Sunday, April 28, 2013

Walmart’s Indian Saga


Walmart’s foray into the Indian market has been eventful, to say the least. Many big companies try to tap into the emerging markets when their growth in the developed markets stagnates. Even though the bulk of Walmart’s operating income comes from its operations in the US, its growth internationally was 7.6% compared to 4.4% in the US. By 2021, the India retail market could be worth $80 billion.

                                                                                                               source – [4]
All of the above makes sense, but Walmart continues to lobby in the US over India’s FDI policies and currently there is a probe on its lobbying policies in the US. In addition to this, Walmart’s entry into the Indian markets has hit many stumbling blocks. It has partnered with Bharti Enterprises in India. In 2012, the company was able to open only 5 wholesale stores, when 22 were planned. Under operation ‘Jai Ho’ (‘Let there be victory’) they wanted to be India’s top retailer by 2015. There are a number of reasons why that will not happen anytime soon.

Infrastructure

India’s transport infrastructure and storage facilities are simply not good enough to support the operations of retail giant like Walmart. Indian trucks manage an average of 186 miles a day due to bad roads compared to 500 miles in the USA. Cold storage units in India have a capacity to serve only 11% of the food produce. Only a giant retailer with big pockets can fix the infrastructure. Walmart seems like it has that capability, but infrastructure is not enough.

‘Soft’ Infrastructure

Companies rely on a number of agencies, services and other companies when it makes a foray into any market. In a developed economy it is relatively easy. But in emerging markets, companies are unable to identify firms which can help them with data and very few people aggregating data which the company can use directly. Companies, due to a lack of hard data, end up making decisions based on intuition or whim. By partnering with Bharti Enterprises Walmart alleviated some of its problems as Bharti Enterprises is an established player in the Indian market with resources and knowledge about the Indian market.

Bureaucracy and middle men

From the time that the farmer gets paid for his/her produce till the time the food actually reaches the shelves the price increases significantly. And therein lies Walmart’s biggest challenge. An army of middle men and agents who inflate the prices are dead against Walmart’s entry into the country. Add to that, the vast number of permits needed from both the central government and the respective state governments to begin work. There is no doubt that all this has frustrated Walmart to no end. In 2011, Walmart’s plans of opening a facility in Tamil Nadu was thwarted by the local municipal corporation due to the lack of permits. The over-zealous developer began construction without having the requisite permits and the government sealed the location.

The ‘right’ way of doing things

Walmart wants (has) to do things the right way. Having already signed on many farmers, they are only looking to sign on landlords who are not involved in any kind of corruption and illegal activities. In India, that is much harder than it sounds. But if they are successful, there work might lessen some corruption in India. Also, they need to train their Indian counterparts adequately. There have reports of its Indian staff not following protocols by starting on initiatives not yet approved by the chain of command.

Livelihoods of people

Whilst many jobs (mostly agents and middlemen) will be destroyed if Walmart has its way in India, many more will be created. Not to mention, Walmart’s pretty good at what it does (100 million Americans shop at Walmart every week!!). It will transform the retail industry in India. But many political parties in India oppose the entry of Walmart and FDIs in general. Also, state governments will decide for themselves whether they want to allow Walmart to do business in their states. This could complicate matters even further.

India is a huge market to tap into. Also, Walmart’s philosophy of selling things as cheap as possible will sit well with the average Indian consumer. Having said that, I don’t see them making much head way into the Indian retail market anytime soon. There are simply too many hurdles to cross. From an infrastructure point of view, Walmart will have to invest massively. Whilst it does have the resources, whether they make the necessary investments or not will only depend on the returns they perceive in the long run. In addition, they can expect very little help from the government. Corruption runs rife in the in government offices and Walmart would need to be patient and resilient in order to clean up the system. It could be years before we see Walmart dominating the Indian retail industry, if at all they ever will.

Sources
1.       Sharma, Amol, and Biman Mukherji. Online Wall Street Journal. Online Wall Street Journal, 11 Jan. 2013. Web.
2.       Choudhury, Chandrahas. "World ViewHot Topics in Pivotal Markets." Bloomberg. Bloomberg, 20 Dec. 2012. Web. 28 Apr. 2013.
3.       Editorial Board. "How a Wal-Mart Struggle in India Shows World Progress." The Christian Science Monitor. The Christian Science Monitor, 02 Apr. 2013. Web. 28 Apr. 2013.
4.       Bahree, Megha. "Wal-Mart's Path to Power in India Hits Its Limits: The Lawyers." Online Wall Street Journal. Online Wall Street Journal, 2 Apr. 2013. Web.
5.       Michael. "Is Wal-Mart Destroying America? Facts About Wal-Mart That Will Absolutely Shock You." The Economic Collapse. The Economic Collapse, 4 July 2012. Web. 28 Apr. 2013.
1.       Khanna, Tarun. "Strategies That Fit Emerging Markets." Harvard Business Review, June 2005. Web.

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