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Walmart, the largest e-commerce giant acquired a controlling stake of 77% in Flipkart (
India’s largest e-commerce company by market share) by investing $16 Billion.
With the deal India will now have Walmart, Amazon and Paytm Mall as the key players to
compete in the Indian e-commerce market
The deal will help Flipkart leverage Walmart’s omni-channel retail expertise and general
supply chain knowledge. Walmart aims to extend their B2B sales across India through this
acquisition.
Walmart has a strong global physical presence in retail space but lacks in e-commerce. This
deal can spur their online presence in Indian markets.
Both Flipkart and Walmart shall maintain separate brands and operating structures.
Why did Walmart acquire Flipkart?
As per Morgan Stanley, India’s online retail is set to grow by 1,200% to $200 billion ( 30%
CAGR) by 2026 from $15 billion in 2016. Average wages are rising by 2% annually and
internet penetration is also growing as data costs are becoming more competitive. This makes
Indian e-commerce space lucrative.
Flipkart has the largest market share in e-commerce, so with this acquisition Walmart can
achieve next leg of growth in India with Flipkart’s 175 million registered user base.
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Positive Impact of Acquisition on Indian Economy: Pros
Low prices, more variety: With the e-commerce giants competing for the top spot, product
differentiation and localization will bring more variety and create a diverse product basket at
low prices, this shall benefit the Indian consumers.
R&D: For greater market penetration across the country, efficiency is the key which comes
with more R&D. Walmart is known for its culture of innovation and service. This can help in
scaling up Walmart’s business scale in India which can generate more revenue and create
technological spillovers and learning effect for domestic firms as well. The improved
sophisticated nature of the products will create external demand for Indian goods.
Collateral Benefits: As the world’s largest retail giant pours funds, it will lead to more such
investments in e-commerce. The Indian e-commerce market space was drying up as funding
ebbed following liquidity issues due to Demonetization and GST bottlenecks. Walmart’s
entry will usher fresh funds and rejuvenate e-commerce ecosystem as more foreign firms and
venture capitalists enter India .
With e-commerce giants revamping their business models, Indian e-commerce market is
expected to see broad based growth with better productivity.
Economic Growth: Walmart will expand across their verticals which will boost output
growth and increase employment opportunities. With positive business sentiments, it will be
an impetus to economic growth and capitalism. The deal will be subject to tax in India so
revenue gains shall add to domestic revenue receipts
Efficient Supply Chain: Expansion of e-commerce requires efficient supply chain and
logistics which require infrastructural development. This will give a fillip to Indian
agriculture and infrastructure and benefit farmers as they would be able to cater to more
demand as Walmart shares its extensive experience in retailing, logistics and inventory and
supply chain management. This can especially help the perishable goods industry which is
Walmart’s forte.
JOB CREATION: With more investment flowing in Indian economy especially in retail
space, capacity utilization shall improve . Output and productivity growth can create new
employment opportunities for both skilled and unskilled labor .
ESOPS( Employee stock options): Many existing employees will make windfall gains
through this deal from their stock options. This will incentivize the entry of more workers in
e-commerce who had earlier fled the sector due to the downturn in the sector and can also
absorb workers from old brick-and-mortar and traditional industries which can help in
formalization of more of Indian labor force.
PREMJI INVEST is expected to gain up to 4 times from this deal as its share in Myntra
(bought by Flipkart in 2014) is also being acquired by Walmart. The gains are expected to be
more than $130 million on the $25 million investment. This will lead to inflow of more funds
pouring in Indian economy as gains attract more investors from India and abroad.
Mom and Pop stores: Walmart is looking to extend its supply chain arm through
partnerships with around 60 lakhs kiranas. This can increase the market presence of small
stores.