Walmart: FDI in Indian Retail

Dinker Vashisht, Keerthi Varier, Rahul Yadav, Romil Kaul, Manika Mittal

A young population (50% less than 30 years) and a burgeoning middle class makes India an attractive investment target for global retail majors- the most prominent amongst them being Walmart Inc. However, restrictions in Foreign Direct Investment (FDI) in Indian retail sector have ensured that Indian retail has largely remained unorganized. Organized retail forms only 5% of the total Indian retail market. Bentonville based Walmart Inc has patiently bid its time waiting for the right opportunities to enter the Indian market. All along it has been conscious of two factors1) An efficient supply chain development in India shall take 8-10 years 2) Political and public consensus about presence of private retailers in India would not be instant, especially in view of the powerful political clout of the middlemen (Commission agent that act as conduit between producers and retailers) and small traders. Therefore Walmart has slowly gone about establishing its presence in India. In 2005, it associated itself with Bharti- an Indian group with retail chain ambitions but without adequate expertise and funding to do so. It formed Joint Venture with Bharti to open Easy Day, where Walmart offered assistance and technical known how, especially pertaining to supply chain management, to Bharti to run these stores. Four years back, when first of the Easyday store was launched in North Indian city of Ludhiana, Walmarts top management had said that this arrangement was in consonance with Walmarts policy of projecting itself as a local retailer rather than being known as a international retail giant (More than 70 per cent of Walmarts international retail operations are under 52 different local brands). This agreement gave Walmart a foothold in direct Indian retail and in the last four year, the Easyday brand of stores has extended to more than 20 stores in North India. Association with Bharti also allowed Walmart, to establish relationships with farmers and other suppliers, and thereby launch its Cash and Carry operations from Indian city of Amritsar in 2009. Indian government rules do not bar FDI in cash and carry formats. Other international players such as Metro Cash and Carry and Carrefour also have their cash and carry format plans. But, now when Indian government allowed 51% FDI in multi brand retail- Walmarts strategy of having teamed with Bharti seems to have turned out to be very successful. Since FDI is still allowed to a limited extent (51% and not 100%), any foreign retailer keen to start its operations in India, would have to collaborate with an Indian partners for the rest of the equity. While other players would have to search for such a partner, Walmart already has a functional relationship with Bharti. Not only this, it also has now close to 10 exclusively owned Cash and Carry stores and more than 20 jointly owned Easy day stores. Walmarts India CEO Raj Jain that company will continue to follow multi format approach in Indian market. In this study, the team will analyze the previous FDI rulings and its impact, the entry of Walmart via joint venture method into wholesales space in India and its effect on the whole sale sector, the current situation regarding allowing 100% FDI in multi branding and the potential benefits that awaits the Indian consumers, and the pitfalls to watch out for.