Mukesh Ambani-led Reliance Retail is renegotiating its partnership with Chinese fast fashion giant Shein amid the Beijing government’s move to restrict local manufacturers from moving production away from the country, the Economic Times reported. At the heart of Reliance-Shein 2023 deal is to establish India as a global manufacturing hub for Chinese major and create an export platform for Indian MSMEs. The Chinese government’s protectionist move against US President Donald Trump’s 145% reciprocal tariff on Chinese-made goods, has hit the core of the Reliance-Shein deal.
What’s happening?
The trade war between two major economies of the world, i.e. the US and China, has disrupted the global supply chain. To escape the consequences of 145% tariff imposed by the US on Chinese imports, local manufacturers are eyeing to relocate production units to countries with comparatively low tariffs, including India, which has been slapped with a 26% tariff. Shein, too planned to follow this path.
However, the fast fashion giant’s move received opposition from the Chinese government. According to Bloomberg, China’s ministry of commerce has discouraged Shein and other companies from diversifying supply chains by sourcing from other countries. The government’s move is reportedly associated with the fear of job losses that might result due to companies exploring alternate supply chains.
What is likely to happen?
The reconsideration of the Shein-Reliance deal has come at a crucial time when the Chinese fast fashion major has to balance its business interests along with the interests of its government.
“I think there will be checks and balances in terms of holding interest. Chinese companies will obviously try to serve the interests their country and Reliance obviously is here from the perspective of serving Indian businesses’ interests overall,” marketing and branding expert Akshay D’Souza told Outlook Business. The platform will need suppliers; these can be manufacturers who are based in India or China. I believe the Chinese government’s intervention is to have a larger proportion of suppliers from China than India, D’Souza added.
Why is the deal significant?
The partnership marked Shein’s comeback in India after nearly five years of being banned from one of largest fast fashion markets in the world due to troubled geopolitical relations triggered by border escalation between India and China in 2020. On the other hand, Shein’s re-entry in February this year aimed to strengthen Reliance’s online presence by leveraging the Chinese giant’s popularity in the country.
The deal is significant for both Reliance Retail and Shein, as India’s fast fashion market is projected to grow from $10 billion in FY24 to $50 billion by FY31, according to Redseer Strategy Consultants report. Moreover, the availability of labour at a low cost in India and a large young population driving the demand for fast fashion clothing, have made India a desirable country both in terms of manufacturing and as a market.
The trade war might delay Shein’s expansion in the country, but in three-to-six months’ time, tariff influx will settle in.
“Shein was aggressively looking to get small Indian businesses to sell from their platform. So, I feel with current development, things will get slightly delayed, but I do see it will continue to happen,” D’Souza added.