Case Study Wal-mart In India Final

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

By: Raymond Vucetic MBA 602 International Business Fall Quarter 2010

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Executive Summary This paper is an analysis and evaluation of Wal-Mart and the future venture into the retail sector of India. The challenges that Wal-Mart needs to resolve to become successful range from the cultural differences to problems with supply chain management in India. The analysis below identifies the challenges of many factors dealing with the Wal-Mart, Bharti and the Indian retail sector. These factors for Wal-Mart would deal with the ability to operate in India efficiently as they do in the US. In addition, Wal-Mart to be successful will have to sort out problems with the government, culture differences and the partnership with Bharti. These factors for Wal-Mart and Bharti will be presented in more specific detail through a SWOT analysis. The analysis will evaluate Wal-Mart as a company in relation to the future operation in the Indian market. Then the Bharti Company will be analyzed using a SWOT to pin point how the company will fit into the overall plan of Wal-Mart operating in India. The report will further evaluate the Indian retail sector through a competitive industry analysis using the Porter’s 5 forces model. This model will detail the threats to the market entry, supplier power, buyer power, availability of substitutes and competitive rivalry as they relate to the India retail sector. The report will then offer alternatives for the Wal-Mart company. These alternatives would include not progressing forward within India, 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.

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Wal-Mart and the Indian Retail Sector: The retail sector in India remains one of the best-untapped sources for international companies to grow market share and future profit. The retail market in India is one that many companies are trying penetrate. One major U.S. retail company, Wal-Mart, has been trying to enter and succeed in expanding the organization’s global footprint. Wal-Mart is one of the largest 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 chain management to change the retail scene in India. Currently, India’s market is at a stage where customers need more variety in products and retail formats. The old systems of retail outlets in India have consisted mainly of Kiranas and Mandis 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 owned and 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 and have been around for a long time. India has seen an emergence of modern large-scale stores such as supermarkets, specialty stores, chain stores, department stores; hypermarkets, factory outlets and discounters enter the retail sector. Shopping malls and new retail outlets with more shops have transformed the business environment in India. The changes in the retailing culture have pushed this business sector to make changes in how customers are buying and consuming goods (Srivastava, 2008). Challenges for Wal-Mart in India

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While the Indian market may look very lucrative for Wal-Mart, they will be faced with many challenges. These challenges will range from entering the market, successfully operating in the market and collaborating with Bharti in the business venture. These challenges are not new to global 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 many variables 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. These stores are mom and pop shops that sell specific goods to the public. The shops are support by the local customers as it has been the way to shop for many years. The shops sell certain items in many 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 how Wal-Mart operates and in general organized retailing. In order to meet the need for the public they will have to provide a variety of goods that will satisfy the Indian population as the small stores have done for decades. The problems Wal-Mart faces are which goods to sell in various locations across the country. These good would vary due to the different types of food people eat, textiles, and consumables. The other factor that will be a challenge for the company will be geographic location. 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 culture changes from old to new so do buying patterns of the consumers. These ever-changing trends

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will be a problem for Wal-Mart to develop the supply chain methods that have made them successful in the US. Wal-Mart must figure out buying patterns to match the needs of the consumers while the culture is continually evolving. An additional challenge will be how Wal-Mart will execute effective supply chain management without the infrastructure to support it. The infrastructures would 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 the stores. They will need to establish relationships with farmers for produce and manufacturing business for all other products. Once these relationships are established, will these suppliers be able to meet the demands of Wal-Mart’s volume. Wal-Mart’s key strategy of getting the right product to stores without long delays. If suppliers are scattered around the nation, the roads and logistics 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 the partnership between Wal-Mart and Bharti. This venture was created to circumvent the India regulation on FDI. Under the agreement, Wal-Mart and Bharti will manage supply chain. The retail potion will be franchised to Bharti. The joint venture will challenge the relationship on the ownership and internalization dimensions of the model. Wal-Mart will need to clearly define its operating model and mesh Bharti. The joint venture method that Wal-Mart has chosen to entire the market will be a challenge to make it work. The joint ventures model for two companies to come together usually result in failure. This will be something that Wal-Mart will have monitor and manage closely to see how Bharti will work out as a partner. Wal-Mart will also need to

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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 world’s largest retailer. Over the years, Wal-Mart has developed 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. They have become the expert by using universal UPC coding an RF tracking. These strengths in inventory tracking have allowed the company to advance and grow profits through logistics and supply chain management. Wal-Mart’s expertise in mastering this part of retailing will allow an upper hand developing their business in India Another 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 an organized structure will be an advantage in the Indian market. Currently in the Indian market, the outlets for customers are scattered thought out the sector with mom and pop stores providing limited or specialized products for consumers. Customers will have to shop at many locations to buy all their needed products. Under the Wal-Mart retail structure; having any and all the needed

