Retail Wars: Why Wal-Mart’s India Plans Hit A Wall

It might have been an indication of how things were to progress when Wal-Mart’s CTO Jeremy King visited the country in September 2012. In a run-up to setting up the business and harnessing the FDI-favourable atmosphere in India, the biggest global retailer had sent its top executive to hold meetings with the top brass of India, including a meeting with President Pranab Mukherjee.

But that was a visit which was simply ‘not to be.’ Right from the beginning, the jinx continued. Upon his arrival in Bangalore (along with his team of executives) in a chartered flight from the US, King was told his visa had expired even before his arrival. He was then given a 3-day temporary landing permit, with a Bangalore-only caveat. Hurried meetings over, King left India. Obviously, this cost someone in King’s office his job.

From then on, the talks didn’t seem to progress smoothly for Wal-Mart or its US team or even the team it had set up in India. After being at the helm of affairs and paving the way for Wal-Mart’s Indian saga, Raj Jain, CEO of Bharti Walmart Pvt Ltd, quit the post, even as the global retailer was working out the details of its India operations. Quite a blow it was.

But try not to be myopic here. First of all, the company was battling its own issues. But the Indian government’s hesitant steps towards opening the doors for Wal-Mart and creating a feasible environment by allowing 51% FDI in multi-brand retail only compounded those issues. There are versions that speak of Wal-Mart’s desperate attempts to enter the Indian market, even while battling the charges in the US. Mysteriously enough, the same kind of charges involving corruption and bribery followed the retail giant in India as well.

If the reason for this was obvious, it’s because there was no way this could be dressed in any other garb to camouflage it. While the government was in the process of drafting a Press note that would effectively allow foreign companies to breach the investment levels as per their convenience, it was leaked to the media. That was probably another major blow. The Opposition bayed for government’s blood over that and the government’s just shrugged them aside.

Wal-Mart’s internal structure was not conducive either, to make things happen or focus on a midway to create inroads on its own. The highly volatile atmosphere within Wal-Mart’s India team only contributed to the lost ground. Losing some big players had cost the retail giant dearly.

Typically, foreign companies will have to ally with local partner/s to run businesses in the country. But in order to favour the entry of more companies under FDI, the government had relaxed the rules and created a leeway of sorts – by stating that the companies could set up business by buying 30% of locally manufactured products from small and medium-sized local sellers with nearly $2 million invested in industry and machinery.

But none of this was ‘favourable’ enough for Wal-Mart. In a recently concluded interview, a top brass from Wal-Mart said this “just wasn’t enough” to set up a retail chain in India. “The entry barriers are simply difficult to cross. They aren’t workable,” the executive added.

Wal-Mart had expected a levelled playing field with local traders and businessmen, as against global retail operations. Wal-Mart had clearly not got its logic together, which eventually proved that the company didn’t get its act together either.

Although a tie-up with Wal-Mart would have given Bharti an edge and a phenomenal learning advantage in operating international-standard retail chains, experts feel that the loss of Wal-Mart in this deal is bigger than that of Bharti. The estranged Indian partner of the global retailer will open its own chain of supermarkets very soon, all over India.

It means these former partners will become competitors in the near future. Now, the game has begun.

The entire episode has spooked foreign investors regarding red tapism and other difficulties in getting their operations on the ground in India. A sagging economy and rising inflation are threats as well. The only solace, however, is the falling rupee which is giving them the breather.

With the deal falling through, Wal-Mart may well have nailed its own coffin in India. But this may not be entirely good for the country’s investment weather either.