Wal-Mart in India

Case Presentation - Managing Retailing

Submitted by: Group 5

Prabhudutta Sahoo (0045/55)

Sanjana Sanjiv Shinde (0127/55)
Shreyans Nahar (0132/55)
Suryawanshi Bageshree (0138/55)
Sonal Priya (0158/55)
Aradhana Gogoi (0394/55)
 Case Overview
Walmart - The largest retailer of the world

 Walmart's’ experience in Japan (2002)

• Walmart ventured with Japan’s 5th largest retailer, introduced substantial management changes, revamped store layouts
and brought best practices like EDLP and retail link
• Low rate of growth and an aging population, coupled with operational issues like multilayered network of suppliers made in
an unsuccessful venture

 Walmart's’ experience in China (1996)

• China was a unique market for Walmart, which had huge market potential as a developing nation, but due to their slow
growth strategy Walmart lost their advantage to competitors
• Walmart lagged due to lack of established supply chain networks, knowledge of local tastes and government support
• Walmart could have also learnt about China’s social & cultural norms, which would have helped them in their Japan Venture.

Both these experiences give similar insights that to have a successful venture in India Walmart needs
INSIGHTS

(a) Government support

(b) Established supply chain network
(c) Understanding of customer taste and needs
 What are likely to be the objectives for Walmart in India given their experience in
other countries?

Objectives before entering Indian market

• Conduct extensive research on the Indian consumers to understand the demographic landscape and the impact of product
preference, cultural influences, etc. on their buying behavior
• Garner support from the Indian Govt. - leverage Walmart’s capability to create new employment opportunities & growth
opportunities for small shopkeepers
• Take in considerations the variabilities and challenges related to infrastructure & business environment

Objectives while entering the Indian market

• To provide world-class customer care practices & improve operating efficiencies
• Establish strong supply chain network across cities - improve on the IT infrastructure for more real-time tracking, integrated
& responsive supply chain network building, try collaborating/acquiring the fragmented unorganized retailers to leverage
their supply relations & networks
• In the long run, increase penetration in Indian Market (mini- Metros & tier 2/ 3 cities) as it has huge growth potential & is
one of the fastest growing economy, also has large population under 25 yrs. of age & growing disposable income with large
population
 CHALLENGES & OPPORTUNITIES IN INDIA
CHALLENGES
Barriers to FDI Customer preferences
FDI not permitted in pure retailing Changing consumer habits & Indian
Control on FDI limited capital investments in consumers with habit of buying fresh foods,
Supply chain infrastructure (Govt. allowed Cultural issues & different consumption
only 51% of equity partnership through JV) habits
Supply Chain bottlenecks
Large no. of Intermediaries causing longer
supply chain, Distribution, Logistics
constraints - Lack of decent integrated IT
infrastructure & cold chain infrastructure

Complex Taxation System & Multiple Structural impediments High Real Estate Costs
Legislations Lack of urbanization, Poor transportation Pro-tenant rent laws, Zoning restrictions,
Different sales tax rates, Multi-point octroi infrastructure, Administered pricing High stamp duties, No clear ownership titles

Lack of Industry Status Suppliers/ Manufacturer backlashes Availability of skilled people

Govt. does not recognize the industry No increase in margin Lack of training

OPPORTUNITIES

Fastest Growing Increase in average urban Strong middle and A growing consuming class Internet revolution
Economies in the household income upper middle class (3 million families in 1996 to an Facilitated increasing awareness of
Rising disposable Income expected 80 million in 2005) global products for local markets
world amongst Indian consumers
 WALMART’S MARKET ENTRY STRATEGY FOR INDIA (1/2)
OPTION 1 OPTION 2 OPTION 3
Wait for the government to open up Find suitable partner for Joint Open Sam’s Club – Wholesale Cash &
the retail sector Venture Carry outlets

PROs PROs:
- Risk of failure is reduced - Open our own
PROs: - Exposure to understand consumer
- Risk of failure gets hedged due to preferences in India before entering
stores and will have complete control
partnership retail
over its operations
- JV partner will help in understanding - Freedom to grow and manage – thanks
consumer preferences early on and will to full ownership
CONs: have the necessary infrastructure
- Competitors like Carrefour may gain first - Create necessary infrastructure
needed to enter the sector throughout the country that Walmart
mover advantage
- Walmart will lose out on business can leverage when it enters front end
opportunities till government opens up retail
CONs:
the retail sector CONs:
- JV partner will have bargaining power
- Walmart will neither understand - Risk of failure is high
over Walmart and may restrict growth
consumer preferences in India nor have - Lack of capabilities that a local partner
of Walmart due to
necessary supply chain infrastructure could have brought to the table
- Potential threat that Walmart can
when government eventually opens up - Lack of understanding of consumer
pose as a competitor in near future
the sector expectations & availability of
- Government’s cap on FDI
infrastructure in the beginning
 WALMART’S MARKET ENTRY STRATEGY FOR INDIA (2/2)
Option 2 Option 2 Option 3 Option 3
Understanding
Option 3 Long term
Establishing Option 2 Garner
consumer distribution Option 3 expansion in
government Option 2
preferences infrastructure India’s retail
Option 1 support
Option 1 sector Option 1 Option 1
JV will help understand consumer
preferences using capabilities of the Walmart can leverage the existing Through Sam’s club, Walmart can create
infrastructure of partner if it enters While a JV will ensure definite penetration
partner, but restricted to his reach within benefits for entire retail sector through low
through a JV. On the other hand, it has only in regions where the partner is present,
the market. Sam’s Club will help us gain cost offerings to all retailers. This resolves
to set up its own distribution Sam’s club will give liberty of pursuing own
deeper insights spanning over government's concern that entry of foreign
infrastructure if it enters as Sam’s Club. growth strategy throughout the country with
consumers throughout the country. players might hurt the small shopkeepers. JV
downside of uncertain acceptance.
will be solely profit-oriented entry.

ENTERING THROUGH JV : Low Risk CLASSIC TRADE-OFF ENTERING THROUGH SAM’S CLUB : High Risk

WALMART’S CURRENT SITUATION (FINANCIAL)

• Walmart failed in Japan because they were unable to meet consumers’ preferences and had trouble with procurement.
• Due to slow growth & presence of strong competitor (Carrefour), Walmart couldn’t capitalise on opportunities that China’s retail sector had to offer.
• Walmart had to exit Germany in 2006 (year before entry in to India) after entering the market via acquisition due to heavy losses.

RECOMMENDATION– JOINT VENTURE

• Walmart should enter India in a JV as the Cash & Carry partner of a retail giant to ensure low investment & low risk
• Once Walmart has gained the requisite capabilities (stating a pre-defined contract duration), it can scale up by becoming a fully owned Cash & Carry
outlet that caters to all retailers including the unorganised sector.
• During this scaling-up exercise, Walmart can leverage “Walmart.com” and establish the e-retail infrastructure
• When government opens up retail sector in India, Walmart can leverage the capabilities and infrastructural set-up and establish its front-end retail
business.
THANK YOU!