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Wal-Mart in India – Is India Ready for
the Retail Revolution?
Till the turn of the century India was a market where unorganized retail was the norm – most stores were mom and pop shops with department stores being few and far between. But that is changing. With a population of about a billion people and a burgeoning middle class, India holds out plenty of promise for the global and homegrown retailing giants.
India's $250 billion retail business is the eighth largest in the world and has the potential to grow 7% by 2011 [McKinsey Report]. For a company like Wal-Mart, already dominating the world market, this is an un-passable opportunity. At the same time the country presents some unique challenges. It is a fact that so far Wal-Mart’s foray into the Indian market remains much of the shadow of its grandeur in rest of the world. Predictions of a keenly fought contest for India’s retail pie are on an all time high with the announcement of the first Wal-Mart Store in Mumbai in collaboration with the Bharti Group, also referred to as the Bharti-WalMart Store. According to Bharti-Walmart the launch will happen in phases over time. The Bharti Group is likely to invest $2.5b by 2015 in the retail sector while entering into a 50/50 joint venture with Wal-Mart for the cash and carry business in view of the FDI restrictions in the retail sector.
India’s relatively new but fast developing retail sector with powerful local players like the Big Baazar and Reliance, will keenly test Wal-Mart’s business strategy in India. Being a powerful symbol of corporate monopoly and of consumerism Wal-Mart’s fortune in India isn’t just an economic or business issue. It has become a widely debated politicized issue with bearings on the government’s stand on foreign direct investment (FDI), monopoly in business, labor relations, and so on. This will also have serious implications on the future of the retail sector as a whole in the country. There are reports of opposition to State Governments in Kerala, West Bengal and Madhya Pradesh to retail surfacing in the public already. Last year, the country witnessed a spate of protests against the entry of big business houses in retail in general and in the food and grocery trade in particular. After closure orders against standalone stores served in Uttar Pradesh, opposition has surfaced with renewed vigor. The powerful voices opposing Wal-Mart’s entry points to the fact that in all the countries where Wal-Mart has set up shop it has put other retailers out of business and has driven down wages. The company’s clearly defined anti-union policy aims at preventing its work force from gaining collective bargaining power which could result in increased wages, covered health benefits and job security. There are several reports documenting the economic and eventual social and environmental setback that could occur when Wal-Mart “comes to town”.
Local opposition isn’t new to WalMart. With around 5000 retail outlets worldwide, operating in more then a dozen countries and with over US$286 billion in annual sales, Wal-Mart is the top retail chain and the number one fortune 500 company in the world. Indeed an enviable position to be in! In fact, the company accounts for 9 cents of every US retail dollar and sells around 20 per cent of the nation’s groceries and pharmaceuticals. Analysts say that Wal-Mart’s sheer size is the source of its unrestrained economic power allowing it to drive down costs in the retail and manufacturing sectors and to enact its own standards with regards to its work force. So much so that sometimes the company becomes a supra-legal entity.
In a country that has woken up to the global market and limitless opportunities it presents in the last decade, retailing in general and Wal-Mart in particular may not seem like a bad idea. Many upwardly mobile middle class Indians see this issue as being unnecessarily politicized to appease certain political constituencies. It is believed that the emergence of an organized retail sector will create a huge market leading to greater demand.
Whichever side of the debate one is vis-a-vis Wal-Mart’s entry into India, it is clear that in arriving at a conclusive opinion, one cannot escape the much larger debate - corporate interest vs. interests of small producers, free trade vs. protectionism. There however, is no denying that like globalization, retailing is a reality that cannot be wished away even by the most well meaning critics. That alone could make the debate on whether we want Wal-Mart or not an obsolete one.
Instead much contemplation is needed to arrive at policies that will make not just Wal-Mart but also other retail giants sensitive to the local conditions, smaller businesses, labor conditions, environmental regulations and so on. It however remains to be seen how the retail giants will balance their profit-making mission with responsibility and accountability.
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Developing India-centric content for a new web portal targeted at NRIs