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Case Study:Wal-Mart and Bharti Transforming Retail in India

Executive Summary This paper is an analysis and evaluation of Wal-Mart and the future venture into the retailsector of India. The challenges that Wal-Mart needs to resolve to become successful range fromthe cultural differences to problems with supply chain management in India. The analysis belowidentifies the challenges of many factors dealing with the Wal-Mart, Bharti and the Indian retailsector. These factors for Wal-Mart would deal with the ability to operate in India efficiently asthey do in the US. In addition, Wal-Mart to be successful will have to sort out problems with thegovernment, culture differences and the partnership with Bharti. These factors for Wal-Mart andBharti will be presented in more specific detail through a SWOT analysis. The analysis willevaluate Wal-Mart as a company in relation to the future operation in the Indian market. Thenthe Bharti Company will be analyzed using a SWOT to pin point how the company will fit intothe overall plan of Wal-Mart operating in India. The report will further evaluate the Indian retailsector through a competitive industry analysis using the Porters 5 forces model. This model willdetail the threats to the market entry, supplier power, buyer power, availability of substitutes andcompetitive rivalry as they relate to the India retail sector. The report will then offer alternativesfor the Wal-Mart company. These alternatives would include not progressing forward withinIndia, chose a global market with less regulation, focus business to become s specialized retailer and collaborating with a different company other then Bharti to expand in the Indian retail sector.The analysis will close with recommendations to focus changes on the culture, consumer behavior, collaborating with current vendor and suppliers and work to improve the image of Wal-Mart and how the company can make positive changes in the retail sector for the people of India.2

Wal-Mart and the Indian Retail Sector: The retail sector in India remains one of the best-untapped sources for internationalcompanies to grow market share and future profit. The retail market in India is one that manycompanies are trying penetrate. One major U.S. retail company, Wal-Mart, has been trying toenter and succeed in expanding the organizations global footprint. Wal-Mart is one of thelargest and most successful retail companies in the world. Wal-Mart is planning to use their business expertise in the areas of organized retail, pricing strategies and logistics

in supply chainmanagement to change the retail scene in India.Currently, Indias market is at a stage where customers need more variety in products andretail formats. The old systems of retail outlets in India have consisted mainly of Kiranas andMandis to name a few. Mandis are types of markets set up by the state government for the sale of agricultural produce directly from the farmers. Kirana stores, which are independently ownedand operated primarily, sell necessities, and groceries. Other retailing formats such as streetcars,pavement shops, public distribution systems, kiosks, and weekly markets are unique to India andhave been around for a long time.India has seen an emergence of modern large-scale stores such as supermarkets, specialtystores, chain stores, department stores; hypermarkets, factory outlets and discounters enter theretail sector. Shopping malls and new retail outlets with more shops have transformed thebusiness environment in India. The changes in the retailing culture have pushed this businesssector to make changes in how customers are buying and consuming goods (Srivastava, 2008). Challenges for Wal-Mart in India

While the Indian market may look very lucrative for Wal-Mart, they will be faced withmany challenges. These challenges will range from entering the market, successfully operating inthe market and collaborating with Bharti in the business venture. These challenges are not new toglobal corporations trying to enter the Indian market. Wal-Mart will be facing the challenge of trying to implement their currently successful business operations into a nation that has manyvariables to conquer.The first challenge Wal-Mart faces in the retail sector of India is the overall culture.Throughout time India, retail sector is primarily made up on unorganized retail outlets. Thesestores are mom and pop shops that sell specific goods to the public. The shops are support by thelocal customers as it has been the way to shop for many years. The shops sell certain items inmany different forms. In addition, they provide delivery service that adds the special touch of doing business on a personal level. This shopping culture in India is very different then howWal-Mart operates and in general organized retailing. In order to meet the need for the publicthey will have to provide a variety of goods that will satisfy the Indian population as the smallstores have done for decades.The problems Wal-Mart faces are which goods to sell in various locations across thecountry. These good would vary due to the different types of food people eat, textiles, andconsumables. The other factor that will be a challenge for the company will be geographiclocation. Across India, there are many different cultures as well as rural and urbanized locations.As India further becomes a developing nation, so will the population. The increased number of people in the earner category has been doubling at a tremendous rate. In relation, as the culturechanges from old to new so do buying patterns of the consumers. These ever-changing trends4

