a)

Why did Bharti-Walmart joint venture break down?

Notes: There are multiple reasons for the joint venture breakdown which inevitably results in the process of strategic alliance becoming challenging. You are therefore tasked to discuss the process of the globalisation and how the concept of co-evolution underlines the way in which partners, strategies and capabilities need to evolve in harmony in order to reflect constantly changing environments.

b)

What issues should Walmart now take into account pursuing its Indian strategy?

Notes: Failures of Co-evolution offer many insights into globalisation, including those of political and foreign investment strategies. Analysis the case in regard to the issues of both the environmental and organisational structure, strategy and subsequent effects.

Case Study ILLUSTRATION 11.4 Bharti-Walmart break up Co-evolution is not easy, as Indian and American companies discover. After a seven-year partnership, Indian retailer Bharti of corruption after the New York Times highlighted Enterprises and US giant Walmart issued a terse state- bribery at Mexican, Brazilian and Chinese operations, ment at the end of 2013, that their ambitious joint ven- and India was highlighted as a high corruption risk. ture was over and their retail dreams would be pursued in November, Bharti-Walmart suspended employees, independently. This surprised commentators as Walmart including Raj Jain, Chief Finance Officer, during an had been campaigning for the Indian Government to internal investigation into bribery allegations. This allow 51 per cent foreign holding in multi-brand retail. forced the company to put its Indian expansion plans Formed in 2007, the 50:50 joint venture's on hold, straining relationships between the two com- purpose was to build and operate cash and carry panies. Subsequently, Bharti Enterprises made Jain an superstores in India under the name Best Price advisor to its retail division. Modern Wholesale to sell to hotels, canteens and Elsewhere, Bharti Airtel, Bharti Enterprises' flag- neighbourhood stores. Twenty superstores were built ship operation and India's biggest mobile operator, was jointly in major cities such as Amritsar, Zirakpur, struggling with $12bn of debt. After a 14th consecutive Jalandhar, Kota, Bhopal and Ralpur. They identified quarter of declining profits, Bharti Enterprises wanted to store locations collaboratively through real estate consolidate its position and focus more on Bharti Airtel. consultant Cedar Support Services. Independently Meanwhile, Walmart was aware of a fast-recovering US Bharti ran 'Easy Day', a 212-store multi-brand economy and rapid growth in China where it owned 51 retail chain. per cent of Yihaodian, an online grocery retailer. However, Bharti-Walmart had been going through Ending Bharti-Walmart, cost Walmart dear with a a rough patch. Retail business entails high costs and net loss of $150m. Now Walmart and Bharti are try- narrow margins in India and most big retailers lose ing to grow their individual Indian businesses; Bharti money. Bharti-Walmart losses increased 34 per cent investing in 'Easyday' whilst Walmart, without an ally in from 2011 to 2012 to Rs 372 crore ($59.5m, 41.4m, Asia's third largest economy, has invested an additional 52.7m). Although the Government had made regula- 13.3bn rupees ($219m) in its India operations. tory changes/clarifications, allowing foreign supermar- kets to take majority ownership of local operations in Notes a market of 1.2 billion people worth $500bn, 90 per 2 The US Foreign Corrupt Practices Act forbids American firms from 1. 100 per cent annership of single brand retail was already allowed cent of trade was still being done at neighbourhood paying bribes shops. No global supermarket chain had applied to 2. The joint venture termination has bean hailed as a victory for Indian small traders enter the market due to regulatory uncertainty and a condition that multi-brand retailers must source 30 per Sources: "The Bharti Walmart breakup where does FDI in Indian cent of products locally. This deterred furniture retailer in India, Forbes, 13 October 2015: Bharti Wal-Mart end joint ven IKEA, as its in-store cafs would make it 'multi-brand'. ture. The Indian Times, 10 October 2013, S.Shankar, 'Wal-Mart paid For Walmart sourcing local textiles and handicrafts nearly to $334m to end Indian partnership with Bharti Enterprises, might be easy but not electronics. Also some politi- incurred lots of $15m: Annual Report, International Business Times, 28 April 2014 cians were calling for reversing retail reforms - 'we don't want Walmarts to come'. In addition, bribery allegations were aimed at Walmart. Its $100m loan to Cedar, Bharti's company, Question was investigated by the government as breaking for 1 Why did the Bharti-Walmart joint venture eign investment rules, that 50 per cent of investment break down? must be in back-end infrastructure. Walmart thought it was complying, but subsequent government clari- 2 What issues should Walmart now take into fication stated this meant in green-field assets not a account pursuing its Indian strategy? loan. Walmart was already involved in a global review