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products will offer the one stop shopping experience of which the India culture is not accustomed. This will be the biggest advantage over the competition for Wal-Mart The other strength of Wal-mart is the focused strategy for human resource management and development. The company invests time and money to train the Wal-Mart staff. This key business strategy will allow the company to hire and retain the needed workers in India to successfully operate the new stores in the country. Currently, India is a nation that is adopting the ways of life of the western civilization. The growing middle class, rising disposable income and urbanization matched with the business ethics of Wal-Mart HR management will be the driving factor for the success of Wal-Mart in India Weakness: As a company of much strength, Wal-Mart also has a few weaknesses in their operational platform. Wal-Mart must improve upon these weaknesses to succeed in India. One weakness the company faces is the span of control in an international market such as India. While the company has the ability to control business in the US, these proven methods may not work as efficiently in India. Operating in a foreign country with different legal regulation, suppliers and overall infrastructure will be a challenge for the company. The tried and trued methods the company has perfected in the US will not apply in India. The company will have to reinvent and modify 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 difficult in India due to the lack of exposure with the country.

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The other weakness Wal-Mart must overcome in the Indian retail sector is the ability and flexibility to sell products across many of the sectors (clothing, food, health and beauty supplies etc) as some of the focused competitors. In the US, how consumers purchase goods is vastly different from in the Indian culture. As stated above the Kirana’s are what the India consumer are accustomed to. Wal-Mart offers over 1000 different items at their stores and should be something different for the consumer in India. The question is will Wal-Mart be able to provide the right types of product for the areas they operate? Across the US, the typical Wal-Mart customer purchases the same product from location to location. The different types of buying patterns and product are those influenced by climate and physical location. The same influences apply in India as well, but they will also have to deal with the culture of the population throughout each part of the country. India has a cast system with thousand of different groups that Wal-Mart will have to figure out how and what they are buying. This will ultimately be a weakness for Wal-Mart as they branch out globally into India. They will have to change thinking strategies 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 India’s 300-400 billon dollar retail sectors will allow Wal-Mart to become successful. Currently the organized retailing is only 2% of India’s total trade leaving 98% unorganized. The 98% is made up of small to medium privately/ family owned businesses (Bose, 2009). With the company’s financial backing, they will have the ability to take over, merge and form alliances with other global retailers within the Indian market. The under developed market and growing urbanization will pose great business opportunities to grow as a corporation. These opportunities

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will be seen by Bharti to team up with the largest retailer in the world. By providing new locations, 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 and globally. They will be exposed to political problems in the country. The ability for the company to execute strategies in the US will not be the same in India. Operating in a country that over the years have tried to stop foreign FDI will be a problem for Wal-Mart even with the financial backing. The other hurtle will be the ability to use manufacturing advantages in a nation that currently operates and produces good in a low cost environment. The ability to outsource to low cost regions will not be the same in India as the US. This will lead to increase price competition among retailers. The intense price completion will pose a threat to Wal-Mart ability to increase bottom 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 WalMart in the U.S. The company grown over the years by accruing and build from the companies they have acquired. This has worked very well for Bharti and has allowed the company to gain key access point in many sectors and successful business to operate and profit. Bharti over the years has gained much knowledge in the consumer market. One example of this would the

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Bharti’s business in the cellular sector. The follow SWOT analysis below will layout the positives 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+ million customers it sell products and services. The company has penetrated the entire Indian nation with its cellular business. The task is a great one to over come and by doing so has expanded its large and growing customer base. This attribute of Bharti is a great strength to have when venturing with Wal-Mart in the retail sector. Another strength with Bhart possesses that will lead to the success of the joint venture are the business partner and supplier connections is has established. These connections will allow Wal-Mart to develop supply chain and logistics as in the US to supply new stores across India. The key strength that will benefit the venture is the Bharti company brand name. The brand reconciliation will allow the consumers in India to relate Wal-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 the field. This will be a major factor within the joint venture that will challenge the partnership between Wal-Mart. The lack of knowledge in the retail sector will be a problem. Wal-Mart coming into the venture is bring over 30 years of proven and success retailing expertise. While on the there side of the table, Bharti a young company, may not be as valuable to Wal-Mart.

