Private labels offer Indian MSMEs an export pathway
Let’s set policy for small firms to succeed as label suppliers as digital trends open up vast opportunities
PremiumIndia’s strategic focus on linking Micro, Small and Medium Enterprises (MSMEs) to global value chains, as highlighted at G20 meetings and through our Foreign Trade Policy, 2023, is undeniably a step in the right direction. The MSME sector is one of our largest employers, accounting for 29.2% of GDP and 36.2% of manufacturing output in 2021-22. However, the share of MSMEs in our exports has declined from 49.4% in 2020-21 to 43.6% in 2022-23. While the Indian economy is on a fast-growth trajectory, considering the global economic outlook, MSME exports are going through a tough time.
In this uncertain global scenario, the role of MSMEs as drivers of India’s growth and employment cannot be undermined. To enhance their output, enable exports and bolster their overall contribution to India’s economy, multiple steps can be taken. For example, while many MSMEs operate as contract manufacturers at present, sourcing by private labels from India has space for growth. India is under-represented globally and such exports can be increased through policy support. A private label product is one that a retailer or e-commerce company can get manufactured by a third party (usually an MSME) to sell under its own store brand name. The private label market in India is on the rise, driven by the emergence of organized retail formats, both physical stores and online platforms. This growth is fuelled by consumer preferences for distinctive, high-quality products at affordable prices. With the rise in disposable incomes and consumer aspirations, users of unbranded products are shifting to branded versions. This offers an opportunity for companies to launch private labels as affordable alternatives to dearer branded equivalents. Shoppers Stop, Reliance Retail, Spencer’s, Ajio, Amazon, Big Basket, Nykaa, Flipkart, Pepperfry and Tata CliQ et al have effectively used their stores or web platforms to expand their private label offerings, giving consumers greater choice. Private labels have flourished across categories from food and apparel to cosmetics. By one estimate, the share of private labels in the Indian online beauty and personal care market, for example, has increased to over 12% this year. This trend is not only changing consumer shopping habits but also offering a lifeline to MSMEs, helping them overcome challenges like achieving brand appeal and reaching customers in today’s competitive business landscape.
Private labels also play a crucial role in empowering MSMEs as they help increase their revenue. Collaborating with private labels allows MSMEs to reduce dependency on a single product line or a limited customer base, thereby gaining financial stability. Private labels enable small enterprises to reduce marketing costs by leveraging the retailer’s established channels and customer base, fostering domestic and global expansion, resource-efficient growth and innovation. By making private label products, small businesses can tap the established supply chains of large retailers with wide market reach to maximize their production. They also face reduced competition if they secure exclusive supply deals. All this affords MSMEs revenue stability and helps them secure finances. On a global scale, involving export orders, all this helps in improving global competitiveness. At a country level, it contributes to enhancing India’s reputation as a manufacturing and sourcing hub for global brands.
While this pathway offers numerous benefits, some concerns arise related to consumer protection from fake and deceptive reviews of private-label products online. There is no specific law regulating private labels in India, but they are covered under various regulations. Labelling rules and norms for private labels in India, for example, could be covered under the Legal Metrology Act.
While there is a need for our e-commerce rulebook to provide clarity on the roles and responsibilities of sellers and marketplaces, any rigid clauses that restrict companies from selling their own private label products could stifle the growth of MSMEs using e-commerce platforms. Hence, adopting a prudent approach to regulating private label sales on e-commerce platforms is of paramount importance. First, we need to pinpoint and address gaps in existing regulations, including those related to the Consumer Protection (E-Commerce) Rules, 2020, unfair trade practices, and dispute resolution mechanisms. These overlapping regulations not only hinder business ease, but also impede the integration of MSMEs into global value chains through e-commerce platforms. A well-designed, transparent regulation will benefit all stakeholders—companies, MSME suppliers and consumers. Such a regulatory framework should prioritize transparency, clarity, competition, non-discrimination and a level playing field between store and non-store formats, which would help expand the reach of Indian MSMEs in both domestic and global markets eventually.
To meet current demand, it is imperative for the government and companies to forge partnerships and collaborations aimed at onboarding a greater number of MSMEs onto e-commerce platforms, aligning this effort with a core G20 objective and India’s Foreign Trade Policy 2023. This will not only enhance their presence in the domestic market, but also strengthen their integration into global value chains. A limited view will stymie efforts to increase exports and we must explore all opportunities that the world offers our MSME manufacturers.
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