Walmart-success story in india

Executive Summary

The retail sector had driven a major economic boom in various parts of the world. The impact of the booming retail was most visible in Developed and Developing countries of the world. The Asian regions were also witnessing an economic boost backed by the retail sector. By 2005, retailing was worth US $7 trillion.

Walmart was the world’s largest retailer when it extricated oil giant Exxon Mobil as the world’s largest company by posting US $219 billion in sales for fiscal 2001. Walmart’s success had been the result of its ability to leverage size, market clout, and efficiency. Walmart topped Fortune magazine’s list of top 500 companies in the world, successively for three years till 2004.

In the early 1990s, Walmart announced that it planned to go global. It wanted to look for international markets for many reasons like; the competition from domestic market was becoming stiff. Al”though Walmart had the scope of expansion in the domestic market, it was becoming difficult to maintain double digit growth as it was suffering from soft sales and rising inventories. During the first five years, Walmart concentrated on Mexico, Canada, Argentina and Brazil which were close to its domestic market geographically. Walmart expanded its international operations through acquisitions, joint ventures, Greenfield operations and wholly owned subsidiaries.

The liberalization of the Indian economy in 1991 had opened up the market for consumer goods.

Soon, new retailing formats emerged to complement the traditional Kirana (mom and pop) stores. Rising incomes coupled with infrastructure improvements were increasing consumer markets and accelerated consumer tastes and preferences. Economic Researches has highlighted that half of the Indian population as low income group in the year of 1994-95. By 2006 -07 it was estimated that less than 20% of the overall Indian population will be below the low income group

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Internet revolution has helped the consumers in India to know more about multinational or international products and services. It is estimated that by 2015 more than half of the India population will be between the age group of 20-25. All this estimates makes India as one of the most attractive place to invest in retails sector.

After years of controversy and opposition from local retailers and political parties Walmart was successful in opening business in India. Their success is keenly watched and observed by retail giants to make the move in India, which is a highly potential market for retail. The purpose of this study is to understand the barriers of entries that are faced by a multinational giant like Walmart and how this company overcomes such barriers to establish their first wholesale shop in India. The business entry by Walmart will be the first reference for any other multinationals who are trying to penetrate into Indian market.

Introduction

In the year 2009, Walmart opened its first outlet in Amritsar. As a first step, Walmart is involved in selling of vegetable to vendors, hospitals, restaurants and other companies. Over the next 2 years the company has planned to open 10 more big outlets in the potential Cities of India. One of the interesting facts to notice is that the Walmart outlet doesn’t carry the traditional “Walmart” logo. Instead it is known as “Best Price”. This strategy is purely to avoid political protest against multinational retailers entering into market.

Main focus of the study is to understand the barriers of entry that are faced by the Multinational retailers while inflowing into Indian retail market. How the political and legal conditions in India favor such an entry and also how the sentiments and social behavior of the people are influenced are the key part of the study

This Bharti-Walmart joint venture would enhance the ongoing retail industry revolution and also will elevate Indian shopper’s experience. That’s not all, how the small Kirana stores will oppose such kind of threat or competition is worth observing. There could either be more resistance from local traders or could this be the end of local trader’s existence and beginning of franchised local shops. Not clear at this moment.

India a land of Opportunity

Traditionally, the whole fragmented retail industry consisted of 15 million entities which were considered as the largest in the world. There were various attempts made to scale up the size of the industry. The models which were successful in west were adopted. Majority of the players found it difficult to size up except because of the huge investment in infrastructure. Key domestic major players like Pantaloon Retail (India) and the Food World Supermarkets Limited were successful in adapting the scale up process.

By 2006, Not only considering India having the largest population of ‘under 25 years’ in the world and a 400-million middle and upper middle classes, India became one of the fastest growing economies in the world. Its gross domestic product (GDP) reached 8.1 per cent in 2005-06.

The retails sector will be the next big thing in India as predicted by analyst .The firm’s Foreign Direct Investment Confidence Index (FDICI) indicated that India and China are the world’s most favored destinations for foreign direct investment (FDI).

Increase in shopping malls reflected the boom in retail industry, leading to a new kind of shopping called “Shoppertainment” (A blend of shopping and entertainment).

Evolution of Indian retail

Walmart’s Dilemma- Challenges

For retailing industry it’s a long way to travel. India has all the right compositions for retail growth; it had been treated as a protected industry. The government did not allow FDI in retail sector, the Protectionism nature of Indian government is very visible through the control of FDI. In case of companies who dealt in single brand, the government in February 2006 allowed 51% of equity partnership through a joint venture with a domestic player.

