Analysis of Walmart’s Entry into The Indian Market Free Essay

Introduction

Walmart is once again making plans to expand into the Indian market after falling out a couple of years behind when its partnership with Bharti broke up. Initially, in 2007, Walmart had begun its operations in India. It had entered the Indian market through a joint venture formed with Bharti Group, referred to as Bharti Walmart Private Limited (Bh, 2017). The joint venture entered the Wholesale Cash and Carry business and ended up being branded as the Best Price Modern Wholesale stores working as the main supplier to Easyday retail stores. Unfortunately, the joint venture fell out and ended in October 2013. It appears that the Indian market has been somehow a troublesome market for Walmart regardless of being among the fastest-growing countries worldwide with rich consumer demand. In 2014, Walmart showed interest in getting into the Indian ‘cash and carry’ market (Guruprasad, n.d.). Due to its previous fallback, Walmart is currently cautious with its expansion into the Indian market. Therefore, this paper will analyze Walmart’s global readiness by first analyzing the Indian market’s attractiveness for Walmart and then critically analyzing its entry strategy into the Indian market.

PESTLE analysis

Political Factors

The Indian government is a multi-party system and therefore it is hard for a single political party to have a big majority and make rulings on decisions sporadically. Although the government may be favorable for Walmart, getting into India via Foreign Direct Investment as single retail, might be quite easier to get the needed political support for passing the ruling on its terms (Patil, 2015). Profitability significantly relies on the political stability of the country when investing. India is one of the greatest democracy in the world with a federal government. It has favorable government policies and ideologies which makes it favorable for Walmart to expand into the Indian market. 

Economic factors

India is a fast-growing economy globally and also a developing country with an increasing demand for goods. Essentially, economic factors play a big role in influencing a business’s success. An economy that is down hurting sales and profitability of a business (Polisetty et al., 2019). Therefore, Walmart is seen as a prospective company that turns such events into opportunities. Though generally, India has a favorable economic situation for Walmart to tap into the Indian market as well as enjoying the growing economy as an added advantage. 

Sociocultural factors

The social factors impacting the retail industry tend to be the consumers’ spending habits, influenced by the current economic situation. Since the time before India got its independence, the ‘mom and pop’ shops in the community have remained to be their shopping store for their day to day household needs. As organized retail emerge, a big change is occurring with regards to the purchasing habits of Indian household items (Polisetty et al., 2019). The people in India visit the ‘mom and pop’ shops each morning and purchase groceries. This is noteworthy through the popularity of the cheap shampoo sachets and soaps in a local general store. The people of India have a spending habit whereby they purchase only what is critically needed and tend to have a saving habit. They buy goods in small quantities and do not prefer traveling by car to purchase fresh products. Essentially, these ‘ moms and pop’ shops purchase their products from wholesale markets. This makes it suitable for Walmart to supply this ‘mom and pop’ shops. 

Technological Factors

India lacks a modern supply chain which possesses a bigger challenge to Walmart’s expansion. This will force Walmart to establish a low-cost strategy that is based on supply chain efficiency (Guruprasad, n.d.). The country has poor road infrastructure as well as several middlemen and also several businesses increasing the gap between the Indian farmers and retailers such as Walmart. Best practices such as refrigerated cold chains as well as temperature-controlled storage are quite difficult to implement leading to wastage of fresh produce before arriving at the final consumers. This remains a challenge that Walmart is likely to face and therefore, Walmart should come up with an alternative to address the situation to effectively tap into the Indian market. 

Environmental factors

India experiences hot temperatures. The climatic conditions of India are humid and hot for a long period in a year, about seven to eight months. So, farming requires more water supply but the country experiences little rain and has lesser facilities for irrigation resulting in a difficult situation for production as planned. Other environmental issues entail overgrazing, deforestation, vehicle emissions, air pollution, soil erosion, industrial effluent and also water pollution from runoffs and sewages (Gopalakrishna et al., 2016). Moreover, the growing population is straining the natural resources in the country. Poor climatic conditions tend to hike the prices of products and reduce the quality of fresh produce. Therefore, Walmart is likely to encounter these issues and to thrive in this market it needs to adapt and find solutions to address the issues. 

Legal factors

The Indian government allows Foreign Direct Investment of up to 51%. This is an advantage for Walmart. However, the India law integrated a US $100 million minimum investment whereby 50% requires to be informed of back-end infrastructure whereas 30% of the products need to be sourced from small scale enterprises (Gopalakrishna et al., 2016). These conditions are likely to cause a slow turn around for Walmart as it enters India. Strict conditions such as investing $100 million need to be for building infrastructure without including acquisitions of the present Indian retail chains. Back-end operations should also be established from scratch while $50 million needs to be invested in building greenfield infrastructure. 

VRIO analysis

Global and strong supply chain network

Walmart’s global and strong supply chain network gives its competitive advantage. Operating as a warehouse club and also a retailer, the company uses a large network of the supply chain which entails more than 100,000 suppliers who are situated in different parts of the world (Gopalakrishna et al., 2016). This enables the company to access a large variety of merchandise that other competitors do not access. The large and strong global supply chain network grants the brand a sustainable competitive advantage.

