Introduction Global Retail Development Index (GRDI) ranked India

The Indian market has a had very limited presence of global retailers such as McDonalds, Dominos, Pizza Hut, etc. since it’s liberalisation in 1991. In January 2006, the government approved the policy on Foreign Direct Investment (FDI) in the retail sector to attract investors and simplify procedures for investing in India. FDI upto 100% was allowed for cash and carry wholesale and export trading, however, FDI was restricted to 51% in single brand retailing. Walmart entered the Indian wholesale market through a 50-50 joint venture with Bharti Retail. In 2009, A.T. Kearney’s Global Retail Development Index (GRDI) ranked India as the most emerging destination for retail, ahead of Russia and China. Although market analyst believed that India was dominated by unorganised retail and were uncertain whether global retailers could sustain in India considering their FDI restrictions and current market scenario. 

Brief about Walmart & Bharti Retail
Wal-Mart Stores, Inc. is an American multinational retailing corporation that operates as a chain of hyper markets, discount department stores and supermarkets. The company was founded back in 1969 by Sam Walton and is headquartered in Bentonville, Arkansas. As of today Wal-Mart has 11,695 stores operating across 28 countries. The revenue of Walmart in 2009 was approximately $405.61 billion.

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Bharti Enterprises is a group involved in variety of businesses such as telecom, retail, food and realty. The group was established by Sunil Bharti Mittal in the early 1990s, and has a global presence in Bangladesh, Sri Lanka, Jersey, Guernsey and Seychelles. It currently plans on expanding to countries in the African sub-continent such as Gabon, Ghana, Nigeria, Kenya, etc. Bharti Enterprises is one of India’s largest companies and owner of Airtel, the country’s leading mobile phone operator, and Beetel, one of the worlds largest manufacturers of land-line telephones. The revenue of the company in 2009 was estimated at $10 billion.

Walmart’s Strategy in India
Walmart differentiated itself from its competitors through its Everyday Low Prices (EDLP) strategy, by bargaining aggressively with its suppliers and implementing highly efficient distribution and inventory control systems. It’s mission was to ensure that everyone has the opportunity to purchase everything they needed at the lowest price and Walmart was able to succeed due to their high standards of service and constant strife for excellence. However, this appeared to only be good for the United States. 

In 2007 Walmart succeeded in entering the Indian market via a long planned joint venture with local parent Bharti Enterprises. The 50-50 joint venture was to be called Bharti Walmart, which would utilise Walmart’s logistics technology, inventory systems, infrastructure and transportation systems. Bharti invested up to $2.5 billion in Bharti Retail, it’s own supermarket chain that would be supported by Walmart’s logistic and supply chain technology through a franchise agreement. In the year 2009, Walmart opened its first outlet in Amritsar, Punjab and the company had planned to open 10 more outlets in the other potential cities of India. 

90% of the of the products (FMCG, vegetables, general merchandise) were to be sourced from the local market and this joint venture was to help Walmart’s global sourcing from India.  It did not limit its target market and catered to a broad range of customers, from college students to business professionals. Walmart also implemented its Direct Farm Program by  partnering with 110 small and marginal farmers, encouraging cultivation of safe and high quality vegetables. 

Unfortunately Walmart wasn’t able to simulate its success in India, primarily due to India’s strict regulation policies and also it’s inability to adapt to the culture. Since Walmart also had products across numerous sectors (clothing, food, etc.), it lacked flexibility compared to its domestic competitors.

Globalisation has currently enveloped the world and it affects all aspects of life. “Globalisation is the process by which national and regional economies, societies, and cultures have become integrated through the global network of trade, communication, immigration and transportation”. Globalisation has various impacts associated with it, such as:

Exchange of Technology
Knowledge Transfer (Spillover Effect)
New International Business Strategies
Competitors and Competitive Advantage

Economic globalisation and advances in information technology are the key to Walmart’s logistics and supply chain, which have revolutionised the retail industry. Walmart is able to implement its low price strategy through global procurement from low-wage countries such as China/India and quality suppliers in North America to achieve operative and cost efficiency. Globalisation has been a boon and bane for Walmart in India by bringing both opportunities and threats. 

