Friday, August 17, 2007

Wal-Mart Fumbles Into India

Wal-Mart (WMT) recently announced a strategic entry into India. They are positioning themselves as wholesalers so as to not run afoul of Indian laws prohibiting foreign entities from direct control of retail stores. This supposedly protects the very large class of small merchant and the employees they may have.

The expansion plans call for approximately 15 stores to be opened with perhaps 5,000 people to be employed in the next seven years. There is precious little commentary about the merchandising strategy as to which products will be carried and why. The statements are general overviews about how good Wal-Mart is in supply chain management. 15 stores over seven years will not contribute tangibly to financial results. Also the rupee exchange rate will not be currently helpful.

Very little has been said about its JV partner Bharti Enterprises. A quick review of the Bharti Enterprises web site yields no tangible financial or other information. They have some retail projects pending but cannot point to any retail chains that I can find. Bharti’s main forte seems to be in telecommunications. Bharti is making forays into agricultural and food distribution. But clearly they are new at it and are trying to find their legs. Given the usual risks of entering a new market why rely on this JV partner with no substantive retail experience.

So why this hook up? Some comment is being made that perhaps Wal-Mart wishes to increase sourcing in India to reduce reliance on China. Well OK but you do not have to set up a wholesale operation that freaks out the local merchant class. Recently there have been street protests against Wal-Mart. The Indian merchant class has heard of Wal-Mart’s history in crushing small retailers and is rightfully concerned.
Is Wal-Mart using the thin edge of the wedge, slowly pushing in and just seeing what will happen? Wal-Mart has had their head handed back to them with huge losses in Germany and South Korea. In Japan red ink still flows much too freely. China? Domestic results are anaemic, high end fashion is failing and whispers abound as to the CEO’s (Lee Scott Jr.) weakening grip on his job.

The Indian expansion may have some fuzzy strategic connotations. But at this point there does not seem to be a sharp edge to the Indian Knife. If this is a move designed to head fake the Indian market I fear Wal-Mart will continue to experience the same tone deaf problems they have in other areas. Bharti’s expansion into food and agriculture does not seem to offer sufficient promise either.

It’s just all to ephemeral at this point. Hey Wal-Mart you need to do something and this isn’t it!