walmart case study india

A Detailed Case Study on Largest Retail Giant Walmart

Avinash kumar mahato

Walmart is one of the largest retail companies in the world. It was founded in 1962 by Sam Walton. The headquarter of this company is situated in the United States. The main aim of the company is to provide consistent discounts, loyal customer service, and fast friendly service.

Walmart’s targets to expand its business in large cities as well as spread retail stores throughout the world. The retail stores of Walmart are divided into four divisions Walmart Supercenters , Discount Stores, Neighborhood Markets, and Sam’s Clubs warehouses. More than 100 million customers are visiting these Walmart Stores.

It is very uncomfortable for small merchants and communities in America. Walmart reaches their town and provides low-cost offers and the best customer service. It is a very bad condition for small merchants and businessmen in America. To downtown merchants, Walmart just comes and takes over all the small stores.

The purchasing power, aggressive marketing and provide low prices to the customer by Walmart, tend to pull out the business by the small merchants. Gradually the dream of Walmart company to become the largest retailer in the world is full filing day-by-day. But, they increase their business by the wrong actions and do not respect the culture or language of the communities.

Timeline Events Of Walmart company Business Model Of Walmart How Walmart Generates Revenue? Walmart’s Marketing Strategy Walmart’s - Flipkart Acquisition

Timeline Events Of Walmart company

The Timeline of events for Walmart company since its inception.

• 1960: Sam Walton opened his first discount store in Rogers, Arkansas.
• 1981: Walmart become the largest company in America .
• 1981: After becoming the largest company in America, they opened their stores in a small Louisiana town.
• 1983: Walmart opened its stores in Pawhuska and Oklahoma.
• 1986: Walmart claims that it can restore more than 4000 jobs to American Communities.
• 1989: They drive a campaign about Environmental awareness that Walmart is aware of land, water, and air.
• 1990: There are some activist groups against the expansion of Walmart’s store.
• 31st December 1990: Walmart’s closed its stores in  Louisiana.
• 5th November 1991: Walmart opened up its store in Lowa City.
• 6th October 1998: Walmart’s founder Sam Walton created a family charity named Walton Family Charitable Support Foundation.
• June 1999: Walmart takes over the ASDA Chain (a British supermarket chain), now they have stores and depots across the United States.
• 2001: Walmart becomes the world’s largest retailer, got huge sales of $191 billion.
• July 2003: Walmart opened its stores in Beijing and till now they have 22 stores in China and counting.
• 2006: Walmart closed its stores in Germany.
• July 2007: Walmart is operating more than 2500 retail units in Walmart International and more than 500,000 employers in some countries.
• 2007: By the ending of this year, they got a net $45 billion sales.
• 2008: Walmart’s opened its wholesale facility in India. This is the first step of Walmart's to sell products through its retail outlets in India.
• 2018: Walmart acquired Flipkart for $16 billion and owned 77% stake in India’s largest online retailer brand.

Business Model Of Walmart

There are different business models that are followed by successful companies which vary from time to time. The business model of Walmart is based to eliminate the middleman from the distribution channels. The advantage of removing the middleman is to provide benefit to the consumer by providing products at lower costs. The main motive of Walmart's business strategy company is to enter every segment of the market and dominate the market by providing products at a lower price.

The main marketing strategy of the company is based on leading on price, be competitive, and deliver a great experience by the motto of Everyday Lower price.

Walmart has three important segments.

Walmart U.S

Walmart U.S is operated in the U.S. They provide customers with products and services that are not present physically in stores. They provide their services via the website and mobile application . The website of Walmart company has a special feature that provides a third party to sell products. The company operates its business on various platforms like supermarkets, discount stores, neighborhood markets, and e-commerce websites .

Walmart International

Walmart International is also divided into three sections which are retailers, wholesalers, and other small projects. These sections are also divided into various sections such as supermarkets, warehouses, electronics, apparel stores , drug stores, digital retailers, and many more.

It is the online platform of Walmart’s company i.e., “ samsclub.com ”. This club is consists of memberships of the only warehouse retailer operations. This section includes warehouse clubs in the U.S, as well as samsclub.com.

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How Walmart Generates Revenue?

The Revenue Model of Walmart deals with the principle of buying in bulk in one go. In this system, they got a huge discount from the manufacturers. They sell in small quantities at low prices. By reducing the price they have high sales volume through which they have high earning.

Walmart’s generate its revenue by removing the middleman and selling their product directly to the customers and services to business. The two main sources of revenue are Product revenue and Service revenue .

Walmart's revenue in the fiscal year ending January, 2020 was $524 Billion.

Product Revenue

Walmart has a wide range of products in various categories:-

• In the grocery category, they have products like Daily needs products, dairy products, frozen foods, bakery, baby products, beauty aids, and many more.
• Health and wellness category have products like Pharmacy products and clinical services .
• The entertainment category has products like electronics products, toys, cameras, movies, music, videos, and books.
• Stationary, paints, and hardware, Automotive, sporting goods, crafts, and seasonal merchandise.
• Apparel categories include apparel for men, women, boys, girls, shoes, jewelry, and accessories.
• Home appliances include home furnishing services, home decor, livings, and horticulture.

Service Revenue

Walmart also provide services to generate revenue in various fields:-

• They provide financial services like prepaid cards , money orders, wire transfer, money transfers, bill payments, and so on.
• VUDU movie streaming services: This is a subscription-based OTT platform for buying and renting movies, watching TV shows on demand.
• Clinical Services include primary health care, Physical and Wellness checks, Clinical lab tests.
• Health Insurance services

Walmart’s Marketing Strategy

Walmart's Business Strategy Analysis is one of the most important parts of any business whether it is small or large. It is very important to make an effective marketing plan to survive in the market . Walmart uses the principle of business marketing penetration method which is used to capture the market by offering lower prices and competitive prices to the consumers.

The company follows cost leadership which makes a huge profit for the company. The company provide low prices to the consumer and treated all the customers as king of the market to maintain the relationship between Walmart and the customer.

According to Walmart, there are four factors that drive the customer’s choice of retailer:

• Assortment.

One more reason for the success of Walmart is purchasing products from local manufacturers in a bulk in one go and selling in small quantities. Buying from local manufacturers is the benefit for both. Buying more products from local manufacturers means they are creating more jobs and they reduce the unemployment rate. They should provide good quality products at a lower price to maintain a good relationship with customers and continue to get profits in business.

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Walmart’s - Flipkart Acquisition

Flipkart is one of the leading Indian e-commerce brands. In 2018, Walmart takes 77% stakes in India’s largest e-commerce company Flipkart and makes the world’s biggest purchase of an e-commerce company.

After this acquisition the future of eCommerce industry in India has become more competitive than ever.

The three main reasons for the acquisition of Flipkart are Flipkart’s leadership in some lucrative sections, its payment platform and the company’s talent pool.

Walmart’s world’s largest company is to continue to expand its business by improving its strategies day-by-day. The main reason for the success of Walmart is the EDLP system i.e., Everyday Low Price. They are working aggressively to maintain profits, market shares, and provide low prices to consumers. There are many business ideas to gain profit from a market. All depends on how you play the cards for a profitable business.

Walmart has made acquisitions of 28 organizations and has 16 sub-organization.

Feel free to reach us and share your understanding and views on the case study of Walmart. We would love to hear from you.

What is the business model of Walmart?

The business model of Walmart is based on eliminating the middleman from the distribution channels. The advantage of removing the middleman is to provide benefit to the consumer by providing products at lower costs.

What is the motive behind Walmart's Business Strategy?

The main motive of the Walmart business strategy company is to enter every segment of the market and dominate the market by providing products at a lower price.

What is Walmart's Market Strategy?

How does walmart generate revenue.

The earning model of Walmart deals with the principle of buying in bulk in one go. In this system, they got a huge discount from the manufacturers. Walmart’s generate its revenue by removing the middleman and selling their product directly to the customers and services to business.

What are the main sources of revenue for Walmart?

The two main sources of revenue are:

• Product revenue
• Service revenue

Is Walmart owned by China?

The Walmart branch in China is majority Chinese-owned. But predominantly it is owned by Sam Walton's many children.

Why is Walmart so cheap?

They sell in small quantities at low prices. By reducing the price they have high sales volume through which they have high earning.  Hence, by selling in high volume they can sell it at a cheap price and still gain profit.

What are the sub-organisations under Walmart?

There are 16 sub-organisations of Walmart. Some of them are:

• Walmart Labs
• Seiyu Group
• Walmart Canada

What are the top acquisitions of Walmart?

Walmart has acquired 28 companies. Some top acquisitions are:

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17 The ‘Walkart’ of India: A Case Study on Walmart-Flipkart Merger

• Published: June 2022
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US retail giant Walmart has signed a definitive agreement to acquire a 77% stake in India’s largest e-commerce marketplace Flipkart with an investment of around $16 billion, making it the largest transaction in the history of the online retail space globally. The deal, which wiped away $10 billion of Walmart’s market capitalization as investors reacted negatively in early morning trade on the New York Stock Exchange, stands out for several exits. The biggest was Sachin Bansal selling his entire 5.96% stake for $1.23 billion and parting ways with Flipkart that he had founded in 2007 along with a friend from IIT, Binny Bansal (not related). Sachin was nowhere around at the Flipkart campus when the Walmart top team led by CEO Doug McMillon addressed employees in a town hall meeting. Another significant exit is that of Soft Bank, the largest investor in Flipkart. In a strange coincidence, the deal, valuing Flipkart at $20.8 billion, was announced to the world by Soft Bank Chief Executive Masayoshi Son in a webinar with investors hours before Walmart did so. He also confirmed that Soft Bank would get about $4 billion from its $2.5-billion investment in Flipkart last August. Flipkart’s valuation at $20.8 billion is a 75% increase over its previous valuation in the range of $11–12 billion last August. Out of the $16-billion investment, Walmart will put in $2 billion in new equity funding, while the rest will be utilized to acquire stakes of existing investors in the Bengaluru-based company. The case study focuses on Effect of regulatory restrictions in Indian Ecommerce Markets for Global MNCs.

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More From Forbes

Walmart: what happened in india.

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The partnership between Bharti Enterprises and Walmart has been dissolved. Formed in 2007, the joint venture’s purpose was to build and operate cash and carry superstores in India under the name Best Price Modern Wholesale.  As partners, the two companies jointly built 20 superstores.  These superstores are located in major cities such as Amritsar, Zirakpur, Jalandhar, Kota, Bhopai, Ludhiana, Ralpur, Indore, Vijayawada, Agra, Meerut, Lucknow and Jammu.

But the two companies have now agreed to go their separate ways. Bharti will acquire the Compulsory Convertible Debentures held by Walmart in Cedar Support Services, a company owned and controlled by Bharti.  Bharti, which operates 212 stores plans, plans to continue growing independent of Walmart.  Bharti indicated that it is committed to building a world class operation and will continue to invest in a retail concept called “Easyday.”  For its part, Walmart will contiunue to operate the 20 superstores opened since 2007 without the benefit of any partnership.

