Wal-Mart and Bharti

free essayIn 2006, Indian company Bharti Enterprises Ltd and American Wal-Mart created a joint venture and a partnership. Bharti owned the franchise of Wal-Mart and opened stores in India. It helped Wal-Mart to enter a highly regulated retail market of the country. The partnership was expected to modernize Indian retail market. At the same time, Wal-Mart had to face with local competitors and civil rights groups because of its spoiled reputation.

Indian retail market was growing very fast, and, therefore, very promising for new retail chains. It contributed 14% to GDP and provided jobs to 7% of all employees. 98% of total Indian retail was mostly unorganized before. In the country, large retail chains were not typical. Most grocery products, textiles, clothes, accessories, and other consumer products were sold in small shops. Licensed retailers were growing slowly. Their development was supported by the growth of Indian population and the increase of consumer purchasing power. Indian customers were not likely to use loans to buy goods. They traditionally saved money for some time and then bought something expensive. In 2000, global brands entered Indian market and grew rapidly, in particular, due to their low prices. Growing demand reversed the habit of saving. Indians paid attention to the markets of brand and luxury goods.

Indian retail industry had transformed significantly from 1996 to 2006. Organized retailers grew rapidly. The main retailers were Spencer’s Retail, RIL, Reliance, Pantaloon and others. Many foreign retailers wanted to enter Indian market. However, labor laws and different regulations were obstacles to them. Moreover, a lack of qualified employees was significant.

One of such companies was Wal-Mart. It was among the largest global retailers. Low prices, discounts and convenient product delivery to customers were its advantages. It sold large volumes of products through promotion. Wal-Mart always paid attention to information technologies and used them widely in its operations. It enabled the company to develop an effective logistic chain with its suppliers. It always had a wide choice of goods and enough goods in stock. Special bar code system helped to reach it. Wal-Mart quickly became a strong company. It started international expansion in 1991 when a new store in Mexico was opened. It succeeded in some countries, however, sold its stores in Germany and South Korea because they were unprofitable. The company applied its culture successfully despite various local cultures.

In November 2006, Wal-Mart created a joint venture with Indian Bharti to enter Indian market. Bharti was chosen as a large and leading company. The partnership seemed to be beneficial for both companies. The companies decided to operate as wholesalers because of legal restrictions. Domestic retailers bought franchise of Wal-Mart to sell its products. The management of the venture was divided equally between Wal-Mart and Bharti. Wal-Mart sold its franchises itself. The companies expected that their venture would change Indian retail sector dramatically by moving it to organized trade.

Nevertheless, some problems occurred. Many protesters criticized Wal-Mart in India. They stated that it would be stronger than local shops because of its low prices. In addition, there were fears of growing pollution because more customers would go to the store instead of using traditional delivery to their homes. Moreover, Wal-Mart already had scandals in other countries because of low wages and low product cost established to increase revenues. One more problem was a wish of the company to work directly with producers without middlemen. It caused protests in India, too.

Alternative Solutions, Their Advantages and Disadvantages

1) Wal-Mart can refuse entering Indian market. It will not receive estimated profits. However, it will avoid all possible risks because there are a lot of them. There are too many problems in the market, and they can bring risks to Wal-Mart. The most important of them are: traditional retail market that includes mostly small family-owned shops, protests of labor and other organizations, problems of operating without middlemen, environmental problems, etc. Moreover, Wal-Mart operates in India via franchise system, and this can cause some problems and risks, too.

Advantages: no risks and possible problems in a new market.

Disadvantages: loss of potential profits because Indian market can change and become more favorable in the nearest future.

2) Wal-Mart can enter Indian market using its common strategy that is already used in the USA and other countries. In such case, the retail chain offers low wages and low prices for its products which often mean low quality. In addition, the company buys its products directly from producers.

Advantages: the company receives high profits; it will be able to grow in the new market with good perspectives.

Disadvantages: protests against the company that can cause additional expenses in order to improve quality and wages; moreover, Wal-Mart might even have to close its stores.

3) Wal-Mart can enter Indian market with a completely new strategy that differs from its common international strategy. It means that all operations will be made in a different way. The company should offer higher wages to its employees in order to avoid protests. It also should offer delivery services in order to minimize the need of visiting the store and environmental pollution. Moreover, middlemen should be involved in the logistics process.

Advantages: more loyal local customers and competitors, ability to succeed in a new and strange market with poor traditions of large stores.

Disadvantages: Wal-Mart will have much additional costs, and that is not positive when the company has just entered the market.

Recommendation and Justification

In my opinion, the third alternative should be chosen by Wal-Mart when it enters Indian local market. The first one is false because Indian market is very fast-growing and has many perspectives. The second alternative can be the most profitable. However, labor, environmental, and other problems can become costly. Closing shops is a failure. Therefore, the third possible solution is the best.

Wal-Mart should realize that this strategy is costly. However, it promises good perspectives in the future. High wages seem to be a failure because they cause higher prices in stores, and it is controversial to the general strategy of Wal-Mart. However, it is important to keep in mind that salaries in India are quite low. Therefore, offering the wages that are equal or a bit higher than local firms’ pays is not likely to make prices too high.

Environmental protests should be considered. It is wise to offer home delivery services. It can bring additional revenues. Moreover, it will attract more customers because Indians like home delivery more than visiting a store. Local competitors are not as serious as they seem. They offer mostly traditional products like foods or clothes. At the same time, Wal-Mart can offer more imported goods that are not sold by small local stores. Therefore, competitors would not protest. In addition, it would be good to have middlemen. It is costly, however, beneficial in a new market. Wal-Mart may not know well all producers and wholesalers in India. Middlemen can advise where to buy cheaper and better goods. They will have profits and will not protest.