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

Executive Summary

This paper is an analysis and evaluation of Wal-Mart and the future venture into
the retailsector of India. The challenges that Wal-Mart needs to resolve to become
successful range fromthe cultural differences to problems with supply chain management in
India. The analysis belowidentifies the challenges of many factors dealing with the Wal-Mart,
Bharti and the Indian retailsector. These factors for Wal-Mart would deal with the ability to
operate in India efficiently asthey do in the US. In addition, Wal-Mart to be successful will
have to sort out problems with thegovernment, culture differences and the partnership
with Bharti. These factors for Wal-Mart andBharti will be presented in more specific detail
through a SWOT analysis. The analysis willevaluate Wal-Mart as a company in relation to the
future operation in the Indian market. Thenthe Bharti Company will be analyzed using a
SWOT to pin point how the company will fit intothe overall plan of Wal-Mart operating in
India. The report will further evaluate the Indian retailsector through a competitive industry
analysis using the Porter’s 5 forces model. This model willdetail the threats to the market
entry, supplier power, buyer power, availability of substitutes andcompetitive rivalry as they
relate to the India retail sector. The report will then offer alternativesfor the Wal-Mart
company. These alternatives would include not progressing forward withinIndia, chose a
global market with less regulation, focus business to become s specialized retailer and
collaborating with a different company other then Bharti to expand 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 work to improve the
image of Wal-Mart and how the company can make positive changes in the retail sector for
the people of India.2

Wal-Mart and the Indian Retail Sector:

The retail sector in India remains one of the best-untapped sources for
internationalcompanies to grow market share and future profit. The retail market in India is
one that manycompanies are trying penetrate. One major U.S. retail company, Wal-Mart, has
been trying toenter and succeed in expanding the organization’s global footprint. Wal-Mart is
one of thelargest and most successful retail companies in the world. Wal-Mart is planning
to use their business expertise in the areas of organized retail, pricing strategies and logistics
in supply chainmanagement to change the retail scene in India.Currently, India’s market is at
a stage where customers need more variety in products andretail formats. The old systems of
retail outlets in India have consisted mainly of Kiranas andMandis to name a few. Mandis
are types of markets set up by the state government for the sale of agricultural produce
directly from the farmers. Kirana stores, which are independently ownedand operated
primarily, sell necessities, and groceries. Other retailing formats such as streetcars,pavement
shops, public distribution systems, kiosks, and weekly markets are unique to India andhave
been around for a long time.India has seen an emergence of modern large-scale stores such
as supermarkets, specialtystores, chain stores, department stores; hypermarkets, factory
outlets and discounters enter theretail sector. Shopping malls and new retail outlets with
more shops have transformed thebusiness environment in India. The changes in the retailing
culture have pushed this businesssector to make changes in how customers are buying and
consuming goods (Srivastava, 2008).

Challenges for Wal-Mart in India

While the Indian market may look very lucrative for Wal-Mart, they will be faced withmany
challenges. These challenges will range from entering the market, successfully operating inthe
market and collaborating with Bharti in the business venture. These challenges are not new
toglobal corporations trying to enter the Indian market. Wal-Mart will be facing the challenge
of trying to implement their currently successful business operations into a nation that has
manyvariables to conquer.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 unorganized retail
outlets. Thesestores are mom and pop shops that sell specific goods to the public. The shops
are support by thelocal customers as it has been the way to shop for many years. The shops sell
certain items inmany 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 howWal-Mart operates and in general organized retailing. In order to meet the
need for the publicthey will have to provide a variety of goods that will satisfy the Indian
population as the smallstores have done for decades.The problems Wal-Mart faces are which
goods to sell in various locations across thecountry. These good would vary due to the different
types of food people eat, textiles, andconsumables. The other factor that will be a challenge for
the company will be geographiclocation. Across India, there are many different cultures as well
as rural and urbanized locations.As 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 culturechanges from old to new so do buying patterns of
the consumers. These ever-changing trends4
will be a problem for Wal-Mart to develop the supply chain methods that have made
themsuccessful in the US.Wal-Mart must figure out buying patterns to match the needs of the
consumers while theculture is continually evolving. An additional challenge will be how Wal-
Mart will executeeffective supply chain management without the infrastructure to support it.
The infrastructureswould include roads, established distribution systems, and refrigerated
storage for groceries.These are key item that need to be established for Wal-Mart to begin
and remain in operation.Other challenges include the need for suppliers to produce goods for
sale within thestores. They will need to establish relationships with farmers for produce and
manufacturingbusiness for all other products. Once these relationships are established, will
these suppliers beable to meet the demands of Wal-Mart’s volume. Wal-Mart’s key strategy of
getting the rightproduct to stores without long delays. If suppliers are scattered around the
nation, the roads andlogistics structures are under developed this will be a difficult hurtle to
over come.One of the most important and most challenging obstacles to over come will
be thepartnership between Wal-Mart and Bharti. This venture was created to circumvent the
Indiaregulation on FDI. Under the agreement, Wal-Mart and Bharti will manage supply
chain. Theretail potion will be franchised to Bharti. The joint venture will challenge the
relationship on theownership and internalization dimensions of the model. Wal-Mart will need
to clearly define itsoperating model and mesh Bharti. The joint venture method that Wal-Mart
has chosen to entirethe market will be a challenge to make it work. The joint ventures model
for two companies tocome together usually result in failure. This will be something that Wal-
Mart will have monitor and manage closely to see how Bharti will work out as a partner. Wal-
Mart will also need to protect its intellectual property on supply chain management but at the
same time work together to become profitable (Halepete, 2008).

