IntroductionWalmart, oneof the world’s largest retailers, began as a single discount store in Arkansas.It now has a customer base of over 260 million and employs approximately 2.3million associates worldwide. Walmart currently has stores over 11,000worldwide locations, operating across 28 countries and few ofthe largest developed and developing markets, such as Central America, Africa,China, U.K.
, India and few others. Walmart continues to be a leader insustainability, corporate philanthropy and employment opportunities. (Walmart, n.
d.) Background Walmart’sInternational Expansion Walmart has been quite successful in its global expansion, havingsuccessfully entered various markets through various internationalizationstrategies such as Greenfields and IJVs. While Walmart was successfully able toenter the Chinese market buying purchasing stake in Yihaodian, China’s largestonline retailer. (Reuters, 2012) and, countries suchas Canada, and Mexico, it has also experienced failure in countries such asIndia, Russia, Germany and South Korea. Walmart’s Entry in IndiaIndianRetail SectorBy 2006,India had the largest population of ‘under 25 years’ in the world and a 50million middle and upper-class population. (Beinhocker & Farrell, 2007) It became one of thefastest growing economies in the world by 2007 with its Gross Domestic Product(GDP) reaching 9% in 2005-06. (Times of India, 2007) In January 2006, the governmentapproved the policy on Foreign Direct Investment (FDI) in the retail sector toattract investors.
FDI up to 100% was allowed for cash and carry wholesale andexport trading, however, FDI was restricted to 51% in single brand retailing. (Wharton, 2013) BhartiEnterprises – the Indian PartnerBharti Enterprises is an Indian conglomerate established in 1976, withtelecom, agribusiness, financial services, retail and manufacturing business, andhas established a strong presence across India, Europe, Africa and the MiddleEast with a revenue of $10 billion in 2009. (The Hindu, 2008) In 2009, A.T.Kearney’s Global Retail Development Index (GRDI) ranked India as the mostemerging destination for retail, ahead of Russia and China. Experts suggestedthat developed and developing countries’ experiences had proved thatperformances of an organized retail was strongly linked to the performance ofthe country’s economy.
(McKinsey & Company, 2007)Furthermore, the Research and Development (R) division of Walmart hadstrong global knowledge of the different markets and concluded that Walmartshould opt to globalize in India. (Reuters, 2007) It was atthis juncture, in 2007 that Walmart entered the Indian wholesale market througha 50-50 joint venture with local parent Bharti Enterprises. The 50-50 jointventure was to be called Bharti Walmart, which would utilize Walmart’slogistics technology, inventory systems, infrastructure and transportationsystems. Bharti invested up to $2.5 billion in Bharti Retail, its ownsupermarket chain that would be supported by Walmart’s logistic and supplychain technology through a franchise agreement.
(Yee, 2007)In the year 2009, Walmart opened its first outlet in Amritsar, Punjab and thecompany had planned to open 10 more outlets in the other potential cities ofIndia. (The Hindu, 2017) Walmart’s Planfor IndiaWalmart hashistorically differentiated itself from its competitors through its EverydayLow Prices (EDLP) strategy, by bargaining aggressively with its suppliers andimplementing highly efficient distribution and inventory control systems. (Loeb, 2013) Its mission is toensure that everyone can purchase everything they need at the lowest price.Walmart has not only built this as a differentiator, but was able to succeed inmarkets due to their high standards of service and constant strife forexcellence. It hoped to use the same in a price-sensitive country such asIndia. Majority of products (FMCG, vegetables, general merchandise) were to besourced from the local market and this joint venture was to help Walmart’sglobal sourcing from India. (Price Waterhouse Coopers, n.d.
) Walmart alsoimplemented its Direct Farm Program by partnering with 110 small and marginalfarmers, encouraging cultivation of safe and high-quality vegetables. (Business Standard, 2013) Walmart alsoplanned to inherit the model, of setting up training facilities, from its U.S.parent and implement it in the Indian market. Bharti-Walmart were to set uptraining centres across India for underprivileged youth to work in the retailstores. (Rawat, 2013)Walmart also planned to set up another centre in Bangalore to further developits technology and solutions for Walmart’s global e-commerce business. (Business Standard, 2013) Walmart’s International StrategyAnalysisThe Effect of GlobalizationGlobalizationhas led to has led to an increase in cross-border trade, fueled the consumptionof consumer products, and has led to a rise in:§ Competition§ Exchange of Technology§ Knowledge Transfer (Spillover Effect)§ New International Business Strategies§ Competitors and Competitive Advantage(Peng & Meyer, 2016) Economic globalizationand advances in information technology are the key to Walmart’s logistics andsupply chain, which have revolutionized the retail industry. Walmart implementsits low-price strategy through global procurement from low-wage countries suchas China/India and quality suppliers in North America to achieve operative andcost efficiency.
