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INB 205 Wk 6 Assignment - Reference 3 - ICMR Case Studies and Management Resources




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Case Studies and Management Resources
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The Bharti - Wal-Mart Retail Joint Venture
On November 27, 2006, Wal-Mart Stores, Inc (Wal-Mart), the world's largest retailer, and
Bharti Enterprises Ltd. (Bharti), a leading business group in India, signed a Memorandum
of Understanding (MoU) to explore business opportunities in the Indian retail industry.
This joint venture marked the entry of Wal-Mart into the Indian retailing industry.
According to Sunil B. Mittal (Mittal), chairman and managing director, Bharti, "The joint
venture with equal stakes will operate in areas where the government allows foreign
investment in retail like cash-and-carry and logistics. The retail shops will be owned by
Bharti Enterprises under the Wal-Mart franchise. The idea is to give Indians the lowest
price everyday."
Many analysts opined that both the parties in the venture had their own strengths and
would complement each other. Viswanathan Vasudevan, an equity analyst at the
Singapore-based Aquarius Investment Advisors Pte, said, "It's a great fit for Wal-Mart as
Bharti knows the rules of the game and will save Wal-Mart a lot of time and energy to
overcome the system.
For Bharti, you can't get a better partner than Wal-Mart in retail." Gajendra Nagpal,
director, Unicorn Investments, said, "This joint venture is a winning combination. Wal-
Mart's logistics skill and Bharti's execution capability will create a potent force in the
Indian market."
This franchise strategy with Bharti was a deviation from Wal-Mart's usual way of
entering countries. This was because the policy restrictions on foreign direct investment
(FDI) in the Indian retail sector. As part of the agreement, Bharti was expected to pay a
royalty between 2 percent and 3 percent of sales to Wal-Mart for using the latter's brand
name. The Bharti-Wal-Mart joint venture was expected to open its stores in India from
August 2007.
Though the parties did not disclose the financials of the deal, according to retail industry
sources, the Bharti-Wal-Mart venture would make an initial investment of US$ 100
million, which could further increase to US$ 1.46 billion. Wal-Mart had reportedly
brought in two veteran executives, Andy Guttery and Lance Rettig, to implement its
operations in India under the joint venture. Wal-Mart had also roped in Raj Jain,
Emerging markets president & CEO, Wal-Mart, to head the cash-and-carry business in

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The retail industry in India is estimated at about US$ 300 billion and is expected to grow
to US$ 427 billion in 2010 and US$ 637 billion in 2015. Moreover, only 3 percent of the
Indian retail industry was in the organized sector. Foreign retailers were keen to enter
India's rapidly growing retail market. However, the government had permitted retailers of
single brand products to own a majority stake in a joint venture with a local partner (with
prior government permission). Retailers of multi-brands were only permitted to operate
through franchises and licencees, or a cash-and-carry wholesale model.
The biggest competitor for Bharti-Wal-Mart was expected to be Reliance Retail, the retail
wing of Reliance, which had planned to establish 10,000 stores by 2010. It had already
opened 11 pilot stores under the "Reliance Fresh" format in Hyderabad.
Even Pantaloon Retail, the retail arm of the Future Group was expected to give stiff
competition as it had a first-mover advantage. Kishore Biyani, CEO, Future Group, said,
"Our strength is that we understand the Indian consumer better than Wal-Mart and we
also have a window of opportunity and the first-mover advantage. For instance, we will
have 100 Big Bazaars across India by the time the first store (of Bharati-Wal-Mart) opens
its doors here."
A few other Indian retailers felt that the entry of foreign retail giants like Wal-Mart,
Carrefour SA and Tesco Plc (Tesco) would result in Indian retailers learning some of the
best international practices in retailing. However, analysts noted that the success of the
joint venture would depend on how successful Wal-Mart is in building a cost efficient
supply chain and sourcing network so that the cost savings are passed on the end
consumer through its trademark "every day low price" strategy.
Some experts felt that Wal-Mart may find it difficult to achieve economies of scale in
items such as personal consumer products and may be able to achieve more success in
fruits and vegetables as there was still scope for disintermediation.
Some also cited the fact that Wal-Mart's business model was not successful in all foreign
markets. For example, Wal-Mart had withdrawn its retail operations in Germany and
South Korea.
But in the short term, the Bharti-Wal-Mart joint venture was confronted with problems
due to the opposition by the Left parties as they insisted that the government should look
into the matter to stop the "backdoor entry "of Wal-Mart into India. These parties opposed
the joint venture stating that foreign direct investment in retail trade was not allowed
under the existing policy and that it would impact the vast number of unorganized
retailers, domestic manufacturers, and farmers in India.

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