Various controls that are imposed by government have reserved the rights of well organized multinational retailers. Infrastructure has been one of the key concerns and also various levels of taxation by the government have created barriers of entry for the retail industry. Government of India is trying their best to remove such kind of obstacles, but some of the key issues still remain open.

Experts opined that the developed and developing countries’ experiences had proved that performance of organized retail was strongly linked to the performance of the economy as a whole. This was mainly on account of the reach and penetration of this business and its scientific approach in dealing with customers and their needs.

The R&D division of Walmart had good Global commerce knowledge about different markets. This could be one of the reason why Walmart one of the largest retailer opted India, which is the second largest populous country and the fourth largest retail market in the world.

Legal and political Challenges

Despite India being an attractive market, the predicament Walmart faced was India’s complex Foreign Direct Investment regulations which is currently the biggest obstacle for global retailers from inflowing into the Indian market. Many international retailers had set up their shops in India either through franchising deals with local partners or joint-venture partnerships with Indian companies. Experts had opined that Walmart would attempt to bypass the rules on FDI by opening a cash-and-carry outlet either in Bangalore or Haryana state as foreign-owned such stores are permitted in India.

In August 2005, Walmart had requested permission from the Indian government to open two experimental stores in Kolkata. Under the proposals, Walmart would buy locally produced food and general merchandise and transport it for sale in its outlets. But Walmart was not allowed to go ahead as the Indian government did not open the retail sector.

Certain political parties in India believe that entry of Walmart would “destroy rather than create employment.” This was against what Walmart has projected. They believe that FDI in Indian retail sector would lead to job losses as big retailers like Walmart, backed by huge finances, would pursue a predatory strategy and eliminate their immediate competition, eventually increasing unemployment. Another reason of opposition against Walmart includes the abandonment of trade unions by the giant retailer. It is opined that Walmart’s business strategy entails a “trade union free company” and dismissing employees who try to form trade unions. Besides, cutting costs to offer products to consumers with lowest prices is believed to be a part of strategy. However, Walmart is alleged of pursuing cost cuts in the form of employee wages and therefore is estimated to harm the interests of the workers.

By referring to the above points, it is not sure whether Walmart has studied properly the Political and Legal Environment aspects of India. It’s been quite obvious that the government policy and political parties are not in favor of multinational retail giants entering to India. To avoid such kind of protest and consequence the company should have taken a more “friendly” approach towards entry into Indian market. May be by projecting more social and economical benefit to the country by way of supply chain retailing would have made the entry much more peaceful. On the other side, it was a good publicity for the people of India to know about Walmart giant and their entry into India.

Religious and Language Barriers

Even though the Walmart hasn’t had an impact on the religious sentiments of India compared to the food service corporations of the world Like McDonalds. For Example; before setting up the first restaurant in India McDonald’s has spend eight years in studying Indian culture and adaptation strategies. The theory of Degree of Adaptation has been taken care of by Walmart R&D Division. India being a multi religious country religious sentiment should be kept in mind while designing and promoting the Company. We had enough and more studies related to religious sentiments and barriers in India and the same has been very well utilized to make sure such barriers of entry are mitigated.

After starting the Operation in India Bharti and Walmart venture, so far has not faced any religious barrier in their operation, which means it should not be taken lightly or ignored because hurting religious sentiments can completely dismantle the operations of the company.

There was no Language barrier faced by Wal-Mart, but the interesting fact to note is that, the entry of the Multinational giant is opposed by people of different language and religion. It was a mix of culture and emotion that fought against the entry of Walmart to India. If we separate language and Religion out of this mixture then there is hardly any significance about their resistance. It looks like Walmart has taken care of Ethical and Social Responsibility in a much more serious way, due to which I believe there was no stand alone fight from a religious or linguistic section of the society.

Recommendations and Conclusions

Despite India being an attractive market, the dilemma faced is India’s complex FDI and retail regulations which is currently stopping international retail companies from directly entering the Indian market. Many international retailers had set up their operations in India through franchising deals with local partners or entered in as a joint-venture partnerships with Indian companies

Walmart sourcing strategies encompass building direct relationship with farmers and manufacturers and encouraging them to develop products of international standards, plan production schedules and predict their demands with the help of high-end technology that would be provided by Wal-Mart. Whether the Bharti-Walmart venture would be successful in India and whether Walmart would be able to bring a second revolution of retail in India remain to be seen. Walmart India President and Bharti Walmart managing director & CEO Raj Jain say “it is still early days to discuss performance”. But a clear strategy of the company has started emerging; and Walmart is ready to take the early advantage of the market segment related to prices, supply chain, real estate and human resource.