Is Indian retail, hitherto operating in the dirty street corners & mom & pop stores ready for a revolution like Wal-mart? This article explores the nitty-gritty of Wal-Mart’s foray into India’s tightly controlled retail industry.
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Author: Hitesh Dhall
The thing with Wal-mart is its too big, a handful of no.s are enough to grasp the enormousness of this leviathan retailer-its revenues last year stand proudly at US$404 bn a little more than India’s fragmented and tightly controlled $400 billion retail industry. It’s not only big in revenues but also largest employer of the world with a whopping 2.1 million people working for it last year.
The giant wants to have a share in Indian retail pie too, but India’s FDI policy in retail doesn’t allow it to operate directly in Indian market. In order to circumvent this barrier Wal-mart has entered a joint venture with Bharti Enterprises to operate in Cash-n-Carry business in India. The venture plans to set up 10 to 15 wholesale facilities in India, measuring about 50,000-100,000 sq ft each, and claims to employ about 5,000 people over the next seven years.
Keeping apart the euphemistic facts let’s first understand whether Indian retail, hitherto operating in the dirty street corners & mom & pops is ready for a revolution like Wal-mart and if it is than what would be the repercussions of allowing a retailer of a magnitude bigger than the whole retail industry in India.
There are a plethora of factors which conspire to keep Wal-mart out of India. Considering the “Everyday Low Pricing” of Wal-mart, it’s presence is eventually a customers’ delight but retailers’ nightmare, what we are talking about here is a $400bn fragmented industry with minutest of the players earning their bread out of it, a whopping 1.5 million people, including mom & pop shops, organized retailers, hawkers and many more. On the other side is WAL-MART, dreaded as one mythical gargantuan monster who simply swallows everyone who crosses its path. They offer very low prices that they chase many local small players out of business within months. Wal-mart has the muscle to ruin any other retailer who dares this big guy and such cases are rife in U.S. retailing.
Other odds against Wal-mart include a serious threat to still nascent domestic retailers in organized sector like Big Bazaar, More, Reliance and its arm twisting techniques used for harassing suppliers is something more than well known throughout the whole world. Not ignoring speculations that taking advantage of its size Wal-mart can exploit India’s poverty stricken farmers, which will be too high a price to pay.
Wal-mart claims that it will generate some 5000 jobs in next few years in India, but looking at records of Wal-mart’s inhumane HR policies in U.S itself it doesn’t sound highly promising.
Despite long list of “Why not Wal-mart” there is more to the Wal-mart saga which makes it not only need of the hour but beneficial in the long run. At these tough times when India is in desperate need of maintaining growth rate levels reasonably high, FDI in few key sectors can be the solution and retail is one sector being sniffed by the investors. Not to forget Wal-mart’s advanced technical know-how of modern retailing will help India build productivity-enhancing infrastructure.
Wal-mart leverages on economies of scale, it uses its strength to drive down the costs, can have tough bargains with suppliers and force them to reduce costs at the back end to deliver its promise of “everyday low pricing” eventually helping consumers bust inflation.
Bharti Wal-mart plans to set up training centers in India to train people the Wal-mart way of retailing. Having better & skilled human capital is one of the two ways India can enhance its productivity in this hitherto underdog sector. The other being “technology transfer”. It is widely known how well Wal-mart capitalizes IT to organize and streamline its logistics, so its entry will enable inflow of effective human capital and technology transfer.
Besides trained human resource & technical know-how, Wal-mart’s quality standards, spoilage minimizing warehousing techniques, inventory control can be few areas Indian retail might want to take some lessons on.
The nationwide opposition to the entry of this successful retailer might be explained by the widespread fear among the political class that Wal-mart’s legendary cost-squeezing techniques will emaciate economic conditions of already hard-pressed Indian farmers. But what as a fact we are ignoring is Wal-mart can help build the much yearned productivity enhancing infrastructure which will help farmers to increase yield per harvest. Once farmers have the certainty of a bulk buyer they would try to increase productivity & sell their produce through farming cooperatives, which is an effective way of protecting farmers’ interests. It would also induce a healthy competition in the market prompting other players in organized retail to provide better services at lower costs.
Although it would be absurd to have any quixotic expectations from foreign retailers to work in the national & economic interests of India but simply banning their entry on the fantasized grounds of protecting domestic industry may be inexpedient for the growth story of Indian retail.
So Wal-mart although risky but should be seen as a part of solution to infrastructure woes, technical barriers & farmers plight due to ignorance and untrained human capital. The risk is worth being taken because it has more pros than cons for both the parties.
Also it would take time for the foreign retailers to spread across all retail formats as current policy allows FDI only in cash & carry format, so there is no need to panic for the domestic retailers & activists. Only once Indian retail is ready for the global roller coaster ride should govt allow direct investment by foreign retailers.
In the midst of criticisms & favoritisms it’s still remained to be seen that in a land like India where infrastructure follows development and current infrastructure is least equipped to support the supply chains of modern retail How does Wal-Mart maintain low costs driven by supply chain and logistic efficiencies.
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