India’s e-commerce market, which accounts for less than a tenth of its overall retail opportunity, has just got a significant thumbs-up from American supermarket giant Walmart. It has announced a plan to buy a controlling stake of around 77% in home-grown e-commerce firm Flipkart for a sum of $16 billion. In the process, Walmart has pipped rival Amazon, which is just behind Flipkart when it comes to its share of the Indian e-commerce pie and has independently been vying to acquire the Bengaluru-based company. China’s Alibaba, with its investment in Paytm Mall, is vying to compete in the space as well, along with the likes of Snapdeal, which around this time last year was being linked to a much-speculated merger plan with Flipkart. But the big battle for Indians’ e-tail space, for now, will play out between two of America’s biggest companies. Not surprisingly, traditional retail players have responded with willingness to adapt to this paradigm shift and consider strategic alliances with online rivals. Interestingly, Walmart investors have voted against what they saw as an expensive bet, with the firm losing about $8 billion in value on the bourses after the deal was finalised. Though e-tail may have changed shopping habits among swathes of Indians, it remains heavily dependent on discount-peddling. Flipkart, in particular, has reported accumulated losses of ₹24,000 crore.
Walmart is betting on the future growth it can unlock from this full-frontal entry into a market that has proved difficult despite its best attempts for over a decade. The company had entered India in 2007 but exited the joint venture with the Bharti group and restricted its operations to cash-and-carry stores, in the face of strict curbs on foreign direct investment (FDI) in the multi-brand retail sector. These restrictions, ostensibly to protect smaller retailers, have remained in place under the NDA government, belying expectations of a reset. Facing heat at home from Amazon, which is now moving from online-only to a brick-and-mortar plus e-tail model, this is a vital time for Walmart to get into India’s business-to-consumer segment. That this deal doesn’t ruffle extant policy restrictions, in fact, reveals the inefficacy of India’s approach to retail FDI in a rapidly changing global marketplace. Local trade lobbies as well as swadeshi advocates are determined to resist the deal, while analysts are wondering how Walmart will turn around Flipkart’s cash burn rates. However, for India’s policymakers, neither of these should matter. It is important to assess if, and how, the U.S. firm will integrate Indian suppliers into its international operations. Most importantly, it is time to nuance the debates that have dominated India’s retail FDI policy — big versus small, local versus foreign — to create a truly level playing field where all can compete, without artificial safeguards that can be overcome via such deals.
via Online retail flip: on the Walmart-Flipkart deal – The Hindu