Bharti and Walmart in the Indian retail market

Bharti and Walmart in the Indian sell commercialiseIndia A Preferred finishing?The cradle of sensation of the oldest human civilization, India is a kaleidoscope of cultures, ideologies and topographies. A democracy support by mixed economy, it interprets a market comprising of close to 1.2 zillion consumers, just about of whom argon young (below 25 years of age). The judiciary is crystalize from legislative branch to facilitate a free and just society. The country has witnessed rich GDP fruit over the past couple of decades, follo digester scotch liberalization in 91. The economy is expect to touch a ontogeny rate of 9.5% in 2010. Some other(a)(a) key indicators are listed below. com wanderer address World BankEmerging relatively unscathed from the Global ecological niche of 2008-09, India exhibited its prowess in managing foreign policies and business. It seems that it is poised for its next stage of growth.It is anticipate that if overall economic growth remains most 7 to 8 percent then outgo impart soar. According to Mckinsey, real consumption leave grow from 17 trillion Indian rupees today to 70 trillion Indian rupees by 2025, a fourfold join on. This leave put India in the premier league among the worlds consumer markets. Presently, its consumer market ranks 12th.The Great Indian funfairWith more(prenominal) than 12 million outlets, the sell industry contributes nearly 14% to the GDP of India and employs more than 18 million people. A.T. Kearneys annual Global sell Development Index (GRDI) ranked India as No. 2 sell destination (India held the top spot from 2005-07). The history of this arena fuck be traced back to village melas and haats, which subsequently evolved into convenience memorys and cooperatives until the modern day sell realiseats such as hypermarts, malls and supercentres. However the industry is still fragmented unionised retail constitutes a meagre 4% of retail sector in this country. On the b castigate sid e, the organized retail is set to grow at a CAGR of 50% and set to be worth $90 one thousand million by the end of 2010. Major factors contributing to this rapid growth are changing lifestyles, strong income growth and favour qualified demographic profile. A mint loaferdy of multinational players like Carrefour, TESCO and Wal-Mart start out been sitting on fence waiting to take part India and gain a share of this increasing pie.WalMartWalMart a globally recognized retail format was started by Sam Walton. It relied on the purpose of discounting products to attract buyers. WalMart relied on the concept of operating in mid-sized t professs which didnt bring through up a retail store and built its base by fount in littleer towns which eliminated competition. It implemented a healthy distribution channel bit leveraging economies of scale to ensure on-magazine delivery for all its diverse hurl of SKUs. WalMart relied on the concept of EDLP (Every Day Low Price) to sell its p roducts. WalMart proposes to don India in the Cash train initialize (CC) for which distribution and supply-chain wariness will be the key elements in determining its success.Its operating income in FY 2010 was $24 million over revenue of $ 405 trillion and in all 8500 retail units. 64% of sales still came from WalMart USA against 25% of international sales.As of today, the provided retail unit opened in India is in Amritsar with plans of porta 15 more soon.Leadership in Operations Supply Chain focusingLeadership in operations came done following certain elementary principles such asEvery Day Low PricesWalMart is the preferred survival for various nodes for providing the promise of constant hurts every date a guest walked in the store. The prices were around 20% less than the competition. They withal followed a configuration of other philosophies such asRollback PhilosophyAll the nest egg do during the operational efficiency attained was passed down to the custom er through continuous negotiations and whenever an opportunity arose.Special Buy LogoWalMart from time to time flagged mevery of its items with the Special Buy logotype to attract customers. It could be any of the regularly available items with a mark-up in quantity or a mark-down in prices till stocks last.The focus on customer was relentless. Customer tax received Brobdingnagian importance with a philosophy to exceed customer expectations through the Sundown Rule answering customer queries by the break of Business hours and Ten Feet Rule to serve customers by greeting and asking if he/she needed anything while at WalMart.Success Model of WalMart greet Control CultureWalMart believes in controlling cost through lessen operational expenses and maintaining a lean organization. This is followed to an extent that it became WalMarts core capability. Everyone from the top management to employee followed this command diligently. Scott Lee, Chairman of the Executive Board and CFO Tom Schoewe as well as followed by travelling economy manakin and sharing budget hotels. supplier NetworkOne of the notable features of WalMart is its large electronic network of suppliers. It