Paper Example on Walmart Entry in India

Introduction

Rising disposable income levels and changing consumption lifestyle stimulating rapid growth in the emerging economies makes their retail market attractive. Such arose in India, with the billion population base triggering exponential growth constituted the ideal destination of global retailer seeking expansion beyond the developed market economies. The uptake of the organised retail format coupled with a rising middle-class population proved a perfect consumer basket for Walmart to pursue. The twin-growth engine growth blend with demographic profile presented a convincing opportunity to pursue. This essays analyses Walmart entry and expansion strategies into India retail market, outcome and a roadmap for its future operations.

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Background of the Firm

Walmart is the global largest retail company operating hypermarkets, grocery, and discount department stores. Founded in 1962 by Sam Walton, the American multinational realised exponential expansion in the current 11,718 stores and membership clubs (Walmart, 2018). The retail corporation, headquartered in Bentonville operates like a family-owned business by the Walton, though publicly traded in the New York Stock exchange since its listing in 1972. The pursuit of retail opportunity makes it the world largest in revenue generation and private employer with over 2.3 million associates (Walmart, 2018). The company has realised transformation led by its chief executive Doug McMillon and Greg Penner chairman. It achieved an annual revenue of US$500.34 billion in 2018 from its divisions Walmart U.S, Sam's Club, Global eCommerce, and Walmart International (Walmart, 2018). The United States remains its essential market as Walmart International and Global eCommerce operations hampered by increased competition from homegrown brands. The retailer owns twenty-one business-to-business wholesale stores, Best Price, alongside a fulfilment centre (Walmart, 2018).

Entry Strategies

The profile of India retail market lived to the expectation of emerging economies dictating the global economy. Firstly, its rural consumers constituted an untapped market given the minimal penetration realised by organised retailing (KPMG, 2014). It presented the perfect opportunity for Walmart's everyday low price philosophy to make a successful inroad to an estimated seventy-per cent of the country's population base. Secondly, half of the country's total population fell in the working age group, then constituting the largest spender and consumer of retail products. The presence of five million youthful Indians drove the adoption of current purchasing behaviour (KPMG, 2014). Their willingness to experiment combined with increasing purchasing power presented a winnable bait for Walmart. The profile and favourable projections led Walmart to enter India in 2007 by sprinkling its huge signature stores in the country.

Challenges to Enter India

Entry into the third-largest economy faced several policy hurdles attributed by protective government demands to shield the family-owned mom-and-pop shops dominating the Indian retail sector. Firstly, the Indian government disallowed foreign multi-brand giants from opening fully-owned front-end outlets (Arun, 2013). The rule-bound approach by the government hindered the retailers attempt to gain a strong foothold in the sector. Reforms to the policies required foreign entrants opening a multi-brand retail business to invest a mandatory minimum of $100 million (Arun, 2013). Secondly, international entrants confronted a policy uncertainty requiring them to allocate half of the necessary investment towards the back-end infrastructure. The ambiguity of back-end infrastructure its variation amongst retailers hindered direct multi-brand investment.

Furthermore, the government required foreign retailers to source a minimum of thirty per cent of their merchandise from the local small and medium enterprises. Its compliance would expose Walmart to supply chain and logistics challenges. Moreover, the enormous hurdle was the federal government empowering the states with approval freedom of retail investments within their territory. The opposition BJP party declared rolling back the foreign multi-brand reforms once it clinches power (Arun, 2013). The situation would jeopardise Walmart first mover into the Indian multi-brand space. Lastly, the India FDI Watch teamed with activist groups condemning corporate retail insisting it will hit hard the street traders. Again, they opposed multibrand retail citing the imminent unemployment of individuals running the mom-and-pop shops (Yee, 2007).

Entry Strategy

The government-led restrictive approach towards shielding India retail market compelled Walmart to shelve investment in signature retail outlets. However, the company would not ignore the world's largest untapped retail market. Instead, the Arkansas-based company partnered with Bharti Enterprises to form Bharti-Walmart. The joint venture would allow Walmart to lay groundwork using the Indian-owned Bharti Retail chain (Sen, 2018). The venture would enable it to use its cash-and-carry stores as a supply point to the consumer-facing outlets owned by Bharti Retail. Secondly, Walmart stores would equally service the mom-and-pop shops alongside other small businesses. Thirdly, it would offer infrastructure and technical waiting till India government liberalised the retail sector to allow foreign retailers to set fully-owned retail outlets (Tandon, 2018).

The Bharti-Walmart joint venture would strictly not sell to outlets owned by its partner, Bharti Retail. However, government reforms adopted later allowed foreign-funded wholesalers such as Bharti-Walmart direct selling a quarter of their merchandise directly to consumers through outlets under held by the corporate group (Arun, 2013). Additionally, the Bharti-Walmart wholesale cash-and-carry business would utilise the retailer's back-end logistics and technology. The arrangement extended to accessing Walmart's fuel management, cold chain infrastructure, inventory management systems and truck tracking. Similarly, Walmart would franchise its supply chain technology support to Bharti Retail (Uttam Gupta, 2018).

