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Emergence of Wal-Mart and its Challenges in Indian Retail Sector

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 International Journal of Knowledge and Research in Management & E-Commerce Vol.4, Issue 2, April, 2014

Emergence of Wal-Mart and its Challenges in Indian Retail Sector

Dr. Venkata Krishna Mahesh Kumar Kondraju
School of Computer and Information Science
University of South Australia
Adelaide, Australia
Konvy004@mymail.unisa.edu.au

Abstract - This research paper provides insight into the
emergence of Wal-Mart in Indian retail sector, its challenges
with the existing Mom & Pop stores, evaluating Wal-Mart’s
existing business model, strategies to combat unorganized
Indian retail sector and innovating new ideas for effective
logistic systems. This paper also discusses about the new Wal-
Mart E-business model specifically designed to target Indian
retail consumers with the introduction of Information and
Communications Technology (ICT).
Keywords - Sell Side Ecommerce, Wal-Mart Inventory
Management, Retail Linka, Electronic Data Interchange,
Wal-Mart E-business Model.
I. INTRODUCTION
According to The Wal-Mart Story (2008) Internet is a great
solution for Wal-Mart to make retailers and suppliers
collaborate to each other to increase sale at lower prices.
One of the important concepts of maintaining low prices at
Wal-Mart is inventory management. Wal-Mart wants to
maintain up-to date information about sales and a good
communication with the suppliers. Making this wish come
true was very difficult as there are thousands of stores and
suppliers and hundred thousands of products.
II. LITERATURE REVIEW
In the case of Wal-Mart as a buy side e-commerce, Firstly
Wal-Mart used electronic data interchange (EDI), mainly for
collecting and analyzing sales data and transferring orders to
suppliers in early 1980s and started collaborating
electronically with thousands of its suppliers by 1990s [11].
Electronic data interchange (EDI) was initially used for
communication, but later Wal-Mart design its own
application known as Retail Linka, which started taking
EDI`s place. Modems were the devices which suppliers used
to communicate with Wal-Mart’s database. They use this
method to update store by store information regarding the
sales and inventory for their products [11].
Various applications of Retail Linka as well as the
information which they have collected through these
applications were made inventory in the stores for
forecasting, producing, planning and shipping to manage as
needed, by allowing the suppliers to work with the
companies buyers. The product brought lower inventory
costs for Wal-Mart and tuned to the needs of local customers
and brought the faster replenishment for the organization.
Cisco network upgrade the Retail Linka to a new level of
usefulness and efficiency with the help of Internet
technology [11].
David Flanagin, Director of Network Engineering believes
they developed the Retail Linka from traditional and old
method of dial up network to internet application. He stated
that checking the database for the vendors is much easier, as
they just need a web browser [11].
Although maintaining the products are now easier and less
expensive for Wal-Mart managers, but still using internet
was a helpful option for the international suppliers of Wal-
Mart. They can easily get access to database as it’s
accessible through internet [11].
When Wal-Mart was in software business it used to send its
software Retail Linka to its vendors. This procedure had
some problems as well, as the Wal-Mart managers must be
assure that the vendors are using the proper versions of
software and maintained their bank of modems in working
order. But as they transformed the Retail Linka to an internet
application with the use of internet technology, the vendors
won`t need any modems anymore. The biggest advantages of
using Retail Linka as an internet application instead of being
software which used to send by Wal-Mart to its vendors, is
the easily updating facilities which can be easily accessible
by vendors [11].
Speed of data transmission can be counted as another
advantage of the internet. Vendors using a high-speed
internet connection can access the data quickly at higher
speeds when compared to the lower speeds of the dial up
modems with limitations for the data transmission [11].
As all the vendors were able to check the database, Wal-
Mart uses a password protection technique to indicate what
vendors can see on the database. The password policy of
Wal-Mart was designed on the basis of different users within
a vendor company have different passwords. They can
access the database on the basis of information they needed
to know from database. Internet based Retail Linka helped
Wal-Mart into low pricing project. Vendors with the help of
Retail Linka can see how their products are selling, they can
use what if scenarios and then work with Wal-Mart on sell
through and pricing [11].

