RSS FeedWal-Mart To Set Up Shop In India With Bharti
Tue, 11/28/2006 - 15:08 — Sahad P V
Finally Bharti Group has gone with Wal-Mart instead of Tesco with which it was negotiating all along for the entry into the retail business. Bharti Enterprises, the parent of India's largest private sector telco Bharti Tele-Ventures, has signed a MoU for a joint venture with Wal-Mart Stores Inc.
The deal is that Bharti will manage the stores, while Wal-Mart will provide franchise services, including technology. This is Wal-Mart's indirect entry into Indian retail market. Indian rules allow foreign investors to hold a maximum of 51 per cent in single-brand retail 
ventures. Foreign investment is not allowed in multi-brand stores. Wal-Mart will handle the back-end (cash-and-carry), while Bharti will handle the front-end. FDI is allowed in cash-and carry (for wholesellers).
Bharti Chairman Sunil Bharti Mittal (right) told reporters today: "We plan to roll out as many stores as we can in the next few years and the investment will be large...My own wish is August next year."
The two partners will have equal stakes in the joint venture. Bharti was in talks with UK's Tesco for sure and was also rumoured to be talkingto Carrefour of France too for a tie-up. It's not known why they failed, but it's obvious Bharti would have a managed a better deal from Wal-Mart, a retail giant known for squeezing margins.
The JV will initially invest $100 million, but that would be ramped up as they rollout services. Compare this with Mukesh Ambani's Reliance Retail which has announced an investment of almost $5.5 billion (Rs 25,000 crore) for retail. Another Indian industrial giant A V Birla Group has also announced $2 billion entry into the retail business.
I just heard Mukesh Ambani reacting to the Bharti-Wal-Mart JV on CNBC TV18: "Retail is the most exciting sector in India now. There is scope for six to eight large players in the business. Sunil is a good friend of mine. I wish him all the best."
India already has established players like Pantaloon Retail, Shoppers Stop (K Raheja), and Trent, a subsidiary of the Tata Group. The Indian economy is expected to grow about 8% in the current fiscal year ending March 31, 2007.
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Organized retailing is a concept that is overdue in India for some time-even if its form and supporting structures like infrastructure, purchasing power and behaviour are still evolving. It will be a marathon and the first off the mark need not be the first at the post. It also needs to be mentioned that Walmart's record outside US has been mixed-it recently sold-out its stores in Germany to Metro.
CPI(M) in Lok Sabha on Tuesday opposed the tie-up between Wal-Mart and Bharti Enterprises saying this was not possible under the existing policy framework and would amount to the entry of FDI in the retail sector through the "backdoor".
"This agreement is not permissible under the existing policy on foreign investment in India. It is an attempt to circumvent the existing policy regulations to gain a foothold in the Indian market", CPI(M) leader Basudeb Acharia said during Zero Hour.
Demanding government's effective intervention to ensure that FDI did not enter the retail sector through the backdoor, he said the move would "definitely displace massive number of retailers and squeeze the domestic manufacturers by its (Wal-Mart) massive buying power" and create unemployment.
Wal-Mart, the world's biggest retailer, had on Monday announced plans to enter India in partnership with Sunil Mittal's Bharti Enterprises, making a direct entry into the rapidly-growing Indian retail sector.
http://economictimes.indiatimes.com/articleshow/623735.cms
A day after global retail giant Wal-Mart announced its entry into the Indian market through a tie-up with Bharti group, the government on Tuesday said it would examine whether "permissible limits" with regard to foreign investments were adhered to.
"We will have a look (at) whether permissible limits have been adhered to," Commerce and Industry Minister Kamal Nath told reporters on the sidelines of the India Economic Summit.
While India has not allowed FDI in multi-brand retail format, foreign investment is permitted in wholesale trade as well as logistics and back-end support.
As per the arrangement between the two companies, Bharti would manage the front-end of the business, while Wal-Mart would take care of the supply chain, logistics and other back-end operations.
Policy hurdles had earlier forced Wal-Mart to put its India plans on hold, but it has now settled for a collaborative venture.
Asked if Wal-Mart was making a backdoor entry into the burgeoning Indian retail market through its tie-up with Bharti, for which it is the first brush in the retail segment, Nath said, "We will see whether it as per rules and regulations."
Also, he said the government will see whether farmers would benefit due to the agreement and what impact it could have on local neighbourhood stores.
The Minister said the government was keen to attract foreign investment in logistics and supply chain.
http://economictimes.indiatimes.com/articleshow/624780.cms
Though this retail revolution would benefit the Indian consumers big time, I feel the ultimate losers would be the kirana stores, who have their own way of doing really personalised business.
True, Wal-Mart hasn't had a run-away success in some of the markets like Germany. Which is why they have gone with a formidable and highly entrepreneurial group like Bharti in India. They couldn't have possible waited for FDI rules to be relaxed. By then there would have been already well established players like Reliance Retail.
All in all it's a good move from Wal-Mart. They can buy Mittal out too at some point. After all, Mittal has sold some stake in telecom to Vodafone with a room to exit in favour of the latter at some point.