Wal-Mart's frustrations in India Seven years ago Wal-Mart set out to be India's top retailer by 2015. The business plan was called Project Jai Ho, a Hindi phrase meaning "let there be victory". But today Wal-Mart's advance is barely moving. Encouraged by India's growing economy, falling rupee (India's currency), and large population, Wal-Mart had planned to open 22 stores in 2012. Instead, it only managed to open five stores. Dozens of permits and licenses are required from various agencies down to the municipal level, and business people say they commonly have to pay bribes to move projects along. In the southern state of Tamil Nadu, piles of bricks and mounds of soil at a halted project site attest to Wal-Mart's hurdles and frustrated projects. Plans for this store began back in 2011 when Wal-Mart approached a developer. Within three months a contract had been signed although the developer indicated that it would take up to nine months to get the permits to begin construction and a further year to build the store. But Wal-Mart wanted the store ready to open in 12 months so the developer started construction although he didn't have the required permits. Three months later a municipal agency ordered a halt to construction and by February 2012 the government had sealed the site. Years passed before any further work occurred on the site. By July 2013 a number of high-profile multinationals including Wal-Mart, Berkshire Hathaway, Posco and ArcelorMittal all announced that they were pulling back on planned investment in India. The decision to withdraw occurred in the same week that the Indian government announced efforts to improve the economy by opening up the telecommunications market to 100 per cent foreign ownership and easing investment rules for defence, energy, and single-brand retail. The government was hoping that luring more foreign direct investment would stop the Rupee's slide, which had dropped more than 30 per cent against the U.S. dollar in the previous five years, and lift growth, which was at its lowest in a decade at 5 per cent. Developing and operating stores in India is complicated, even for locals. Licensing requirements for what can be sold are also proving to be problematic with separate permission required to sell different types of produce. In October 2012, Wal-Mart's joint-venture partner, Bharti Retail Ltd, opened retail stores in Bangalore and Mysore without having in place licenses for rice, lentils, fruits and vegetables. The stores had to remove the items from its shelves and re-file license applications. Added to its problems with 'red tape', Wal-Mart is now internally investigating possible violations of the U.S. Foreign Corrupt Practices Act. Several employees, including the joint-venture's chief financial officer, have been suspended after bribery allegations came to light. Retailers in India are known to pay 'speed money' to smooth the process of obtaining dozens of permits. Although no charges have been laid against Wal-Mart, the company's lawyers have identified India among the countries with the highest corruption risk. The company has cancelled plans to open further stores and its partner, Bharti Retail Ltd, returned to the previous owners 17 plots of land that were to be used for new stores. A Wal-Mart spokesperson said "we continue to work with the government of India to better understand the rules that exist for foreign-direct investment, and we appreciate the government's willingness to consider our requests for clarity on conditions contained in the new FDI policy". The policy in question requires multi-brand retail stores like Wal-Mart to source 30 per cent of its procurement from Indian 'small industries'. Wal- Mart estimates that it can only procure about 20 per cent nationally and, along with other global retailers, has requested the 30 per cent condition be altered from 'mandatory' to 'preferably' as in the case of single-brand retail. But by July 2013 the Congress had ruled out any change in the FDI policy. A Congress spokesperson said "why should the government think about it? The government has not made the policy for one business house. It's a national policy in an open world. If Wal-Mart has gone, more marts are there. They will come". By October 2013 Wal-Mart and Bharti Enterprises had formally ended their partnership with Walmart incurring a US$151 million loss on the joint venture. Walmart announced that it wanted to focus instead on its cash and carry business through its 20 "Best Price Modern Wholesale" stores. However, there is a problem. The Indian government still requires retailers to source 30 percent from small suppliers which is difficult for Wal-Mart to comply with. In May 2016 the Indian government, led by Narendra Modi, said it was open to foreign direct investment in many sectors, but did not want FDI in multi-brand retail. In its election campaign Modi vigorously opposed opening up the multi-brand retail sector to foreign firms to protect the livelihoods of the millions of small grocery stores. However, by late November the World Trade Organization announced that India and the United States had signed its Trade Facilitation Agreement (TFA), which has resolved tensions over food imports, smoothed procedures and boosted trade between the two countries. Sources: Adapted from Bahree, M., 2013. 'Wal-Mart's path to power in India hits its limits: The lawyer', Wall Street Journal, 1 April; Bahree, M., 2013. 'Wal-Mart's troubles continue in India', Forbes, 1 July; Bose, N., 2013. 'Red tape, graft; India no super market for Wal-Mart', Reuters, 8 July; McLain, S, Anand, S & Mukherji, B., 2013. 'Frustrated by Indian policy, foreign investors pull back', Wall Street Journal, 19 July; NDTV, 2013. 'Wal-Mart tells government it cannot meet 30 per cent sourcing clause: report', NDTV, 23 July; Asrar, N., 2013. 'If Wal-Mart goes, another mart will come: Congress on FDI', NDTV, 23 July; NDTV, 2013. 'Wal-Mart halts India-specific lobbying in US: report, NDTV, 28 July; Narayan, A. & Pradhan, B., 2013. 'India eases investment rules to woo Wal-Mart to Tesco', Bloomberg, 2 August; Forbes, 2013. 'Walmart: What happened in India?' 16 October, Rapoza, K. 2014. 'For retail, Walmart won't find luck with India's new gov't', Forbes, 23 June; Choudhury, C. 2014. 'Wal-Mart effect silences India's new leaders', Bloomberg, 24 July, WTO, 2016. 'India ratifies Trade Facilitation Agreement', WTO website. Questions 1. Was India an attractive target market for Wal-Mart? Explain your answer. 2. Do you think that Wal-Mart was too optimistic in its FDI plans in India? Explain your answer. 3. What actions should Wal-Mart take to safeguard its operations in India?