Walmart management has said it wants to serve India and its people through its cash and carry business. Management believes that the company has in place the supply chain infrastructure, direct farm program, and supplier development that enables it to make good investments and provide good returns for its shareholders.

However, there is a problem. The Indian government requires retailers to source 30 percent from small suppliers which is difficult for Walmart to comply with.  Another problem is the continuing US investigation of fraud in Mexico, Brazil, China and India.  In Indian, the government is investigating whether a loan made by Walmart to Bharti broke foreign investment rules.  Both Bharti and Walmart have denied any wrong doing.

While Bharti and Walmart managements each wished the other well, I suspect that national differences and the challenges of working together broke up this partnership.  Walmart entered into the partnership with Bharti in hopes of achieving a liberalization of the Indian market. This hope was not fulfilled and as a result the relationship with Bharti was no longer desirable, according to Scott Price, President and CEO of Walmart Asia.

This action is similar to what happened in to Walmart in Germany. There Walmart stores were competing with entrenched local general merchandise and food merchants, rendering Walmart unprofitable. The company was restricted from running sales except for certain times, and the operation never appealed to the German shopper.

While Walmart’s growth has exceeded anyone’s dreams, its shifting strategies in India, Japan and Germany highlight the difficulties of operating a worldwide company. Its amazing international expansion often has the unfortunate flavor of inexperience.  Dealing with foreign authorities requires finesse and charm, and even so sometimes still doesn’t pan out as hoped. The dominance of Walmart in the United States is unrivaled; but the retailer still has to prove itself country by country, city by city.  Even for global behemoths like Walmart, retailing is still a truly local business.

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Flipkart Case Study: The Rise Of Indian E-commerce Giant

Supti Nandi

Updated on: April 8, 2024

When it comes to success stories, the Flipkart Case Study has been the most anticipated one! Reason? A company from its humble beginnings rose to fame so immensely that now it has become synonymous with online shopping. Just like Google is synonymous with search engines and Paytm is synonymous with online payment in India!

Let me tell you that when a brand becomes synonymous with a process, then that’s solid evidence of success. 

Coming back to the point, Flipkart, the Indian e-commerce giant changed how you shop online. From its start, facing challenges, to becoming a big player in online retail, Flipkart’s journey is fascinating.

In this Flipkart Case Study, we will look at its early days, growth strategies, and the impact it had on how Indians shop. Also, its key moments include its joining forces with Walmart and still, it continues to evolve.

So, without any delay, let’s go through the Flipkart Case Study to understand  Flipkart’s rise and how it shaped the e-commerce landscape in India.

(A) What is Flipkart? A Brief Overview

Flipkart Private Limited, an Indian multinational e-commerce giant, has its headquarters in Bangalore and is incorporated as a private limited company in Singapore. The company’s journey began with a primary focus on online book sales. However, as it evolved, Flipkart expanded its product range to include diverse categories such as consumer electronics, fashion, home essentials, groceries, and lifestyle products.

In the competitive landscape of the Indian e-commerce industry, Flipkart is a key player, directly competing with major entities like Amazon India and local rival Snapdeal. 

Note: We have already explained “ Why did Snapdeal fail? Complete Snapdeal Case Study ” in detail. Check out the article for depth information. 

As of March 2023, Flipkart held a significant market share, boasting 51% dominance in the country’s e-commerce sector.

One notable aspect contributing to Flipkart’s success is its strategic acquisition of Myntra, which has solidified its position in the apparel segment. This move has been pivotal in establishing Flipkart as a dominant force in the online fashion market.

Moreover, Flipkart has successfully positioned itself as a strong contender against Amazon in the sale of electronics and mobile phones, showcasing its versatility and adaptability in catering to diverse consumer needs.

We will explain it in more detail in the upcoming sections.

For now, let’s have a look at Flipkart’s profile-

In essence, Flipkart’s trajectory from an online book retailer to a multifaceted e-commerce giant is marked by strategic expansions, key acquisitions, and robust competition in the dynamic Indian market.

(B) History of Flipkart

Flipkart’s foundation in India was laid in October 2007 by Sachin Bansal and Binny Bansal, both alumni of IIT Delhi and former employees of Amazon. The duo initiated their venture from a modest two-bedroom apartment in Koramangala, Bangalore. 

Fueled by their vision to revolutionize online retail, the initial investment of INR 2 lakh from each founder’s family set the stage for what would become a transformative journey.

Starting as an online bookstore with a nationwide shipping approach, Flipkart strategically focused on the sale of books. The company gradually gained prominence, processing 100 orders per day by 2008. This early success laid the groundwork for Flipkart’s expansion beyond books into diverse product categories.

Now, let’s briefly look at the history of Flipkart-

The journey from a small startup to an e-commerce giant included significant milestones such as the acquisition of We Read in 2010, further diversifying Flipkart’s offerings. This period marked the foundation of Flipkart’s presence in the Indian market, and its commitment to customer satisfaction and innovation paved the way for its subsequent growth, mergers, and acquisitions in the years to come.

(C) Growth Strategies: How did Flipkart rise in the Indian e-commerce market?

Flipkart rose in the Indian market by opting for numerous effective strategies. Go through the following table and you will get to know it-

Imagine a journey that begins with a small team, determined to redefine how people shop online. That’s the story of Flipkart, and it’s a tale filled with strategic moves and innovative thinking.

From the outset, customer satisfaction was at the forefront of Flipkart’s strategy. They understood the importance of competitive pricing, a user-friendly interface, and reliable delivery to win over the hearts of Indian shoppers. Introducing the “Cash on Delivery” option addressed trust concerns in a market where online payments were met with skepticism.

But Flipkart didn’t stop there. 

They introduced groundbreaking events like “Big Billion Days,” turning ordinary shopping into a festival of massive discounts. Recognizing the shift towards mobile internet usage, they optimized their platform for mobile devices, making shopping accessible to millions on the go.

Building a robust logistics network became a cornerstone for Flipkart. Timely delivery, coupled with innovative programs like “Flipkart Assured,” ensured quality products reached customers swiftly. The transition from an inventory-based model to a marketplace allowed third-party sellers to join in, expanding Flipkart’s product catalog without huge inventory investments.

Strategic acquisitions, including Myntra, Jabong, and PhonePe, strengthened their position in fashion and digital payments. Partnerships for exclusive smartphone launches boosted their visibility while securing funding from investors like Tiger Global and SoftBank fueled their growth, enabling them to compete globally.

However, every story has its challenges. Flipkart faced setbacks from competition, changing regulations, and allegations of unfair practices. Regulatory scrutiny became a part of their narrative as the government examined their business model.

In a pivotal moment, Walmart stepped into the story, acquiring a majority stake in Flipkart for $16 billion in 2018. This move not only injected additional resources but also brought global expertise to Flipkart’s journey.

From adapting to changing trends, embracing new technologies, and facing challenges head-on, to the transformative Walmart acquisition – Flipkart’s story is a testament to resilience, innovation, and the pursuit of customer satisfaction in the ever-evolving landscape of e-commerce.

(D) Impact of Flipkart on Indian Retail: How has it disrupted the traditional retail models?

Flipkart has significantly disrupted traditional retail models in India, reshaping the landscape and transforming how consumers shop. You have witnessed it too! Let’s look at the impact of Flipkart on the retail landscape of India-

The Confederation of All India Traders (CAIT) contends that Flipkart’s practices have adversely affected small retailers. Many traditional retail businesses have struggled to compete, resulting in job losses and a decline in the sector.

The Competition Commission of India (CCI) is currently investigating the allegations against Flipkart. If found guilty, fines or changes in business practices may be imposed. The government is also considering new regulations to promote fair competition in the e-commerce sector.

(E) Business Review: How Flipkart is Performing Businesswise?

Why do we always analyze the companies from a business perspective? You may wonder! Well, this is a crucial aspect of the case studies. It immensely helps investors, stakeholders, and decision-makers.

Looking at Flipkart’s conditions from a business perspective offers insights into its strategies, financial stability, market presence, and customer service approaches.

So, let’s look at the business aspects of Flipkart-

From the table, it’s evident that Flipkart holds a substantial market valuation of $37.6 billion, boasting a dominant 51% market share in India. The major shareholder is Walmart, holding an 80.5% stake. 

Despite a significant revenue increase from Rs.51,176 crore (FY22) to Rs.56,013 crore (FY23), expenses also escalated from Rs.54,580 crore to Rs.60,858.5 crore.

The company reported losses of Rs.3,371.2 crore (FY22) and Rs.4,890.6 crore (FY23). This data provides a snapshot of Flipkart’s financial landscape, showcasing its valuation, market share, shareholder structure, revenue, expenses, and losses in the specified fiscal years.

(F) Competitive Landscape of Flipkart

Flipkart operates in a highly competitive e-commerce landscape in India facing fierce competition from various players. The key rivals include-

• Amazon India: One of the major competitors, Amazon has a substantial presence in India, offering a diverse range of products and services. The battle for market share between Flipkart and Amazon is a defining aspect of the e-commerce landscape. We have thoroughly explained Amazon vs Flipkart . You can check that article for detailed information.
• Snapdeal: Though not as dominant as Flipkart and Amazon, Snapdeal remains a significant player, especially in certain product categories. The competition with Snapdeal adds to the dynamic nature of the market.
• New Entrants: The e-commerce sector in India has witnessed the entry of new players, both domestic and international, intensifying the rivalry and driving innovation in the industry.

Every year, Flipkart hosts a huge event called the “Big Billion Days” where they offer big discounts and special deals to attract lots of shoppers.

Flipkart’s focus is on making customers happy. They keep prices low, make the website easy to use, and deliver orders reliably. 

One smart move they made was changing how they sell things – instead of owning all the products, they let other sellers join their platform, giving customers more choices without needing a huge warehouse.

Along the way, Flipkart made important friends by acquiring companies like Myntra, Jabong, and PhonePe. These additions helped Flipkart become better in fashion and digital payments.

To keep up in this fast-changing world, Flipkart also uses technology well, especially on mobile phones. They invest a lot in making sure orders reach customers on time. Despite facing challenges, 

Flipkart’s story shows how they adapt and compete, making them a big player in India’s online shopping tale!

(G) Challenges Faced by Flipkart

Here are some of the tough challenges that Flipkart faced while commencing its operations in India-

These challenges reflect the dynamic nature of the e-commerce industry and the need for strategic agility by Flipkart.

(H) Post-Acquisition Developments of Flipkart

Let’s go through the post-acquisition developments of Flipkart following Walmart’s acquisition-

Thus, Walmart’s acquisition of Flipkart brought both opportunities and challenges. Simultaneously, it immensely helped in shaping the e-commerce ecosystem in India and impacted millions of consumers.

(I) Wrapping Up the Flipkart Case Study

In a nutshell, Flipkart’s journey from a small startup in 2007 to an Indian e-commerce giant is marked by strategic innovation, customer-centricity, and adaptability. Pioneering events like “Big Billion Days,” embracing a marketplace model, and strategic acquisitions have been pivotal. 

