Analysis of a business article Essay

According to a recent article in Forbes magazine, Wal-mart and Bharti enterprises are in final talks to setting up a joint retail venture in India. If plans push through, this would mean an entry by the large American retailer into India’s $300 billion market which has been long delayed because of numerous restrictions. Wal-mart’s entry into the Indian market is propitious as it has been increasingly sourcing its produce for its international operations from India. In 2006, it bought $600 million worth of produce directly from Indian suppliers, up from the previous year’s $400 million. This aside from the fact that its main rivals, France’s Carrefour and Britain’s Tesco are preparing to enter the Indian market too.

This plan also fits the proposed expansion of Bharti to set up more supermarkets, hypermarkets and small retail chains in different Indian cities over the next eight years. Bharti is also making a survey to determine if it is suitable to use the Wal-Mart name for the joint venture.

The deal itself would be in accordance with government guidelines with Bharti managing the front end of the retail business and Wal-mart providing back-end support for logistics and supply chain. Wal-mart, which is known all over for its highly efficient supply chain, wants to make use of said advantage to assist Indian farmers in selling their produce to the markets and prevent wastage due to inadequate storage and transportation facilities.

But protests by a coalition of labor unions, trade groups and nongovernmental organizations continue to hound the venture. 97% of India’ retail market is made up of small operators, who will oppose any market entry by a large international retailer like Wal-mart. (David, 2007)

             For Wal-mart, the importance of gaining a foothold into an emerging market like India cannot be denied, especially when its international business is getting to be so profitable. Annualized international sales for last year was 77.1 billion or a 30.2% increase over the previous year. Operating profit was $4.2 billion, an increase of 21.5 percent compared to the previous fiscal year. (Wal-Mart, 2007) Entry into the Indian market is therefore important for Wal-mart if it wishes to maintain its leading global status. According to recent research, “India’s vast middle class and its almost untapped retail industry are key attractions. While organised retail in India is only two per cent of the total US$ 215 billion retail industry, it is expected to grow 25 per cent annually, driven by changing lifestyles, strong income growth and favourable demographic patterns.” (India Brand Equity Foundation, 2006)

The joint venture with Bharti in a way makes things easier for a foreign retailer like Wal-mart to enter the market and obtain a large market share ahead of its competitors like Carrefour and Tesco. It can take advantage of the reputation and stability of the domestic partner, its familiarity with the regulations and the opportunities and threats within the market as well as capitalize on already existing assets or resources, such as locations, personnel, suppliers, etc. Bharti Enterprises fits the bill as it is one of India’s leading business groups with interests in telecom, agri business, insurance and retail.  (Bharti, 2007) And based on the just released Forbes billionaires’ rankings, Sunil Bharti Mittal and his family are also the 69th richest in the world with 9.5 billion dollars to their name. (Zeenews, 2007)

Indian law states that foreign direct investment (FDI) in multi-brand retail is not allowed, but 100% overseas investment is allowed in cash-and-carry (wholesale) business. Wal-mart’s joint venture with Bharti, allegedly a type of backdoor entry, will not be a violation of the regulations as it is strictly limiting itself to providing support to the back-end, logistics, and supply chain. (Times of India, 2007)

As for dealing with the opposition, some of which are large domestic retailers like Pantaloon Retail (India) Ltd., India’s top chain with some $450 million in annual revenue (Kripalani, 2006), it all boils down to some form of lobbying, whether it be in the government arena or in the media, that is highlighting the benefits of Wal-mart’s entry. The argument is, there is no stopping globalization. Domestic retailers eventually have to step up to competition. And the entry of foreign retailers will augur well for the continued development of agriculture which will be a major source of supplies, as well as the improvement of logistics and transportation in the areas affected.

References:

Bharti webpage media centre

http://www.bharti.com/129.0.html?;tx_ttnews[tt_news]=203;tx_ttnews[backPid]=128;cHash=61a6210dc5, date accessed 12 March 2007

David, Ruth. “Wal-Mart May Be Near Deal On India Venture.” Forbes Magazine, 23 February 2007.

India Brand Equity Foundation webpage, last updated: 07 November 2006, http://www.ibef.org/industry/retail.aspx, date accessed 12 March 2007

Kripalani, Manjeet. Wal-Mart: Rapping On India’s Door. Businessweek magazine.  http://www.businessweek.com/magazine/content/06_18/b3982069.htm, date accessed 12 March 2007

The Times of India, 23 February 2007,

http://timesofindia.indiatimes.com/NEWS/India_Business/Bharti_Wal-Mart_finalise_retail_JV/articleshow/1670082.cms, date accessed 12 March 2007

Wal-Mart International Operations webpage http://walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=371, date accessed 12 March 2007

Zeenews webpage, http://www.zeenews.com/articles.asp?aid=358927&sid=BUS&ssid=50, date accessed 12 March 2007