BHARTI WALMART PRIVATE LIMITED

INTRODUCTION Saturation in western markets has shifted the attention of investors to India s emerging market. India has a growing middle class, an expanding economy and a more brand-conscious consumer. It has a $450 billion retail industry.Bharti Walmart Private Limited is a joint venture between Bharti Enterprises, one of India's leading businessgroups with interests in telecom, agri-business, insurance and retail, and Wal-Mart, the world s leadingretailer, renowned for its efficiency and expertise in logistics, supply chain management and sourcing. joint venture between Bharti Enterprises and Wal-Mart is for wholesale cash-and-carry and back-end supply chain management operations in India to serve small retailers, manufacturers and farmers. The joint venture has already set up a Distribution Centre in Punjab named as Best Price modern wholesale which service the merchandise needs of the Joint venture s cash-and-carry stores as well as retail stores around the area, including Bharti Retail s wholly owned Easy Day stores. This partnership was announced in 2007 and this Joint venture started in 2009 with first B2B wholesale cash-and-carry store in northern India. A typical cash-and-carry store stands between 50,000 and 100,000 square feet and sell a wide range of products from 6000 to 10000 and is providing a one stop and shop experience.

Q 1. What has made Wal-Mart a World Leader in Supply Chain Management? Wal-mart became a leader in supply chain management because they took a direct, regional approach. They cut out the middleman, and became their own distributor. Also, a main leading factor to their success was their implementation of the bar code system, which was later adapted to have RFID microchips to eliminate physical inventory counting, making it much more efficient. Not only could they tell what they were selling, how much, now they could tell where it was in their regional distribution centers, making them able to restock their inventory in 48 hours, much faster than any of their competitors. These distribution centers were important because Wal-mart retail stores were strategically placed within a boundary of a delivery zone of their distribution centers to cut transportation costs, and consumer costs. This whole bar code system was later taken on by the whole US retail sector, with Wal-mart s efforts to thank for a systematic way of tracking merchandise. Another key factor into their success

was their intense competitor research weekly. This meant the Wal-mart was able to beat competitors by 4% to sometimes 10% by discounting 4 rolling key items for approximately 75 days each. The increase in volume sales allowed for a price drop and edge over their competitors, these promotions brought in about $10 billion a year in revenue. The Wal-mart slogan once Always the lowest prices was adapted to Always low prices . Wal-mart has such deep roots in the retail sector that those who never shop there are affected by their pricing strategies and the hold they have over manufactures to make packaging work with bar coding, and product offerings. Making Wal-mart possible the most powerful, influential company in the world, according to Charles Fishman, author of The Wal-Mart Effect.

Q 2. Explain Wal-Mart s use of innovative IT tools and IT-enabled processes to benefit supply chain Information technologies such as the bar code, electronic data interchange (EDI), and radio frequency identification (RFID) have allowed Wal-Mart to maintain its position as leader in supply chain management. Wal-Mart first used the barcode paired with scanners for inventory tracking in the 1970 s. This point of sale system was able to identify items sold, locate the price for the item, create a receipt for the customer, and store the transaction for later sales and inventory analysis. The barcode helped speed up the checkout process but on a larger scale unlocked the door to information management. Wal-Mart was now able to control its inventory and avoid overstocking its selves with merchandise that was not selling well. This helped to make the supply chain become more efficient and cost effective. Soon after, the universal product code (UPC) was introduced and became the standard for identifying and labeling products in the retail industry. By the early 1990 s, Electronic data interchange (EDI) had become a valuable technological tool that helped to strengthen the relationship between Wal-Mart and its suppliers. Through Walmart s company-developed application Retail Link, suppliers were now able to access WalMart s database and view up-to-date, store-by-store, sales and inventory information for their products. Suppliers could then coordinate with Wal-Mart to forecast, plan, produce, and ship products as needed. With the use of its privately owned satellite communication system, WalMart could was now able to coordinate its supply chain activities between all store locations and distribution centers. Wal-Mart went to a whole new level when it required its suppliers to equip its products with microchips that could be used for radio-frequency identification (RFID). These microchips were an enhanced form of the barcode, storing more information. Similar to what is used on the highway for toll collection, the technology requires the RFID tags to be in close proximity to the RFID reader. Once scanned, the item or goods could be tracked throughout the whole supply

chain. In-store, managers could determine how many products it had and where they could be located. Wal-Mart s use of innovative IT tools and processes has set the standard for supply chain management. Wal-Mart s ability to exploit information and use it to better the supply chain process has enabled it to keep inventories low, increase turnover, and create cost savings, which in turn can be passed on to the consumers.

