Walmart India Story

1. What are the main problems Wal-Mart has faced in expanding to India, and how will these issues affect Wal-Mart's usual low cost strategy based on supply chain efficiency? Headquartered in Bentonville, Arkansas, Wal-Mart was founded in 1962 by Sam Walton. Since the beginning, Wal-Mart has maintained a singular focus on providing the lowest prices to its customers. The table below shows the number of stores Wal-Mart has internationally1, both in retail and wholesale. Please note: Wal-Mart does not have any retail stores and only 20 wholesale stores in India. We will try to analyze the reasons for the same in this paper. Geographic Market

Retail

Wholesale

Other

Total

Africa

285

94

—

379

Argentina

104

—

—

104

Brazil

468

76

12

556

Canada

389

—

—

389

Central America

660

1

—

661

Chile

351

2

27

380

China

395

10

—

405

India

—

20

—

20

Japan

374

—

64

438

Mexico

2,033

156

10

2,199

United Kingdom

574

—

2

576

International total

5,633

359

115

6,107

By doing a PESTEL analysis of India’s macroeconomic environment through Wal-Mart’s perspective, we will be able to look at certain key issues that the company is facing while trying to expand in the country: Political Factors: Indian government format is that of a multi-party system and thus it is difficult for one political party to get an absolute majority and rule on decisions unanimously. Though, the last government was in favor of Wal-Mart entering India through ‘Foreign Direct

Investment’ in multi-brand retail, it could not get the required political support to pass the ruling on its terms. Economic Conditions: India is developing into an open-market economy. Economic liberalization measures like reduced controls on foreign trade and investment, began in the early 1990s and averaged under 7% per year from 1997 to 2011. The economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Slightly less than half of the work force is in agriculture, but, services are the major source of economic growth, accounting for nearly two-thirds of India's output with less than one-third of its labor force2. Sociocultural Forces: From times before India’s independence, the community ‘mom and pop’ shops have been the one stop solution for everyday household needs. With organized retail coming into the picture, a very big change for the Indian household buying habits is nearing. Indian people go to the ‘mom and pop’ shops every morning and do their daily grocery. This is evident in the popularity of low-priced sachets of shampoos and soaps stacked in a ‘general store’ near a typical locality. Indian people purchase only what is immediately required and tend to save more. They generally don’t buy in large quantities and neither are accustomed to traveling in car to buy their fresh produce. These ‘mom and pop’ shops traditionally buy from wholesale markets and some directly from manufacturers. And the negative perception about Wal-Mart taking over small and medium retail businesses is an added disadvantage. Technological Factors: The lack of modern supply chain in India, is another major hindrance that Wal-Mart faces. This is the major reason why it’s usually low-cost strategy based on supply chain efficiency is not able to work in India. Poor road infrastructure and an abundance of middle-men and small business widen the gap between Wal-Mart and the Indian farmer. Best practices like refrigerated cold chains and temperature controlled storage is not easy to implement which leads to a wastage of fresh produce worth 12 billion dollars before it reaches the final consumer. These issues result in making the Wal-Mart business model a failure in India.

Environmental Forces: India is a ‘hot’ weather country. Typically, the climate around the country stays humid and hot for approx. 7-8 months. Therefore, farmers need more water supply than usual however less rain and lesser irrigation facilities lead to a very difficult situation to produce as planned. Other environmental issues include deforestation, soil erosion, overgrazing, air pollution from industrial effluents and vehicle emissions, water pollution from raw sewage and runoff of agricultural pesticides. The population growth is leading to a strain over the natural resources of the country too. Bad climate leads to price hikes and deprived quality of fresh produce. Legal/Regulatory Factors: Indian government allowed foreign direct investment (FDI) up to level of 51% in multi-brand retail in 2012. Some points in the law included minimum investment of US$100 million, of which 50% needs to be in back – end infrastructure; 30% of products must be sourced from small enterprises; retail outlets can be set up only in cities with population of over one million. All these conditions led to a very slow turn around for retail giants like Walmart, Tesco and Carrefour to apply to enter India. Stringent norms like the investment of US$100 million should be to build infrastructure purely and not include acquisitions of current Indian retail chains, the back-end operations would have to be built from scratch and the US$50 million should be invested in creating greenfield infrastructure, created pessimism in these retail giants who were not so sure if they want to enter India on the basis of the current FDI law in India. Walmart entered India in 2007 through wholesale cash-and-carry format by getting into a partnership with Bharti Enterprises. It hoped that this relationship will help it get a head start over other international retailers looking to establish their presence in India. But Walmart got involved in controversies for violations of the Foreign Exchange Management Act and FDI regulations and lobbying for FDI in multi-brand retail in India (this probe was closed on the bases of insufficient evidence).