Company Analysis: Wal-Mart

Wal-Mart is a company that overtime has become one of the best in the retail business for a
reason. The SWOT analysis provided below will explain the strengths, weaknesses,opportunities
and threats of how Wal-Mart retailing culture will be applied to the India market.

Strengths

Wal-Mart has the notoriety as the world’s largest retailer. Over the years, Wal-Mart
hasdeveloped the ability to provide product using advanced inventory tracking though the use
of IT.The company does extremely well tracking overall sales of products by certain locations.
Theyhave become the expert by using universal UPC coding an RF tracking. These strengths
ininventory tracking have allowed the company to advance and grow profits through logistics
andsupply chain management. Wal-Mart’s expertise in mastering this part of retailing will allow
anupper hand developing their business in IndiaAnother strength Wal-Mart possesses is
their powerful retail branding. Additionally,Wal-Mart has the reputation of providing the best
value for the money and the ease of convenience due to their expansive product line offered
under one roof. Having such anorganized structure will be an advantage in the Indian market.
Currently in the Indian market, theoutlets for customers are scattered thought out the
sector with mom and pop stores providinglimited or specialized products for consumers.
Customers will have to shop at many locations tobuy all their needed products. Under the Wal-
Mart retail structure; having any and all the needed products will offer the one stop shopping
experience of which the India culture is notaccustomed. This will be the biggest advantage over
the competition for Wal-MartThe other strength of Wal-mart is the focused strategy for human
resource managementand development. The company invests time and money to train the
Wal-Mart staff. This keybusiness strategy will allow the company to hire and retain the needed
workers in India tosuccessfully operate the new stores in the country. Currently, India is a
nation that is adopting theways of life of the western civilization. The growing middle class,
rising disposable income andurbanization matched with the business ethics of Wal-Mart HR
management will be the drivingfactor for the success of Wal-Mart in India

Weakness:

As a company of much strength, Wal-Mart also has a few weaknesses in their

operationalplatform. Wal-Mart must improve upon these weaknesses to succeed in India. One
weakness thecompany faces is the span of control in an international market such as
India. While thecompany has the ability to control business in the US, these proven methods
may not work asefficiently in India. Operating in a foreign country with different legal
regulation, suppliers andoverall infrastructure will be a challenge for the company. The tried
and trued methods thecompany has perfected in the US will not apply in India. The company
will have to reinvent andmodify supply chain management and logics to become successful in
the Indian retail sector.Although Wal-Mart has experience finding the right supplier in the US, it
will be more difficultin India due to the lack of exposure with the country.7

The other weakness Wal-Mart must overcome in the Indian retail sector is the ability
andflexibility to sell products across many of the sectors (clothing, food, health and beauty
suppliesetc) as some of the focused competitors. In the US, how consumers purchase goods is
vastlydifferent from in the Indian culture. As stated above the Kirana’s are what the India
consumer are accustomed to. Wal-Mart offers over 1000 different items at their stores and
should besomething different for the consumer in India. The question is will Wal-Mart be able
to providethe right types of product for the areas they operate? Across the US, the typical Wal-
Martcustomer purchases the same product from location to location. The different types of
buyingpatterns and product are those influenced by climate and physical location. The same
influencesapply in India as well, but they will also have to deal with the culture of the
populationthroughout each part of the country. India has a cast system with thousand of
different groupsthat Wal-Mart will have to figure out how and what they are buying. This will
ultimately be aweakness for Wal-Mart as they branch out globally into India. They will have to
change thinkingstrategies they developed and found success with in the US in order to
be successful in India