will be a problem for Wal-Mart to develop the supply chain methods that have made themsuccessful in the US.Wal-Mart must figure out buying patterns to match the needs of the consumers while theculture is continually evolving. An additional challenge will be how WalMart will executeeffective supply chain management without the infrastructure to support it. The infrastructureswould include roads, established distribution systems, and refrigerated storage for groceries.These are key item that need to be established for Wal-Mart to begin and remain in operation.Other challenges include the need for suppliers to produce goods for sale within thestores. They will need to establish relationships with farmers for produce and manufacturingbusiness for all other products. Once these relationships are established, will these suppliers beable to meet the demands of Wal-Marts volume. Wal-Marts key strategy of getting the rightproduct to stores without long delays. If suppliers are scattered around the nation, the roads andlogistics structures are under developed this will be a difficult hurtle to over come.One of the most important and most challenging obstacles to over come will be thepartnership between Wal-Mart and Bharti. This venture was created to circumvent the Indiaregulation on FDI. Under the agreement, Wal-Mart and Bharti will manage supply chain. Theretail potion will be franchised to Bharti. The joint venture will challenge the relationship on theownership and internalization dimensions of the model. Wal-Mart will need to clearly define itsoperating model and mesh Bharti. The joint venture method that Wal-Mart has chosen to entirethe market will be a challenge to make it work. The joint ventures model for two companies tocome together usually result in failure. This will be something that WalMart will have monitor and manage closely to see how Bharti will work out as a partner. WalMart will also need to protect its intellectual property on supply chain management but at the same time work together to become profitable (Halepete, 2008). Company Analysis: Wal-Mart Wal-Mart is a company that overtime has become one of the best in the retail business for a reason. The SWOT analysis provided below will explain the strengths, weaknesses,opportunities and threats of how Wal-Mart retailing culture will be applied to the India market. Strengths Wal-Mart has the notoriety as the worlds largest retailer. Over the years, Wal-Mart hasdeveloped the ability to provide product using advanced inventory tracking though the use of IT.The company does extremely well tracking overall sales of products by certain locations. Theyhave become the expert by using universal UPC coding an RF tracking. These strengths ininventory tracking have allowed the company to advance and grow profits through logistics andsupply chain management. Wal-Marts expertise in mastering this part of retailing will allow

anupper hand developing their business in IndiaAnother strength Wal-Mart possesses is their powerful retail branding. Additionally,Wal-Mart has the reputation of providing the best value for the money and the ease of convenience due to their expansive product line offered under one roof. Having such anorganized structure will be an advantage in the Indian market. Currently in the Indian market, theoutlets for customers are scattered thought out the sector with mom and pop stores providinglimited or specialized products for consumers. Customers will have to shop at many locations tobuy all their needed products. Under the WalMart retail structure; having any and all the needed products will offer the one stop shopping experience of which the India culture is notaccustomed. This will be the biggest advantage over the competition for Wal-MartThe other strength of Wal-mart is the focused strategy for human resource managementand development. The company invests time and money to train the Wal-Mart staff. This keybusiness strategy will allow the company to hire and retain the needed workers in India tosuccessfully operate the new stores in the country. Currently, India is a nation that is adopting theways of life of the western civilization. The growing middle class, rising disposable income andurbanization matched with the business ethics of Wal-Mart HR management will be the drivingfactor for the success of Wal-Mart in India

Weakness: As a company of much strength, Wal-Mart also has a few weaknesses in their operationalplatform. Wal-Mart must improve upon these weaknesses to succeed in India. One weakness thecompany faces is the span of control in an international market such as India. While thecompany has the ability to control business in the US, these proven methods may not work asefficiently in India. Operating in a foreign country with different legal regulation, suppliers andoverall infrastructure will be a challenge for the company. The tried and trued methods thecompany has perfected in the US will not apply in India. The company will have to reinvent andmodify supply chain management and logics to become successful in the Indian retail sector.Although Wal-Mart has experience finding the right supplier in the US, it will be more difficultin India due to the lack of exposure with the country.7

The other weakness Wal-Mart must overcome in the Indian retail sector is the ability andflexibility to sell products across many of the sectors (clothing, food, health and beauty suppliesetc) as some of the focused competitors. In the US, how consumers purchase goods is vastlydifferent from in the Indian culture. As stated above the Kiranas are what the India consumer are accustomed to. Wal-Mart offers over 1000 different items at their stores and should besomething different for the consumer in India. The question is will Wal-Mart be able