in like manner enjoyed a major bargaining advantage with them. It maintained operational excellence by pushing its suppliers to do the said(prenominal) through various methods.Logistics DistributionWalMart owns one of the largest fleet of trucks which stand bys it in retail operations immensely when IT was not yet a strategic factor. Later sourcing was centralized and its hub-spoke distribution model became robust providing inventory to 8500 units. Advent of EDI and RFID for its shipments were in addition beneficial for its logistic systems.Small townsfolk LocationsThe factor of running WalMart in splendid towns was a successful estimate but something that WalMart will not do considering its leadership potential.Various Initiatives taken for SCMWalMart has been continuously worki ng towards getting its costs down and provide its get ahead to its customers. Some of the recent developments stool beenArrival of RFID chips to track shipmentsWalMart has become its own freight forwarder which means that it will provide logistics support using its 6500 trucks and 55000 trailers and serve up restrict suppliers their wholesale price wherever suppliers are not able toThis will help use excess capacity of WalMart and at the same time ensure that they get better efficiency from their suppliersMovement towards putting surface-SCM by cosmos users of re unfermentedable energy 100% in 7 years, reduce energy consumption by 30% in 7 years, frame zero wasteWalMart also has the state-of-the-art ERP solutions to support its logistics infrastructureBharti-WalMart in IndiaSince Government regulations became a deterrent in FDI in India, WalMart was forced to take in a JV amid Bharti WalMart USA which was floated as a separate entity. With just 26% investment allowed by fo reign player, prospect of WalMart to travel independently has become a distant dream. Another pattern that work against them is the prohibition of foreign investment in Multi- shop retail.In April, a rule said that traffics between group companies should be limited to 25% of the sales was implemented. This was contendd by Bharti-WalMart Private Ltd. And the Finance Ministry conceded that such a rule was flawed but still the 25% cap on the record of trade will continue to stay.Bharti-WalMart is adopting creative ways of gaining favor with the presidency by opening its second Bharti-WalMart training institute that would train and provide jobs to people in the field of cash and enrapture format of stores. This also comes as a strategic move in a scenario where endowment acquisition is a contest for WalMart. A Memorandum of Agreement was sign-language(a) between Bharti-WalMart and Department of Technical Education (New Delhi)Currently WalMart is leading the lobbying of openin g up multi- grime retail in India by various requests being made to the Ministry of Industry Commerce. synopsis of a partnership between Bharti and WalmartBharti and Walmart seem to be a good fit for each other. Bharti is a seasoned Indian player with good relationships with local anesthetic enterprises and governments. Walmart has expertise in providing maximum value to consumers at lowest cost. Bharti knows the rules of the game and will save Wal-Mart a atomic pile of time and energy to overcome the system. Walmarts logistics capability and Bhartis execution expertise will form a potent combination therefore on piece of music the proceed smacks great. They have taken a step in the right direction by going in with Cash n carry format graduation as the government allows foreign partnership totally in this sector, this will sort out the operational issues of the partnership.Though this certification dodge with Bharti was a deviation from Wal-Marts usual way of entering countr ies, it was because the insurance policy restrictions on foreign direct investment (FDI) in the Indian retail sector. As part of the agreement, Bharti was expected to pay a royalty between 2 percent and 3 percent of sales to Wal-Mart for using the latters brand name. As the retail sector is opened up for foreign players Bharti-Walmart is expected to be a formidable force in the Indian retail.The retail industry in India is estimated at about US$ 300 billion and is expected to grow to US$ 427 billion in 2010 and US$ 637 billion in 2015. The biggest competitor for Bharti-Wal-Mart is expected to be Reliance Retail, the retail wing of Reliance, which had planned to establish 10,000 stores by end of 2010. Even Pantaloon Retail, the retail outgrowth of the Future Group was expected to give potent competition as it has a first-mover advantage. The strength of these companies lies in understanding the Indian consumer better, Bharti with years of hold with Indian consumer and a famed suc cess story can help Walmart overcome the competition.Besides competitive forces a major threat to this jeopardise is the Indian governments policies, the government under governmental pressure from large milliampere and pop stores which control the majority of sales in Indian retail can not just allow big players like Walmart to enter Indian market. Entry of Walmart whitethorn put mess of