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Wal-Mart and Bharti: Transforming Retail in India

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Raquel Oliveira

on 4 November 2012

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Transcript of Wal-Mart and Bharti: Transforming Retail in India

Raquel Oliveira
Sara Galvão
Zhaoting Wang International Management
1st Semester 2012/2013 Prof. Sonia Dahab
Teaching Assistant Helena Peres TRANSFORMING Group 8 AGENDA A. Case Presentation B. Case Reflection C. Conclusion 1. Why are we talking about the retail sector, especially in India? 2. Why are Walmart and Bharti interested on the retail sector in India? 3. In which way Walmart and Bharti are related? 4. Did these companies really transform Indian retail? 5. What did they do to face the challenges? External Sector
The external sector of the Indian economy is also performing better.
The full potential of earnings is from exports of services. 2006: Economic growth is expected in India Agriculture Sector:
Agriculture is considered as the "Back bone of Indian Economy". Industrial Sector
Indian Industries have entered into an atmosphere of higher competition in the era of globalization. Services Sector
India's services sector has grown very fast.
It has the highest percentage share in country's Gross Domestic Product. The Indian retail market used to be splitted into: The Organised Retail Sector

The Unorganised Retail Sector …and into different segment performances: But is the unorganized Indian retail sector able to satisfy the needs of MODERN Indian customers? N O ! Changing in consumer behavior Traditional: “save and buy” mentality vs. Modern: “shop till you drop” mentality The modern Indian customer Orientation to western/ developed markets Expect variety of choices Aware of quality standards Brand consciousness; demand for luxury products Indian retail sector used to be highly fragmented – the ”nation of shopkeepers” Can You see the differences between these two pictures? Indian consumers demand for organized retail experiences!

The growth of organized retailers!
New Chances for a bigger business! "Retailing in India is emerging as one of the largest industries,
with a total market size of US$ 320 billion"

"India's retail industry was repeatedly named
one of Asia's most promising sectors."

"Indian retail sector [is considered the first]
world's most attractive retail destinations among 30 eminent markets" WAL-MART’S TARGET:

1. Profitable and expansion market
2. Significant expected growth rates
3. Growing middle class
4. Increase in consumer purchasing power
5. Expected change in shopping formats/ consumer behaviour Wal-Mart Stores Inc (“Wal-Mart”)
American retail giant
Discount department stores

1962: It was established by Sam Walton
1972: It was listed on the NYSE (WMT) It operates under 69 different banners in 27 countries.

Walmart employs 2.2 million workers.

The company has more than 10,000 stores.

Sales of approximately $444 billion in 2012 WAL-MART’S TARGET:
1. Profitable and expansion market
2. Significant expected growth rates
3. Growing middle class
4. Increase in consumer purchasing power
5. Expected change in shopping formats/ consumer behaviour So...

Massive emergence of big retail Indian companies. MORE OR LESS!! But...

What about the big foreign players as Wal-Mart?

Is the Indian government pleased to open the Indian
retail sectors for foreign investments? Conclusion:

Wal-Mart can only enter in Indian retail sector if it engages in collaborative arrangements with an Indian company! The role of the Government
Yes, come to India!
Expertise in determining consumer taste
Building up new supply chains, logistic systems and modern warehousing The role of the Government
No, please stay away!
What happens to India’s 15 million small store owners?!

Strict regulations for foreign players from the retail sector:
No individual entry in the market
FDI only in wholesale Which Indian company would like to engage in collaborative arrangements with Wal-Mart?

What about doing an agreement with an Indian company like Bharti?

Would Bharti like to do an agreement with Wal-Mart? BHARTI ! Bharti could be an important key for the Wal-Mart’s entrance in the Indian retail industry!! Wal-Mart's Goal
To enter in the indian retail sector! Bharti's Goal
To build Indian's best conglomerate! Common Goal
To build relationships with producers in order to provide great quality at reasonable prices to consumers every day
Major problems on collaborative arrangements:

Relative importance to partners
Divergent objectives
Control problems
Comparative contributions and appropriations
Differences in culture And so far… They just need to adjust
their decisions while their
goals, individual and
mutual ones, are
being achieved They were one
of the responsible of
the transformations
in Indian retail
sector Without each other, they were not so successful in Indian retail sector. Success?