Outcome

Walmart's entry into the rule-bound India retail market generated controversy from activist and political circles. Indian activists supported by nationalists alongside small trade associations viewed the Bharti-Walmart likely to disrupt millions of Indians who relied upon farming and mom-and-pop shops for their livelihoods. Secondly, political leaders questioned the corporate retail advances. They equated the joint venture to a backdoor strategy favouring a few corporations. The criticism fuelled a bumpy ride for Walmart whose supply chain confronted sourcing challenges with the best Indian suppliers only managing a sixty per cent score for its standards (Uttam Gupta, 2018). The joint-venture operations would suffer several hurdles among them the managerial desertion wave that hit Walmart's Asia business in China and Japan. Its chief executive in India quit alongside the financial officer and the legal team following investigations launched by the parent firm over alleged $25 million fees spent to lobby Indian government (Tandon, 2018). The payment contravened the Foreign Corrupt Practices Act that prohibited US citizens from paying bribery to government officers to obtain and retain business.

The policy hurdles combined with financial woes experienced by Bharti Enterprises would force the joint venture into ending the six-year-old arrangement. The split allowed Walmart to retain the cash and carry business where the Indian government allowed fully-owned FDI while Bharti would keep the Easyday retail stores (NDTV, 2013). It left Wal-mart without a partner meeting the financial requirements to own forty-nine per cent of the business. Running the retail business involves a cash-intensive affair with the declining profits from Bharti Airtel eroding the partner's pockets. Secondly, the venture suffered the common retail effect where enterprises confront low margins despite the high costs incurred. Loss incurring investment was common for big retailers with the Bharti-Walmart's competitor managing to realise profits in the seventh year since its inception in 2006 (NDTV, 2013).

Policy uncertainty bound to change with the government in power proved the primary stumbling block for Walmart given the high stake involved in undertaking retail investment. As earlier mentioned, the government required foreign supermarket chains to source thirty per cent of their merchandise locally despite their low standards. Political threats to engineer elimination of foreign direct investments in the multi-brand retail hindered the venture form undertaking massive expansion (Sahay, 2015). Lastly, the internal crackdown on alleged bribery payment slowed the venture expansion plans. In particular, the venture delayed opening new wholesale stores despite plans for eight outlets (NDTV, 2013). The situation cast Walmart into a dilemma of expanding the wholesale business or finding a local partner to venture into the multi-brand retailing.

Electronic Commerce Project

The joint venture split forced Walmart to pursue electronic commerce poised to be a likely determinant of India retail sector in future. It offered a smart approach to pivot its entry into the high growth Indian market despite the restricted business environment and the long wait for the liberalisation of FDI (Tandon, 2018). Doing so involves expanding the business-to-business operations to pivot its cash and carry business to the growing online community. Although the approach veered off from the general business-to-consumer selling, online selling to the small wholesale buyers expanded reach of cash-and-carry stores. The plan paid off by turning the India stores profitable, convincing the allocation of more sources towards accelerating back-end investment and modernising the supply chain infrastructure (Thomas, 2017).

The uptake of business-to-business selling as a priority pivoted the expansion of local operations through online platforms. By November 2017, the online trading supported the twenty cash-and-carry stores with plans to increase them to fifty by 2021 (Thomas, 2017). Their post-split success convinced launching of the Mumbai fulfilment centre handling first moving consumer goods and staples. The decision to invest in building reliable supply chains rather than seeking market share turned a smart approach to support the cash-and-carry and fulfilment centre models. By doing so, Walmart has increased the traffic in India business highlighted by the 130% utilisation of its cash-and-carry stores in Punjab (Thomas, 2017).

The pursuit of electronic commerce for its cash-and-carry stores enabled Walmart to revitalise interest in India's retail market. However, the government extended the restrictive approach to the market-place model compelling the e-commerce platform to seller-buyer tractions exceeding twenty-five per cent (Uttam Gupta, 2018). Again, the government disallows discounts and advertisement in the market-place model, leaving it unattractive despite permitting 100% FDI (Uttam Gupta, 2018). Its pursuit has allowed Walmart to camouflage its direct selling augmented by the $16 billion investment in Flipkart (Ninan, 2018). The timely investment gives the Walmart a majority share in the largest e-commerce platform.

The Flipkart deal offers Walmart a fresh start since the termination of its partnership with Bharti to run consumer-oriented stores. It provides a backdoor entry into the restricted retail market where online transactions accounted for $20.3 billion, barely two per cent of the sector (Ninan, 2018). The consistency in Flipkart growth is enough to provide Wa...