Strong bargaining power resulting in its price advantage

Walmart is among the top-performing companies in the world and India has a strong purchasing power.  The company purchases products from its global suppliers in bulk. Every week, Walmart has been serving about 275 million customers in the twenty-seven countries it is operating in though its 11300 retail stores together with its e-commerce channels (Gupta & Sahay, n.d.). The 2019 fiscal, Walmart obtained net revenue worth $514.5 billion (Polisetty et al., 2019). Since is a big purchaser of merchandise, Walmart has a strong bargaining power allowing it to purchase products in bulk are relatively low prices from the suppliers, therefore passing the price advantage to its customers (Gupta & Sahay, n.d.). This gives the brand a sustainable competitive advantage.

Efficient inventory management

Walmart has maintained being a leader in the supply chain as well as in inventory management. It has a strong network of global suppliers, retails stores as well as warehouses behaving like a single company. Walmart also uses many other strategies for ensuring efficiency in its inventory management involving cross-docking as well as using technology in managing the right inventory levels. Cross-docking enables Walmart to minimize its costs of inventory management as well as reducing the time and cost of transportation (Gupta & Sahay, n.d.). Efficient inventory management has assisted Walmart in establishing a sustainable competitive advantage as well as retaining its price leadership within the industry.

Brand equity

Walmart is a retail leader who is enjoying strong brand equity as compared to other players within the retail industry in India. Its strong brand equity has also led to increased customer loyalty as well as robust financial performance. Its strong brand equity significantly arises from its low prices, excellent customer service as well as customer engagement (Gopalakrishna et al., 2016). Essentially, all these aspects have led to excellent customer experience and also higher brand recognition along with the company’s popularity. This company’s brand equity is valuable, rare, not imitable and also organized. This has given the company a sustainable competitive advantage.

Ecommerce Growth

Walmart has been facing a big threat from e-commerce giants such as Amazon and Alibaba. To survive in e-commerce, Walmart began to invest more in e-commerce and the company has been experiencing a gradual growth. Although e-commerce is contributing a small revenue to Walmart’s overall net revenue, the overall impact is significant in the long run. In the year 2019, the company earns net revenue exceeding $25 billion solely from e-commerce sales (Gopalakrishna et al., 2016). Moreover, its investment in the Indian commerce brand Flipkart has enabled the company to remain profitable. It seems that its e-commerce is a valuable resource, it is not imitable, not rare and therefore offering the company a competitive advantage.

Technological innovation

To increase its growth, the company has leveraged technology. Walmart has adopted e-commerce and the e-commerce section has experienced rapid sales growth. The company’s revenue has been significantly contributed to by the revenues obtained from e-commerce (Gopalakrishna et al., 2016). Moreover, the brand has also invested in other technologies in providing its customers with an eccentric inshore experience. The Walmart app as well as the Walmart Pay App increases shopping convenience for the customers. Customers are using omnichannel shopping as well as purchasing products online. Investments in technology have assisted Walmart in reducing the friction of its customers and increasing customer and employee engagement. For this company, technology remains to be a valuable resource; it is not imitable and not rare thus giving the company a temporary advantage.

Walmart VRIO analysis table

 VRI0 
Global and strong supply chain networkSustainable advantage
Strong bargaining power resulting in its price advantageSustainable advantage
Efficient inventory managementSustainable advantage
Brand equitySustainable advantage
Ecommerce Growth  Temporary advantage
Technological innovation Temporary advantage

Entry mode

Increase its cash and carry stores

Walmart is focusing to reenter India by increasing its cash and carry stores up to 50 from the previous number which was 21. It currently targets cities located in the northern part of India, precisely Uttarakhand, Uttar, and Pradesh (Gupta & Sahay, n.d.). Walmart eyes an opportunity in this location because its main competitors have not got into these markets. 

Increasing commitment to the country

Walmart is more concerned with being committed to the country to gain political support for the business to thrive (Gopalakrishna et al., 2016). This commitment will be through growing Walmart’s footprints through its development team to contribute to creating several job opportunities for Indians as well as assisting suppliers to succeed through their cash and carry business. 

Introducing non-food items

As it enters India, it focuses on introducing a certain percentage of non-food items in its stores to make the store economically viable (Polisetty et al., 2019). Therefore, it looks forward to abide by the food retail guideline to effectively integrate the introduced items into the store without tempering with the food items. 

Leveraging technology

Walmart aims at leveraging technology to improve customer service and customer experience. To achieve this, Walmart is leveraging technologies such as the Walmart app and Walmart PAY App to increase increases shopping convenience for the customers and also gain a competitive advantage over its competitors (Polisetty et al., 2019). 

Conclusion

To sum up, Walmart is a popular retail store globally known for its low pricing. As Walmart ventures to enter India after initially failing, it has established a new entry strategy to thrive in the Indian market. With the current entry strategy, Walmart is deemed to be viable to penetrate the Indian market. Walmart learned from its experience and this entry strategy is designed based on the Indian market needs and thus enabling the store to gain a competitive advantage over its competitors.