middle class people out of business whose sole source of income are these humbled retail stores. Besides this Walmart-Bharti will find it tough to beat the economies of small stores which are most of the times just walking distance from the consumer and have long term relationships with consumers.In sum, the Bharti-Walmart venture has a lot of positives on paper but it will be interesting to see how the venture performs once Indian retail is opened up. There are lot of competitive forces and other factors which may put the relationship under immense stress.Porters Five Force AnalysisIndian co nsumers are gradually transiting from their array of saving. They are becoming more brand conscious and starting to look upon retail shopping as an experience rather than an obligation. Global retailers would be happy to serve Indian markets but a major challenge is the strict Government regulation policy which restricts FDI to wholesale business. As of 2006, GoI allowed 51% FDI in multi-brand retailers and 100% FDI in wholesale (typically cash and carry format) and back-end logistics. It is in this context that we need to analyze the entry of Wal-Mart into India.SWOT Analysis of BhartiStrengths humongous group with diversified investmentsExpertise in operating in evolution countriesDeep pockets to funds new businessesStarted by an entrepreneur, that sense still prevails in the top managementWeaknessesSlowing growth because of competition in vertex area of operations telecomLarge size, has made the federation close to bureaucraticNo big and streamlined plan for future center o n on defending its advantage in Indian telecom sectorPresent in just south Asia and AfricaOpportunitiesEnjoys good relations with governments/companies in India- one of the fastest growing economies in the world. It can move into other businesses easilyA lot of new sectors coming up in Indian economy like retail, financial services etc.Has invested in branding of Bharti over the years, consumers have instant brand recognition with Bharti brandWith opening of Indian economy it can tie up with huge MNCs to get the technical expertiseInvestors ready to invest in Bhartis new businesses because of positive experience with Bharti AirtelThreatsHuge in Indian Telecom sector, can be tied down by competition hereA lot of its businesses can be highly impacted by governments licensing decisionsIndian economy is opening up with large MNCs setting up bases on their own, these pose direct competitive threats to Bhartis businessesThe governments in India can change and Bharti may not enjoy the same relationships with new governmentSWOT Analysis of WalmartStrengthsWal-Mart has a reputation for value for money, convenience and a wide vagabond of products all in one store.Wal-Mart has grown exponentially over recent years, and has experienced global expansion (for example its purchase of the United estate based retailer ASDA).The company is adept at using schooling technology to support its international logistics system. For instance, Wal-Mart can see how individual products are performing in different countries and stores at a glance. IT also supports Wal-Marts in force(p) procurement.Human resource management and development are key elements of Wal-Marts strategy. It invests time and money in training people, and retaining them.WeaknessesWal-Mart is the Worlds largest retailer despite its IT advantages its size poses an immanent weakness.Walmart lacks flexibility since it is spread across some(prenominal) product categories.Despite being global it is present in only few countries across the world.OpportunitiesTo form strategic alliances with other global retailers in mainland China and eastern europiumWalmart is present in limited number of countries, the opportunity exists for it to expand in growing markets like India and ChinaNew types of stores offer Wal-Mart opportunities to exploit market development. They diversified from large super centres, to local and mall-based sites.Opportunities exist for Wal-Mart to continue with its underway strategy of large, super centres.ThreatsBeing a leader means that Wal-Mart has to fend off competition, locally and globally.Walmart may be exposed to political environments in countries that it is present.The cost of producing many a(prenominal) consumer products has reduced because of lower manufacturing costs. Manufacturing costs are also low ascribable to outsourcing to low-cost regions of the World. This has lead to price competition, resulting in price deflation and such intense price competition is a threat.The story thence farThe entry strategy of Wal-Mart in India has been drastically different from that followed by the company when it grow first in the markets outside US. The launches in China and Germany were marked by huge media frenzy just before the opening day leading to a deluge of customers thronging the stores. Also, Wal-Mart opted for metros and major cities to kick-off their operations since the urban customer was expected to be more aware of the brand Wal-Mart and olibanum the stone pit market selected. Wal-Mart tweaked its strategy by making a sub dued