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Posted: Tuesday, Jun 26 2007. 3:00 PM

Starbucks' Proposal to Open Coffee Shops not approved

Starbucks Corp., Seattle-based largest coffee shop chain in the world, will have to file a revised proposal seeking government's approval to set up retail stores, a government official said. This will delay the expected launch by December once again.

“Starbucks has told us that they will file a fresh proposal after we asked for some clarifications on the investment pattern of the company," Ajay Dua, secretary in the department of industrial policy and promotion told delWine.

The company's application to set up outlets in India has been rejected by the government, according to a news report by CNBC-TV 18. However, Dua said the application had not been rejected. "We merely pointed out that the investment pattern of the company doesn't comply with foreign direct investment rules."

India's investment board had earlier this year questioned the shareholding of V.P. Sharma, head of the U.S. Company’s Indonesian franchisee, in the proposed Indian venture with Kishore Biyani, CEO and part owner of retailer Pantaloon Retail India Ltd.
Obviously the government wants the world’s biggest chain of coffee shops to enter India through the FDI route, instead of the franchisee arrangement proposed by Biyani and Sharma. New Horizons Retail, the joint venture floated for bringing Starbucks to India, has been asked to revise its application to the Foreign Investment Promotion Board (FIPB) for the second time.
Last week, FIPB discussed a proposal to plug loopholes that allow foreign companies to flout the conditions attached to 51% FDI in single-brand retail. FDI is not allowed in multi-brand retail, but foreign brands can enter the Indian market through franchisee arrangements.

Expansion planned in India is part of the company's long- term goal of tripling stores to 40,000 worldwide. Starbucks had planned to open its first stores in India by this summer. As reported by delWine in an earlier issue they had changed plans to postpone the launch to December due to delay in government approvals.
This target date may now have to be extended further because of the latest development.

Resource: Bloomberg News, ET


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