Case Study: Wal-Mart and Bharti Transforming Retail in India

By: Raymond Vucetic MBA 6 ! International Business "all #uarter ! $

%&ecuti'e Summary This paper is an analysis and evaluation of Wal-Mart and the future venture into the retail sector of India. The challenges that Wal-Mart needs to resolve to become successful range from the cultural differences to problems with supply chain management in India. The analysis below identifies the challenges of many factors dealing with the Wal-Mart, Bharti and the Indian retail sector. These factors for Wal-Mart would deal with the ability to operate in India efficiently as they do in the !. In addition, Wal-Mart to be successful will have to sort out problems with the government, culture differences and the partnership with Bharti. These factors for Wal-Mart and Bharti will be presented in more specific detail through a !W"T analysis. The analysis will evaluate Wal-Mart as a company in relation to the future operation in the Indian mar#et. Then the Bharti $ompany will be analy%ed using a !W"T to pin point how the company will fit into the overall plan of Wal-Mart operating in India. The report will further evaluate the Indian retail sector through a competitive industry analysis using the &orter's ( forces model. This model will detail the threats to the mar#et entry, supplier power, buyer power, availability of substitutes and competitive rivalry as they relate to the India retail sector. The report will then offer alternatives for the Wal-Mart company. These alternatives would include not progressing forward within India, chose a global mar#et with less regulation, focus business to become s speciali%ed retailer and collaborating with a different company other then Bharti to e)pand in the Indian retail sector. The analysis will close with recommendations to focus changes on the culture, consumer behavior, collaborating with current vendor and suppliers and wor# to improve the image of Wal-Mart and how the company can ma#e positive changes in the retail sector for the people of India.

Wal-Mart and the Indian Retail Sector: The retail sector in India remains one of the best-untapped sources for international companies to grow mar#et share and future profit. The retail mar#et in India is one that many companies are trying penetrate. "ne ma+or .!. retail company, Wal-Mart, has been trying to enter and succeed in e)panding the organi%ation's global footprint. Wal-Mart is one of the largest and most successful retail companies in the world. Wal-Mart is planning to use their business e)pertise in the areas of organi%ed retail, pricing strategies and logistics in supply chain management to change the retail scene in India. $urrently, India's mar#et is at a stage where customers need more variety in products and retail formats. The old systems of retail outlets in India have consisted mainly of ,iranas and Mandis to name a few. Mandis are types of mar#ets set up by the state government for the sale of agricultural produce directly from the farmers. ,irana stores, which are independently owned and operated primarily, sell necessities, and groceries. "ther retailing formats such as streetcars, pavement shops, public distribution systems, #ios#s, and wee#ly mar#ets are uni-ue to India and have been around for a long time. India has seen an emergence of modern large-scale stores such as supermar#ets, specialty stores, chain stores, department stores. hypermar#ets, factory outlets and discounters enter the retail sector. !hopping malls and new retail outlets with more shops have transformed the business environment in India. The changes in the retailing culture have pushed this business sector to ma#e changes in how customers are buying and consuming goods /!rivastava, *0012. Challenges for Wal-Mart in India

While the Indian mar#et may loo# very lucrative for Wal-Mart, they will be faced with many challenges. These challenges will range from entering the mar#et, successfully operating in the mar#et and collaborating with Bharti in the business venture. These challenges are not new to global corporations trying to enter the Indian mar#et. Wal-Mart will be facing the challenge of trying to implement their currently successful business operations into a nation that has many variables to con-uer. The first challenge Wal-Mart faces in the retail sector of India is the overall culture. Throughout time India, retail sector is primarily made up on unorgani%ed retail outlets. These stores are mom and pop shops that sell specific goods to the public. The shops are support by the local customers as it has been the way to shop for many years. The shops sell certain items in many different forms. In addition, they provide delivery service that adds the special touch of doing business on a personal level. This shopping culture in India is very different then how Wal-Mart operates and in general organi%ed retailing. In order to meet the need for the public they will have to provide a variety of goods that will satisfy the Indian population as the small stores have done for decades. The problems Wal-Mart faces are which goods to sell in various locations across the country. These good would vary due to the different types of food people eat, te)tiles, and consumables. The other factor that will be a challenge for the company will be geographic location. 4cross India, there are many different cultures as well as rural and urbani%ed locations. 4s India further becomes a developing nation, so will the population. The increased number of people in the earner category has been doubling at a tremendous rate. In relation, as the culture changes from old to new so do buying patterns of the consumers. These ever-changing trends