The company’s commitment to customer satisfaction, technological integration, and expansion into diverse segments showcase its resilience . The acquisition by Walmart in 2018 added global expertise, propelling Flipkart to a $37.6 billion valuation. 

As it ventures into new territories, Flipkart’s story remains a testament to its impact on India’s retail landscape and its ability to evolve with changing times!

Related Posts:

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How does Flipkart-Walmart deal affect the Indian economy

This article is written by Vanya Verma from the Alliance University, Bangalore. This article talks about the key elements of the Flipkart-Walmart deal and their positive and negative impacts on the Indian economy.

Introduction

The Flipkart-Walmart deal will benefit Flipkart to give leverage to Walmart single-channel knowledge and expertise supply chains in the market. In the retail market, Walmart has been able to establish a positive reputation but not in the e-commerce market and by signing this deal it will strengthen its market reputation in the e-commerce sector too. Both Walmart & Flipkart will be having different operating structures and separate brands in the market.

A brief about Flipkart

Flipkart was launched as an e-commerce website in October 2007. Earlier it was retailing only with books, and then slowly afterwards in 2010 it started launching new portfolios like movies, music, and mobiles, and in 2012 with fashion and lifestyle. Flipkart was founded by Helion Venture Partners and Junglee in 2008. Flipkart raised $190 million in four years that is from 2009 to 2012 from the well-known venture capitals in the market like Tiger Global and Accel Partners. In the same year, Flipkart changed its business model from directly selling goods to the customers to a marketplace model. Then in the same year, i.e. 2012, Flipkart raised $150 million from Naspers which was an internet major of South Africa. 

By 2013, Flipkart was being contemplated as a successful startup and by mid of the year 2013, further $200 million were raised by the Flipkart from its already existing investors and $160 million from investors like Vulcan Capital, Morgan Stanley, etc. Flipkart’s valuation was $1.6 billion by the end of 2013. In 2014, Myntra got acquired by Flipkart. By the end of 2014, Flipkart’s valuation was $11 billion after it raised huge amounts from Greenoaks, GIC Singapore, etc. and by the end of 2015, it was $15.5 billion, after it raised $700 million from its existing investors. However, from 2016 onwards the business of Flipkart has not been very profitable as the investor Morgan Stanley had started cutting to the value of the share of the company, due to which by the end of 2016, the valuation of the company fell to $5.6 billion. 

A brief about Walmart

Walmart is an American multinational retail corporation which also has its retail branches in India. Walmart has established various hypermarkets, grocery stores, and discount shops all over the country. Walmart is the largest e-commerce market which has acquired 77% stake by investing $16 billion in Flipkart. “Walmart India”- Wal-Mart India Private Limited is an entirely owned subsidiary of Walmart Inc., which is the world’s leading retailer, well-known for its expertise and efficiency in supply chain management, logistics, and sourcing. 

Back in 2007, Walmart made an entry in India through a joint venture with Bharti Enterprises. It opened its first store on 29th May 2009 in India in Amritsar, Punjab. In 2013 Walmart India became a wholly-owned subsidiary of Walmart Stores. Currently, 21 Cash & Carry stores are owned and operated by Walmart India in 9 states across the country, that is under the brand name of Best Price Modern Wholesale Stores (“Best Price”). Their business in India is based on membership and they have more than one million members, out of which majority are small resellers (mom & pop stores). The other business segments that are members of Walmart are restaurants, hotels, offices, and institutions, which is supported by Walmart with high-quality products at competitive, consistent and transparent prices for the prosperity of the business.

Key facts about the deal

• Finally, after trying for more than 15 years, Walmart managed to penetrate the Indian market. The Indian e-commerce landscape till now was dominated by two firms that are Amazon and Flipkart but it is determined that Walmart-Flipkart deal will change the scenario.
• Competition Committee of India (CCI) approved the proposed acquisition of the Bengaluru based Flipkart Private Limited by Walmart International Holdings Inc. 77% controlling stake in Flipkart was acquired by Walmart for $16 billion in 2018 and making it as the biggest e-commerce deal in the world. The residues will remain with its earlier investors which includes Flipkart’s co-founder Binny Bansal, Tiger Global Management LLC, Microsoft Corporation and China’s Tencent Holdings Ltd. 
• The entry of Flipkart into Walmart substantiates the capability of the Indian retail market. After this deal, in the Indian e-commerce market, there will be a tough competition between Amazon, Walmart and Paytm Mall.
• This deal can help Flipkart leverage Walmart’s omnichannel retail skill and comprehensive supply chain information. 
• The aim of Walmart through this acquisition is to extend its B2B (Business to Business) sales across India. 
• Vice-Chairman of NITI Aayog, Rajiv Kumar announced that there will be a positive impact by the Walmart-Flipkart deal on India’s foreign investment inflows as per the norms of India’s Foreign Direct Investment (FDI). 
• Doug MacMillan, CEO of Walmart said that in his opinion, India is one of the most remarkable retail markets in the world (contemplating how it managed to become Amazon of India). This deal of Walmart with Flipkart is to commend the company’s prominent role in revamping the Indian marketplace. According to MacMillan, this deal might also help Flipkart to achieve its goal of being a publicly listed company.
• This deal will help Flipkart, not just with profits but will also create an opportunity for Flipkart to expand its market beyond fashion and smartphones. Amazon in the year 2017 got approval to function in grocery and perishable food items, in which Flipkart was lagging behind till now. With the help of this deal, Flipkart can now re-furnish its system using the expertise of Walmart in running offline stores, access to manufacturers and sellers, supply chain and also a chance to enter into the grocery sector.
• Through this Flipkart-Walmart deal, Walmart will leverage e-commerce market presence of Flipkart in the country with an active base of 54 million customers. Walmart till now was able to retain powerful global physical existence for years only in retail space but lacked e-commerce space till date. This deal will stimulate both the presence of offline Flipkart and Walmart’s online presence in India as for now both have aimed at maintaining distinct brands and operating structures.
• Amazon dominance in the e-commerce industry in India will come to an end with the Walmart-Flipkart deal. This deal will create more competition in the market to attract more customers which will lead to additional advantages for the customers. The competition will create diverse products and bring in more selection options at low prices to the customers. 
• Further, the principal beneficiary is the farmer. The purpose as to why Walmart challenged Amazon is because Walmart has a leading edge in taking fresh farm produce with the help of sophistically developed cold chains and this is lacking in Amazon. This will also help in preventing the losses that are caused due to the spoiling of a significant percentage of fruits and vegetables because of insufficient logistics and warehouses.
• Ajay Srinivasan, Director of CRISIL Research, also asserted the same saying that “The deal indicates India’s consumption market attractiveness for the global majors”. With Walmart acquiring a stake in Flipkart, we expect an enhanced thrust in the segment of online grocery. We expect that online grocery will be the fastest-growing segment in the e-retail space, growing at the rate of 65-70 per cent to touch Rs 10,000 crores in revenues by 2020.”

Why was Flipkart acquired by Walmart?

• According to Morgan Stanley, India’s online retail will grow to 1,200%, $200 billion (30% CAGR) by 2026 from $15 billion in 2016. The average wages are rising by 2% annually and there is even growth in internet penetration as data costs are becoming more competitive, which makes the Indian e-commerce space more lucrative.
• In e-commerce, Flipkart has the largest market share, so with the help of this acquisition, it will be easy for Walmart to achieve the next leg of growth in India with the Flipkart’s 175 million registered user base.

Positive impact of acquisition on Indian Economy

• Employment: Walmart is popular for its practice of innovation and service. It is being expected with revamping of new business models, because of that, the Indian e-commerce market will witness extensive growth with improved productivity. The employment opportunities will increase with the rise in productivity for both skilled and unskilled labour that will result in economic growth and capitalism.
• Collateral Benefits: The e-commerce market after demonetization and GST faced a major slow down. This deal will direct brand new funds and rejuvenate the Indian e-commerce market. More foreign firms and venture capitalists will be attracted to enter India as it is the world’s largest giant pour funds. 
• Low prices, more variety: As there is a competition among the e-commerce giants to be at the top, the localization and differentiation of products will give rise to more variety and develop a diverse product market at low prices in order to attract the customers which shall eventually prove beneficial for the customers.
• Research and Development: In order to have a greater market penetration across the country, the key element is efficiency which is a result of research and development. Walmart is well known for its culture of service and innovation, this will help it to grow and scale up the business in India, in order to generate more revenue and in creating technological spillovers and learning effects for the domestic firms as well. The external demand for Indian goods will increase because of the refined nature of the products.
• Efficient Supply Chain: The expansion of e-commerce business requires a valuable supply chain and logistics that needs infrastructural development. This will give a fillip to the Indian infrastructure and agriculture and also benefit the farmers, as well as, they would be able to provide more demand as Walmart has extensive experience in logistics, retailing, inventory and supply chain management. This can particularly help the perishable goods business which is Walmart’s forte.
• Economic Growth: Walmart will expand its business across the country which will stimulate output growth and increase employment opportunities. With optimistic business attitudes, it will be a stimulus to economic growth and capitalism. Further, this deal will be subjected to tax leading to a surge in domestic revenue gains.
• ESOPS (Employee stock option Plan): Many existing employees will make windfall gains from their stock options through this deal. This will increase the entry of more workers in the e-commerce sector who had earlier left due to the downturn and can also assimilate labours from the traditional and old brick-and-mortar industries that can benefit in formalisation of more of the Indian labour force.
• Mom and Pop stores: Walmart is looking forward to extending its supply chain arm with the help of partnerships with around 60 lakhs kiranas . This partnership will increase the presence of Walmart in the small stores.
• Premji Invest is anticipated to gain up to four times from the Flipkart-Walmart deal as its share in Myntra (bought by Flipkart in 2014) has also been acquired by Walmart. It has been anticipated that the gains will be more than $130 million on the $25 million investment. This will bring an inflow of more funds pouring in the Indian economy as profits attract investors from India and other countries.