A STILL LONG WAY TO GO!! Thank you for attention! your
Daniels, J. D., Radebaugh, L. E. and Sullivan, International Business: Environments and Operations,Pearson, Prentice Hall, 13thedition, 2011
http://corporate.walmart.com/our-story/heritage/history-timeline Cosima Gerlach
Raquel Oliveira
Sara Galvão
Zhaoting Wang Bibliography Would Exporting be feasible? 1. It’s cheaper to produce abroad
2. Transportation costs
The farther the target market is from the home country, the higher the transportation costs.
The higher the transportation costs, the more difficult it is to be competitive through exporting.
3. Consumers may prefer goods produced in their own country over imports because of patriotic feelings. Motives that led Wal-Mart for wanting to join with Bharti

Deep knowledge of India’s fast growing consumer market.
Leader in India’s telecom sector.
One of India’s 10 biggest companies
Long history of partnering with foreign companies.
Access to highly regulated Indian retail market, which was valued at US$320 billion. Motives that led Bharti for wanting to join with Wal-Mart

Extensive global retail experience.
One of the most effective users of technology
Among the front-runners in employing IT for managing supply chain processes.
Inventory management much more efficient.
World’s leading retailer, renowned for its efficiency and expertise in logistics, supply chain management and sourcing.
Ability to be involved in local communities and to adapt to local cultures.
Its transportation systems. Motives that led Wal-Mart for wanting to join with Bharti

To overcome Governmental Constraints

India limits the participation of foreign firms, such as Wal-Mart, in certain industries.

Wal-Mart is able to overcome such barriers collaborating with a local partner like Bharti.

Besides that it’s a way for Wal-Mart to see its assets protected. Motives that led Bharti for wanting to join with Wal-Mart

To Gain Knowledge

Bharti can learn about Wal-Mart’s technology, operating methods or home markets.

And then is able o develop their own capabilities and competitiveness over time.

To Secure a Horizontal link or vertical link ?? Wal-Mart and Bharti planned to use two different formats for their stores and signed two separated agreements:

1st. A wholesale cash-and-carry joint venture
A 50-50 venture for back-end supply chain management and wholesale cash-and-carry operations.

2nd. A franchised retail company
Wal-Mart franchises itself while sharing expertise and technology with Bharti to support the retail stores that would be built by Bharti Retail Ltd., its wholly owned subsidiary. Joint Venture

Direct investment in which more than one organization shares ownership. Although companies usually form a joint venture to achieve particular goals, it may continue to operate indefinitely as the goal is redefined.

Over the all possible combinations, a form of joint venture is a foreigner company joining with a local company such as Wal-Mart (USA) and Bharti in India. Franchising

Specialized form of licensing in which the franchisor not only sells an independent franchisee for the use of the intangible property essential to the franchisee’s business, but also operationally assists the business on a continuing basis.

A franchisor may enter in a foreign country by dealing directly with its foreign franchisees, or by setting up a master franchise and giving that organization the right to open outlets on its own or to develop subfranchises in the country. The type of collaborative strategies that they arranged was: Bharti Walmart Private Limited is a joint venture between Bharti Enterprises and Walmart.

Best Price Modern Wholesale is a Business-to-Business, cash and carry wholesale format.

The first one opened in May 2009 and in 19 different regions.

Its mission is to link farmers and small manufacturers with limited infrastructures and distribution capabilities directly to retailers.

It sells more than 5.000 items, across different product categories at very competitive prices.

Its clients are Kirana shop owners, general merchandise resellers, hotels, restaurants, offices and institutions. Challenges Ahead

Corporate Social Responsibility

Supply Chain Management Challenges Wal-Mart is criticized for not being a socially responsible company.

Driving out small- and medium-sized local business
Pollution might rise due to the increasing of drivers to the shops Global supply chain capabilities and Customizing to the Indian market
Local sourcing of goods Apart from all the challenges:

Wal-Mart became the first retailing giant to enter India’s market

It beat their major global rivals in 2006:
Carrefour SA (France)
Tesco PLC (UK) Challenges Ahead But they can’t because retail was still one of the few sectors where FDI was not allowed. Wal-Mart argued that it could create wealth for India if it was permitted to sell locally.

Cut them out and Connect with producers directly

1. Enhance productivity
2. Packaging
3. Quality
4. Reducing the inefficiency In general,
Significant temporary price cuts
Squeezing lower-cost suppliers
Lack of skilled employees
Inadequate quality control
Variation in policy regimes within the different states
No rigorous labor laws

A unique culture environment : Castes
Ruin neighborhoods

Power failures
Old and messed roads
Slow transportation
Shortage of freshwater Challenges Ahead Challenges Ahead Challenges Ahead It was uncertain how Wal-Mart would implement its supply chain management in India. Challenges Ahead } How about India? Middlemen Poor Infrastructures NO! Wal-Mart finds more advantages by operating in India rather than by exporting
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