What does Wal-Mart – Bharti Story tell us?

By | December 2, 2013

Wal-Mart stores Inc and billionaire Sunil Mittal- promoted Bharti Enterprises called off their six year old joint venture in India. Wal-Mart being the world’s biggest retailer will control the cash and carry business, where 100 percent FDI is allowed. Bharti will operate easy day retail stores in the country.

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What lies next is the need of Wal-Mart to find a new partner who would be ready to own a 49 percent of the business if the giant wants to open retail stores in the country. The reasons for the split have been well guessed upon and here is what seems evident:

Bharti Airtel , Indian’s biggest mobile operator, the flagship of Bharti Enterprises has been suffering huge losses and the company reported a 14th consecutive quarter of declining profits in June. The company suffers a debt of $ 12 billion. It is very much obvious that under such circumstances the company wants to consolidate its balance sheet and sharpen its focus.

The low operating margins of the retail business industry is yet another factor which makes retailers to lose money. The Bharti Walmart joint venture lost 277 Cr in 2011. However, its competitor Reliance Retail turned out a cash profit for the first time since its start in 2006. Though Bharti Retail will continue to operate its everyday retail stores numbering 212 it will now expand at its own pace.

Wal-Mart Stores Inc  
Net Sales 466.11
Consolidated Net Income 16.39
   
Of Which  
Walmart International  
Net Sales 135.2
Operating Income 6.7

What is it that is stopping the retail giants into coming in?

The fact that the government is unclear on its FDI policy is stopping giant retailers from stepping in and investing. The other major problem is that the government has imposed a restriction that at least 30 percent of the products be sourced locally has created a major hue and cry. The big retailers have huge production capacities from across the globe offering extremely low cost products much beneficial to the population at large but then the fear that lurks in mind is that of the existing system at the home level crumbling down.

What is stopping the government from 100 % FDI in the sector?

The lure of letting in the investors is great but then the government has to take responsibility and act keeping in mind both the producers and the consumers interests in mind. The rural market is yet another source of concern as the big producers would target the population and tap out all the money from the pockets of big cities while the rural market would suffer and the production capacity of the country be left far behind and suffering such that we become completely dependent on other for our food. A glimpse of such penetration by the Chinese is much evident in the U.S market.

 What are the demographic and dependency factors that stop us from enjoying the benefits?

With 1.2 billion population and most of its trade in the retail trade done at the local vendor shops such giants would crumble and crush all local businesses and render us dependent on them. Price regulation has been one of the key factors holding prices of basic commodities to some extent and now that the government is giving the control to market and supply forces like those in the case of kerosene it is getting increasingly difficult for the consumers.

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Though experts have argued over the benefit of low prices that the consumer market in India would enjoy there is still a lot of discussion over the fact whether these giants would sustain our productions or would just devour and enjoy our markets carrying or rather draining all our wealth down to their soils.

On one hand when we delve into the matter it makes us seem very conservative while on the other hand it makes us pretty open to vulnerability. Though promises are made of sustainable developments but still we need to understand that we cannot get completely dependent. Once the taste of fresh blood in the form of cheap products hits us, we fall completely prey to these forces and in cases of shortage will find it extremely difficult to buy back at higher prices even if we assume that we will have production levels sufficient to sustain us.

All of the above factors playing together have completed the whole decision making process and the government is tip toeing towards changing reforms. The question lies whether we can afford to jump off our roots and move to complete globalization trusting a holistic, sustainable development to come across or we need to hold back the reins on the horses of these retail giants.

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