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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 retail venture. With the Bharti group, expanding into rural market in them other areas of business will provide a gateway for Wal-Mart to enter as well. Both companies will have he ability to learn and grow from each other form understanding the India consumer to operating a successful retail stores. The opportunities the two companies seek may also challenge the venture. When breaking down the venture, Bharti is the key to the door (India Retail Sector) that Wal-Mart need to grown in India. The creation of the cash and carry stores that Wal-Mart and Bharti will open have the largest opportunity to profit. The format will allow Bharit Wal-Mart to sell wholesale, businessto-business transaction. The start of these types of stores will allow Bharti Wal-Mart to start operations in the country. As these stores are built, the supply chain will also increase at the same to support the operations. As quote in a recent news release from Bharti Wal-Mart, The creation of the supply chain will allow locals to provide and sell product to sell in Bharti WalMart store. As the traditional Wal-Mart business always operated, value and low price the same will apply to business owner purchasing products in the store. The goods and services provide will mainly be sourced by local producers, keeping cost to a minimum and adding growth to the local economy . Ultimately, this start up of cash and carry stores is the perfect strategy for Bharti WalMart to enter the Indian retail market. The opportunity allows Bharti Wal-Mart to establish retail outlets and create a supply chain in the region. Along the way, by using local producers and

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stimulating the local economies Wal-Mart will be seen positive by the public. Other positive gain will be the PR by doing so. The company will establish jobs within the community it places store and jobs locally during the construction of the new buildings. The cash and carry service will have many benefits for the Bharti Wal-Mart group. These benefits will come in bottom line profits and the increase brand recognition and loyalty, which is need in the currently Indian retail sector to grow.

Industry Analysis Porter’s Five Forces of Competitive Position model offers a systematic approach to evaluate and analyze the competitive advantage and position of an organization. This analysis illustrates India’s retail scenario and Wal-Mart’s competitive position by examining the threats to market entry, supplier power, availability of substitutes, buyer power, and competitive rivalry.

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Porter’s five Forces of Competitive

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New Market Entrants High threat from competitors Market is new and potential growth is tremendous Hard entry for foreign companies

Buyer Power Better Quality Product Less bargaining power with chain store More choices for consumers

Supplier Power  supply chain system  Large base of textiles, produce and other retail sectors  Cash and Carry outlets

Competitive Rivalry  Primary competitors: Big Bazaar, RPG group Reliance, Tata’s Trent, Pantaloon  New companies taking up market share

Availability of Substitutes Traditional Indian retail outlets  Increased competition for market share in retailing 

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New Entrants to the Market: The threat of new entrants in the retail sector of India is very high. The Indian retail market and organized retailing has potential for tremendous growth. The overall growth in the market is expected to move up in double digits increments over the next 5-10 years. With the change in culture of India due to growing middle class, increase household consumption and the increasing demand by the young working population the retail sector is transforming. The overall 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 based market and the large population. The movement of retailing from unorganized to organized will have both positive and negative effect on the sector. Consumers will have increases access to higher quality goods and more variety. The new retailing sector will have to provide and change from the old traditional products. With the change from streetcars and markets to super centers and shopping malls consumers habit for purchasing will become more westernized. These changes 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 all links in the value chains. The increase demand will allow current suppliers to work with the new retail companies. The advantage for supplier power in the rural areas will be a low competitive advantage. The lack of infrastructure for supply chain management will result in slow growth in these areas.

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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 will continue to remain as direct competition the new wave of organized retail company’s.

Competitive Rivalry: With the 1 billion plus population and the GDP estimate to grow 7.5% in the following years presents opportunity for all mass merchant and food retailers looking to expand globally. The retail market in India is worth hundreds of billions of dollars as well. With all these positive outlooks, many companies are funneling into the retail sector. Some companies are international and 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   

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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

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

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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 other then 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

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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

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Trying to enter at a later date may be more difficult to be profitable

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Recommendations After the evaluation of the situation that Wal-Mart is planning to under take, their position and plan to enter the market is very good. The joint venture between Wal-Mart and

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

Establish a efficient and productive working partnership with Bharti

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Rapidly create a functional supply chain and distribution centes to support the operation

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Building stores and expanding their foot print to increase the presences in the Indian market

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Research the target market to provide products and services of a high quality and low cost to meet India consumer’s desires.

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Not only focusing on the profitability but the positive public relations that need to be acknowledged by the consumers of India.

With the strategic alignment between Wal-Mart and Bharti the joint venture will be a success. In the end, this joint venture will have an ever-lasting influence on the Indian retail sector.

Work Cited Halepete, Jaya “Wal-Mart in India: a success or failture” International Journal of Retail & Distribution Management. Vol 36 No. 9 2008. pp 701-713

Srivastava, R.K “Changing retail scene in India” International Journal of Retail & Distribution Management. Vol 36 No. 9 2008. pp 714-721

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