Negative impact of the acquisition on the Indian Economy

• Big data mining: Even though Walmart-Flipkart seems very profitable for the Indian economy, still the deal witnessed some warnings and protests from trade unions, retailer associations and also political organizations. They are worried about the fact that as of now India does not have any national e-commerce policy or a regulatory body for e-commerce. Ample information and data of the Indian clients including their personal details, search history, purchasing history, etc can go under the control of the US company. This can be exploited by personal stakes like the one which happened in the recent Facebook-Cambridge Analytica case too. Thus, there is a requirement to keep a system of checks and balances in order to avoid any issue of data breach of the Indian customers.
• Impact on sellers: The biggest retail deal in the world between Walmart and Flipkart will influence the whole segment of the competitors and consumers. Where a customer is the master, the Flipkart’s online sellers are worried about the fact that Walmart would clear them off as it has an image of slaughtering the independent small companies with ultra-low costs. It is being expected by the smaller businesses that Walmart might get its own private labels and brands with the help of Flipkart to provide to the Indian customers that will lead to extra pressure upon them. The products could be brought at hyper-competitive costs, that will create a problem for other sellers and rip off the market.
• Brick and Mortar Stores may shut down: The small businesses that sell at ultra-low prices through Flipkart are being scrapped by Walmart. Chances are that Walmart may replace the domestic MSMEs with its own labels having the hyper-competitive prices, this can result in a threat to brick and mortar stores as they already fear of being shut down due to the competitive pressure.
• The ruining of small players: Small Players (Mom and Pop stores) will be ruined by this as due to such high competitions, the market spaces shrink and ultimately forcing the small firms to exit from the market. To survive, the firms try to excessively cut the price rate at the cost of profitability and viability which drives to inefficiency.
• Threat of Pan India Protests: The government has already been warned of the pan India protests by the Tamil Nadu Vanigar Sangankalin Peramaippu federation of traders. It is estimated that many more such trade unions might call for protests which will eventually hurt our economy, cause infrastructural damages resulting in social chaos. 
• Backdoor entry for Walmart: Foreign Direct Investment (FDI) in single-brand retail allows 100% FDI in India. 100% FDI is not permitted in Walmart as it is a multi-brand retail chain, so it concentrates only upon cash and carry business. Flipkart has already avoided such restrictions in direct selling which will be utilised by Walmart.

Flipkart and Walmart, both will be profited by this deal. The level of investment will be increased as it will give a surge to further investment by foreign firms in the Indian market. This deal will boost the level of competition in the e-commerce sector. Walmart, as being one of the biggest retail markets, penetrating into the world of e-commerce will unlock new doors for the labour class by providing them employment. The deal will allow the offline market players to alter their business model and to modify the tools and techniques in order to yield better profits in the e-commerce market. The success of Flipkart under Walmart would confide on how it is able to effectively execute a world-class supply chain in India, amidst all the challenges in the Indian context. The economy of India will witness a rising graph with more investments. But to avoid exploitation and to maximize benefits, efforts should be made in order to bring uniformity in the marketing structure of e-commerce.

• https://www.mbauniverse.com/group-discussion/topic/business-economy/walmart-and-flipkart-deal
• https://www.iloconsulting.in/knowledge-center/walmart-flipkart-deal-impact-indian-economy

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Communication, Culture & Technology

Walmart’s Struggles in India: How Institutional Contexts Can Limit Foreign Entry

By mp672 November 30, 2012

Posted in 2012 Journal

Introduction

List of Works Cited

Academy of Strategic Management Journal (Print ISSN: 1544-1458; Online ISSN: 1939-6104)

Original Articles: 2017 Vol: 16 Issue: 1

Walmart-Bharti Joint Venture: Formation, Breakup & Strategies

Narendra C. Bhandari

Pace University

Bharti-Walmart joint venture formation and terms; Bharti-Walmart joint venture breakup and reasons; Walmart’s contributions; Walmart’s criticism; India’s foreign direct investment laws; Walmart strategies in India; and suggestions for India’s foreign direct investment policy.

Introduction and Purpose

The Bharti Enterprises of India, a premier business conglomerate in India, and Walmart of U.S.A., the largest retailer in the world, made a historic partnership agreement to operate wholesale cash and carry stores in India. The joint venture, however, lasted only for a few years before they cancelled it.

The objectives of this case study article are to discuss the following topics: (a) The Indian legal, economic, and social environment related to this joint venture, (b) Formation of Bharti Walmart joint venture, (c) Breakup of Bharti Walmart Joint Venture, (d) Walmart’s contributions, (e) Walmart’s criticisms, (f) Walmart’s strategies after joint venture breakup, and (g) India’s foreign direct investment strategy in retailing.

An important related objective of this research is to propose—based on the multitude of facts and data used in this article—several hypotheses which have been presented in this article for future research.

Indian Legal, Economic and Social Environment

Indian Economy and Society

India, with its more than 1.2 billion people, is the largest democracy and the second most populous country in the world. However, it is also one of the poorest nations on this planet. According to the World Bank, India, with its 2013 per capita nominal gross domestic product (GDP) of $1,499, ranked #148 in the world. According to the same source, here is how some other countries stood in terms of their per capita nominal GDP and ranking in the world: Monaco with $163,026 ranked #1; U.S. with $53,143 ranked #13; China with $6,807 ranked #84; Thailand with $5,779 ranked #93; Bhutan with $2,498 ranked #132; and Pakistan with $1,299 ranked #152. (Wikipedia contributors. “List of countries by GDP (nominal) per capita.” Wikipedia, The Free Encyclopedia.)

India had an estimated unemployment rate of 8% in 2013. The corresponding numbers for China were 4.1% (December 2013); for Pakistan, 6.6 % (2014), for Thailand, 0.9% (May 2014), and for U.S., 5.6% (December 2014). (Wikipedia contributors. “List of countries by unemployment rate.” Wikipedia, The Free Encyclopedia.)

The cumulative value of foreign direct investment (FDI) received by India as of December 31, 2013 stood at $310 million; with a world rank of 20. The corresponding figures for the U.S. were $2,815 million (#1); China $1,344 million (#4), Thailand, $193.7 million (#29); and Pakistan, $22.73 million (#68). The world has a whole received a total of $16,360 million in FDI. (Wikipedia contributors. “List of countries by received FDI.” Wikipedia, The Free Encyclopedia.)

India had a current account trade deficit of $91.47 billion in 2012; it ranked 190 in the world. The corresponding numbers for U.S. were $440 billion in 2012 (# 192). On the other hand, China had a current account surplus of $213.8 billion (#1); Pakistan had a current account surplus of $0.268 billion, and Thailand had a current account surplus of $11.9 billion (#25). (Wikipedia contributors. “List of sovereign states by current account balance.” Wikipedia, The Free Encyclopedia.)

A number of Indians are highly educated; a number of them live in the U.S. and other countries, a number of them regularly travel abroad, and a number of them are millionaires and billionaires. All the same, however, Indians cannot forget that their country was invaded and ruled by the British for about 200 years; and that it was repeatedly invaded and ruled by the Arabs for hundreds of more years before the British.

Based on these data and information, the following hypothesis is presented:

H1 India is way behind countries such as China to attract much needed foreign direct investment to help grow its “overall economy” due to its laws, bureaucracy, and corruption.

The State of Retailing Industry in India

India’s retailing industry mainly consists of small, sometimes very small, shops owned and operated by their owners and their family members. They include the grocery stores, kirana stores, vegetable and fruit stands, paan shops, convenience stores, hand carts, street vendors, and the like.

In the case of vegetables and fruits, shoppers often have a chance to touch and feel the products. They can also examine various types of grains, nuts, and spices. If the shopkeepers know you, you can also take the items such as fabrics home for family approval. Bargaining for prices is a norm; although some stores follow the fixed prices policy. Packaged products are legally required to display their maximum price. Once purchased, the items are non-returnable, especially the perishable items. Since a large part of the shopping is for essential items, returning items is an exception rather than a rule. Most purchases are small in value and paid for in cash.

Each shop generally specializes in selling a limited number of related items. The shopper has to go to different shops to purchase different categories of household items. Often items lack information about their origin, maker, ingredients, and composition. Using technology is almost absent. Overall, the unorganized small shop retailing industry lack the convenience, quality, and cost-advantage that organized large scale retail industry can offer the shoppers.

There are several middlemen between the farmers, producers, and retailers. Each intermediary in the chain adds its own costs of doing business to the produce and the product before they reach the retailer and finally to the consumer. According to some estimates, small Indian farmers and manufacturers get only about one-third of what the consumers pay. Intermediaries keep the two-thirds. The small shops also cannot take advantage of large scale buying from wholesalers.

A good portion of all kinds of perishable items is regularly spoiled due to poor or non-existent cold storage facilities at different stages between the farmers and the consumers.

India's retail and logistics industry employs about 40 million Indians, 3.3% of Indian population. (Wikipedia contributors. “Retailing in India.” Wikipedia, The Free Encyclopedia.) Based on these data and information, the following hypothesis is presented:

H2 On the one hand, India’s retail industry is very positive for keeping and creating millions of jobs in this industry. On the other hand, however, it is very negative for its millions of customers in the matters of cost, convenience, health, and safety.

India's FDI Retailing Laws

The above facts show that, on the one hand, India is one of the poorest countries in the world and it can clearly use billions of dollars in FDI in its retail industry year after year for its economic growth. On the other hand, however, it is also difficult for India to place a blind trust in its foreign partners. As such, India wants to receive those investments in a way that is generally satisfactory to its various stakeholders who often have divergent or opposing views. It is a very difficult task to accomplish to say the least. Its laws related to the FDI in retail industry such as those narrated below are a result of these multidimensional backgrounds and views.

India has separate laws for FDI in single-brand stores and multi-brand stores. It allows 100% foreign ownership in single brand retail stores such as Nike and IKEA. However, with 51% or more ownership in such stores, the foreign investor has to source 30% or more of their goods locally from small and medium size firms. (Government of India, "FDI Policy in Multi Brand Retail,” 28 November 2011.)

Beginning September 2012, Indian laws also allow foreign companies to own up to 51% of multi-brand retail stores, such as Walmart. These foreign investments are also subject to sourcing 30% of their requirements from local small and medium size firms (Government of India, "FDI Policy in Multi Brand Retail,” 28 November 2011.)

Indian laws permit 100% foreign ownership in wholesale businesses. Such whole sellers, however, can only sell to retailers, not to the general public. (Government of India, "FDI Policy in Multi Brand Retail,” 28 November 2011.)

FDI should be of $100 million or more spread over a three year period. Half of this should be invested in the back-end infrastructure, and the other half in the front-end operations. (Government of India, "FDI Policy in Multi Brand Retail,” 28 November 2011.)

India’s FDI Retailing Laws: Central vs State Governments

The FDI laws have been enacted by India’s central government. However, it is up to its individual states to decide where FDI in wholesale or retail industry should be located. This is further limited by the requirement that the city in which fdis can be located should have a population of a million or more. (Government of India, "FDI Policy in Multi Brand Retail,” 28 November 2011.)

Arvind Kejriwal, whose Aam Aadmi Party came to power in the State of Delhi in December 2013, told the central government that while it is not closed to FDI in other sectors, it cannot permit foreign multi-brand supermarkets to operate in the State because doing so would wipe out thousands of small shop owners and neighbourhood stores (Ghosh, 2014). The Aam Aadmi Party thus rescinded the earlier permission that was given by the Congress Party in power at the time, for allowing FDI to establish such retail stores in Delhi.

Similarly, the new Bhartiya Janata Party government, which came back to power in December 2013 in the State of Rajasthan, told the central government that it will not allow FDI in multi-brand retail industry in Rajasthan because of its adverse consequences for the state’s various stakeholders. The FDI permission was earlier given by the state government then led by the Congress Party. (Mathew, 2014.)

