Friday, August 26, 2005

Directions for Wal-Mart: Enter India and then turn ‘Left’ !

Last I spoke about the giant was about its keen interest in India
This time ….there is nothing different that I intend to cover, except probably a progress report.
The Story is not new. There are NO twists, and the conclusion is predictable.
The only thing no one knows and is still a BIG question …is when? And how?

An article in the Business Standard yesterday (on the 25th of August’05) spoke about the future plans of Wal-Mart vis-à-vis procurement of raw materials from India.
For the past 3 years, the sourcing from India has been growing at 30% every year with a cumulative figure of goods worth $1.2 billion. Now, it intends to grow this by 40 per cent for the current financial year, considering the opportunity and cost differential in the Indian Markets.

Specifically, a pertinent question that concerned me was “What is being sourced?
Supposedly, Textiles Sector, such as apparel and home furnishings contribute to the tune of 50% for the sourcing.
Other sectors that Wal-Mart has interfaced with –
- Leather Sector
- Jewelry sector,
- Food sector (commodity items such as spices, rice, tea and sea foods)

Apart from sourcing, Wal-Mart is also very keen on entering the Indian Market through the Investment route. It wants to setup establishments and retail outlets in the country, taking advantage of the rising consumer confidence and purchasing power.

The President and CEO John Menzer visited India, held 6 high level government meetings and spoke to most of the seniors.
After that, there was no communication from the Indian government on this issue. It is only a day back that there was some communication in the Newspapers.

The response to Menzer’s communication was brought out in an Interview of Prime Minister Manmohan Singh by Mckinsey director Rajat K Gupta.
Few points pertinent to this discussion, that can be taken as the take-away from the interview are:
- He wants to “work out a package that is fair, that entry of foreign enterprises into the retail trade will not hurt our small shopkeepers but will create a lot more employment”.
- He is hopeful that he would be able to convince his “political colleagues” to allow FDI in Retail and aver the point that “this is a way to move our economy to a higher growth path—to create new employment opportunities—that this is not a strategy to hurt the small shopkeepers in our country”.
- Something concrete should be expected within the next four or five months!

There was a nice article in the Hindu Business Line almost 3 months back, about Retail in India and its future. It mentioned about the presence of Wal-mart in Bangalore, and its future plans
At present Wal-Mart has a presence only in Bangalore through a subsidiary, which used to function as a liaison office till last year; it sourced goods worth about $1 billion from India last year. It is now in the process of setting up offices in New Delhi and Mumbai”.

And this is what I had collated a collated a couple of months back, about Bangalore
It plans to source $1.2 bn products from India - $400mn directly and $800mn from 3rd party suppliers. It has a Global procurement (GP) hub in Bangalore for sourcing of merchandise from India, Nepal and Sri Lanka. It oversees the GP in Colombo also.
Functions - sourcing, quality control, ethical sourcing factory compliance inspections, internal audits and loss prevention.

An article in India Resource Centre discussed about the entry of Wal-mart in India. It talks about the plans Wal-mart has for the merchanidising from India. “According to Menzer, India is Wal-Mart's fastest growing sourcing market. The world's largest retailer this year expects to export $1.5 billion worth of merchandise to Wal-Mart stores from the country”.
And its current status in India “Wal-Mart already has over 2,000 stores worldwide, including 45 stores in China. Its only presence in India is through its sourcing office located in Bangalore”.
The most interesting part of the article was the following bit – “At the same time, if the FDI regulations aren't lifted any time soon, Menzer said Wal-Mart is no longer prepared to wait but is prepared to make its foray into India with an Indian joint-venture partner to take advantage of this market while it's still developing". Inferences?
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