to providethe right types of product for the areas they operate? Across the US, the typical WalMartcustomer purchases the same product from location to location. The different types of buyingpatterns and product are those influenced by climate and physical location. The same influencesapply in India as well, but they will also have to deal with the culture of the populationthroughout each part of the country. India has a cast system with thousand of different groupsthat Wal-Mart will have to figure out how and what they are buying. This will ultimately be aweakness for Wal-Mart as they branch out globally into India. They will have to change thinkingstrategies they developed and found success with in the US in order to be successful in India Opportunities: The opportunities that Wal-Mart has in India are endless. The size enormous size of Indias 300400 billon dollar retail sectors will allow Wal-Mart to become successful. Currentlythe organized retailing is only 2% of Indias total trade leaving 98% unorganized. The 98% ismade up of small to medium privately/ family owned businesses (Bose, 2009). With thecompanys financial backing, they will have the ability to take over, merge and form allianceswith other global retailers within the Indian market. The under developed market and growingurbanization will pose great business opportunities to grow as a corporation. These opportunities8

will be seen by Bharti to team up with the largest retailer in the world. By providing newlocations, store types and products, Wal-Mart has the ability to exploit the market development.They can diversify from large super centers to local mall based sites. (END OF SPELLCHECK) Threats: The last area in the SWOT analysis would consist of the threats for Wal-Mart in India.The biggest threat will be Wal-Mart will always be the target of competition, locally andglobally. They will be exposed to political problems in the country. The ability for the companyto execute strategies in the US will not be the same in India. Operating in a country that over theyears have tried to stop foreign FDI will be a problem for Wal-Mart even with the financialbacking. The other hurtle will be the ability to use manufacturing advantages in a nation thatcurrently operates and produces good in a low cost environment. The ability to outsource to lowcost regions will not be the same in India as the US. This will lead to increase price competitionamong retailers. The intense price completion will pose a threat to Wal-Mart ability to increasebottom line profitability and remain a retailing powerhouse in India. Company Analysis: Bharti Enterprises:

Bharti Enterprises is one of India more successful large business conglomerate like Wal-Mart in the U.S. The company grown over the years by accruing and build from the companiesthey have acquired. This has worked very well for Bharti and has allowed the company to gainkey access point in many sectors and successful business to operate and profit. Bharti over theyears has gained much knowledge in the consumer market. One example of this would the9

Bhartis business in the cellular sector. The follow SWOT analysis below will layout thepositives and negative Bharti and Wal-Mart will experience with their joint venture. Strengths: Bharti is a company that has built a presents across India and currently has 70+ millioncustomers it sell products and services. The company has penetrated the entire Indian nationwith its cellular business. The task is a great one to over come and by doing so has expanded itslarge and growing customer base. This attribute of Bharti is a great strength to have whenventuring with Wal-Mart in the retail sector. Another strength with Bhart possesses that willlead to the success of the joint venture are the business partner and supplier connections is hasestablished. These connections will allow Wal-Mart to develop supply chain and logistics as inthe US to supply new stores across India. The key strength that will benefit the venture is theBharti company brand name. The brand reconciliation will allow the consumers in India to relateWal-Mart to company they are familiar dealing with Weakness: Bharti is a company that had much experience with growing business for the ground up.The company has established and profited by acquiring and outsourcing to industry experts in thefield. This will be a major factor within the joint venture that will challenge the partnershipbetween Wal-Mart. The lack of knowledge in the retail sector will be a problem. Wal-Martcoming into the venture is bring over 30 years of proven and success retailing expertise. Whileon the there side of the table, Bharti a young company, may not be as valuable to Wal-Mart Opportunities: The Bharti Company will offer Wal-Mart many great opportunities to profit in India.Bharti will be able to have the one of the largest companies in the world backing their retailventure. With the Bharti group, expanding into rural market in them other areas of business willprovide a gateway for Wal-Mart to enter as well. Both companies will have he ability to learnand grow from each other form understanding the India consumer to operating a successful retailstores. The opportunities the two companies seek may also challenge the

venture. Whenbreaking down the venture, Bharti is the key to the door (India Retail Sector) that Wal-Mart needto grown in India.The creation of the cash and carry stores that Wal-Mart and Bharti will open have thelargest opportunity to profit. The format will allow Bharit WalMart to sell wholesale, business-to-business transaction. The start of these types of stores will allow Bharti Wal-Mart to startoperations in the country. As these stores are built, the supply chain will also increase at thesame to support the operations. As quote in a recent news release from Bharti Wal-Mart, Thecreation of the supply chain will allow locals to provide and sell product to sell in Bharti Wal-Mart store. As the traditional Wal-Mart business always operated, value and low price the samewill apply to business owner purchasing products in the store. The goods and services providewill mainly be sourced by local producers, keeping cost to a minimum and adding growth to thelocal economy .Ultimately, this start up of cash and carry stores is the perfect strategy for Bharti Wal-Mart to enter the Indian retail market. The opportunity allows Bharti Wal-Mart to establish retailoutlets and create a supply chain in the region. Along the way, by using local producers and11

stimulating the local economies Wal-Mart will be seen positive by the public. Other positivegain will be the PR by doing so. The company will establish jobs within the community it placesstore and jobs locally during the construction of the new buildings. The cash and carry servicewill have many benefits for the Bharti Wal-Mart group. These benefits will come in bottom lineprofits and the increase brand recognition and loyalty, which is need in the currently Indian retailsector to grow. Industry Analysis Porters Five Forces of Competitive Position model offers a systemati c approach toevaluate and analyze the competitive advantage and position of an organization. This analysisillustrates Indias retail scenario and Wal-Marts competitive position by examining the threats tomarket entry, supplier power, availability of substitutes, buyer power, and competitive rivalry.12 New companiestaking up marketshare