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 International Journal of Knowledge and Research in Management & E-Commerce Vol.4, Issue 2, April, 2014
Finally, in the case of Wal-Mart as a sell side e-commerce,
Wal-Mart used internet as a communication infrastructure to
make things better for customers too. They used web based
applications to increase its competitive edge and at the same
time also tried to satisfy their customer needs [11].
III. RESEARCH METHODOLOGY
A. Wal-Mart E-Business Model
Companies need to increase their competitive advantages by
applying new technologies, analyzing & assessing recent
findings and even innovating new models of e-business.
With the advent of the Internet, web 2.0 tools such as web
portals and other communication tools such as e-Mail, VoIP,
and forums are changing the way people and companies are
doing business today [1].
One of the factors which lead to a successful e-Business
model is that every company should evaluate its own current
situation, understands the new opportunities offered by ICT
(Information and Communication Technology) and try to
integrate them into its existing business models such that it
can create its own new e-Business model. Choosing
inappropriate models may make considerable losses and
moreover competitors and new entrants will find it difficult
to copy or use the same model. So by developing a dynamic
strategy and a model which can react to the increasingly
complex business environment is critical and key to success
[1].
Second factor is being flexible while not losing focus on the
core business. An example of business model flexibility is
diversification of Amazon.com from selling books and CD’s
to more typical products of department stores. Some surveys
indicate that although flexibility is useful but companies who
have stuck to a single business model are more successful
[1].
Thirdly establishing a secure integrated extranet and a portal
are vital for having efficient e-Business model. These are
foundations of a successful e-business model. For example a
company needs to have an e-Business architecture which
allows its partners, suppliers, customers, contractors or even
its remote employees to access extranet through the portal.
Some of the basic applications on the extranet are custom
procurement system, ERP, an e-commerce storefront for
suppliers and a version of an EDI system for Web or even
successor of EDI retail linka. The extranet infrastructure
provides the management and security platform that ties the
company’s applications together into one system for making
the best use and acquiring real value from online business
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resources. The extranet community is what finally helps in
making profits and its competitiveness is one of the
advantages for its success [14].
Finally, a successful e-Business model should make business
processes efficient. It should be able to conduct business
processes in a more reliable, faster with lower cost, reduce
inventories cost, reduce time to market, improve customer
support, provide reliable information in order to improve
decision making. All these factors will lead to increasing
revenue and such an e-business model can be considered as a
successful e-Business model. Wal-Mart is following these
points as well as other advantages of having on-line stores as
well as physical ones [14].
Current state of Wal-Mart’s success depends on Wal-Mart’s
e-Business model and in turn which is based on buying and
selling products, collaborating, promoting, doing research,
providing online customer care on the Internet etc. Wal-
Mart’s business model is recognized for providing the lowest
possible prices to its customers. It means Wal-Mart is using
convenience and ubiquity of the Internet to improve the way
they do business, make more revenue and benefit from new
opportunities. In fact they are making a true success of their
integrated networking technology (extranet, portal,
communication tools). Without any doubt it is a sign for
leading all the way in to the retail industry by “always low
prices” tactic [14].
It has transferred its entire business onto the Web to exploit
duplicating the marketing and selling power. Wal-Mart’s
complex and numerous secure Web site arrays is pretty
simple from technology point of view but provides
categorized and complete product catalogue with detailed
features and prices. Promotions and special deals in the on-
line store are like to Wal-Mart store [3]. For customer
support it focuses on several payment options such as six and
twelve month and zero interest free financing. The layaway
location in most stores is now used for Wal-Mart's Site-To-
Store program, which enables walmart.com customers to buy
goods online with a free shipping option, and have goods
shipped to the nearest store for pickup [8].
The aim of Wal-Mart is to increase the quality of living of a
common man by reducing the cost of living not only in
United States but also in other countries and continents, such
that everyone has a better lifestyle. Wal-Mart emerged as a
global retailer by entering into retail markets worldwide such
as Europe, India and China etc. [13]. Emergence of Wal-
Mart with a motto of reducing cost of living and providing
better lifestyle in the diversified markets of the developing
countries such as India & China seems to be a tougher
challenge in front of them [4].
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 International Journal of Knowledge and Research in Management & E-Commerce Vol.4, Issue 2, April, 2014