The central Commerce Minister Anand Sharma expressed his frustration telling reporters that states which had given their nod to the new FDI policy could not throw it out of the window. We are not a banana republic, he said (Ghosh 2014). Such reversals have raised alarms both in India and abroad. The central government is seeking expert legal advice whether a once opted-in state could opt-out.

H3 Indian federal and state laws as they relate to the FDI in retail industry in India significantly discourage such investments.

Formation of Bharti-Walmart Joint Venture

Walmart and Bharti Enterprises: An Introduction

Walmart is a mega retailer with headquarters in Arkansas, U.S.A., was established in 1962. On January 31, 2015, Walmart had 4,516 stores in the U.S., 647 Sam’s Club, and 6,290 stores internationally; making a total of 11,453 units worldwide. (Walmart website, “Walmart Corporate Locations,” 2015) It has 20 wholesale stores in India, which operate under the brand name Best Modern Price Wholesale. (Walmart website, Walmart India, 2015). It had net sales of more than $473 billion in its fiscal year 2014.

Bharti Enterprises, an Indian conglomerate headquartered in New Delhi, was founded in 1976. It had revenues of US$ 16.5 billion in 2014. It had 30,000 employees in 2010. Its subsidiaries include Bharti Airtel, Bharti AXA General Insurance, Bharti Realty, Bharti Retail, and Field Fresh Foods, among others. It presently has 220 retail stores operating under the Easyday name in various states of India. (Wikipedia contributors “Bharti Enterprises,” Wikipedia, The Free Encyclopedia.)

India’s Growing Retail Industry

According to the Investment Commission of India, the Indian retail sector is expected to grow almost three times its current levels to $660 billion by 2015 (Muthukumar and Subasri 2014-2015). According to another projection, cash-and-carry business is expected to grow to about $22 billion business in India by 2017 (Baily, 2013). Similarly, a study by McKinsey & Company shows that India will climb from its position as the twelfth-largest consumer market in the world today, to the world's fifth-largest consumer market by 2025 (Ablett, et al., 2007).

Then there is the problem of lost opportunity. The retail industry in India is flooding with some major name national and international competitors. These include Marks & Spencer, Reliance Industries, the Tata Group, the RPG Group, the Aditya Birla Group, TESCO, Carrefour, Pantaloons, Mahindra Retail, and more. It is to Walmart’s advantage to get into the Indian retail game sooner than later. It could not afford to miss the opportunity. If other competitors can live and deal with India’s laws and labor, Walmart can do it too.

Joint Venture Agreement

In spite of all the legal restrictions and uncertainties at the central and state levels mentioned above, Walmart saw a huge growth potential in India as mentioned above. It, therefore, signed an agreement with Bharti Enterprises on November 27, 2006 to establish a 50-50 joint venture to do wholesale business there. The partnership called Bharti Walmart Private Ltd, would operate stores called Best Price Modern Wholesale.

Both parties brought their own strengths to the joint venture. Walmart came with its financial strength and support, its globally recognized brand name, and its expertise in national and international retail management. It is also known for its expertise in just-in-time inventory management, retail information management, and retail transportation management.

Bharti Enterprises brought to the table its familiarity with the Indian laws, culture, economy, and labor. It is also involved in agribusiness, food processing, retailing, insurance, and telecom industries nationally and internationally.

Walmart also did not want to go alone in India with all its challenges and uncertainties. Even in Germany, a west European country, it had to incur heavy losses before withdrawing from there entirely.

Joint Venture Terms

The historic joint venture included the following terms.

Walmart invested $103 million in the venture (Rana, 2014.) The retail shops will be owned by Bharti Enterprises under the Wal-Mart franchise. Bharti is expected to pay royalty for the cash and carry operations. It is also expected to pay various kinds of fees to Walmart such as, franchises fee, software license fee, administrative support fee, design fee, technical training fee, and documentation fee (The Economic Times, 2007).

Walmart would manage Bharti’s multi brand retail convenience stores and supermarkets called easyday. It was believed that this arrangement would help Walmart to introduce its own brand in India later on. (Banjo, Shelly and R. Jai Krishna, 2013).

The whole sale cash and carry partnership would sell a variety of products ranging from grocery to apparel and consumer electronics to retailers, offices, and organizations.

Since the Indian laws allow FDI in retail industry only in cities with a population of a million or more, it is not easy to find suitable real estate in these large urban areas. The partnership, therefore, planned to establish relatively small size stores compared to their larger counterparts in other countries.

H4 The Indian economy, in spite of its federal and state laws which are not friendly to FDI in retail industry, is large and growing enough to attract some FDI in this industry.

Breakup of Bharti-Walmart Joint Venture

A successful functioning of a joint venture requires that the partners clearly define its goals, clearly spell out their respective responsibilities to accomplish these goals, and carry out those responsibilities. A joint venture’s success or failure depends not only upon the partners accomplishing these goals and carrying out these responsibilities, but also on the socio-economic and political variables beyond their control.

So when on October 9, 2012 the Walmart and Bharti announced the breakup of their dream team and decided to go separate ways in both retail and wholesale ventures, people wondered why? There are several reasons behind this widely celebrated Indo-American partnership.

Corruption and Politics

Some primary reasons for the low and slow flow of FDI in India are the Indian legal and political factors. Indian laws are considered unclear and uncertain; and their implementation is routinely marred by bureaucracy, hurdles, delays, corruption, and grafts. It is not uncommon to be first charged for taking a bribe and then let go by giving another bribe. An editorial in the The Economic Times said it like this: “No company can operate without greasing a palm here or shelling out unaccounted amounts there.” (etretail.com., 2013).

In September 2012, the Congress Party led Indian government stated that it would allow foreign supermarket chains to take majority ownership in multi-brand retailing in India. The current BJP led government, however, opposes it. It, however, would not cancel such applications already approved. However, no global supermarket chain has been rushing to apply.

Sourcing Requirement Laws

The requirement that those interested in making FDI in India’s wholesale or multi-brand retail industry should source at least 30% of their products from local small and medium size industries is problematic for them. While this condition may be met in sourcing textiles and handicrafts items, it may not be easy to comply with it in sourcing some other products such as electronics.

Scott Price, Wal-Mart’s chief executive called it as “critical stumbling block” to establish its consumer stores in India. He also said that these small and medium size companies don’t have the ability to meet the large scale requirements of large retailer. He also said that because the Indian retailers are not bound by this condition, it makes it an uneven playing field (Harris, 2013).

Foreign investors also find the requirement to invest 50% of the FDI in back-end infrastructure difficult.

Bharatiya Janata Party (BJP) leader Rajnath Singh is opposed to FDI in retail because multinational companies like Walmart are buying 80 per cent of their goods from countries like China. “India will become a dumping ground for Chinese goods.” (Mookerji, 2012)

However, Rajan Bharti Mittal, vice- chairman and managing director of Bharti Enterprises, said that the Bharti-Walmart venture plans to source 90 to 95 per cent of the products locally. The only foreign stuff that could be sold at Walmart India would include some toys, appliances, olive oil etc. As for food items, around 98 per cent of the total is likely to be sourced from India. (Mookerji, 2012).

Questionable Investment in Cedar Support Services

In March 2010, Walmart invested $100 million in compulsory convertible debentures of Cedar Support Services (CSS). The CSS is both the parent company of Bharti Retail and the operator of the latter’s front-end retail stores. These compulsory convertible (into equity) debentures in effect amounted to Bharti Retail ceding its control and management to Walmart. However, Indian laws don’t permit FDI in front-end retail (multi-brand) stores.

In September 2012, P. Achuthan, a CPI (Communist Party of India) member of Rajya Sabha (India’s upper house of parliament) asked the government of India about the legality of this Walmart investment. The Enforcement Directorate for alleged FEMA (Foreign Exchange Management Act) violations is investigating the issue. (Hindustan Times. “Wal-mart, Bharti deal: diary of a troubled marriage,” October 10, 2013.)

Allegations of Corruption and Impropriety By Walmart

Concerned by its alleged corruption and other improper practices in Mexico, Brazil China, India and elsewhere, Walmart began a global review of its operations to assure that they are in compliance with both the U.S. Foreign Corrupt Practices Act and also the host country laws. “Its lawyers flagged India among the countries with the highest corruption risk.” (Hindustan Times. “Wal-mart, Bharti deal: diary of a troubled marriage,” October 10, 2013.)

As a consequence of this inquiry, Bharti-Walmart suspended its five top executives in November 2012. Walmart India CEO Raj Jain resigned in June 2013; he was replaced byramnik Narsey. At Bharti Retail, Chief Operating Officer Mitch Slape, an old Walmart hand, was sent back to Walmart USA. These executives, however, were not charged for any wrong doing. (Hindustan Times. “Wal-mart, Bharti deal: diary of a troubled marriage,” October 10, 2013.)

While lobbying is legal in the U.S., it is illegal in India. So when Walmart disclosed to the U.S. Senate and House of Representatives that it spent about $25 million since 2008 on its lobbying activities in India that included enhanced market access for investment in India, there was a huge uproar in the Indian Parliament which led to the Indian government starting an investigation against Walmart. (Hindustan Times. “Wal-mart, Bharti deal: diary of a troubled marriage,” October 10, 2013.)

With all these allegations and challenges facing Walmart internationally, especially in India, its breaking up with Bharti Enterprises and taking complete control of its Indian operations appeared to be a logical thing to do.

Wal-Mart has invested more than $200 million on overhauling its worldwide operations in order to assure that these are in compliance with both the U.S. and the host country anti-corruption laws (Banjo, Shelly and R. Jai Krishna, 2013).

Bharti Enterprise’s Reasons

Bharti Enterprises seemed to have its own reasons to call it quits.Bharti Retail is interested in growing its own retail business involving various formats. With its 212 Easy Day stores, it already has a strong foothold in the industry. (Bose, 2013.)

The Bharti Enterprises is disappointed with the lack of growth in the number of the Best Price Modern Wholesale stores, which was growing but has now been stuck at 20 units. It is also concerned with these units’ losses of Rs 372 crore as of December 2012. (Mookerji, Nivedita. 2013.)

Bharti Airtel, with billions in debt, is financially strained after buying some telecom firms in the developing world, including its purchase of Zain of Middle East and North Africa.

Terms and Costs of Joint Venture Breakup

Here are some of the main terms of the Bharti Walmart joint venture breakup. Wal-Mart will acquire Bharti Enterprises’ 50% stake in the 20 Best Price Modern Wholesale cash-and-carry stores that had been run by the Bharti Walmart joint venture. It would thus own it 100%, which is allowed under the India laws. (Banjo, Shelly and R. Jai Krishna, 2013.)

Bharti Enterprises would acquire the compulsory convertible debentures (CCDs) worth $100 million that Walmart had invested in Cedar Support Services, the parent company of Bharti Retail that operates its EasyDay stores. Bharti Enterprises would run them by itself now. (Bailay and Malviya, 2014.)

In monetary terms, Walmart spent $334 million to end its partnership with Bharti Enterprises. It paid $100 million to buy Bharti Enterprises 50% share in the partnership; and it took a $234 million loss for waiving the debt and other investments it had made in the Bharti Enterprises. (Bailay and Malviya, 2014.)