2. What are some adjustments the company could make to its strategy to counteract these problems? India is a very diverse country with 6,000 castes and sub-castes in 28 states, and every community has its own tastes. To manage the diversity and the heterogeneity is one of the

Global Integration

biggest challenges for Walmart.

Wal-Mart Global Strategy

Wal-Mart India Transnational + Multi-domestic Strategy

National Responsiveness

Wal-Mart needs to move from its global strategy to a transnational strategy or do some glocalization for Indian markets. It would need to implement the strategy by using masscustomization methods that are more capital intensive that enable them to address local preferences but in a semi-standardized manner.

A transnational strategy is more conducive to leverage subsidiary skills and capabilities. A deeper penetration of Indian market is required to successfully set up shop in India. The concept of grocery shopping in big air-conditioned stores is still alien to the nation where people still feel comfortable buying their groceries from sellers on the road, passing by their houses or small farmers markets nearby. Greenfield venture in creating wholly owned subsidiaries that meet the FDI law requirements can also be an answer. The company would have to do with razor-thin margins or even losses for the time being, if it wants to stay in India for a longer period of time. Cross market subsidization would help WalMart where its US profit sanctuary will come into the picture and give the company the required financial strength needed to support such a strategic offensive. Wal-Mart’s current strategy to go big in ecommerce under the B2B segment is a positive step to try and establish a foothold in the country. This is the open-back door that can be leveraged further. It needs to be tactfully exploited, however under the realms of the law. The small and medium size businesses should be targeted aggressively and within this segment retailers should be its best-bet. Providing learning solutions, best products at best prices through the stores as well as websites will be really beneficial in increasing market penetration in India. Concentration on distribution centers and delivery management should be a priority as small businesses settled in rural India may be really lucrative customers however they are difficult to reach for other retail giants. Conclusion Consumers are different in different parts of the world. To be successful, it is important for Wal-Mart to understand each market and its consumers deeply. Wal-Mart has always tried to keep their competitive strategy as “global” with no changes around the world. Cultures similar to that of US or those that are highly influenced by American culture accepted Wal-Mart with open arms. However, Germany and South Korea did not. It entered Germany by using the wholly owned subsidiary method, but failed to gain consumer loyalty. Delays in changing names of previous small retail stores to Walmart, worn out interiors,

etc. poor brand image – resulted in customers associating Wal-Mart with the image of rundown stores. While it tried its luck in entering South Korea, it completely misunderstood the retail market of the country and entered through a warehouse format very similar to that of US. The Korean retail culture thrives on a festive and social setting where thousands of small retailers are dispersed in local neighborhoods and form a marketplace along with a social center. To be successful in India, Wal-Mart will have to learn from its previous mistakes, and make suitable changes to meet the needs of Indian consumers. It will not be able to compete only on the basis of price, but would have to concentrate on other key levers of quality, national responsiveness and availability too.

References 1. Wal-Mart Annual Report 2014 2. The World Factbook - CIA 3. FDI in Indian retail - More hurdles for Walmart 4. Walmart in India - success or failure? 5. Will Walmart succeed in India - Perhaps but it won't be easy 6. Walmart Launches Ecommerce Marketplace in India