US retail chain “Walmart” recently acquired controlling stake in Indian e-commerce major “Flipkart”.
This has brought it into direct competition with fellow US firm Amazon, which is the only other major e-commerce player in India.
What is the deal about?
India’s e-commerce market, accounts for less than a tenth of its overall retail.
But the Filpkart-Walmart deal is expected to be a big thumbs-up for the sector.
Walmart will be buying about 77% stake in Flipkart for a sum of about $16 Billion (which is considered a very costly buy by analysts).
Notably, “Amazon” (another US firm), is currently placed 2nd in India’s e-com market share, and is engaged in a hectic competition with Flipkart.
The entry of Walmart will give Flipkart a big fillip in midst of hectic competition that is prevailing in the sector.
Also, the deal brings America’s biggest online retailer and the biggest offline retailer into direct competition in the Indian e-com market.
Amidst this hectic aggression in the market, China’s Alibaba has also made a significant foray through its Paytm Mall.
Traditional retail players have responded with willingness to adapt to this paradigm shift and consider strategic alliances with online rivals.
Why did Walmart go for the costly buy?
Walmart investors have largely perceived the Flipkart bid as expensive and the company is projected to lose $8 billion in net worth due to the deal.
This is because, despite Flipkart’s market dominance, it is only through discount peddling that they are retaining the spot (thereby making big losses).
Notably, Indian consumers are largely still offline shoppers, who are being aggressively nudged online by offering attractive prices.
But Walmart’s leadership seems to be betting on the future growth it can unlock from this full-frontal entry into a market.
Notably, entering Indian market hasn’t been easy for Walmart and its attempt in 2007 (in partnership with Bharti Group) also bombed.
Strict curbs in India, on Foreign Direct Investment (FDI) in multi brand retail has thus far restricted Walmart to just “Wholesale Stores”.
These restrictions, seemingly to protect smaller retailers, have remained in place under the NDA government, belying expectations of a reset.
Also, Amazon into offline retail in the US market has increased the heat on Walmart to up the game internationally to stay competent.
What aspects require further pondering?
While local trade lobbies are determined to resist the deal, while analysts are wondering how Walmart will turn around Flipkart’s cash burn rates.
It is also important to assess if the U.S. firm will integrate Indian suppliers into its international operations.
The fact that the deal has manoeuvre policy restrictions reveals the inefficacy of India’s approach to retail FDI in a rapidly changing global economy.
Most importantly, a nuanced debates on India’s retail FDI policy — big versus small, local versus foreign — is needed for ensuring a truly level playing field.