It may be noted here that Walmart also incurred costs and losses associated with the closure of its about 50 underperforming units in Brazil and China (NDTV 2014).

Other Joint Venture Breakups in India

The Walmart and Bharti is not the first international partnership breakup in India. Some other major names which have broken up their relationships or having problems working together include Procter & Gamble (USA) and Godrej; Telenor (Norway) and Unitech; Fiat (Italy) and Tata Motors Ltd.; Ford (U.S.A.) and Mahindra & Mahindra; mcdonald’s (U.S.A.) and Connaught Plaza Restaurants; Di Bella Coffee (Australia) and Sachin Sabharwal; and Honda (Japan) and Munjals; among others.

H5 The foreign companies in India, in its retail or other industries, should remain clear of any misbehavior in India, in their home country, or elsewhere in order to establish, stabilize, and grow their business in India.

Walmart’s Contributions

Walmart, through its Bharti-Walmart joint venture, and through its other associations with India, has made some important contributions to the country such as follows.

Benefits of Best Price Modern Wholesale Store

According to a Walmart website, the Best Price Modern Wholesale Stores offers the following benefits.

“Best Price Modern Wholesale stores are a one-stop-shop that offers best prices with unmatched convenience, choice, quality and hygiene. The stores meets day-to-day needs of business members namely restaurant owners, hoteliers, caterers, fruit and vegetable resellers, kiranas, other retail stores, offices and institutions. Around 5,000 items, including food and non-food items, are available at competitive wholesale prices by lowering cost of operations. Over 95% of these items are being sourced locally, which in turn reduces the costs and eventually, the prices” (Walmart Website)

“A typical cash-and-carry store stands between 50,000 and 100,000 square feet and sells a wide range of fresh, frozen and chilled foods, fruits and vegetables, dry groceries, personal and home care, hotel and restaurant supplies, clothing, office supplies and other general merchandise items” (Walmart Website)

“Best Price Modern Wholesale stores have introduced several education programs for its members with customized modules for different target segments. A model ‘Mera Kirana’ has been created in each store that shares best practices with both, small and medium retailers. It also promotes usage of low cost modern techniques and processes such as assortment planning, layout and fixtures, displays, backroom, licenses, safe food handling, customer retention and value added services. Further, different educational programs for members on Taxation, Food Preparation, Food Safety and Category workshops are organized on a regular basis” (Walmart Website)

Best Price stores provide safe, clean, healthy, and hygienic food. Vegetarian products, Dairy, Meat & Fish departments are physically separated from each other to respect the religious sentiments of its members. All food equipment are sanitized every four hours. (Walmart website.)

Walmart plans to continue to improve India’s infrastructure. It also plans to duplicate its no-questions-asked ‘return policy’ in India that it uses in other countries.

Corporate Social Responsibility

Bharti Wal-Mart has been involved in helping community and environment right from the beginning. It has provided pushcarts to the poor to help them build their business, it partnered with Coca-Cola India to plant trees in Amritsar, it partnered with Amritsar Municipal Corporation, to adopt and manage certain roads, it partnered with the Punjab government to launch skills training and centers, and it has supported schools and their underprivileged children there (Business Standard 2009).

Bharti Walmart joint venture has also sponsored a Women’s Economic Empowerment Initiative to enhance economic opportunities for women in India (Bharti website).

H6 Walmart’s continued presence and growth in India would be good for the Indian economy.

Walmart’s Criticisms

Walmart continues to be opposed primarily for one major reason: It destroys jobs most anywhere it goes. Let us look at it from the Indian perspective.

Destroying Jobs

Anand Sharma, India’s then Commerce and Industry Minister, said that he expects new FDI in retail to create 10 million new jobs over three years, about five to six million of which would be in logistics. (Dhume, 2011).

However, that optimistic opinion does not present the entire scenario. This may be true if one looks only at the jobs created by FDI (Walmart and other international investments) in the new stores and infrastructure it helps develop. Actually, as many people argue, the FDI really destroy many more millions of jobs which are currently performed by the small kirana merchants, the small farmers, and the small intermediaries all over the country.

According to a study by Neumark et al, opening of Walmart stores clearly reduces local employment and payroll (Neumark et al., 2005).

However, according to a study by the Indian Council of Research in International Economic Relations (ICRIER), large corporate and FDI money in the retail sector would not harm the small retailer in the long run. The FDI in organized retailing would help overall consumer spending to increase and help improve the purchasing power of all income groups. Lower income consumers would benefit the most. (Joseph et al., 2008).

Right from the beginning, the Bharti-Walmart joint venture has raised concerns and protests by small shop owners, traders, hawkers, farmers, and trade unions who fear substantial job losses due to FDI entry in India’s retail industry.

For example, several hundred shopkeepers in Delhi and elsewhere in the country protested the partnership on August 9, 2007. They chanted “Quit retail,” echoing the famous “Quit India” slogan that Gandhi successfully used to gain independence from Britain 60 years ago this month. (Gentleman 2007). This time, however, Walmart does not appear to pull out of the growing Indian retail market.

Similarly, in November 2011 when India announced its policy to allow 51% foreign ownership in multi-brand retail, millions of small shop keepers, traders and others demonstrated against the policy throughout the country. (Chen, 2012).

Several hawkers and vendors protested outside the Walmart’s head office in Gurgaon, on November 19, 2014 to bring attention to the damage it is causing them, the low wages it pays to its employees and the poor working conditions in its stores. (Chatterjee, November 20, 2014).

Likewise, as Walmart was about to open its 21st store near the Taj Mahal in Agra, India, the street vendors who sell similar goods as Walmart does protested the move saying it will take away their business and jobs. (Upadhyaya, 2015).

Retailing in the Disguise of Wholesaling

Under Indian laws, FDI partnered wholesale stores are allowed to sell only to “retail businesses” like shops, restaurants, vendors, hotels, and offices. Customers are required to have a photo ID to enter these stores. There is also a minimum purchase requirement so that individuals will not take advantage of the cards.

However, according to an undercover investigation by web portal Cobrapost.com, the international retailers, Wal-Mart, Metro Cash & Carry and Carrefour, do routinely sell their merchandise to individuals too. (Rajendran, 2014).

This violation of law by these companies hurts the poor small shops owners who are dependent on these individual buyers.

H7 Walmart would continue to face serious opposition from small local Indian merchants for their current and future unemployment.

Walmart’s Strategies after Joint Venture Breakup

Walmart has several strategic alternatives to choose from after its breakup with Bharti Enterprises. Its decision would affect both its own future in Indian retail industry; as well as the overall flow of FDI in India. It can stay in India, first, by continuing and growing its wholesale business there; and, then, it can enter India’s multi-brand retail business as and when it seems appropriate. Alternatively, it can pull out of India completely, as the French mega retailer Carrefour decided to do in July 2014.

Walmart’s Strategy to Continue Wholesale Operations in India

Indian retail industry is expanding all over the country, both in the highly populated large cities and the less populated smaller towns. According to the Indian Brand Equity Foundation, the local retail market, with a value of about $518 billion, should grow to about $866 billion in 2015. For a comparison, the U.S. market would be about $424 billion in 2010. The organized retail sector in India, currently about 10% of the overall market, would grow up to about 20% by 2020. (Octogona, 2014).

According to Rachna Nath, a retail analyst for pricewaterhousecoopers, the Indian retail market is estimated to expand to more than $1.3 trillion by 2020. It already racks up more than $400 billion in sales each year, but is dominated by traditional markets and mom and pop shops. (Banjo, Shelly and R. Jai Krishna, 2013)

Walmart, logically, has chosen to continue and expand its Wholesale Best Price cash-and-carry operations in India. It also plans to continue to make important contributions toward India’s socio-economic environment. According to Walmart's international president, David Cheesewright, India is a long-term commitment for Walmart (Mookerji, 2014).

In April, Walmart announced plans to open 50 wholesale stores in the next four to five years to expand its footprint in the country (Indian Express, 2014). It recently acquired a wholesale store in Agra from its rival Carrefour, the French mega retailer who losing money on it and who has decided to exit India due to several reasons.

For a general comparison, Walmart opened under 40 stores annually in China since 2008. In Mexico, its neighboring country, however, it opened an average of 266 stores every year since 2008. While this comparison may not be totally objective, it does throw some light on what India offers in terms of both the opportunities and the challenges. (The Telegraph, 2013).

Walmart’s Strategy to Enter India’s Multi-Brand Retail Industry

Walmart would continue to wait for appropriate time and opportunity to enter India’s multi-brand retail business. If it decides to do so, it may do it on its own, it may take an India partner, or it may acquire a competitor.

Online retailing giant Amazon.com plans to invest $2 billion to expand its operations in India that it began in February 2012. Similarly, Flipkart, India's largest e-retailer, is planning to raise $1 billion to expand its business. According to Boston Consulting Group, Internet users in India are expected to increase from 120 million in 2011 to 330 million by 2016; and their online shopping has room for growth. (Zack, 2014)

Walmart is also starting its own B2B online business to participate in India’s growing online business market.

H8 Walmart would continue to evaluate its various strategies to remain in India or to quit India.

Concluding Thoughts: India’s Fdi Strategy

India has some its own strategic choices to make too.

Multiple Stakeholders, Conflicting Interests

India’s retail industry is at cross roads. Its modernization, on the one hand, would destroy millions of small businesses and the related jobs. It, on the other hand, would also improve country’s infrastructure, create millions of different kinds of jobs, allow farmers and producers to receive more for their efforts, and allow consumers to pay less for their purchases as they shop in stores which more consumer friendly in several ways.

India needs additional capital and modern techniques of technology and management to modernize its age-old, inefficient and expensive retailing industry.

Large international retailers such as Walmart, Carrefour, and Tesco; and India’s own large organized retailers such as, in addition to Bharti Retail, Future Group’s Pantaloon Retail, Spencer’s Retail, Reliance Retail, Birla More, and Tata’s Westside are already providing some such resources. However, much more needs to be done.

However, the large and growing retailers, foreign or Indian, single brand or multi-brand, are also known for hurting small businesses and killing their jobs; millions of them.

This opposite environment of creative destruction would play out irrespective of the origin of the modern retailing firms, whether they are national or foreign.

China Example

FDI in retail in China provides a good benchmark for FDI in retail in India. China first allowed FDI in its retail in 1992 at 26%. It gradually increased it to 100% in 2004 in selected cities, as it tried to protect and strengthen its own retailers. (Dutta, 2011).

India’s Strategy

Thus, on the one hand, it appears logical for India to go slow in allowing FDI in its retail sector, as it tries to protect its small scale businesses. However, on the other hand, it also makes sense for India to recognize that China, one of its major competitors in the world markets, is already years ahead in the retail business in terms of its efficiency and effectiveness as they relate to different stakeholders. It, therefore, would make good sense for India to expedite the flow of FDI in its retail industry.

