The US retailer has turned soft on its initial aggressive plans for India. Are infrastructure bottlenecks and a far-from-ideal FDI policy in retail thwarting its growth ambition?
The government’s decision to allow 51% FDI in multi-brand retail and 100% FDI in single-brand retailing, though subject to riders, have brought good tidings for large international retailers eagerly waiting to tap into the estimated $500 billion Indian retail market. But even three months after the announcement of the policy, the Bentonville, US-based Wal-Mart, which has been plying wholesale retail in India since 2009, has not disclosed any concrete plans about how it intends to move forward on capitalising on the new retail regime. The company currently operates only wholesale stores in India via its joint venture with Bharti Enterprises, but it has so far been the most aggressive foreign supermarket operator in India, operating 18 cash-and-carry stores, selling to smaller retailers such as vegetable vendors, hospitals, restaurants and other firms.
The company expects to open its first consumer retail store selling directly to the public in 12-18 months, aiming to turn a profit in 10 years, something it could manage in China only after 12 years, where it operates over 350 stores. As of December 31, 2011, the overall losses of Bharti Walmart totalled Rs 7.65 billion. During the year, it posted over 140% increase in sales y-o-y at Rs 18.76 billion, but its net loss rose 66% to Rs 2.77 billion. The company is targeting $1 billion in sales in India by 2013-14.
According to the Investment Commission of India, the retail sector is expected to reach almost $660 billion by 2015. But instead of seizing on this consumer retail opportunity, the American retail giant finds itself entangled in an unsavoury controversy related to alleged payment of bribes in the country, which is a violation of US anti-bribery laws. The payments involve forking out “facilitation payments”, or “speed money” – or bribes – to advance the process to obtain 40 to 50 government licenses to set up retail stores. The US Foreign Corrupt Practices Act makes it a crime for US corporations and their subsidiaries to bribe foreign officials to win or retain business abroad.
With allegations flying thick and fast, and to avoid getting sucked into this vortex deeper, the company instituted a probe, which has led to the suspension of its chief financial officer as well as its entire legal team in the country. The development comes at a challenging time for Wal-Mart in the country, with political pressure mounting against the Congress-party’s drive to open up the retail sector to foreign investment.
To compound Wal-Mart’s woes, its investment of $100 million in a domestic unit owned by its wholesale joint-venture partner Bharti Retail is also being investigated by India’s Enforcement Directorate for possible infraction of the country’s foreign exchange rules. Wal-Mart’s investment in Bharti Retail has come under the scanner amid allegations that the former may have entered India’s front-end multi-brand retail business surreptitiously two-and-a-half years before the government actually permitted foreign investors in the sector.
The government’s decision to allow 51% FDI in multi-brand retail and 100% FDI in single-brand retailing, though subject to riders, have brought good tidings for large international retailers eagerly waiting to tap into the estimated $500 billion Indian retail market. But even three months after the announcement of the policy, the Bentonville, US-based Wal-Mart, which has been plying wholesale retail in India since 2009, has not disclosed any concrete plans about how it intends to move forward on capitalising on the new retail regime. The company currently operates only wholesale stores in India via its joint venture with Bharti Enterprises, but it has so far been the most aggressive foreign supermarket operator in India, operating 18 cash-and-carry stores, selling to smaller retailers such as vegetable vendors, hospitals, restaurants and other firms.
The company expects to open its first consumer retail store selling directly to the public in 12-18 months, aiming to turn a profit in 10 years, something it could manage in China only after 12 years, where it operates over 350 stores. As of December 31, 2011, the overall losses of Bharti Walmart totalled Rs 7.65 billion. During the year, it posted over 140% increase in sales y-o-y at Rs 18.76 billion, but its net loss rose 66% to Rs 2.77 billion. The company is targeting $1 billion in sales in India by 2013-14.
According to the Investment Commission of India, the retail sector is expected to reach almost $660 billion by 2015. But instead of seizing on this consumer retail opportunity, the American retail giant finds itself entangled in an unsavoury controversy related to alleged payment of bribes in the country, which is a violation of US anti-bribery laws. The payments involve forking out “facilitation payments”, or “speed money” – or bribes – to advance the process to obtain 40 to 50 government licenses to set up retail stores. The US Foreign Corrupt Practices Act makes it a crime for US corporations and their subsidiaries to bribe foreign officials to win or retain business abroad.
With allegations flying thick and fast, and to avoid getting sucked into this vortex deeper, the company instituted a probe, which has led to the suspension of its chief financial officer as well as its entire legal team in the country. The development comes at a challenging time for Wal-Mart in the country, with political pressure mounting against the Congress-party’s drive to open up the retail sector to foreign investment.
To compound Wal-Mart’s woes, its investment of $100 million in a domestic unit owned by its wholesale joint-venture partner Bharti Retail is also being investigated by India’s Enforcement Directorate for possible infraction of the country’s foreign exchange rules. Wal-Mart’s investment in Bharti Retail has come under the scanner amid allegations that the former may have entered India’s front-end multi-brand retail business surreptitiously two-and-a-half years before the government actually permitted foreign investors in the sector.
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