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Case Scenario/ Task
Walmart entered in some countries through acquisitions and in some countries through greenfield investment. What entry mode do you think was best? Why?
In 2013, Walmart decided to enter the Indian market in a joint-venture with Bharti Enterprises. Based on your analysis of Walmart’s global expansion up to that point, do you think it was a good idea to go to India? To select joint-venture as the mode of entry?
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Entry of Walmart in Various countries
The most successful expansion of Walmart’s was observed in countries like Mexico and Canada. To understand the demands of a culturally diverse market, these multinational retailers in general go in for joint ventures with the local retailers. To acquire the market of Mexico, Walmart got into a joint venture with one of its largest retailers called CIFRA. This venture gave Walmart an opportunity to better understand the current market of Mexico. CIFRA helped by supplying knowledge about the local culture, supplier connections and working with local authorities. In return, Walmart opened various membership warehouse clubs named Club Aurrera. CIFRA and Walmart decided to launch two joint ventures. Firstly, a wholesale discount Aurrera stores will be opened and secondly, an import-export company for providing Mexican suppliers of CIFRA an access to other outlets of Walmart in the US will be started. This allowed Walmart to influence the Mexican market in a very short duration of time. Walmart used acquisition to enter the markets of Canada. It bought 120 well established Woolco Discount Stores in 1994 and saved the much time required for building up the stores. This was a smart move over the other retailers. Soon in 2011, Walmart announced another successful acquisition of around 39 store locations currently occupied by Zellers. Now their next destination was China. The rapidly increasing economy of China supporting its 1.3 billion people was quite alluring for Walmart. In 21st Century, China is expected to become a most powerful country economically. Owing to the slow progress in US, Walmart wanted to acquire Trust-Mart in China and become the top player of retail sector there. Along with acquisition, another offshore sourcing strategy was implemented by Walmart. China could serve them as a major producer or assembly source for different products in United States. Appling the same strategy, Walmart thus became the largest export channel from Chinese to the US, with contribution in China’s overseas sales of about 4%. Walmart does not control the production process in China, rather deals with suppliers who can assure high quality and timely delivery. With this strategy, Walmart holds onto their “Everyday Low Price” philosophy. Thus Walmart was capable of maintaining superior ownership without dwelling into management of the production processes.
Walmart’s decision to enter India through a joint venture with Bharti
It seems ideal for Bharti and Walmart to conduct business and engage in cash and carry services. First, Bharti has excellent leadership and management, aware of the potential of the rapid increase in the countries’ population and economy and were smart enough to take advantage of rapid increase of the working middle class, which is congruent with the expansion of the retail industry. Walmart predicted that a 100 million dollar investment at the right time in India could rise to 450 million dollars in a fairly short period of time.
India’s government began setting rules and regulations in order to protect its country and keep foreign businesses from taking advantage of the speedy upsurge of the working class as well as its up and coming urban towns and cities. The Indian government didn’t allow non-domestic retailors with several brands to sell directly to customers. Instead these major companies who had access to a number of different products from various brands to operate as wholesalers to new and existing local retail companies. The local retail stores who did sale non domestic items were permitted to do so under a franchise agreement with the product producers. Walmart believed it would be more beneficial and lucrative to offer two different types of retail formats in the upcoming individual retail sector. First a franchise retail company, which is what, is used to here in the United States and a cash and carry whole sale venture. The advantage of the cash and carry whole sale venture operation is that it allows local and existing retailors to purchase items themselves. This would be beneficial to the United Stated based company Giant Walmart because along with the Indian economy due to the changes in consumer behavior.
Owing to this lucrative option, Bharti India and the Walmart Corporation decided to sign two separate agreements. One was to establish a venture of 50-50% for backend supply chain management, whole sale cash and carry operations and second allowed Walmart to franchise itself in India if it agrees to help Bharti in supporting the new and existing retail stores with its expertise and technology.
The partnership between Bharti and Walmart also brings about many challenges for both the partners. First and foremost the most apparent issues are the government policies. The two policies that Walmart had to agree with in order to conduct business in India did not permit them to do their retail business as they normally would in the United States and as well as they do in some other counties. They had to alter their wholesale strategy to cater to smaller and middle sized businesses that also had to agree with the Indian government’s terms and conditions that also made them cater to the general public and the unorganized sector, who also opposed some threat their partnership due to their high numbers, location and relationship with the community.
Also because of the highly unorganized industry, there is always a threat of increasing local competitors. Although the country is in the process of transitioning to more of an industrial, westernized innovative arrangement, the infrastructure plays a pivotal role in Walmart’s entry in the Indian territories. Overall the country still has a below average transportation and road system compared to other countries where the retail sector has thrived fiscally. Some areas of the country are only accessible by vehicles that are built to travel on off road conditions where India has many roads as such. Many regions in India still have dirt roads that have not been paved with concrete and are very difficult to reach unless you are equipped with the right vehicle. Also the unavailability of adequate technology available in some areas also gives the Walmart Bharti joint venture a challenge to spread the retail shopping concept to certain areas as well.
Thus despite of India being the world’s most diverse and developing countries, if handled carefully and correctly Walmart has a really good opportunity to make some fundamental moves that will benefit them fiscally as well as give them a better image with the Indian consumer, which is the largest retail market worth more than 600 billion dollars.
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