If India slows down in modernizing its retail industry, it would also continue to fall behind the countries such as China in developing its export business. Why would an importer pay more for Indian produce or products when it can get them at much lower prices elsewhere such as from China?

Under these circumstances, India should adopt a strategy, on the one hand, of facilitating the modernization of its retail industry. And, on the other hand, it should also take all the necessary steps to take proper care of its people who would be adversely affected by retail industry modernization.

It should be recognized that the modernizing retailing would increase per person output, the total national GDP, and the average per capita GDP; as it would also reduce the total cost of production. In other words, the modern retailing would increase the total size of the rotti (Indian bread), as compared to its size currently rolled out by its grossly inefficient retailing industry.

India should then use its increasing size of rotti to take proper care of its people who are hurt by the modernization, in retailing or elsewhere, by providing them the benefits such as follows: Unemployment compensation; medical care; general and specialized education to prepare for different jobs and opportunities; and low cost loans and guidance to start new businesses.It would be a win-win phenomenon for India, not a zero-sum game. Based on these data and information, the following hypothesis is presented:

H9 It is in India’s major interest to promote modern retailing in the country. It should develop comprehensive laws and regulations to help it grow at a rapid rate; including its FDI component. It should also establish equally comprehensive laws and regulations to help the millions of small entrepreneurs who would be unemployed by the growth of its modern retail industry.

Acknowledgement

Thanks are due to Mr. Sungsik Choi, the author’s Graduate Assistant for his research assistance; and to Pace University for making his valuable help available to the author. The author is also thankful to all the sources which have been used in writing this case study article.

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Exclusive Marketing Strategy of Walmart India – With Detailed Explanation

By Aditya Shastri

In the recent article, we learned about the marketing strategy of Mercadona . In this article, we are going to discuss the complete marketing strategy of Walmart India – India’s chief retail tech company.

The main goal is to gain an understanding of Walmart India and have an in-depth study of how Walmart is marketed in the country.

Whether you are a business proprietor or a working professional, several questions arise that you need to ask yourself. For example, are you conscious of the needs that your customers desire? Do you think your customers love your products?

A single word that answers all these queries is none other than “marketing”. Marketing is crucial for the workflow of every industry as it makes customers aware of your products or services, keeps them updated on your business and helps them make a buying decision.

Nowadays, every individual relies upon digital life for everything, so it is a mandate for every industry to grow online also and increase their sales much higher. If you are interested in having a better grip on marketing concepts then you should definitely check out our Free Masterclass on Digital Marketing by the CEO and Founder of IIDE, Karan Shah.

In this case study, we will be learning about the whole marketing strategy of Walmart India by the end of this blog. Before going much deeper into this concept, we will have a look at the company’s story, target audience and digital presence.

About Walmart India – 

Source – PNGitem

Walmart is a notably well-known multinational retailing corporation incorporated in the United States of America that operates grocery stores, supermarkets, hypermarkets etc. It was designed by Sam Walton in 1962 in Arkansas, a state in the USA, and was incorporated in 1969. Walmart has become a global uproar with an estimated 11,500 retail locations in 28 countries and 11 e-commerce sites. Walmart was a physical retail outlet, and later on, it moved to e-retail in the year 2000.

Walmart India private limited is a wholly owned subsidiary of Walmart stores incorporation that owns and employs 28 B2B present-day wholesale stores under the brand name ” best price “. It was founded by Krish Iyer in 2009.

It is dedicated to a future where marketing in India is a blend of shopping experiences that serve Indian customers, suppliers, producers and retailers.

The brand maintains its stability by emphasising customer attention, cost controls and efficiencies in the distribution networks. It is best known for its high-quality products at cheap prices. 

Quick Stats –

Marketing Strategy of Walmart India –

Now, we will be proceeding to the main segment of this case study. We would look at the STP Analysis, to start the marketing strategy of Walmart India.

Segmentation, Targeting and Positioning

The segmentation strategy helps in having a clear grip on different sub-segments of customers and their dynamic needs. Walmart India uses psychographic and demographic segmentation strategies. This helps it to understand the mindset of the customer and have a clear understanding that the customer desires everyday goods at reasonable prices.

An undifferentiated targeting strategy is used by the brand to seize the market. The price of products plays the main role as the differentiator for Walmart India. A low-pricing strategy is used for a large number of people.

Positioning strategy plays a crucial role in every industry in its success. Walmart India has positioned itself as a company presenting products at the lowest price to individuals. It uses the pricing advantage to be reliable in its business model.

Marketing Campaigns

Walmart India does not launch such marketing campaigns to promote the brand in India. 

Marketing campaigns are planned, organised efforts that support a company’s goal or objective, such as marketing a good or service or the brand as a whole using various media, including print, radio, television, and online platforms. To get the most effective results, marketing campaigns are carefully designed and the activities are varied.

Before beginning a marketing campaign, marketers must assemble information on the market. They should know everything relating to their product, their customers, and the competitors within their niche. The ambition is to ensure that the campaign reaches the maximum number of people in the target society.

Social Media Marketing

Walmart India has sunk money into social media marketing to upgrade their influence and engage their followers. While Facebook is the prime social media marketing channel of Walmart, the brand is also making use of other social media networking sites like Twitter, Instagram, Pinterest and LinkedIn for promoting its brand and managing customer relations. 

The number of followers according to different social media platforms are as follows:-

• Facebook – 34.27 million
• Instagram – 10k
• LinkedIn – 8L
• Twitter – 12k
• Pinterest – 33000+

The posts on various social media platforms carry mostly promotional and informational content along with other posts related to discount offers on the products available.

This helps the brand with engaging customers and run seasonal promotions to execute sales. Moreover, funding in social media marketing has also helped Walmart India improve customer loyalty and grow their general influence in both online and offline domains.

SEO Strategies

Source – UberSuggest

According to SEO ranking, the number of keywords – below 500 is bad, above 1000 is good, and above 10,000 is amazing. From this, we can conclude that the search volume of Walmart India is 438K+ which is remarkable. Another factor to take into consideration in an SEO Strategy is monthly visits and Walmart India has grand monthly visits of around 9M. 

This indicates that the SEO strategy of Walmart India is unbeatable.

Influencer Marketing

Walmart presently works with influencers which they have attained through collaboration with various platforms such as YouTube, Instagram, Pinterest etc for their marketing purposes. These influencers help Walmart India with promoting its groceries and apparel as well as its Walmart+ loyalty program. Influencers normally have many followers on Instagram, YouTube, and Pinterest and they advocate products to the public by posting affiliate links. Influencers promote the products of Walmart India which helps in gaining fame and accordingly sales increases via their fan following.

E-Commerce Strategies

Walmart spotlights the consumers’ craving for value and delivers what the customer wants. They focus on stocking up on products from different categories varying from groceries to apparel to makeup and so on. This creates value for the customers as they can find all the products they need in one shop under one roof. They have an e-commerce portal which makes it possible for customers to do online shopping from its website itself.

Mobile Apps

They have online shopping apps such as Flipkart and Myntra to fuel the needs of their customers where they get customisable options in terms of order placement, delivery and payment. They have a wide range of products accompanied by a fair price point which leads them to have a huge customer base.

Content Marketing Strategies

Walmart India deeply concentrates on promoting its brand and is also very active on social media. Walmart India advances its brand everywhere. It has content marketing strategies of running ads on different platforms such as TV, social media, billboards, PR, newspapers (The Times of India), magazines and many more. 

The content is related to some discounts, deals or special offers on products. This applies to both the physical mode and the online mode of shopping.

This ends with the insightful marketing strategy of Walmart India.

What’s Unique in the Marketing Strategy of Walmart India?

In the marketing strategy of Walmart India, we came to know that Walmart India has strongly been able to play to its strengths and also attain love and support from all places in the World. The main reason for the success of Walmart India is genuine branding. They wanted to become the chiefs of the best prices, so they sketched all their marketing strategies with low cost and improved sales.

The main problem for Walmart India was that Walmart always sold its products directly to customers. However, in India, accepting this strategy was not workable due to certain foreign investment guidelines and blockades. India permits only 51% of Foreign Direct Investment (FDI) in multi-brand retail stores. Another dilemma it faced was that India had an impoverished physical infrastructure. The poor quality of roads and transportation accompanied by the unwillingness to adopt modern technology were core barriers to be overcome.

Anyhow, to survive and exist in India’s complicated business environment, Walmart transferred from selling to customers directly by launching cash-and-carry (CC) format stores to selling to small wholesale buyers, with 100% FDI allowed in cash-and-carry wholesale enterprises. 

India also started developing its physical infrastructure for many important reasons which became a clear path for Walmart to retail in the Indian Market. As India had to establish relations with many countries worldwide, the adoption of modern technology became a mandate. As most of the activities or transactions in the world are running mostly in online mode, Walmart India shifted its focal point towards becoming a technology-centric company. This helped Walmart India to grow more prosperous in terms of sales and attract potential customers as people could not only find all the items they were looking for at Walmart, but they could also buy them at discounted prices.

Through digital marketing, the scope of immediately fixing any mishaps is there. If you want to learn Digital Marketing IIDE offers some amazing programmes to choose from one is Online Digital Marketing Courses and another is MBA in Digital Marketing Course . You can choose anyone as per your needs.

So we are at the end of the reading. Please share your thoughts and queries in the comments section given below. If you love such thorough analysis of companies just like we discussed the marketing strategy of Walmart India, then check out our IIDE Knowledge portal for more delightful case studies. Thank you for taking the time to read my blog on the marketing strategy of Walmart India.

Author's Note: My name is Aditya Shastri and I have written this case study with the help of my students from IIDE's online digital marketing courses in India . Practical assignments, case studies & simulations helped the students from this course present this analysis. Building on this practical approach, we are now introducing a new dimension for our online digital marketing course learners - the Campus Immersion Experience. If you found this case study helpful, please feel free to leave a comment below.

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The Bharti-Walmart Breakup: Where Does FDI in India Go Next?

November 1, 2013 • 13 min read.

The break-up of a joint venture in India between Walmart and Bharti Enterprises raises questions about the future of multi-brand FDI in India's retail market.

• Finance & Accounting
• Public Policy

After a seven-year partnership, Walmart and Indian retail partner Bharti Enterprises last month issued a terse joint message saying they were ending the 50/50 joint venture launched by the two firms in 2006 and had reached an agreement to independently own their business interests in India.

The move wasn’t entirely unexpected. Days before the statement was released, Walmart Asia CEO Scott Price told the media during an Asia-Pacific Economic Cooperation meeting in Bali that “the existing franchise to Bharti is not tenable as the base” for Walmart in India. Both sides were looking at the best way to move forward, he added.

Under the agreement reached by the two firms, Bharti will acquire Walmart’s indirect stake in the Easyday chain of retail stores through acquisition of compulsory convertible debentures of Cedar Support Services, a Bharti group company. In turn, Walmart will acquire Bharti’s stake in the 50/50 Bharti Walmart joint venture, which is a cash-and-carry business-to-business operation under the Best Price marquee. India has allowed 100% foreign direct investment (FDI) in the cash-and-carry segment since 2006. “Given the circumstances, our decision to operate independently will be beneficial to both parties,” said Price.