Walmart into India
By 2006, India had the largest population of ‘under 25 years’ in the world and a 400 million middle and upper class population. India became one of the fastest growing economies in the world with its Gross Domestic Product (GDP) reaching 8.1% in 2005-06. The retail sector in India was growing rapidly and that India and a China were the most favoured countries for FDI.

The retailing industry in India had always been protected. The government did not allow FDI in the retail sector, however, in case of companies who dealt in single brand, the government in February 2006 allowed 51% equity partnership through a joint venture with a domestic firm.

Experts suggested that developed and developing countries’ experiences had proved that performance of an organised retail was strongly linked to the performance of the countries economy.

The Research and Development (R) division of Walmart had global knowledge about different markets and concluded that Walmart, one of the largest retailer, should opt to globalise in India, the worlds second largest populous country and the fourth largest retail market in the world.
Opportunities in India
The opportunities in India was vast with various reports supporting the internationalisation of Walmart to India. McKinsey & Company suggested that an increase in disposable income of Indian consumers would be a key factor in contributing to the growth of retail consumption. Some of the other factors that would also play a significant impact are the increasing household income, growth in working population, change in consumers lifestyle and easy availability of credit. 

Another report from McKinsey & Company revealed that all industries would grow over the following years. The food and beverage industry was predicted to grow at a 4.5% compound annual growth rate (CAGR), the apparel industry at a 6.5% CAGR and personal products and services at a 9.2% CAGR. Furthermore, India was growing as a rural retailing hub and established itself as an important supplier for procurement of textiles and apparel’s for numerous international brands.

A report by Ernst and Young for India Brand Equity Foundation (IBEF) showed that there are numerous opportunities in various cities in India for organised retailers due to rapid urbanisation, investment activity and increasing technology adoption. These metropolitan cities such as Delhi, Mumbai, Bangalore, etc. have tremendous spending power and a relatively low presence of organised retailers.

More than 70% of India’s population is concentrated in the rural areas, with rural retailing constituting 95% of the total retails revenues, thus providing exceptional opportunities for retailers. Few of the key players in the rural retail market were Indian Tobacco Company Choupal Sagaar, DCM Shriram group owned Hariyali Kisan Bazaar and Indian Oil Corporation’s Kisan Seva Kendra among others, with the main product categories being Fast Moving Consumer Goods (FMCG), seeds and fertilisers and farm produce.
Challenges in India
Apart from the attractive opportunities India possessed, there were still numerous challenges present at the time, which any international firm would find difficult to overcome. The tough regulations by the Indian government were one of the key challenges. The government required foreign retailers to purchase 30% of products locally from small and mid size business. Walmart’s chief executive for Asia-Pacific, Mr. Scott Price, stated “I don’t understand how this 30 percent small and medium enterprise can be executed”.

It’s non existent cold chain supply and logistical infrastructure is also a major cause for concern for foreign players to confront. 

Another report produced by the Confederation of Indian Industry (CII) and A.T. Kearney states that although the Indian retail industry is highly promising there are core issues that need to be addressed such as infrastructure and policy issues.

Indian retailers in the organised and unorganised sector have been preparing themselves for global competition since the approval of FDI. Organised retailers have been focusing on mall space acquisition, retail expansion and diversification while the unorganised sector has been focusing on value added services. A study by PriceWaterhouseCoopers and CII stated that smaller unorganised retailers had an inherent advantages as compared to the larger organised retailers. Primarily due to its locational advantage along with a strong customer orientation.

Walmart’s Lack of Success in India
Even though India’s market provides tremendous potential, it is highly complex and challenging. Walmart’s growth in India has been hindered by it’s developing rules on foreign investment, an internal bribery probe, and primarily its faltering partnership with Bharti Retail.

All Walmart stores across the globe are located within a 10 km radius from the city center. The area of Walmart super centres are approximately 180,000 to 230,000 sq. feet. Considering such size stores are not feasible to set up in city centres, they usually set up their stores further from the city centre. Since most Americans own cars, they have easy access to the stores and purchase supplies for the whole month.

On the other hand, most cities in India have extremely high real estate prices allowing Walmart to only set up large scale stores outside the city center. Unfortunately, a very small percent of Indians own a car, thereby limiting their target market vastly. Also with India’s severe traffic conditions, the idea of traveling long distances for easily available products is not promising.

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