will be a problem for Wal-Mart to develop the supply chain methods that have made them successful in the !. Wal-Mart must figure out buying patterns to match the needs of the consumers while the culture is continually evolving. 4n additional challenge will be how Wal-Mart will e)ecute effective supply chain management without the infrastructure to support it. The infrastructures would include roads, established distribution systems, and refrigerated storage for groceries. These are #ey item that need to be established for Wal-Mart to begin and remain in operation. "ther challenges include the need for suppliers to produce goods for sale within the stores. They will need to establish relationships with farmers for produce and manufacturing business for all other products. "nce these relationships are established, will these suppliers be able to meet the demands of Wal-Mart's volume. Wal-Mart's #ey strategy of getting the right product to stores without long delays. If suppliers are scattered around the nation, the roads and logistics structures are under developed this will be a difficult hurtle to over come. "ne of the most important and most challenging obstacles to over come will be the partnership between Wal-Mart and Bharti. This venture was created to circumvent the India regulation on 67I. nder the agreement, Wal-Mart and Bharti will manage supply chain. The

retail potion will be franchised to Bharti. The +oint venture will challenge the relationship on the ownership and internali%ation dimensions of the model. Wal-Mart will need to clearly define its operating model and mesh Bharti. The +oint venture method that Wal-Mart has chosen to entire the mar#et will be a challenge to ma#e it wor#. The +oint ventures model for two companies to come together usually result in failure. This will be something that Wal-Mart will have monitor and manage closely to see how Bharti will wor# out as a partner. Wal-Mart will also need to

protect its intellectual property on supply chain management but at the same time wor# together to become profitable /8alepete, *0012. Com(any Analysis: Wal-Mart Wal-Mart is a company that overtime has become one of the best in the retail business for a reason. The !W"T analysis provided below will e)plain the strengths, wea#nesses, opportunities and threats of how Wal-Mart retailing culture will be applied to the India mar#et. Strengths Wal-Mart has the notoriety as the world's largest retailer. "ver the years, Wal-Mart has developed the ability to provide product using advanced inventory trac#ing though the use of IT. The company does e)tremely well trac#ing overall sales of products by certain locations. They have become the e)pert by using universal &$ coding an 96 trac#ing. These strengths in inventory trac#ing have allowed the company to advance and grow profits through logistics and supply chain management. Wal-Mart's e)pertise in mastering this part of retailing will allow an upper hand developing their business in India 4nother strength Wal-Mart possesses is their powerful retail branding. 4dditionally, Wal-Mart has the reputation of providing the best value for the money and the ease of convenience due to their e)pansive product line offered under one roof. 8aving such an organi%ed structure will be an advantage in the Indian mar#et. $urrently in the Indian mar#et, the outlets for customers are scattered thought out the sector with mom and pop stores providing limited or speciali%ed products for consumers. $ustomers will have to shop at many locations to buy all their needed products. nder the Wal-Mart retail structure. having any and all the needed

products will offer the one stop shopping e)perience of which the India culture is not accustomed. This will be the biggest advantage over the competition for Wal-Mart The other strength of Wal-mart is the focused strategy for human resource management and development. The company invests time and money to train the Wal-Mart staff. This #ey business strategy will allow the company to hire and retain the needed wor#ers in India to successfully operate the new stores in the country. $urrently, India is a nation that is adopting the ways of life of the western civili%ation. The growing middle class, rising disposable income and urbani%ation matched with the business ethics of Wal-Mart 89 management will be the driving factor for the success of Wal-Mart in India Wea)ness: 4s a company of much strength, Wal-Mart also has a few wea#nesses in their operational platform. Wal-Mart must improve upon these wea#nesses to succeed in India. "ne wea#ness the company faces is the span of control in an international mar#et such as India. While the company has the ability to control business in the !, these proven methods may not wor# as efficiently in India. "perating in a foreign country with different legal regulation, suppliers and overall infrastructure will be a challenge for the company. The tried and trued methods the company has perfected in the ! will not apply in India. The company will have to reinvent and modify supply chain management and logics to become successful in the Indian retail sector. 4lthough Wal-Mart has e)perience finding the right supplier in the !, it will be more difficult in India due to the lac# of e)posure with the country.

