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Re-entry of Shein in India by partnering with Reliance – A Legal Analysis

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Mitakshara Kapoor
Shein Re-Entry
Noriko Hayashi/Bloomberg/Getty Images/File

With the aid of a strategic partnership with Reliance Retail, Shein, a Chinese online fast fashion retailer, is re-entering the Indian market after a three-year ban. Reliance Industries, a privately held Indian conglomerate with operations in several sectors including energy, petrochemicals, natural gas, and retail, owns Reliance Retail. Through their agreement, Shein and Reliance Retail will be able to utilize one other’s warehousing, logistics, and sourcing resources to grow their respective businesses in India.

Following a rise in tension on the Himalayan borders with China, 59 applications with ties to China were banned in India in June 2020[1] To ensure data isolation and security within India, the Reliance-Shein items will henceforth only be offered through a specific Indian app. Without any set payments to the Chinese company, payments made to the entity will only come from the profits made by the Indian company.

Businessman Chris Xu launched Shein in Nanjing, China, in October 2008. By 2022, it will be the largest fashion shop in the world. After a funding round in April 2022, it was valued at $100 billion and delivered to more than 150 nations. Its current headquarters are in Singapore, and the business is currently gearing up for an IPO expected for the second half of 2023.

Dhirubhai Ambani established Reliance Industries in 1966 as a polyester business. The company gradually expanded into the financial services, oil refining, power sector, and other industries. With numerous subsidiaries, including Reliance Retail, the corporation has expanded into a U$60 billion conglomerate. The Chinese company is expected to utilize the conglomerate’s network of warehouses and stores since Reliance Retail has a presence across India through both offline and online stores.

A strategic partnership between Shein-Reliance Retail is facilitating Shein’s return to India and enabling it to leverage Reliance Retail’s sourcing expertise, warehousing, and logistical infrastructure to grow its company in India. Additionally, the alliance will guarantee data security and isolation within India.

Why did Shein exit India?

Shein
Christophe Archambault / Agence France-Presse / GettyImages

The Indian government banned Shein, a Chinese online fashion retailer, along with 58 other Chinese apps in June 2020. The restriction was implemented during a border conflict between China and India in the middle of 2020 as their bilateral ties deteriorated. The prohibition was instituted due to privacy and data security concerns, according to the Indian government. The app was prohibited because it was determined that she posed a threat to national security.

Although the app was prohibited in India, its products were not. The Indian government had informed the Delhi High Court that the IT Act did not permit the issuance of a general injunction prohibiting the sale of its products on independent platforms.[2] In 2021, its goods were still offered on Amazon’s Indian marketplace.[3]

In 2020, Shein was outlawed in India because of privacy and data security concerns, and its app was prohibited for endangering difficulties with national security.

However, it will now make a reappearance in India in collaboration with Reliance Retail, one of the biggest retailers in the nation. The Chinese company does not intend to invest any equity in an Indian company, hence the collaboration does not entail any foreign direct investment (FDI). To ensure data isolation and security inside of India, Shein’s Indian app will be independent of its worldwide counterpart. Payments to Shein will not have a set, predetermined amount and will only come from the Indian company’s revenues.[4]

The Shein-Reliance Partnership

Shein, a major fast-fashion brand, and Reliance Retail, India’s top retailer, have partnered to strengthen Reliance’s dominance in the country’s fashion sector and allow Shein to re-enter the Indian market after being barred in 2020. This collaboration has been approved by the Indian government.

Purpose and Objectives

  • Market Penetration: With a significant population and rising spending power, India’s consumer apparel market is expanding, and the alliance presents Shein with a tempting opportunity to enter it.
  • Profit Sharing: Reliance would provide the Chinese Company with a cut of future sales revenues in exchange for helping Shein expand its manufacturing in India for export markets.
  • Sourcing and Manufacturing: To obtain fabrics for its domestic and international manufacturing operations, the Chinese company is likely to work with small enterprises in India. By broadening its supply chain from its current 93% sourcing from China, the collaboration will allow Shein to shift 25% of its sourcing to India.[5]
  • E-commerce Platform: The two businesses will work together to create a local e-commerce retail platform that will only serve Indian clients and sell Shein-branded goods. As part of the arrangement, Reliance Retail will make use of Shein’s technologies and trademarks.
  • Warehousing and Logistics: The Chinese Company will profit from Reliance Retail’s warehousing facilities, logistics network, and sourcing expertise.
  • Offline Sales: Products from Shein will be sold by Reliance Retail both physically and online through its e-commerce app Ajio.
  • Catering to Younger Consumers: Reliance will be able to serve younger customers at lower price points thanks to its partnership with Shein, which is essential for luring customers who are shopping online for the first time in India.

The Shein-Reliance partnership has a lot of potential for both sides, meeting market demands and opportunities while overcoming several obstacles.

Legal Analysis of Shein’s Re-Entry

Fashion Industry

Examination of the regulatory framework for E-commerce in India

Indian e-commerce is governed by several laws and rules. There are not any specific e-commerce regulations in India, though. Instead, multiple ministries and divisions within the Indian government handle various facets of online trade.

