Wal-Mart drops big plans for India expansion
Wal-Mar also is ending its joint effort with Bharti Enterprises of India to operate 20 wholesale “cash-and-carry” stores that sell to other businesses such as retailers, hotels and restaurants.
The New York Times
MUMBAI — Wal-Mart Stores gave up on India’s huge market Wednesday, saying it had indefinitely delayed plans to open hundreds of superstores across the country.
The announcement adds to the gloom enrobing the Indian economy. Growth has slowed and the value of the rupee has fallen in recent months.
The announcement also suggests that the government’s efforts to lure more foreign investment are failing, but the governing United Progressive Alliance’s plan has never been popular with India’s politically vocal retailers.
Wal-Mart, the Bentonville, Ark., company that is the world’s largest retailer, also said it was ending its joint effort with Bharti Enterprises of India to operate 20 wholesale “cash-and-carry” stores that sell to other businesses such as retailers, hotels and restaurants.
Wal-Mart plans to buy Bharti’s 50 percent stake in the venture, and the two companies will operate independent businesses in India. That Wal-Mart kept the wholesale business, long seen as a way to learn about India’s fragmented retailing sector, suggests the company has not entirely ended its hopes of eventually selling at a retail level.
In 2007, Wal-Mart announced with fanfare that it planned to open along with Bharti “hundreds” of stores, the kind of proposition that many international companies hatched early in the century as hopes blossomed that India would soon join China as an emerging economic colossus.
But many of those same companies have shelved expansion plans after complex market conditions — fitful electricity, poor roads and government ineptitude — blocked hopes of rapid profits.
Wal-Mart’s chief executive for Asia, Scott Price, said this week that the Indian government’s regulations requiring foreign retailers to buy 30 percent of products from local small and midsize businesses were the “critical stumbling block” to opening its trademark consumer stores.
“I don’t understand how this 30 percent small and medium enterprise can be executed,” Price said Monday at the Asia-Pacific Economic Cooperation forum in Bali, Indonesia.
“For Wal-Mart, there has been frustration brewing for a long time about the obstacles to doing business in India and the changing configurations of what it could do and what it couldn’t do,” said Devangshu Dutta, chief executive of Third Eyesight, a Bangalore-based retail-consulting firm. “To just continue to pump in money without reflecting on this would be pointless.”
U.S. executives and politicians have been expressing growing impatience with India’s fitful efforts to open and modernize its economy. The government sought to address some of this frustration with a series of overhauls in the past year that ministers hoped would lead major international retailers to invest substantial sums in improving the country’s retail infrastructure, which is predominantly mom-and-pop shops. So far, no company has.
Only 4 percent of India’s $500 billion retail market is controlled by large, Western-style chain stores. In China, the share is about 20 percent and in Brazil, 36 percent.
India’s tiny operators have few of the inventory controls of their larger brethren, and much of the country’s food spoils before reaching consumers, a heartbreaking reality in a nation where nearly half of all children are malnourished.
With national elections scheduled for next year, there is little hope that any new policy changes will be put in place anytime soon.
“I don’t see any big foreign retailers entering the market, at least for the next nine months, until after the general elections, when we know what the direction will be of the policy,” said Saloni Nangia, president of Technopak, a management-consulting firm based in Gurgaon. “It is a wait and watch for many international retailers ...”
Girish Kuber, a former political editor of The Economic Times, called the dissolution of the Wal-Mart and Bharti partnership “inevitable.”
“It is a sad story,” he said. “The reforms are going nowhere, and there is no investment coming in.”
Many foreign companies have found India’s endemic corruption difficult to keep out of their operations. Since U.S. law requires top executives to ensure that their international operations remain free of corruption, executives in the United States have taken an increasingly dim view of doing business in India, with its low profits and constant legal worries.