half long partnership? The answer lies in the history of MIPL between February, 2011 and August, 2013. On the former date, MIPL exited its other 50:50 JV by selling its stake to Hardcastle Restaurants Private Limited (HRPL). The Indian counterpart still operates the fast-food chain in south and west of the country under a developmental licensee format. Remember, back then in February 2011, it was still the era of tightly capped FDI in single-brand retail. MIPL would have probably thought that it would be able draw more hassle free profits if it shifted to a franchise only set up from a partial ownership model.

But then nine months later, stagnancy gave birth to openness! The much lobbied for cap on FDI was removed in yet another show of economic liberalism of India. After this, close to two years passed without much ado. Some good news also kicked in as IKEA’s proposal was cleared by CCEA. ‘Bad’ was yet to happen! Finally, MIPL served a public notice in late August, 2013 stating that Bakshi had ceased to be the MD of the much celebrated JV. ‘Ugly’ couldn’t wait but follow! The matter was dragged to CLB where it remains sub judice till date. Plausible explanation is that MIPL wanted to up its stake in the JV as it anticipated inflated profits, thanks to FDI reforms.

The take home message for our government is that there need to be sensible laws which prevent smaller firms from hostile takeovers by mammoth, deep-pocketed corporations. Open market economy alone cannot suffice for positivity that we want to infuse in our investors by jeopardizing ourselves. The reforms have to backed by a strong network of monitoring organizations which oversee the implementation of these laws. GOI institutions like TRAI, CCI, SEBI, etc., are doing a good job by regulating their respective domains and their replication in other major realms would be worth a pain.

An entrepreneur at heart, a visionary of an ideal society and passionate about his ideas, Gyan Prakash believes that a radical transformation in the society can be brought about by only those who have the courage to come out of their comfort zone and voice the concern of the indigent. He ascertains that education, as a tool will play a pivotal role in such a paradigm shift. He has a special interest in marketing and has been actively involved in such stints ever since he joined IIT Kharagpur as a student in 2010. Apart from mainstream activities, he is a social activist & loves reading. Drop a mail to start a conversation with him at [email protected]