Opportunities:

The opportunities that Wal-Mart has in India are endless. The size enormous size of India’s 300-
400 billon dollar retail sectors will allow Wal-Mart to become successful. Currentlythe
organized retailing is only 2% of India’s total trade leaving 98% unorganized. The 98% ismade
up of small to medium privately/ family owned businesses (Bose, 2009). With thecompany’s
financial backing, they will have the ability to take over, merge and form allianceswith other
global retailers within the Indian market. The under developed market and growingurbanization
will pose great business opportunities to grow as a corporation. These opportunities8

will be seen by Bharti to team up with the largest retailer in the world. By providing
newlocations, store types and products, Wal-Mart has the ability to exploit the market
development.They can diversify from large super centers to local mall based sites. (END OF
SPELLCHECK)

Threats:

The last area in the SWOT 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 andglobally.
They will be exposed to political problems in the country. The ability for the companyto execute
strategies in the US will not be the same in India. Operating in a country that over theyears
have tried to stop foreign FDI will be a problem for Wal-Mart even with the financialbacking.
The other hurtle will be the ability to use manufacturing advantages in a nation thatcurrently
operates and produces good in a low cost environment. The ability to outsource to lowcost
regions will not be the same in India as the US. This will lead to increase price
competitionamong retailers. The intense price completion will pose a threat to Wal-Mart ability
to increasebottom line profitability and remain a retailing powerhouse in India.

Company Analysis: Bharti Enterprises:

Bharti Enterprises is one of India more successful large business conglomerate like Wal-Mart in
the U.S. The company grown over the years by accruing and build from the companiesthey
have acquired. This has worked very well for Bharti and has allowed the company to gainkey
access point in many sectors and successful business to operate and profit. Bharti over theyears
has gained much knowledge in the consumer market. One example of this would the9

Bharti’s business in the cellular sector. The follow SWOT analysis below will layout thepositives
and negative Bharti and Wal-Mart will experience with their joint venture.

Strengths:

Bharti is a company that has built a presents across India and currently has 70+
millioncustomers it sell products and services. The company has penetrated the entire
Indian nationwith its cellular business. The task is a great one to over come and by doing so has
expanded itslarge and growing customer base. This attribute of Bharti is a great strength to
have whenventuring with Wal-Mart in the retail sector. Another strength with Bhart possesses
that willlead to the success of the joint venture are the business partner and supplier
connections is hasestablished. These connections will allow Wal-Mart to develop supply chain
and logistics as inthe US to supply new stores across India. The key strength that will benefit the
venture is theBharti company brand name. The brand reconciliation will allow the consumers in
India to relateWal-Mart to company they are familiar dealing with

Weakness:

Bharti is a company that had much experience with growing business for the ground up.The
company has established and profited by acquiring and outsourcing to industry experts in
thefield. This will be a major factor within the joint venture that will challenge the
partnershipbetween Wal-Mart. The lack of knowledge in the retail sector will be
a problem. Wal-Martcoming into the venture is bring over 30 years of proven and success
retailing expertise. Whileon the there side of the table, Bharti a young company, may not be as
valuable to Wal-Mart

Opportunities:
The Bharti Company 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 backing their retailventure. With
the Bharti group, expanding into rural market in them other areas of business willprovide a
gateway for Wal-Mart to enter as well. Both companies will have he ability to learnand grow
from each other form understanding the India consumer to operating a successful
retailstores. The opportunities the two companies seek may also challenge the
venture. Whenbreaking down the venture, Bharti is the key to the door (India Retail Sector)
that Wal-Mart needto grown in India.The creation of the cash and carry stores that Wal-Mart
and Bharti will open have thelargest opportunity to profit. The format will allow Bharit Wal-
Mart to sell wholesale, business-to-business transaction. The start of these types of stores will
allow Bharti Wal-Mart to startoperations in the country. As these stores are built, the
supply chain will also increase at thesame to support the operations. As quote in a recent
news release from Bharti Wal-Mart, Thecreation of the supply chain will allow locals to provide
and sell product to sell in Bharti Wal-Mart store. As the traditional Wal-Mart business
always operated, value and low price the samewill apply to business owner purchasing
products in the store. The goods and services providewill mainly be sourced by local producers,
keeping cost to a minimum and adding growth to thelocal economy .Ultimately, this start up of
cash and carry stores is the perfect strategy for Bharti Wal-Mart to enter the Indian retail
market. The opportunity allows Bharti Wal-Mart to establish retailoutlets and create a supply
chain in the region. Along the way, by using local producers and11

stimulating the local economies Wal-Mart will be seen positive by the public. Other positivegain
will be the PR by doing so. The company will establish jobs within the community it placesstore
and jobs locally during the construction of the new buildings. The cash and carry servicewill
have many benefits for the Bharti Wal-Mart group. These benefits will come in bottom
lineprofits and the increase brand recognition and loyalty, which is need in the currently Indian
retailsector to grow.