Even though the split was no big surprise, it didn’t make much sense to many observers. Walmart has been leading the campaign to get government permission for 51% foreign holding in multi-brand retail. In single-brand retail, 100% FDI has been allowed since September 2012. The FDI policy in retail has been extremely controversial and the Manmohan Singh government had to stake its survival on the issue. “The Walmart withdrawal is a victory for small traders,” says Praveen Khandelwal, secretary general of the Confederation of All India Traders, an anti-FDI organization.

But according to Wharton lecturer Edwin Keh , India may actually have little to do with Walmart rethinking its strategy in the country. “I suspect the current moves in India are part of a larger shift by Walmart to put focus back on its domestic business,” says Keh, who was formerly chief operating officer and senior vice president of global procurement for the retail giant. “In the current environment of a recovering U.S. economy, the opportunities may be back at home.”

Even though the divorce was no big surprise, it didn’t make sense to many. Walmart has been leading the campaign for 51% foreign holding in multi-brand retail.

Keh cites other recent Walmart moves to support this theory. “India, China and Mexico have been the countries where Walmart is ‘rebalancing’ its stores,” he notes. However, he sees Walmart’s total business in China as poised for growth with its investment in online grocery retailer Yihaodian. Walmart has a 51% interest in Yihaodian and plans to integrate its logistics operations with that of the latter.

Yet everything is not black and white. The retail giant has recently run into problems with the U.S. authorities over allegations that Walmart de Mexico had bribed its way to market dominance in that country. Even as this investigation was proceeding, further accusations were made about similar transgressions in India, China and Brazil.

Probe in India

Unlike in the U.S., lobbying is illegal in India, and there was significant outcry when Walmart disclosed to the U.S. Senate and the House of Representatives that it had been indulging in India-specific lobbying. Opposition lawmakers in India forced the government to take action, and a retired judge was appointed to probe the issue. While initial indications are that the findings have been inconclusive, a new controversy has arisen. The prime minister’s office has declined to give sought-for details of meetings of the prime minister and his officials with Walmart lobbyists. While this exemption can be claimed under India’s Right to Information Act, it has strengthened the arguments coming from the anti-Walmart contingent.

The Walmart-Bharti separation was orchestrated with unnecessary controversy on another front. In early July, the head of Walmart’s operations in India, Raj Jain, was let go. The announcement was made by Price at a town-hall meeting and came as a big surprise to the employees, who assembled on short notice after a summons via e-mail. Jain had been a trusted general of the company for seven years, and his departure was read as action against those accused in the bribery allegations. The New York Times had earlier reported that the joint venture “had suspended several senior executives and delayed the opening of some stores in the country as part of an internal bribery investigation.” Now, many were sure that the kingpin had been identified.

After the break-up, however, Jain was given a vote of confidence from Bharti via a post as advisor to the firm’s retail division. When Rajan Mittal, vice chairman of Bharti Enterprises, made the announcement at yet another town-hall meeting, the employees — who had heard Price in stunned silence — broke out in applause. Jain was unavailable for comment.

Walmart’s discomfiture with its Indian partners is familiar territory for multinationals, according to Keh. “Some countries may prove to be too difficult for multinationals,” he notes. “Multinationals are often held to higher standards and so are often handicapped when competing with national operators.”

Anand Sharma, India’s commerce minister, says that Walmart has already been given plenty of opportunities in the Indian market. “Walmart got enough space,” he notes. “There will be no further steps to woo the company.” With its cash-and-carry venture, Walmart has retained a toehold in India, and observers feel it will make a comeback in multi-brand retail when the regulations are relaxed further. (The company also has the option, of course, of divesting Best Price and getting out of India altogether.)

Finance Minister P. Chidambaram says more relaxations are unlikely. “We have a policy,” he told business channel CNBC-TV18. “A genuine investor must work within that policy. It may not be the ideal policy from [the company’s] point of view. But this is the policy that we have today. You have to take it as it is.”

Policy Pains

What is it about the FDI rules that Walmart is finding difficult to accept? The trouble in India is that every policy is accompanied by subsequent clarifications, some of which are difficult to digest. Swedish furniture maker IKEA’s $2 billion proposal to set up single-brand stores in India was stalled because it wanted to operate cafes and restaurants in its stores. According to the government, this would make it multi-brand retail, logic officials first used while rejecting a Marks & Spencer application. IKEA ultimately received the approval move forward; the chain is allowed to sell coffee but only for consumption on store premises. The first IKEA store in India is expected to open in 2017-2018.

Walmart is facing a different obstacle. A contentious clause says that multi-brand foreign retailers must source at least 30% of their products from small industries. This may be possible in textiles and handicrafts, but what about electronics?

The second problematic clause relates to investment. The policy states that 50% of investment must be in back-end infrastructure. The clarifications issued by the Department of Industrial Policy and Promotion state that this must be entirely for green-field assets, meaning Walmart’s investments in India thus far do not count toward meeting that mandate.

With its cash-and-carry venture, Walmart has retained a toehold in India, and observers feel it will make a comeback in multi-brand retail when the regulations are relaxed further.

“It is now clear that foreign players will have to create capacities from scratch. This means that they will need to go back to the drawing board, assess their appetite for investment and rethink their strategies,” Ankur Bisen, vice president for retail at New Delhi-based research and consultancy firm Technopak Advisors, told Knowledge at Wharton in an earlier interview.

Bisen noted that the new set of clarifications has “added more rigidity and disincentives and will result in further delay in investment decisions.” And according to a KPMG study: “These clarifications may pose additional road blocks for global retail players.”

Not Just Walmart

The Walmart-Bharti breakup is not the only recent severing of ties between multinationals and local partners. Fast-food giant McDonald’s, which has a 50/50 joint venture called Connaught Plaza Restaurants, has accused Indian partner Vikram Bakshi of looking after his own business interests in preference to those of the joint venture. On August 30, McDonald’s issued a public notice that deposed Bakshi as managing director. The company would henceforth be run by the board, it said. The affair has ended up with the Company Law Board.

Meanwhile, a year-old 30/70 partnership between Australian coffee chain Di Bella Coffee and Indian entrepreneur Sachin Sabharwal is now embroiled in legal suits and defamation charges. The 26-year-old joint venture between the Munjals and Honda of Japan broke up in 2010, albeit with much less acrimony. Other joint ventures said to be on the rocks include Gillette India (with key shareholder and chairman Saroj Poddar) and German stationery maker Faber-Castell (with partner and managing director Anup Bhaskaran Rana).

Traditionally, JVs break up mainly because of incompatibility issues or big egos. But in India, it may be more the external environment than the internal environment that is causing separations. “In the Bharti-Walmart case, I suspect it is more the FDI policy and possibly the U.S. Foreign Corrupt Practices Act (FCPA) investigation which led to their decision,” says Pradeep Mukherjee, India head and CEO of global HR consultancy firm Mercer.

“U.S. companies entering into a JV are required to have a clear understanding of their duties and responsibilities under the FCPA,” adds S. Raghunath , professor of corporate strategy and policy, and dean of administration at the Indian Institute of Management, Bangalore. “We also know that compliance issues affect U.S. company executives and heighten corruption risk. They are, therefore, extremely concerned about the potential impact of corruption on their business.”

This is the reason why when Raj Jain was shown the door, speculation immediately started that the change was evidence of Walmart trying to “clean up its act” in India. In recent times, several CEOs of multinational subsidiaries in India have been let go. Reebok India’s managing director Subhinder Singh Prem was even arrested for fraud.

“The Bharti-Walmart case is completely different,” says Raveendra Chittoor , professor of strategy at the Hyderabad-based Indian School of Business. Pointing out that the partners in the joint venture came together based on certain assumptions on the regulatory front, Chittoor notes: “For Walmart, their proposed business model does not fit in with the new regulations.”

Traditionally, JVs break up mainly because of incompatibility issues or big egos. But in India, it may be more the external environment.

A joint venture is a partnership between two companies, each bringing its own strengths — “local market knowledge from one and international best practices from the other,” says Bundeep Singh Rangar, chairman of Indusview, a London-based advisory specializing in business opportunities in India for multinational firms. “Like all relationships, however, one party might fail to fulfill its share of responsibilities, which leads to a breakup.”

Chittoor observes that the breaking up of alliances is very common, both globally and in India. “According to various studies, almost 60% to 70% of joint ventures fail. Failure can be due to many factors. For instance, the objectives of the partnership may not have been thought through or articulated clearly; lack of planning and lack of articulation leading to misunderstandings; different leadership styles; information asymmetry leading to ideological and cultural differences [or] HR issues.”

He makes a distinction between partnerships that spin out of control and those that are designed from the very beginning to break up. Pepsi started in India with the Tatas (Voltas). The moment the laws were changed, the two abandoned the venture. Procter & Gamble-Godrej and Tata-IBM came to an amicable end because the objectives set out at the beginning of the relationship were achieved.

“There is no clear evidence as to how many of the partnerships that break up are by design or because of actual failure,” Chittoor notes. “So even if there are more partnerships breaking up today in India, it is important to see how many of them are a natural progression because the objectives have been met.”

Rangar adds that it would be “unfair” to cast most of the joint ventures being dissolved as acrimonious breakups. “The reason for having a JV is that the overseas company needs handholding as it understands the nuances of doing business in India, and the Indian company needs to learn the best practices in product development and adopt manufacturing technology from the overseas entity,” Rangar says. “When the purpose of the JV is achieved, the partners don’t feel the need to piggyback on each other.”

Raghunath sees a different set of reasons for incompatibility issues between multinationals and Indian partners. “Foreign investors often have deep pockets, a longer-term view of a joint venture’s financial returns and a willingness to reinvest profits and increase capital, while the Indian partner often has a more short-term view and relatively shallow pockets,” Raghunath notes. “The result can be different priorities for investments and a lack of cooperation, both between the JV partners and within the joint management team.”

The bigger issue today for India, which is currently being crippled by a huge current account deficit, is the impact on FDI inflows. “Walmart will be a speck in India’s retail market,” says Chidambaram. “Its absence won’t make any difference to the country.” Rangar is also optimistic. “As long as the broader investment case for an India entry is compelling and overseas companies are patient enough to commit to India for five-to-seven years to see stability in their Indian operations, FDI will keep flowing in,” he predicts. “What’s more, the Indian companies that have deep domestic execution skills will find themselves being courted by overseas companies, not necessarily for a joint venture but on a project-by-project basis.”

But Chittoor sees Walmart as a key player. Since the FDI rules were amended more than a year ago, India has not received a single application for multi-brand retail. “The impact of the Bharti-Walmart breakup on FDI depends on what Walmart plans to do now,” he says. “If it decides to continue in India on its own, it means that it is confident of the potential of the Indian market. That is very positive for FDI. However, if it decides to pull out of India completely, it could have a negative impact.”

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