Case Study:

Wal-Mart and Bharti Transforming Retail in India

By: Raymond Vucetic

MBA 602

International Business

Fall Quarter 2010

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Executive 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 US. 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 SWOT analysis. The analysis will

evaluate Wal-Mart as a company in relation to the future operation in the Indian market. Then

the Bharti Company will be analyzed using a SWOT 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 Porter’s 5 forces model. This model will

detail the threats to the market 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 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.

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Wal-Mart and the Indian Retail Sector:

The retail sector in India remains one of the best-untapped sources for international

companies to grow market share and future profit. The retail market in India is one that many

companies are trying penetrate. One major U.S. retail company, Wal-Mart, has been trying to

enter and succeed in expanding the organization’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 expertise in the areas of organized retail, pricing strategies and logistics in supply chain

management to change the retail scene in India.

Currently, India’s market 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 Kiranas and

Mandis 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 owned

and 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 and

have been around for a long time.

India has seen an emergence of modern large-scale stores such as supermarkets, specialty

stores, chain stores, department stores; hypermarkets, factory outlets and discounters enter the

retail sector. Shopping 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 make changes in how customers are buying and consuming goods (Srivastava, 2008).

Challenges for Wal-Mart in India

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 While the Indian market may look very lucrative for Wal-Mart, they will be faced with

many challenges. These challenges will range from entering the market, successfully operating in

the market and collaborating with Bharti in the business venture. These challenges are not new to

global 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 many

variables 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. 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 organized 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, textiles, and

consumables. The other factor that will be a challenge for the company will be geographic

location. 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 culture

changes from old to new so do buying patterns of the consumers. These ever-changing trends

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will be a problem for Wal-Mart to develop the supply chain methods that have made them

successful in the US.

Wal-Mart must figure out buying patterns to match the needs of the consumers while the

culture is continually evolving. An additional challenge will be how Wal-Mart will execute

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 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 the

stores. They will need to establish relationships with farmers for produce and manufacturing

business for all other products. Once these relationships are established, will these suppliers be

able to meet the demands of Wal-Mart’s volume. Wal-Mart’s key 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.

One 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 FDI. Under the agreement, Wal-Mart and Bharti will manage supply chain. The

retail potion will be franchised to Bharti. The joint venture will challenge the relationship on the

ownership and internalization dimensions of the model. Wal-Mart will need to clearly define its

operating model and mesh Bharti. The joint venture method that Wal-Mart has chosen to entire

the market will be a challenge to make it work. The joint 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 work out as a partner. Wal-Mart will also need to

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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 has

developed 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. They

have become the expert by using universal UPC coding an RF tracking. These strengths in

inventory tracking have allowed the company to advance and grow profits through logistics and

supply chain management. Wal-Mart’s expertise in mastering this part of retailing will allow an

upper hand developing their business in India

Another 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 an

organized structure will be an advantage in the Indian market. Currently in the Indian market, the

outlets for customers are scattered thought out the sector with mom and pop stores providing

limited or specialized products for consumers. Customers will have to shop at many locations to

buy all their needed products. Under the Wal-Mart retail structure; having any and all the needed

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products will offer the one stop shopping experience 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 key

business strategy will allow the company to hire and retain the needed workers in India to

successfully operate the new stores in the country. Currently, India is a nation that is adopting the

ways of life of the western civilization. The growing middle class, rising disposable income and

urbanization matched with the business ethics of Wal-Mart HR management will be the driving

factor for the success of Wal-Mart in India

Weakness:

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

platform. Wal-Mart must improve upon these weaknesses to succeed in India. One weakness the

company faces is the span of control in an international market such as India. While the

company has the ability to control business in the US, these proven methods may not work as

efficiently in India. Operating 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 US 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.

Although Wal-Mart has experience finding the right supplier in the US, it will be more difficult

in India due to the lack of exposure with the country.

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 The other weakness Wal-Mart must overcome in the Indian retail sector is the ability and

flexibility to sell products across many of the sectors (clothing, food, health and beauty supplies

etc) as some of the focused competitors. In the US, how consumers purchase goods is vastly

different 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 be

something different for the consumer in India. The question is will Wal-Mart be able to provide

the right types of product for the areas they operate? Across the US, 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

weakness for Wal-Mart as they branch out globally into India. They will have to change thinking

strategies 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. Currently

the organized retailing is only 2% of India’s total trade leaving 98% unorganized. The 98% is

made up of small to medium privately/ family owned businesses (Bose, 2009). With the

company’s financial backing, they will have the ability to take over, merge and form alliances

with other global retailers within the Indian market. The under developed market and growing

urbanization will pose great business opportunities to grow as a corporation. These opportunities

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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 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 and

globally. They will be exposed to political problems in the country. The ability for the company

to execute strategies in the US will not be the same in India. Operating in a country that over the

years have tried to stop foreign FDI will be a problem for Wal-Mart even with the financial

backing. 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 US. 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.