Q 3. Analyze the Indian retail industry through Porter s Five Forces Indian retail market (Organized and unorganized) is estimated by the India Retail Report to be around Rs. 12,00,000 crore($270 billion) with annual growth rate is 5.7 percent. Currently unorganized/traditional retailing is contributing 95% of the industry with over 15 million small and medium outlets (mom-and-pop corner stores also called kirana stores). Organized formats are only in the initial stages of adoption in the country. However with the change of tastes and preferences of the consumers, the industry is getting more popular these days and getting organized as well. With growing market demand, the organized retail industry is expected to grow at a pace of 2530% annually (CII-AT Kearney Retail Study). Retailing in India is growing rapidly with consumer spending increasing by unprecedented rates. Because of these factors global players like WalMart, Tesco, and Carrefour are interested in this sector. Porter s five force analysis: 1. Threat of new entrants: (low to medium) The threat of new entrants into the business can be determined by considering the factors which can favor and restrict the entry. For Indian retail industries The threat of new entrants is low to medium due to the following limiting factors: y Government policies for FDI: The Indian the Government has allowed only 51 per cent FDI in the sector and this restrictions on the FDI is creating ripples among the international players like Tesco and many otherretail giants are struggling to enter Indian markets. However,enter the Indian retail marketindirectly via strategic licensing agreement, franchisee agreement and cash and carrywholesale trading (since 100 per cent FDI is allowed in wholesale trading). This restriction is potentially stopping the new entrants. y Economies of scale: Increased urbanization has led to higher customer density areas thus enabling retailers to use lesser number of stores to target the same number of customers. Aggregation of demand that occurs due to urbanization helps a retailer in reaping the economies of scale.

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Real estate cost: This becomes a potential barrier as cost for the installation of a new infrastructure is very high due to high cost of real state in India. Logistics and Supply Chain Management: The cost of transportation in India is high due tothe poor road system as well as the lack of latest technology for maintaining the quality of the products like unavailability of trucks with refrigerator which leads to spoilage of around 60% the food. Even the supply chain management is not that efficient due to the poor logistics. This is greatly responsible for not attracting new companies. Geographical and cultural diversity: India has a very vastly diversified geography as well as culture, religions and languages which becomes a barrier for a new entrant as it requires much more investment in the training for the staff as well as they need to invest more locally

2. Threat of substitutes: (moderate to low)The threat to substitute occurs due to the following reasons: y y y y y if the there is a decline for the demand of a product Low brand loyalty New foreign trends Low switching cost More availability of options

Considering these the threat to substitute in Indian retail market varies from moderate to low as the organized retail market is very less and the outcomes are currently favorable for the industry. The substitutes are mainly available in the unorganized sector as they have the cheaper version of the products which attract the customers from lower income group. 3. Bargaining power of supplier: (Low) The price at which the product is available to the retailer is very important. If the supplier has a high bargaining power then in theory it makes the industry less attractive. If we consider the Indian retail market it is very attractive due to the low bargaining power of the supplier as the number of buyers in existence as compared to the suppliers is very few. However it varies from product to product and the availability of undefined highly valued products can be seen as a threat as the bargaining power of the supplier would increase in this case. 4. Bargaining power of buyer: (moderate to high) The bargaining power of buyer in India is increasingfast as the customer is becoming more and more informed and aware about the