The other wea#ness Wal-Mart must overcome in the Indian retail sector is the ability and fle)ibility to sell products across many of the sectors /clothing, food, health and beauty supplies etc2 as some of the focused competitors. In the !, how consumers purchase goods is vastly different from in the Indian culture. 4s stated above the ,irana's are what the India consumer are accustomed to. Wal-Mart offers over 1000 different items at their stores and should be something different for the consumer in India. The -uestion is will Wal-Mart be able to provide the right types of product for the areas they operate< 4cross the !, the typical Wal-Mart customer purchases the same product from location to location. The different types of buying patterns and product are those influenced by climate and physical location. The same influences apply in India as well, but they will also have to deal with the culture of the population throughout each part of the country. India has a cast system with thousand of different groups that Wal-Mart will have to figure out how and what they are buying. This will ultimately be a wea#ness for Wal-Mart as they branch out globally into India. They will have to change thin#ing strategies they developed and found success with in the ! in order to be successful in India *((ortunities: The opportunities that Wal-Mart has in India are endless. The si%e enormous si%e of India's 300-500 billon dollar retail sectors will allow Wal-Mart to become successful. $urrently the organi%ed retailing is only *= of India's total trade leaving >1= unorgani%ed. The >1= is made up of small to medium privately? family owned businesses /Bose, *00>2. With the company's financial bac#ing, they will have the ability to ta#e over, merge and form alliances with other global retailers within the Indian mar#et. The under developed mar#et and growing urbani%ation will pose great business opportunities to grow as a corporation. These opportunities

will be seen by Bharti to team up with the largest retailer in the world. By providing new locations, store types and products, Wal-Mart has the ability to e)ploit the mar#et development. They can diversify from large super centers to local mall based sites. /@A7 "6 !&@BB$8@$,2 Threats: The last area in the !W"T analysis would consist of the threats for Wal-Mart in India. The biggest threat will be Wal-Mart will always be the target of competition, locally and globally. They will be e)posed to political problems in the country. The ability for the company to e)ecute strategies in the ! will not be the same in India. "perating in a country that over the years have tried to stop foreign 67I will be a problem for Wal-Mart even with the financial bac#ing. The other hurtle will be the ability to use manufacturing advantages in a nation that currently operates and produces good in a low cost environment. The ability to outsource to low cost regions will not be the same in India as the !. This will lead to increase price competition among retailers. The intense price completion will pose a threat to Wal-Mart ability to increase bottom line profitability and remain a retailing powerhouse in India. Com(any Analysis: Bharti %nter(rises: Bharti @nterprises is one of India more successful large business conglomerate li#e WalMart in the .!. The company grown over the years by accruing and build from the companies they have ac-uired. This has wor#ed very well for Bharti and has allowed the company to gain #ey access point in many sectors and successful business to operate and profit. Bharti over the years has gained much #nowledge in the consumer mar#et. "ne e)ample of this would the