New Entrants to the Market: The threat of new entrants in the retail sector of India is very high. The Indian retailmarket and organized retailing has potential for tremendous growth. The overall growth in themarket is expected to move up in double digits increments over the next 5 -10 years. With thechange in culture of India due to growing middle class, increase household consumption and theincreasing demand by the young working population the retail sector is transforming. Theoverall consumption of all products and the quality will change the landscape for years to come. Buyer Power: The power of buyers is strong in the retail sector of India because it is a consumer basedmarket and the large population. The movement of retailing from unorganized to organized willhave both positive and negative effect on the sector. Consumers will have increases access tohigher quality goods and more variety. The new retailing sector will have to provide and changefrom the old traditional products. With the change from streetcars and markets to super centersand shopping malls consumers habit for purchasing will become more westernized. Thesechanges will lower overall cost to the consumer as companies compete to increase market share. Supplier Power: The power of the India suppliers is moderate in the retail sector. Nationally, the power of the suppliers is strong. The new growth of the retail sector will create a win-win situation for alllinks in the value chains. The increase demand will allow current suppliers to work with the newretail companies. The advantage for supplier power in the rural areas will be a low competitiveadvantage. The lack of infrastructure for supply chain management will result in slow growth inthese areas.14

Availability of Substitutes: The availability of substitutes in the retail sector is moderate. There are a number of different forms of retail outlets for consumer to purchase goods. These traditional outlets willcontinue to remain as direct competition the new wave of organized retail companys. Competitive Rivalry:

With the 1 billion plus population and the GDP estimate to grow 7.5% in the following yearspresents opportunity for all mass merchant and food retailers looking to expand globally. Theretail market in India is worth hundreds of billions of dollars as well. With all these positiveoutlooks, many companies are funneling into the retail sector. Some companies are internationaland some national. As new players enter the market, the competition will become more intense. Alternatives 1. Do nothing in the Indian retail sector Pros Wal-Mart showed record margins Wal-Mart has economies of scale Continued growth in US market Risk would be at a minimum Cons Competitors would gain additional market share Wal-Mart could have declining profit margins as US market saturates Wal-Mart my miss the opportunity to enter the retail sector in the growth stage

2. Wal-Mart could chose to partner with another Indian Retailer Pros Wal-Mart may find a partner that has more experience in the retail sector The joint venture between another retail may provide increase profit and control

Cons

Bharti currently had brand recognition with in the Indian market Bharti may partner with a competitor of Wal-Mart causing direct competition

3. Wal-Mart could enter into specialized retail. Pros Wal-Mart would be the sole owner the operations in India Wal-Mart brand name could allow the company to branch into the niche market

Cons Consumers would not see Wal-Mart at company for specialized goods Venture into specialized good may be a failure

4. The company could enter focus efforts to enter into a different global market otherthen India Pros Other global markets may have less restrictions on FDI Global market in other nations may not be as large but could be more profitable Wal-Mart ROI in another foreign market could out perform Cons India has the largest and most potential for growth across the retail sector Wal-Mart may miss entering the retail sector growth at the ground floor Trying to enter at a later date may be more difficult to be profitable Recommendations After the evaluation of the situation that W alM a r t i s p l a n n i n g t o u n d e r t a k e , t h e i r position and plan to enter the market is very good. The joint venture between Wal -Mart and16

Bharti will be one that is strategic, beneficial and profitable for both parties. In order for thisventure to become successful Wal-Mart will need to perform in these areas (Halepete, 2008).

Establish a efficient and productive working partnership with Bharti Rapidly create a functional supply chain and distribution centes to support theoperation Building stores and expanding their foot print to increase the presences in theIndian market Research the target market to provide products and services of a high quality andlow cost to meet India consumers desires. Not only focusing on the profitability but the positive public relations that need tobe acknowledged by the consumers of India With the strategic alignment between Wal-Mart and Bharti the joint venture will be a success. Inthe end, this joint venture will have an ever-lasting influence on the Indian retail sector.