various brands, products and foreign trends. This is also characterized due to the high number of alternatives available in the market and the due to increase in the available disposable incomes as well as the price range of the products. 5. Degree of Rivalry: (moderate) The structure of industrycost, degree of differentiation and switching cost determine the intensity of rivalry. The intensity of rivalry in India is not very high due to few levels in the market and low differentiation. However this is changing due to the new entries in the market. Q 4. Why is it lucrative for Wal-Mart and Bharti to engage in a partnership to offer Cash-and Carry services? Entry into Emerging market:Saturation in western markets has shifted the attention of investors to India s emerging market. India has a growing middle class, an expanding economy and a growing brand-conscious consumer. It has a $450 billion retail industry. However, there are high barriers against foreign direct investment (FDI). India s strict regulations have made it difficult for multi-brand foreign retailers, such as Wal-Mart, to sell directly to the public. Thus the joint venture between Wal-Mart and Bharti has provided a means to enter the emerging Indian market through this partnership. First mover s advantage: this partnership provides the first movers advantage to Wal-Mart as the other competitors like Tesco have not established themselves yet into the country. This also provides an opportunity to grab the market share due to lack of the organized retailing in the country. This would also be an added advantage in future when the government would open FDI.However, this may also pose a drawback since there will be a lot of investing needed to improve the supply infrastructure. Those positioned as second-mover and third-mover may be able to learn from the mistakes of the first. Combination of the experience and expertise: Bharti s knowledge and experience in Indian consumer markets matched with Wal-Mart s logistics, supply chain management, and sourcing experience make them an unstoppable force. Technical collaborationbetween Bharti Retail and Wal-Mart: In this joint venture the two firms have also entered into an agreement according to which Wal-Mart provides critical technical and back end support to Bharti Retail. Supply Chain Management: The joint venture works with the existing supply chain Infrastructure to help make it more efficient which helps in the development of the Indian retail and increases the efficiency. Helping growth of Indian economy: 1. Support to farmers: The firm has removed the middle man and is directly dealing with the farmer which helps them to improve the quality and production and also plays important role in the development of the farmers as they also provide them with educating programs to improve the efficiency of farmers. 2. Creating job opportunities: The firm makes use of 90% of local produce creating job opportunities for the locals. This joint venture is looking forward to establish across the country which would create job opportunities to the local people.

Low prices every day: Their organized cash-and-carry strategy will benefit local retailers and merchants act as a onestop-shop, offering over 6,000 items at competitively low prices. A large array of quality goods are readily accessible helping the small and mid-sised business to get the products at a cheaper price.

Q 5. What are the challenges faced by Bharti and Wal-Mart in their partnership? Use SWOT analysis to explain further. Wal-Mart is the world s biggest retail giant with over 8000 store worldwide. The Wal-Mart Bharti partnership occurred due to the governmental policy which does not allow FDI and has forced Wal-Mart to do partnership with Bharti. The partnership is facing the following challenges: y The government policy also does not allow Wal-Mart to do retailing instead they can only have wholesale which can cater to only small and mid-sized business and restricts them to cater to general public. They are also facing opposition from the small and unorganized sector of retailing. Increased local competitors due to highly unorganized industry. Low skill work force in the country. Poor infrastructure of the country. Poor transportation and road systems in the country. High Geographical and cultural diversification in the country Dealing with different political scenarios in different states. Establishment of supply chain management from grass root level as the technology available in the country is not very developed Restrictions to developed cities due to the unavailability of basic needs in the rural areas like power, mobile network and road systems.

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SWOT Analysis: Strength y Partnership of two giants: Wal-Mart is the world leader of retail industry where as Bharti is the leading telecom company of India.

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Benefits from the expertise and experience of both the companies. The supply chain management of Wal-Mart and knowledge of Bharti for Indian market. Supply chain management/ technology: Wal-Mart biggest strength is its efficient supply chain management developed with the experience worldwide and the usage of latest technology. Partnership with Bharti(Brand name) brings in the localfocus. Global approach global (Wal-Mart) and Local (Bharti): This partnership brings in the globalization with localization. This partnership gives the first mover s advantage to Wal-Mart in India. Indian retail market has been untouched by the foreign retailers like Tesco, Carrefour etc. due to the Government policies for FDI. Low prices with good quality product. The One- stop- shop provision acts as a strength over the other local retailers as they provide over 6000 products at one place.

Weakness y y y y y Wal-Mart lacks cultural adaptability Low level of internationalization Poorreputation and records: Labor laws, union busting and exploiting small producers Wal-Mart is the World s largest grocery retailer and control of its empire, despite its IT advantages, could leave it weak in some areas due to the huge span of control. Unavailability of basic needs in the rural areas like power, mobile network and road systems.