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Bharti's business in the cellular sector. The follow !W"T analysis below will layout the positives and negative Bharti and Wal-Mart will e)perience with their +oint venture. Strengths: Bharti is a company that has built a presents across India and currently has ;0C million customers it sell products and services. The company has penetrated the entire Indian nation with its cellular business. The tas# is a great one to over come and by doing so has e)panded its large and growing customer base. This attribute of Bharti is a great strength to have when venturing with Wal-Mart in the retail sector. 4nother strength with Bhart possesses that will lead to the success of the +oint venture are the business partner and supplier connections is has established. These connections will allow Wal-Mart to develop supply chain and logistics as in the ! to supply new stores across India. The #ey strength that will benefit the venture is the Bharti company brand name. The brand reconciliation will allow the consumers in India to relate Wal-Mart to company they are familiar dealing with Wea)ness: Bharti is a company that had much e)perience with growing business for the ground up. The company has established and profited by ac-uiring and outsourcing to industry e)perts in the field. This will be a ma+or factor within the +oint venture that will challenge the partnership between Wal-Mart. The lac# of #nowledge in the retail sector will be a problem. Wal-Mart coming into the venture is bring over 30 years of proven and success retailing e)pertise. While on the there side of the table, Bharti a young company, may not be as valuable to Wal-Mart.

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*((ortunities: The Bharti $ompany will offer Wal-Mart many great opportunities to profit in India. Bharti will be able to have the one of the largest companies in the world bac#ing their retail venture. With the Bharti group, e)panding into rural mar#et in them other areas of business will provide a gateway for Wal-Mart to enter as well. Both companies will have he ability to learn and grow from each other form understanding the India consumer to operating a successful retail stores. The opportunities the two companies see# may also challenge the venture. When brea#ing down the venture, Bharti is the #ey to the door /India 9etail !ector2 that Wal-Mart need to grown in India. The creation of the cash and carry stores that Wal-Mart and Bharti will open have the largest opportunity to profit. The format will allow Bharit Wal-Mart to sell wholesale, businessto-business transaction. The start of these types of stores will allow Bharti Wal-Mart to start operations in the country. 4s these stores are built, the supply chain will also increase at the same to support the operations. 4s -uote in a recent news release from Bharti Wal-Mart, The creation of the supply chain will allow locals to provide and sell product to sell in Bharti WalMart store. 4s the traditional Wal-Mart business always operated, value and low price the same will apply to business owner purchasing products in the store. The goods and services provide will mainly be sourced by local producers, #eeping cost to a minimum and adding growth to the local economy . ltimately, this start up of cash and carry stores is the perfect strategy for Bharti WalMart to enter the Indian retail mar#et. The opportunity allows Bharti Wal-Mart to establish retail outlets and create a supply chain in the region. 4long the way, by using local producers and

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stimulating the local economies Wal-Mart will be seen positive by the public. "ther positive gain will be the &9 by doing so. The company will establish +obs within the community it places store and +obs locally during the construction of the new buildings. The cash and carry service will have many benefits for the Bharti Wal-Mart group. These benefits will come in bottom line profits and the increase brand recognition and loyalty, which is need in the currently Indian retail sector to grow.

Industry Analysis &orter's 6ive 6orces of $ompetitive &osition model offers a systematic approach to evaluate and analy%e the competitive advantage and position of an organi%ation. This analysis illustrates India's retail scenario and Wal-Mart's competitive position by e)amining the threats to mar#et entry, supplier power, availability of substitutes, buyer power, and competitive rivalry.

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Porters five Forces of Competitive

New Market Entrants High threat from competitors Market is new and potential growth is tremendous Hard entry for foreign companies

Supplier Power supply chain system Large base of textiles, produce and other retail sectors Cash and Carry outlets

Buyer Power Better uality !roduct Less bargaining power with chain store More choices for consumers

Competitive Rivalry !rimary competitors" Big Ba#aar, $!% group $eliance, Tata&s Trent, !antaloon 'ew companies taking up market share

Availability of Substitutes Traditional Indian retail outlets Increased competition for market share in retailing