(UK Essays, 2013) Globalization hasbeen a boon and bane for Walmart in India by bringing both opportunities andthreats. CAGE Analysis(India in Comparison to U.S.) Figure 1 Sources: (Transparency, n.d.) (Transparency, n.
d.)(World Bank, n.d.) (World Bank, n.
d.) (Geert Hofstede, n.d.) (Pankaj Ghemawat, n.d.) The analysis above identifies the distances between India and the U.S. Thoughthe countries are relatively different, they share some common similaritieswhich shows that Walmart could successfully operate in the Indian market ifentered and executed appropriately.
Key Drivers for Growth in theRetail Industry of India Rising Income Levels Changes in Consumer Needs, Attitudes and Behaviour Changes in Demographics Increasing Credit Friendliness Increasing Awareness of Indian Consumers Figure 2 Source: (Equity Master, 2007) As shown inthe figure above India has grown to be one of the most attractive markets inthe world for retail and became the ninth largest retail market in 2009. TheIndian retail market was estimated to be $350 billion, predicted to grow at aCAGR of 40% with only 2-3% of it being from organized retail. This highlightedthe vast opportunity and tremendous scope for growth in organized retail. (Equity Master, 2007) (Ernst & Young, n.d.) SWOT Analysisof the Indian Retail Market Source: (McKinsey & Company, 2007) (Narayanswamy & Zainulbhai, n.d.
) (A.T. Kearney, 2009) The retailmarket in India had a lot of strengths associated with it, such as theincreasing purchasing power and population demographics, along with the lowretail penetration and aspiring middle class. However, the country still hadsome substantial threats and weaknesses, which caused severe problems for themultinational and eventually its demise. Opportunities in India forWalmartTheopportunities in India were vast, encouraging the internationalisation ofWalmart to India. McKinsey & Company suggested that an increase indisposable income of Indian consumers was a key factor in contributing to thegrowth of retail consumption.
(McKinsey & Company, 2007) Other factors werethe increasing household income, growth in working population, change inconsumers lifestyle and easy availability of credit. (Narayanswamy & Zainulbhai, n.d.) Anotherreport by Ernst and Young for India Brand Equity Foundation (IBEF) showed thatthere were numerous opportunities in various cities in India for organisedretailers due to rapid urbanisation, investment activity and increasingtechnology adoption. Metropolitan cities such as Delhi, Mumbai, Bangalore, etc.had a relatively low presence of organised retailers and therefore providedmore opportunity. In addition, more than 70% of India’s population wasconcentrated in the rural areas, with rural retailing constituting 95% of thetotal retails revenues, thus providing exceptional opportunities for retailers.
(Ernst & Young, n.d.) Challenges in India forWalmartOpportunitiesaside, India posed numerous challenges to international firms investing inIndia. Tough regulations by the Indian government was one of the keychallenges. The government required foreign retailers to purchase 30% ofproducts locally from small and mid-size business. Walmart’s chief executivefor Asia-Pacific, Mr.
Scott Price, stated “I don’t understand how this 30 percent small and medium enterprise canbe executed”. (Harris, 2013) India’s non-existent cold chain supplyand logistical infrastructure was also a major cause for concern for foreignplayers to confront. (Munshi, 2011) Walmart’s Lack of Success inIndiaEven thoughIndia’s market provides tremendous potential, it has always been complex.Walmart’s growth in India was hindered by its developing rules on foreigninvestment, an internal bribery probe, and primarily its faltering partnershipwith Bharti Retail. (Reuters, 2013) Lack of Convenience and Difficulty in AccessTraditionally, Walmart stores across the globe are located within a10-km radius from the city center. Sprawling over an area of 180,000 to 230,000sq. feet, they usually set up their storesfurther from the city center. (Loeb, 2014) Moreover, most cities in India have exceptionally high real estate prices,allowing Walmart to only set up large scale stores outside the city center.
(Bhandari, 2014) Furthermore, at that time, a very smallpercentage of Indians owned a car, thereby limiting their target market vastly.Additionally, with India’s severe traffic congestion, the idea of travelinglong distances for everyday products was not viable. Thus, to travel a small distance of10km would take approximately an hour, proving to be impractical for consumers planningto shop for smaller, easily available products.Internal BriberyProbeWalmart faced yet another obstructionin India due its corrupt government officials. It spent over a million USD inbribing low-level officials for allowing goods to securely move through customsand for acquiring various real estate approvals.