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 companies

they have acquired. This has worked very well for Bharti and has allowed the company to gain

key access point in many sectors and successful business to operate and profit. Bharti over the

years has gained much knowledge in the consumer market. One example of this would the

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Bharti’s business in the cellular sector. The follow SWOT analysis below will layout the

positives 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+ million

customers it sell products and services. The company has penetrated the entire Indian nation

with its cellular business. The task is a great one to over come and by doing so has expanded 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. Another strength with Bhart possesses that will

lead to the success of the joint 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 US to supply new stores across India. The key 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

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 the

field. This will be a major factor within the joint venture that will challenge the partnership

between Wal-Mart. The lack of knowledge in the retail sector will be a problem. Wal-Mart

coming into the venture is bring over 30 years of proven and success retailing expertise. While

on the there side of the table, Bharti a young company, may not be as valuable to Wal-Mart.

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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 retail

venture. With the Bharti group, expanding into rural market 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 seek may also challenge the venture. When

breaking down the venture, Bharti is the key to the door (India Retail Sector) 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, business-

to-business transaction. The start of these types of stores will allow Bharti Wal-Mart to start

operations in the country. As these stores are built, the supply chain will also increase at the

same to support the operations. As quote 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 Wal-

Mart store. As 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, keeping cost to a minimum and adding growth to the

local 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 retail

outlets and create a supply chain in the region. Along the way, by using local producers and

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stimulating the local economies Wal-Mart will be seen positive by the public. Other positive

gain will be the PR by doing so. The company will establish jobs within the community it places

store and jobs 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

Porter’s Five Forces of Competitive Position model offers a systematic approach to

evaluate and analyze the competitive advantage and position of an organization. This analysis

illustrates India’s retail scenario and Wal-Mart’s competitive position by examining the threats to

market entry, supplier power, availability of substitutes, buyer power, and competitive rivalry.

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 Porter’s 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

Competitive Rivalry
 Primary
competitors: Big
Bazaar, RPG group
Reliance, Tata’s
Trent, Pantaloon
 New companies
Buyer Power
taking up market
 Better Quality
share
Product
 Less bargaining
power with chain
store
 More choices for
consumers
Availability of Substitutes
 Traditional Indian retail
outlets
 Increased competition for
market share in retailing

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New Entrants to the Market:

The threat of new entrants in the retail sector of India is very high. The Indian retail

market and organized retailing has potential for tremendous growth. The overall growth in the

market is expected to move up in double digits increments over the next 5-10 years. With the

change in culture of India due to growing middle class, increase household consumption and the

increasing demand by the young working population the retail sector is transforming. The

overall 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 based

market and the large population. The movement of retailing from unorganized to organized will

have both positive and negative effect on the sector. Consumers will have increases access to

higher quality 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 markets to super centers

and shopping malls consumers habit for purchasing will become more westernized. These

changes 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 all

links in the value chains. The increase demand will allow current suppliers to work with the new

retail companies. The advantage for supplier power in the rural areas will be a low competitive

advantage. The lack of infrastructure for supply chain management will result in slow growth in

these areas.

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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 will

continue 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 years

presents opportunity for all mass merchant and food retailers looking to expand globally. The

retail market in India is worth hundreds of billions of dollars as well. With all these positive

outlooks, many companies are funneling into the retail sector. Some companies are international

and 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

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  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 other
then 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 Wal-Mart is planning to under take, their

position and plan to enter the market is very good. The joint 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 (Halepete, 2008).

 Establish a efficient and productive working partnership with Bharti

 Rapidly create a functional supply chain and distribution centes to support the

operation

 Building stores and expanding their foot print to increase the presences in the

Indian market

 Research the target market to provide products and services of a high quality and

low cost to meet India consumer’s desires.

 Not only focusing on the profitability but the positive public relations that need to

be acknowledged by the consumers of India.

With the strategic alignment between Wal-Mart and Bharti the joint venture will be a success. In

the end, this joint venture will have an ever-lasting influence on the Indian retail sector.

Work Cited

Halepete, Jaya “Wal-Mart in India: a success or failture” International Journal of Retail &

Distribution Management. Vol 36 No. 9 2008. pp 701-713

Srivastava, R.K “Changing retail scene in India” International Journal of Retail & Distribution

Management. Vol 36 No. 9 2008. pp 714-721

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