B. Challenges for Wal-Mart in India Government is reluctant to change the norms and rules to
allow giant foreign retailers to own & operate their own
One of the most important challenges of Wal-Mart is the stores. These steps were taken in order to protect the existing
acceptance. Wal-Mart’s entry into retail market as a foreign small businesses and retailers. This shows that
retailer seems to be a challenge mainly due to the large size Commonwealth Government of India seems to believe that
of diversified Indian retail market with different cultural major foreign retail players like Wal-Mart might hurt small
background, religion, language, different food habits, buying medium business enterprises and retailers [6].
power of the people, tradition and the size of the competition
which it is going to face are few intricate attributes which With many challenges awaiting still foreign retailers are
relates to the upcoming challenges [4]. interested to start their businesses in India, but seem to be
highlighting few concerns such as cost of retail space, FDI
Businesses in India are more or less based on excess use of (Foreign Direct Investment) controls, existence of
manpower, lowering amount of expenditures rather than the unorganized retail sector etc. Though Wal-Mart entered the
use of high cost technologies and investments assigned to it retail sector of India for a wholesale trade and established
[4]. itself in a joint venture with Bharti enterprises to emerge as a
retailer but due to this association there may face problems
Entering India as wholesaler but not as retailer itself is one of such as ownership, internalization, locational disadvantages
the challenge which it is facing, India currently is an while expanding its services etc., these are few challenges
attractive market for the foreign retailers and encouraging which need to be understood and assessed for attaining
retailers for provision of services to 1.1 billion population success [4].
[2].
C. Wal-Mart Strategies to Overcome Challenges in India
India has recorded convincing growth in urban and semi-
urban retail markets, but are people changing their attitude
Efficient logistics systems with new improved innovative
towards modernized retail chains ? Are people turning to be
strategies are important to negotiate the challenges, extensive
brand conscious ? Are few of the challenges where foreign
internal communications among supply chain management is
retailers destiny is awaiting [9].
also important and along with these innovative changes the
strategic mindset should also change and in such a way to
Retail sector in India is in early stages of development with
cater the requirements of Indian market and its diversified
tremendous growth rate, at this juncture Wal-Mart’s
people with multi-dimensional and multi characteristic
introduction of ICT and supply chain management into retail
background [4].
industry with its traditional E-business model will be a
challenge. As Indian middle class consumers seems to be
To avoid the FDI regulations Wal-Mart has tied up with
showing interest in the modernization of the retail industry
Bharti Enterprises (India’s largest mobile service provider)
but are still value conscious shoppers, common man’s
to start a joint venture in the retail industry where Bharti
thinking or mindset is to acquire world class products at
enterprises will be running the retail franchise [7].
traditional Indian prices. So it’s a tough challenge for Wal-
Mart to maintain low prices by using the same old traditional
To successfully face the challenges Wal-Mart has assessed
E-Business model with few changes made to it according to
the Indian Government’s regulations and strategically
the geographic location of the markets [9].
entered the wholesale trade market where there are no
restrictions for foreign companies regarding FDI
Wal-Mart’s other challenges are penetrating from the
investments. This change has been bought in recently for
unorganized retail sector of India which includes the local
FDI investments up to 100% but only on B2B basis for E-
small family owned stores known as Mom and Pop stores,
Commerce activities but not for retail sector [2].
well this even exists in United States but in India these Mom
& pop stores are stretched over to 600,000 villages who are
With the 100% FDI inflows Bharti Wal-Mart has finally
offering conveniently at low costs to villages and towns, So
entered Indian retail market and started wholesale franchises
facing these small family owned stores will be a big
named Cash & Carry wholesale trading. Wal-Mart officials
challenge [10].
are also aware that Indian Government is revising the
reforms to lift some restrictions on foreign retail companies
Many opportunities are increasing for local as well as
in the coming few years [5].
international players in retail industry, but commonwealth
government of India is protecting its retail industry from
foreign retailers by prohibiting their direct investments.

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 International Journal of Knowledge and Research in Management & E-Commerce Vol.4, Issue 2, April, 2014

Retail sectors liberalization seems to one of the major target

of Wal-Mart, such that it can expand its services without any
problems [2].

Wal-Mart’s entry into India seems to be very well planned,

this time they haven’t repeated the architectural anomalies
which they faced when they entered Germany and South
Korea. They haven’t just made modifications to their E-
Business model but thoroughly understood the requirements
of India retail sector and its diversified consumers. So they
have finally remodeled their E-Business model instead of
making modifications to it [4]. As yet they can’t own and
operate their own retail stores Wal-Mart entered as a
wholesale trader where it will be collecting the goods from
suppliers, manufacturer’s & farmers and in return they will
be opening cash & carry wholesale stores where they will be
selling to small business and retailers [12]. Wal-Mart’s use
of ICT and supply chain management will emerge with new
trading techniques such as direct selling, E-marketing, Tele-
shopping etc. [2]. The retail sector will be noticing new form
of stores such as supermarkets, hypermarkets etc., with these
emergence limitations or drawbacks found in Mom & Pop
stores are negotiated [10].

IV. CONCLUSION
Wal-Mart’s key to success in Indian retail sector stands on
the aspirations of emerging middle class in the country. In
order to entice them use of ICT is important in providing
services such as direct selling, E-marketing, online shopping
etc. Wal-Mart is creating new trading techniques with
efficient supply chain management and by introducing
supermarkets, hypermarkets etc. to cater different sections of
the communities in the retail sector which are different when
compared to Mom & Pop stores. With the emergence of
ICT, limitations & drawbacks found in Mom & Pop stores
such as liberalization of retail market can be achieved.
Future prospects of Bharti Wal-Mart are looking good in the
emerging market like India with constantly growing biggest
middle class in the world.
Figure 1 Wal-Mart E-Business Model for India [12]
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