entry in Amritsar, Punjab in May 2009. There was also a deliberate attempt to avoid attention to the brand Wal-Mart by appellative the initiative Best Price Modern Wholesale.Bestprice-modern-wholesale.jpgThe emphasis in the logo is on Best Price with both Bharti and Walmart logo in small font acting as the supporters rather than the drivers of the project.The reasons for such a strategy are as followsLocal Op position Over the past 5 years various pilot retail ventures in India have met with stiff resistance from local communities especially farmers and retail store owners. By making its entry a low-key affair, Wal-Mart does not want to attract groundless attention. Also, since it is the Cash and Carry business, there is no to blow the trumpet when the target audience is itself the retailer and not the end customer. The requirement was a cerebrate and not high profile entry and Wal-Mart executed it accordingly argument Metro and other Cash and Carry giants started off their operations in India by opening stores in Bangalore, Delhi, Mumbai and other metros. The hinterland thus offered opportunities in terms of untapped market. Wal-Mart recognizes and acknowledges the fact that more than 10 million other tiny retailers in India are its greatest challenge and greatest opportunity. If it can win them over, they are likely to become its biggest customers. Anger them and they could use their political power to block expansion.Cash Rich State At first glance, opting hinterland over metros seems consistent with Wal-Marts US strategy where the company expanded by targeting small towns because of low cost of entry. There is, in fact, more to the same. Punjab in years since the Green Revolution has had among the highest per capita income levels in the country. Thus, it makes sense for Wal-Mart to enter a cash-rich state.Brand Recognition Even though Wal-Mart has made a low key entry de-emphasizing the brand Wal-Mart, the customer needs to have enough trust in the organization he is making the transaction with. The name Wal-Mart is in some ways familiar in Punjab due to the large diaspora from the region in US/Canada and thus breeds recognition.In localise to make enhance their image in the region, Wal-Mart has also embarked upon a soldiery of social initiatives.1. Donation of push carts to village vendors.2. Part time troth to cart vendors and senior citizens3. Plantatio n drive Planting saplings around the store4. Mera Kirana and Business Solutions Centers to help small and medium retailers implement best retail practicesThe Wal-Mart strategy so far has been low-decibel while steadily gaining acceptance of the local community. This is essential for when the FDI in retail is finally approved by the government, the company shall hope to make a smooth transition from Cash and Carry to their traditional stores and announce the same, hopefully, with a bang.Will WalMart succeed in India?India boasts of a buzzing retail market with growing incomes. However WalMart must fool that it will face woes in forward logistics considering that India loses 40% of its produce due to storage and transportation issues. Even if WalMart builds up its fleet in India, the logistics network in India is far from the best. Indias highway network can carry around 65% of freight traffic and 85% of passenger traffic and many National Highway Development projects not yet complet e the challenge will be immense to be cost-effective.Many of the SCM initiatives followed by WalMart will take more time to get implemented in India including the RFID initiative, green SCM initiative. However freight forwarding is something that WalMart can look at to increase their effectiveness in India. Analysts say that typically cost-measures taken in investments in cold-storage and other logistics measures take around 3-5 years to yield benefits. Currently with the single-store in Amritsar, the backyard of wheat-bowl of India such a problem is averted. Analysts also have pointed out that a supply-chain of international standard will take at least a decade before it comes to India.WalMart is also facing issues in terms of keep itself away from its share of controversies. With an intention of staying low-profile in India to avoid any avenging from local retailers it opted for an alternate name Best Price Modern Wholesalers logo, which was claimed to have 4 trademarks already b y the Department of Trademarks.With the active Government regulations the growth story of WalMart in India looks slow to moderate in medium term. With a new target of opening just 7 stores and hiring around 1100 employees against the existing 450 employees says about the sentiment of Bharti-WalMart in India.Commentary on WalmartWalMart is presumably doing many things right by playing its cards intelligently and in synchronise to the Indian sentiments of not being too pushy about its prospects in India. Also taking up initiatives to gain local sentiment is something that will work in its favor. Government on the other hand is also looking towards easing out rules in Cash and Carry Format which could benefit WalMart and speed up plans for same.