1. What are the biggest obstacles facing Walmart and other foreign retailers in India?
2. Summarize some of the elements in India€™s political, economic, and cultural environments that can impact the market opportunity there.
3. Review Figure 12-4. Which quadrant of the matrix applies most directly to India? Why?
4. Going forward, to what degree will Walmart be required to adapt its business model in India?

Figure 12-4

Global retailers that have set their sights on India face special challenges. As noted previously in this chapter, the term organized retail is used to describe activity by large branded retail chains such as Woolworths, Tesco, and Walmart. Such stores currently account for only a small percentage of India€™s nearly $500 billion in annual retail sales.
The vast majority of Indian retail activity is conducted in cramped stalls with about 50 square feet of floor space. There have been many calls for regulatory reform, and some observers believe organized retailing will grow at a rate of 30 to 35 percent in the next few years. For now, however, some members of the ruling National Congress Party are concerned about the impact of organized retail on the millions of small-scale, €œmom-and-pop€ stores.
Modernization of the sector is inevitable, although it has been slow in coming. Until the law was changed in 2012, Walmart and other global retailers that sell multiple brands were barred from participating directly in the Indian market. In 2006, Bharti Enterprises, a local business group that operates India€™s largest cellular network, announced a joint venture partnership with Walmart. However, because of restrictions in place at the time, the venture consisted of wholesale stores. When single-brand retailers such as Benetton, Nike, Pizza Hut, Reebok, and Subway first came to India, they were required to use franchising as a market-entry strategy.
The recent regulatory changes will make it easier for such companies to have a majority stake in Indian operations. However, there are strings attached: The government has demanded that foreign retailers invest $100 million in India, with at least half the money going to so-called €œback end€ operations and infrastructure including cold storage facilities and transportation infrastructure. For its part, the government has pledged more than $4 billion in infrastructure improvements between now and 2018. In addition, each of India€™s 28 states retains the right to approve or ban foreign-owned stores.

Western retailers often have to work with local vendors to help them improve their quality. For example, as the Bharti-Walmart venture opened its wholesale cash-and-carry supercenters that serve small retailers, it had to contend with India€™s poor infrastructure and inefficient supply chains, which stem from producers using outdated techniques. Produce is typically transported on open trucks, horsedrawn carts, and tractors to wholesale markets in large cities. There, it passes through the hands of traders and agents licensed by the Agriculture Produce Marketing Committee. It is then transferred to smaller markets or warehouses that are not temperature-controlled. By the time it gets to consumers, the produce has passed through as many as seven intermediaries; much of it is spoiled. In fact, according to government estimates, one-third of the country€™s produce€”worth $10 billion€”spoils each year.

In India, Walmart must do much more than just set up wholesale and retail stores. It is trying to tranform India€™s agriculture sector by using its hyperefficient practices to improve productivity and speed the flow of produce and other goods. Walmart and a partner, Bayer Cropscience, work with farmers to improve yields and quality. In addition, Walmart has begun bypassing traditional middlemen by signing up farmers and sending its own refrigerated trucks to the farms. One reason farmers like working with Walmart: The global giant pays the farmers promptly.

Transcribed Image Text:

Culturally close Chain acquisition Organic Difficult Easy to enter to enter Joint venture, licensing Franchise Culturally distant