Wal-Mart and the Indian Retail Sector
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Case Code: BSTR257 Case Length: 15 Pages Period: 2006 Pub Date: 2007 Teaching Note: Available |
Price: Rs.300 Organization: Wal-Mart Stores Inc., Bharti Enterprises Industry: Retail Countries: India Themes: Mergers, Acquisitions, Strategic Alliances |
Abstract Case Intro 1 Case Intro 2 Excerpts
"It's a perfect match; Bharti excels at meeting customer needs in India, while Wal-Mart excels in logistics, sourcing, and supply-chain management."
- Elizabeth Keck, a Wal-Mart spokesperson, in 2007.
"Bharti, with its deep knowledge of India's fast-growing consumer market and Wal-Mart, with its extensive global retail experience, share the same commitment to building relationships with producers in order to provide great quality at reasonable prices to consumers' everyday."
- Sunil Bharti Mittal, CEO of Bharti Enterprises, in 2006.
Will It, Won't It…
In November 2006, Wal-Mart Stores Inc. (Wal-Mart), the biggest retail chain and the second largest company in the world in terms of revenues (behind Exxon Mobil Corp.), announced that it had tied up with Bharti Enterprises Ltd. (Bharti) to make its long expected foray into the Indian retail sector. Bharti was a diversified company, and one of the biggest mobile telephony service providers in India. Wal-Mart and Bharti announced that they would operate stores under two formats - a joint venture wholesale cash and carry operation and a franchised retail operation. As of early 2007, the Government of India permitted 51 percent foreign direct investment (FDI) in single brand retailing, and 100 percent FDI in the wholesale cash and carry format and back-end logistics.
It did not allow FDI in multi-brand retailing (the category Wal-Mart would fall into). Other foreign multi-brand retailers like Metro AG (Metro), Shoprite Holdings (Shoprite) and Marks & Spencer Plc had started operations in India either as cash and carry outlets or with franchisees. The Indian government was reportedly considering allowing FDI in multi-brand retail in sectors like electronic goods, office equipment and stationery, sports goods, and building equipment, but till early 2007, no official announcements to this effect had been made. Although Wal-Mart could have set up wholesale cash and carry operations in India independently, the company chose to partner with Bharti, as a local partnership would give it access to the consumer retail segment also. Besides, the expertise and knowledge of a local partner was expected to prove useful to the company.
Wal-Mart, one of the most successful retailers in the world, was known for its low prices, which it achieved through its sourcing and supply chain efficiencies. Bharti had no presence in retail, but expected to grow in the Indian retail sector by partnering with a major global company.
The retail sector in India, which had hitherto been dominated by small local players and mom-and-pop stores, witnessed a boom in the early 2000s, with several large companies entering into organized retail. Analysts said that the growing disposable incomes of the large Indian middle class and their increased exposure to western shopping habits, in addition to the availability of a greater variety of products, were responsible for the Indian retail boom.
By 2006-2007, several Indian corporate houses like the Reliance Group (Reliance), the ITC Group, the Tata Group, and the Aditya Birla Group (Aditya Birla) among others, had invested in, or were planning to invest in the retail sector. This was in addition to the Future Group, the RPG Group (RPG), and others, who already had a strong presence in Indian retail. However, the entry of Wal-Mart was expected to significantly change the Indian retail sector. Because of the expected effect of Wal-Mart on the sector, the company's proposed entry met with vehement opposition from the Communist Parties and retail groups in India. However, as of early 2007, Wal-Mart and Bharti continued to maintain that Wal-Mart was definitely coming to India. But analysts wondered whether political pressures would prove to be an insurmountable impediment to the company's plans....
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