Legal and Regulatory Environment

India’s rules governing the use of customer data and consumer privacy are unclear and vague. These issues are addressed by the Indian Contracts Act of 1872 and the Information Technology Act of 2000, and the Indian Parliament is currently debating a legal framework for the digital ecosystem that may address personal data privacy. The Indian government unveiled a drafted national e-commerce policy in 2019 to control the industry. Cross-border data flows, intellectual property, and competitiveness are the main topics of the policy.[6]

Foreign Direct Investment (FDI) Policy

According to the FDI policy outlined in the “Consolidated FDI Policy Circular 2015” (FDI Policy), business-to-business (B2B) e-commerce laws permit FDI up to 100% via the automatic route. E-commerce that is business-to-consumer (B2C) is not allowed to accept FDI. However, in certain instances, such as when a manufacturer is allowed to sell its goods made in India through e-commerce retail, FDI in B2C e-commerce is allowed.[7]

Recent Developments

Additional changes to the Consumer Protection (E-Commerce) Rules were proposed by the Indian Ministry of Consumer Affairs, Food, and Public Distribution in June 2021. These changes included changing the definition of an e-commerce entity, requiring e-commerce entity registration, creating a grievance redressal mechanism, outlawing flash sales, and preventing affiliate entities from being listed as sellers.[8]

Multiple rules and regulations control various areas of e-commerce even though India lacks specific e-commerce laws. The Indian government has announced a new national e-commerce policy and suggested changes to the Consumer Protection (E-Commerce) Rules, 2020 as part of its efforts to regulate the industry.

Analysis of the legal implications and challenges faced by Shein’s re-entry

The Chinese Company would have to adhere to several legal requirements and obstacles to re-enter a foreign market. These cover consumer protection and product safety legislation, data protection and privacy laws, intellectual property rights, and foreign direct investment (FDI) restrictions.

Shein’s collaboration with Reliance Retail Ventures Ltd. in India would not require FDI approval since it will not own ownership in the new operations. It would require approval under Press Note 3 for investment, though.[9]

The Chinese Online Fast-Fashion Retailer has a privacy policy that describes how it gathers, uses, shares, and processes personal data following data protection and privacy regulations. The policy also outlines the steps users can take to access, update, transfer, and delete their personal data. Children under the age of 16 or minors are not intended for Shein’s website, and the company does not purposefully gather personal information from them.[10]

Shein has been accused of violating intellectual property rights, including theft of designs and copyright infringement.[11] It includes a platform for filing complaints about intellectual property breaches.

Due to the presence of harmful chemicals in several of its products, Shein has been charged with breaking EU laws about consumer protection and product safety. Shein has also been accused of using illegal labor practices in its suppliers’ and companies’ facilities.[12] The Chinese company has replied to these claims by noting that it “very seriously” considers product safety and that its suppliers are required to adhere to the controls and standards it has set up.[13]

Finally, Shein’s re-entry into a foreign market would necessitate adhering to certain legal requirements and obstacles. It must make sure that it abides by all applicable laws and rules to stay out of trouble and keep a good name.

Competition in the Indian E-Commerce Market

Competition Laws

Three years after it was outlawed in India, the Chinese online fast fashion retailer is preparing to re-enter the country. To enter the Indian market, the business has teamed up with Reliance Retail, a division of Mukesh Ambani’s Reliance Industries.[14] As part of a larger collaboration agreement with Reliance Retail, the Chinese Company is set to get its fabrics from India for its global as well as local production activities. The partnership will cover sourcing, manufacturing, and retailing.[15]

Impact of Shein Re-Entry on the Competitive Landscape

The competitive environment of the e-commerce business is anticipated to be significantly affected by Shein’s re-entry into the Indian market. The company has garnered a sizable following among the younger generation and is well known for its stylish and reasonably priced apparel options for ladies.[16] Existing e-commerce players, particularly those in the fashion and apparel sector, may be threatened by its reappearance. Shein’s cooperation with Reliance Retail offers the Chinese the chance to benefit from its warehousing resources, transportation network, and sourcing expertise.[17]

Potential Consequences for Existing E-commerce Players

Shein might put existing e-commerce competitors in the fashion and apparel sector under more pressure. Shein’s re-entry, however, might also cause a spike in consumer demand for quick fashion goods, which would be advantageous for other market participants. By 2023, the Indian e-commerce market is expected to surpass that of Canada, with forecast revenues of US$71,292.1 million. By 2027, a market volume of US$119,967.0 million is predicted, with revenue forecast to rise at a 13.9% compound annual growth rate (CAGR 2023–2027).[18]

The competitive environment is anticipated to be significantly affected by the Chinese re-entry into the Indian e-commerce business, particularly in the fashion and apparel sector. However, it can also result in a spike in demand for quick fashion goods, which might be advantageous to other market participants. The e-commerce market in India is expected to rise, and Shein’s collaboration with Reliance Retail offers both businesses the chance to leverage each other’s advantages and increase their market share.

Conclusion

Finally, Shein’s re-entry into the Indian market through a strategic partnership with Reliance Retail offers both businesses a lot of potential. The Chinese Company can take advantage of Reliance Retail’s infrastructure and sourcing expertise to grow its business in India, while Reliance Retail can expand its fashion selection and attract more customers. However, we need to resolve some issues, including adhering to regulatory requirements and facing competition from current players. Overall, the cooperation has the potential to support the expansion of India’s e-commerce and fashion sectors.