Industry Analysis

Porter’s Five Forces of Competitive Position model offers a systemati c approach

toevaluate and analyze the competitive advantage and position of
an organization. This analysisillustrates India’s retail scenario and Wal-Mart’s competitive
position by examining the threats tomarket entry, supplier power, availability of substitutes,
buyer power, and competitive rivalry.12

New companiestaking up marketshare

New Entrants to the Market:

The threat of new entrants in the retail sector of India is very high. The Indian
retailmarket and organized retailing has potential for tremendous growth. The overall growth
in themarket is expected to move up in double digits increments over the next 5 -10
years. With thechange in culture of India due to growing middle class, increase household
consumption and theincreasing demand by the young working population the retail
sector is transforming. Theoverall consumption of all products and the quality will change
the landscape for years to come.

Buyer Power:

The power of buyers is strong in the retail sector of India because it is a consumer basedmarket
and the large population. The movement of retailing from unorganized to organized willhave
both positive and negative effect on the sector. Consumers will have increases
access tohigher quality goods and more variety. The new retailing sector will have to provide
and changefrom the old traditional products. With the change from streetcars and markets to
super centersand shopping malls consumers habit for purchasing will become more
westernized. Thesechanges will lower overall cost to the consumer as companies compete to
increase market share.

Supplier Power:

The power of the India suppliers is moderate in the retail sector. Nationally, the power of the
suppliers is strong. The new growth of the retail sector will create a win-win situation for alllinks
in the value chains. The increase demand will allow current suppliers to work with the newretail
companies. The advantage for supplier power in the rural areas will be a low
competitiveadvantage. The lack of infrastructure for supply chain management will result in
slow growth inthese areas.14

Availability of Substitutes:

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 willcontinue to
remain as direct competition the new wave of organized retail company’s.

Competitive Rivalry:
With the 1 billion plus population and the GDP estimate to grow 7.5% in the following
yearspresents opportunity for all mass merchant and food retailers looking to expand globally.
Theretail market in India is worth hundreds of billions of dollars as well. With all these
positiveoutlooks, many companies are funneling into the retail sector. Some companies are
internationaland some national. As new players enter the market, the competition will become
more intense.

Alternatives
1. Do nothing in the Indian retail sector

Pros

 Wal-Mart showed record margins

 Wal-Mart has economies of scale

 Continued growth in US market

 Risk would be at a minimum

Cons

 Competitors would gain additional market share

 Wal-Mart could have declining profit margins as US market saturates

 Wal-Mart my miss the opportunity to enter the retail sector in the growth stage

2. Wal-Mart could chose to partner with another Indian Retailer

Pros

 Wal-Mart may find a partner that has more experience in the retail sector
 The joint venture between another retail may provide increase profit and control

Cons

 Bharti currently had brand recognition with in the Indian market

 Bharti may partner with a competitor of Wal-Mart causing direct competition
 3. Wal-Mart could enter into specialized 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 market

Cons

 Consumers would not see Wal-Mart at company for specialized goods

 Venture into specialized good may be a failure

4. The company could enter focus efforts to enter into a different global market
otherthen India

Pros

 Other global markets may have less restrictions on FDI

 Global market in other nations may not be as large but could be more profitable
 Wal-Mart ROI in another foreign market could out perform

Cons

 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

After the evaluation of the situation that W al-

M a r t i s p l a n n i n g t o u n d e r t a k e , t h e i r position and plan to enter the
market is very good. The joint venture between Wal -Mart and16
Bharti will be one that is strategic, beneficial and profitable for both parties.
In order for thisventure to become successful Wal-Mart will need to perform in these
areas (Halepete, 2008).

 Establish a efficient and productive working partnership with Bharti

 Rapidly create a functional supply chain and distribution centes to
support theoperation
 Building stores and expanding their foot print to increase the
presences in theIndian market
 Research the target market to provide products and services of a high quality
andlow cost to meet India consumer’s desires.
 Not only focusing on the profitability but the positive public relations that need
tobe acknowledged by the consumers of India

With the strategic alignment between Wal-Mart and Bharti the joint venture will be a
success. Inthe end, this joint venture will have an ever-lasting influence on the Indian
retail sector.