The retailer was alsoinvestigated by the Enforcement Directorate due to the violation of the ForeignExchange Management Act, over an alleged investment of $100 million in BhartiGroup Company. (Business Standard, 2015) Political andPolicy UncertaintyWith an approximate population of 1.2 billion, with 90% of its $500billion retail done through brick and mortar, Walmart was bound for success.However due to its regulatory uncertainty and strict government policies, it required30% of its products to be sourced locally. (NDTV, 2013) This did not alignwith Walmart’s logistical plan as it had already sourced products and establishedcontracts from proven quality suppliers. Moreover, Walmart lacked local political support. For instance, formerfinance minister and senior BJP leader Yashwant Sinha stated in an interviewthat his party will “not allow Walmart tocome” into the country.
Mr. Sinha said that while the BJP will support FDIin general, FDI in multi-brand in retail will not be allowed. (NDTV, 2013) Failing to Adapt to Local Attitudes”Many big US companies have struggledto truly understand what localization means. Calling a Big Mac the Maharaja Macshould do the trick, thought McDonald’s but it took years before they realizedthe serious vegetarianism of the average Indian citizen.
” Mutton stated. (NBC News, 2014) “There is an ignorance about the scaleof India. Twenty percent of India is the ‘English-speaking urban upper class’ which is roughly 240 million people. That’s almost the population of USA.
That being said, India has only afraction of America’s wealth. So, imagine the level ofpoverty. And like in America, 1 percent owns most of India. There are manyIndia’s within India scattered across geography. Which India are you targeting?” Mr. Pattanaik said.(NBC News, 2014) India as a country is highly diversified, and for Walmart to havesucceeded they needed to identify the correct target market. Its productsneeded to be tailored to the average Indian’s needs and wants and Walmartfailed to take this into account.
Competitionfrom the Unorganized SectorIndianretailers in the organised and unorganised sector had been preparing themselvesfor global competition since the approval of FDI. Organised retailers had beenfocusing on mall space acquisition, retail expansion and diversification whilethe unorganised sector had been focusing on value added services. A study byPrice Waterhouse Coopers and CII stated that smaller unorganised retailers hadsome inherent advantages as compared to the larger organised retailers,primarily due to its locational advantage along with a strong customerorientation.
(Price Waterhouse Coopers, n.d.) Factors LimitingWalmart’s Growth in International MarketsPressure to GlobalizeThe U.S. markets have been saturated for the past couple of years,prompting Walmart to take global measures to expand their operations.
However,they’re internationalization strategy has been in vain as Walmart have failedto capitalize on certain markets and reflect their presence globally. Source: (Hoium, 2014)As shown above, the operating income in U.S. has been graduallyincreasing, however, the operating income overseas has slowly begun decliningas of 2014. Walmart’s operating margin is even more concerning, showing adrastic decline from 2013 onwards. (Hoium, 2014) Source: (Hoium, 2014) Even though Walmart has been stable and growing in the U.S. markets, ithas been highly unsuccessful in translating their dominance on a global scale.
Barriers to Entry in Foreign MarketsIt’s always been a challenge for retailers when it comes to globalization,not only Walmart but Carrefour in China, Tesco in the U.S., Target in Canada, etc.Failure to adapt to the local market, and rigid regulations against foreigninvestment have been the major contributing factors for failure for many ofthese multinationals. (Corstjens & Lal, 2012) Having to highlymodify their supply chain, suppliers and procurement strategy in each countryto meet its regulation and policies, these organization face a higher risk thanreward. Local Consumers Beliefs and Attitudes In emerging markets, organized retailing is usually fragmented, andretailing is done mainly through the locals. Furthermore, foreign entrants failto provide something new and innovative to attract local customers.
In fact,customers find it more challenging than convenient to shop from these stores,due to its locational inconvenience and poor customer orientation. They prefer smallerlocal shops with narrow product lines providing exactly what the client needs. Onthe other hand, in developed markets, consumers perceive these multinationalsas premium players with quality products, and therefore customers feel moresatisfied and comfortable purchasing from these globally known retailers.
(Corstjens & Lal, 2012)Hence Walmart was unable to emulate its success in other foreign emerging markets. ConclusionFDI wascertainly the most appropriate option for Walmart to enter India. Though thepolicies of FDI were new and constrained, it allowed Walmart to penetrate theIndian market with the help of Bharti Retail, and begin its operations inIndia. However, thepolitical uncertainty that governed India and lack of regulatory environmentproved to be a major hurdle in its expansion and growth. Poor supply chainmanagement prevented Walmart from building its core strengths that wouldprovide the Indian consumer with its Everyday Low Prices (EDLP) advantage.
Thestore infrastructure failed to take into consideration the preferences of its localdemographics and many of these stores were distant and difficult to access, whicheventually deterred local shoppers from visiting them. To add tothis, Walmart failed to capitalize on its partnership with Bharti Retail and gotcaught in a web of bribery charges and policy paralysis. A stronger partnershipfoundation, a deeper market and consumer understanding and a more conduciveregulatory environment would have certainly enabled Walmart to succeed in the IndianMarket.