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+e, %ntrants to the Mar)et: The threat of new entrants in the retail sector of India is very high. The Indian retail mar#et and organi%ed retailing has potential for tremendous growth. The overall growth in the mar#et is e)pected to move up in double digits increments over the ne)t (-10 years. With the change in culture of India due to growing middle class, increase household consumption and the increasing demand by the young wor#ing population the retail sector is transforming. The overall consumption of all products and the -uality will change the landscape for years to come. Buyer -o,er: The power of buyers is strong in the retail sector of India because it is a consumer based mar#et and the large population. The movement of retailing from unorgani%ed to organi%ed will have both positive and negative effect on the sector. $onsumers will have increases access to higher -uality goods and more variety. The new retailing sector will have to provide and change from the old traditional products. With the change from streetcars and mar#ets to super centers and shopping malls consumers habit for purchasing will become more westerni%ed. These changes will lower overall cost to the consumer as companies compete to increase mar#et share. Su((lier -o,er: The power of the India suppliers is moderate in the retail sector. Aationally, the power of the suppliers is strong. The new growth of the retail sector will create a win-win situation for all lin#s in the value chains. The increase demand will allow current suppliers to wor# with the new retail companies. The advantage for supplier power in the rural areas will be a low competitive advantage. The lac# of infrastructure for supply chain management will result in slow growth in these areas.

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A'aila.ility of Su.stitutes: The availability of substitutes in the retail sector is moderate. There are a number of different forms of retail outlets for consumer to purchase goods. These traditional outlets will continue to remain as direct competition the new wave of organi%ed retail company's.

Com(etiti'e Ri'alry: With the 1 billion plus population and the D7& estimate to grow ;.(= in the following years presents opportunity for all mass merchant and food retailers loo#ing to e)pand globally. The retail mar#et in India is worth hundreds of billions of dollars as well. With all these positive outloo#s, many companies are funneling into the retail sector. !ome companies are international and some national. 4s new players enter the mar#et, the competition will become more intense.

Alternati'es $/ 0o nothing in the Indian retail sector Pros

Wal-Mart showed record margins Wal-Mart has economies of scale $ontinued growth in ! mar#et 9is# would be at a minimum $ompetitors would gain additional mar#et share Wal-Mart could have declining profit margins as ! mar#et saturates Wal-Mart my miss the opportunity to enter the retail sector in the growth stage

$ons

!/

Wal-Mart could chose to (artner ,ith another Indian Retailer

Pros

Wal-Mart may find a partner that has more e)perience in the retail sector

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The +oint venture between another retail may provide increase profit and control Bharti currently had brand recognition with in the Indian mar#et Bharti may partner with a competitor of Wal-Mart causing direct competition

$ons

1/ Wal-Mart could enter into s(eciali2ed retail/ Pros

Wal-Mart would be the sole owner the operations in India Wal-Mart brand name could allow the company to branch into the niche mar#et

$ons

$onsumers would not see Wal-Mart at company for speciali%ed goods Eenture into speciali%ed good may be a failure

3/ The com(any could enter focus efforts to enter into a different glo.al mar)et other then India Pros

"ther global mar#ets may have less restrictions on 67I Dlobal mar#et in other nations may not be as large but could be more profitable Wal-Mart 9"I in another foreign mar#et could out perform

$ons

India has the largest and most potential for growth across the retail sector Wal-Mart may miss entering the retail sector growth at the ground floor Trying to enter at a later date may be more difficult to be profitable

Recommendations 4fter the evaluation of the situation that Wal-Mart is planning to under ta#e, their position and plan to enter the mar#et is very good. The +oint venture between Wal-Mart and

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Bharti will be one that is strategic, beneficial and profitable for both parties. In order for this venture to become successful Wal-Mart will need to perform in these areas /8alepete, *0012. @stablish a efficient and productive wor#ing partnership with Bharti 9apidly create a functional supply chain and distribution centes to support the operation Building stores and e)panding their foot print to increase the presences in the Indian mar#et 9esearch the target mar#et to provide products and services of a high -uality and low cost to meet India consumer's desires. Aot only focusing on the profitability but the positive public relations that need to be ac#nowledged by the consumers of India. With the strategic alignment between Wal-Mart and Bharti the +oint venture will be a success. In the end, this +oint venture will have an ever-lasting influence on the Indian retail sector.

Wor) Cited 8alepete, Faya GWal-Mart in IndiaH a success or failtureI International Fournal of 9etail J 7istribution Management. Eol 3: Ao. > *001. pp ;01-;13

!rivastava, 9., G$hanging retail scene in IndiaI International Fournal of 9etail J 7istribution Management. Eol 3: Ao. > *001. pp ;15-;*1

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