UK retailer Tesco is to enter the Indian market, five years after many of its biggest rivals, in a joint venture with local partner Tata.

Tesco’s slow move into the Indian subcontinent may be, in part, due to strict foreign investment rules which do not allow overseas supermarket chains to operate as retailers, resulting in many big retail chains, including Wal-Mart and Carrefour, forming strategic alliances with local partners in order to operate as wholesalers.

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Tesco will invest $120m in building three wholesale outlets – the first of which will be launched in Mumbai next year – and sell its hypermarket expertise to Tata, which will act as a retailer for Tesco’s products.

Tesco already employs 3000 Indian employees at its service centre in Bangalore. The new agreement is expected to generate additional local employment, according to Tesco’s international director Philip Clarke.

“We believe the only way to be tuned in to the needs of the market we serve is to recruit local talent. Tesco has already invested $4.3m in setting up a campus which provides IT, financial and business services to the entire Tesco Group,” he said.

While Tesco has significant services operations in India, the government only allows 100% ownership of retail stores when companies solely sell products under their own name, such as Marks & Spencer and Gucci.

Tesco is the last of its rivals to enter the Indian market. A McKinsey report issued in September estimated that India would become a $450bn retail market by 2015, compared with the Indian government’s current estimate of $322bn, and that organised retail would increase its market share from 5% to between 14% and 18%.

The firm’s global expansion strategy has been measured compared with its competition and the retailer has made the decision not to follow rivals Auchan, Metro and Wal-Mart into the Russian market. Instead Tesco is focusing on expansion into India, China and the US.

But despite selecting relatively safe business environments, international expansion still carries risks. Tesco’s rapidly expanding US Fresh & Easy grocery business is facing a formal call for union recognition from its workforce, following organising efforts by the United Food and Commercial Workers, the largest US grocery union.