Blog: Wal-Mart in India
Catherine Sleep | 4 December 2006
Wal-Mart may just have stolen a march on its international competitors this week with the announcement that it has entered into an Indian joint venture with Bharti Enterprises, a group owned by telecommunications entrepreneur Sunil Bharti Mittal.
Currently, small independent stores dominate the Indian retail market, which is worth in excess of US$250bn a year. Organised retail makes up 3% of the total retail sector, which in turn accounts for about 11% of GDP. Modern retailing is just starting to emerge and the international groups are lining up to invest in this fast-growing and underdeveloped market. However, until now they have been kept at bay by India’s rules limiting direct foreign investment.
So, when Bharti revealed it was planning to enter the supermarket sector in collaboration with a foreign partner, many of the big internationals signalled their interest. And, for a long while, it looked as though the UK’s Tesco would be the front-runner.
But Bharti has instead opted for a partnership with the world’s largest retailer, and now intends to open hundreds of Wal-Mart-branded stores throughout India over the next five years, under a franchise agreement.
Through this deal, Wal-Mart gains access to the market, albeit of a limited nature. This does not, however, mean that it is going to be plain sailing from here on in. The retail giant now faces the challenge of making the venture profitable. One huge, but not insurmountable, barrier to this is India’s convoluted, inefficient and costly supply chain arrangement that sees fresh produce spoil and retail prices pushed up to cover the costs of wholesalers and middlemen.
Another issue that Wal-Mart must address is its offering. It seems likely that the retailer will be eyeing India’s growing number of middle class, urban consumers, who have already begun to turn away from traditional independent retailers. Nonetheless, it is fair to say that, while Wal-Mart’s model works well in societies with homogeneous production and consumption systems, India’s production - and consequently consumption - is highly fragmented. The need to balance high retail volumes with small-scale, disparate production and consumption expectations is no small challenge.
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