Opportunity y y y y y y Organized retail sector in India is only 4.8 % of the total retail industry. Hence Wal-Mart has huge opportunity for growth. Opening up of FDI in future will give Wal-Mart an advantage of presence in the county and they can cater to the customers rather than businesses. High future demand- AC Nielsen The growth of Indian Economy and increasing disposable income. The changing demographics and increasing education gives growth opportunities. Availability of local resources and manufacturer and labor at lower cost which they could be used for exporting from India.

Threat y y y y y y y Change in Government policies and regulation in retail can be a major threat to the company. The social pressure from NGO and opposition or boycott from local retailers. Not enough support from government in developing infrastructure in future. Lack of skilled manpower Other Indian corporations Strategic convergence Competition from local businesses. Economic crises due to war situation.

Q 6. What is the latest status of this partnership? With the dilemma of spoiling perishable items during transportation, and implementing a cost effective direct supply chain to cut out the middleman, without opposition and protest from consumers and small business owners, Wal-Mart has now set out to source with 35,000 small and medium farmers directly by 2015. Currently, their 50/50 cash-and-carry joint venture, Bharti Wal-Mart, works with 550 farmers in the country. In hopes of making significant social contributions to India s agricultural sector and improve their direct supply chain in a weak transportation sector with poor road infrastructure, adding to the loss of sometimes up to 60% in perishable goods. Bharti Wal-Mart aims to help the farmers by training them with the skills and technology for crop management. Making these adjustments the hope is these farmers will see at least a 20% increase in their income. The training will also train farmers to use water and fertilizers properly and optimally. This effort will hopefully reach out to benefit one million farmer and farm workers. Upgrading the agricultural sector was a logical step for Bharti Walmart in order to upgrade skills in the retail sector to match this effort. Two skill level training centers were created, with a third on the way, the goal is to train 40,000 students in the next five years and place at least 15,000 students in the next five years with jobs. Presently, 3,400 students have already been certified and 1,100 people have been place in jobs to date in October. Bharti Wal-Mart hopes that India s government will lift restrictions on FDI so that Bharti Wal-Mart can open more and more stores in India, while claiming to be able to contribute more training and do much more with no FDI restrictions. The government's positive acceptance was marked with the Department of Industrial Policy and Promotion (DIPP) paper that came out in June 2010, which deals with the sensitive issues of opening up the multi-brand retail sector to FDI.

Summary: The joint venture of the two giants is looking forward to expand all over the country using the expertise of both the partners and plans to open 15 outlets in its wholesale format by end2011.The Company currently operates 3 cash and carry stores in the country at Amritsar, Ludhiana and Jalandhar and is catering to the small and mid-sized business with the wholesale cash and carry service. This partnership also sees the opportunity for growth hoping that India s government will lift restrictions on FDI so that Bharti Wal-Mart can open more and more stores in India and be able to cater to the public directly. This partnership not only benefits the two firms but is also working towards the improvement of the Indian retail Industry by improving the supply chain management and is helping in the economic development of the country by helping the farmers and small business. This partnership can bring in revolutionary changes to the Indian Retail Industry.

References: Press Trust of India. Bharti Wal-Mart to rope in 35K farmers. October 25, 2010 http://profit.ndtv.com/news/show/bharti-wal-mart-to-rope-in-35k-farmers-113275?cp The Asia Case Research Center, The University of Hong Kong. Wal-mart and Bharti: Transforming Retail in India. 2009 (class article) Wal-Mart: Attaining competitive advantage from information technology.http://www.prenhall.com/divisions/bp/app/alter/student/useful/ch1walmart.html The Wal-Mart Story,www.cisco.com/warp/public/779/ibs/vertical/retail/Wal-Mart.PDF Walmart in India Fact Sheet,www.walmartstores.com/download/1996.pdf Bloomberg. Wal-Mart `Optimistic' India to Allow Foreign Retail Investment. October 26, 2010.http://www.bloomberg.com/news/2010-10-25/wal-mart-s-duke-optimistic-india-willallow-retail-investment.html http://www.cci.in/pdf/surveys_reports/indias_retail_sector.pdf http://www.economywatch.com/business-and-economy/indian-retail-industry-size.html http://www.marketing91.com/swot-walmart/ http://www.cci.in/pdf/surveys_reports/indias_retail_sector.pdf