Mumbai: India and Italy share a certain luxury aesthetic, insists Armando Branchini, executive director of the Fondazione Altagamma, and it is all the more reason why it is the spirit of free enterprise in India that needs to be protected. Fondazione Altagamma, is a consortium of over 70 Italian luxury brands.
Branchini is also a professor in the department of management and technology at the University of Bocconi and president of the European Cultural and Creative Industries Alliance.
With an enthusiastic love for all Indian things, Branchini has been one of the keenest promoters of Italian investment in India and also one of the most vocal critics of Indian import duties and of its policies on foreign direct investment (FDI). He spoke in an interview on why he doesn’t think 100% FDI in single-brand retail is all that it claims to be. Edited excerpts:
You have been critical of the government’s policies on foreign investment in retail. Please explain why you don’t think it is all it is made out to be.
Quantum leap: Branchini says entrepreneurs in India have to be more confident instead of asking the government for protection. Photo: Saanskrut Kumar/Mint
First of all, the tariff barriers in this country are incredibly high. They are at least three times the custom duties in Europe and at least two times higher than the custom duties in the People’s Republic of China. The FDI regulation also impacts us but not as much as the high level of custom duties. When your government set up in February 2006 the famous 51-49% scheme, it gave the opportunity on one side for a number of international brands to enter and set up in the Indian market. On the other side, it gave Indian retailers the confidence to create the first luxury shopping malls in Bangalore, Delhi and Mumbai.
Armando Branchini says he doesn’t think much of the government’s policy of 100% FDI in retail.
To my knowledge, there is just one other market in which we have the same situation and this is the Gulf area: Dubai, Abu Dhabi and Kuwait, but frankly speaking, the situation there is much more balanced because of their custom duty conditions.
If 30% of what is retailed in luxury has to be made by cottage industries and local craftsmen in India, it will be impossible for luxury goods. I make the example of 10 Rolex watches: seven are Swiss made and three are made in India; do you think your compatriots will buy the three made in India? Of 10 Ferrari cars, if three are made in cottage industries in India and the remaining in Italy, will your compatriots like to pay the same price for the Indian-made car as for a Ferrari car made in the original plant in Italy? I do not believe that is possible. I am joking of course with these examples, but these new regulations in FDI are a joke in the perspective of the luxury goods industry.
Is that particularly because the demands of the luxury segment are different from the needs of the rest of the retail market?
Absolutely. Take any luxury product, designed or manufactured in Italy or the UK or the US, or in India: they are not just beautiful products or superior quality products. They embody values that are strongly related to the local culture and also the relationship with the territory. An (Indian) luxury product to be successful in India and outside India, has to have a strong Indian DNA, so also for whatever luxury product of whatever different nationality.
But there is another point; the reason why we would love to have a situation of free and fair enterprise with regulations of an acceptable level and not these crazy ones, and why we insist single branded retailing is mandatory for luxury is because a flagship store is not just a way of displaying or selling a product. It represents a culture, a philosophy, a heritage, a DNA of a brand and a product line. So we need to be in a position of providing not only a shopping experience, but also a lifestyle experience. It is impossible for luxury brands to move to change the business model to multi-brand to fit into these markets.
Fondazione Altagamma itself is a collective, a consortium, which is a trade culture that is very strong in Italian luxury segments from food and wine to luxury retail. In a sense you are protecting local expertise and produce. Would you count the government’s move to provide 30% protectionism, as it were, as a similar effort?
What I can say is that it is true in food and fine beverages we have a very strong presence of local consortia and these have been very effective in two main areas: first they check and guarantee quality and secondly, they promote collectively mainly abroad. But none of these consortia have been created by the government. They have been created by private entrepreneurs. I believe that in this country everybody is asking the government to solve the problem that has to be solved by private entrepreneurs. If we don’t make this quantum leap, this paradigm shift, free enterprise in this country will suffer and suffer.
If the private sector is asking the public sector to govern it, your country is at risk. It is a sort of socialist culture which is probably difficult for the political institution to deal with. Whereas in China, they have been very successful at integrating a former communist politic with a capitalistic approach. Probably in your country, which I love and have been a fan of for a long time, I believe the entrepreneurial spirit and the big resource you have, have to be freed. Your entrepreneurs have to be more confident instead of asking the government for protection.
In a sense, is what we are seeing here a kind of clash of the European approach to luxury with that of the Indian notion of luxury? Are the definitions different?
No. I don’t think so. If we refer to the past and compare: the definition of luxury of the Renaissance in the 16th and 17th century in Italy are similar to those of that in India: of very precious textiles, china, glasses, tableware, silverware, jewels and also the way of living, the decoration, the architecture. There are so many commonalities between India and Italy in particular. I believe that one in particular is art and heritage, the second is the very important role of community and society. Both Indians and Italians like to live together. These pleasures of living together, eating together, fine dining together, the sense of community: I believe they are very similar.