After a seven-year partnership, Walmart and Indian retail partner Bharti Enterprises last month issued a terse joint message saying they were ending the 50/50 joint venture launched by the two firms in 2006 and had reached an agreement to independently own their business interests in India. The move wasn’t entirely unexpected. Days before the statement was released, Walmart Asia CEO Scott Price told the media during an Asia-Pacific Economic Cooperation meeting in Bali that “the existing franchise to Bharti is not tenable as the base” for Walmart in India.
Both sides were looking at the best way to move forward, he added. Under the agreement reached by the two firms, Bharti will acquire Walmart’s indirect stake in the Easyday chain of retail stores through acquisition of compulsory convertible debentures of Cedar Support Services, a Bharti group company. In turn, Walmart will acquire Bharti’s stake in the 50/50 Bharti Walmart joint venture, which is a cash-and-carry business-to-business operation under the Best Price marquee. India has allowed 100% foreign direct investment (FDI) in the cash-and-carry segment since 2006.
“Given the circumstances, our decision to operate independently will be beneficial to both parties,” said Price. Even though the split was no big surprise, it didn’t make much sense to many observers. Walmart has been leading the campaign to get government permission for 51% foreign holding in multi-brand retail. In single-brand retail, 100% FDI has been allowed since September 2012. The FDI policy in retail has been extremely controversial and the Manmohan Singh government had to stake its survival on the issue
Probe in IndiaUnlike in the U.S., lobbying is illegal in India, and there was significant outcry when Walmart disclosed to the U.S. Senate and the House of Representatives that it had been indulging in India-specific lobbying. Opposition lawmakers in India forced the government to take action, and a retired judge was appointed to probe the issue. While initial indications are that the findings have been inconclusive, a new controversy has arisen. The prime minister’s office has declined to give sought-for details of meetings of the prime minister and his officials with Walmart lobbyists. While this exemption can be claimed under India’s Right to Information Act, it has strengthened the arguments coming from the anti-Walmart contingent.
The Walmart-Bharti separation was orchestrated with unnecessary controversy on another front. In early July, the head of Walmart’s operations in India, Raj Jain, was let go. The announcement was made by Price at a town-hall meeting and came as a big surprise to the employees, who assembled on short notice after a summons via e-mail. Jain had been a trusted general of the company for seven years, and his departure was read as action against those accused in the bribery allegations.
The New York Timeshad earlier reported that the joint venture “had suspended several senior executives and delayed the opening of some stores in the country as part of an internal bribery investigation.” Now, many were sure that the kingpin had been identified. After the break-up, however, Jain was given a vote of confidence from Bharti via a post as advisor to the firm’s retail division.
When Rajan Mittal, vice chairman of Bharti Enterprises, made the announcement at yet another town-hall meeting, the employees — who had heard Price in stunned silence — broke out in applause. Jain was unavailable for comment. Walmart’s discomfiture with its Indian partners is familiar territory for multinationals, according to Keh. “Some countries may prove to be too difficult for multinationals,” he notes. “Multinationals are often held to higher standards and so are often handicapped when competing with national operators.” Anand Sharma, India’s commerce minister, says that Walmart has already been given plenty of opportunities in the Indian market. “Walmart got enough space,” he notes.
“There will be no further steps to woo the company.” With its cash-and-carry venture, Walmart has retained a toehold in India, and observers feel it will make a comeback in multi-brand retail when the regulations are relaxed further. (The company also has the option, of course, of divesting Best Price and getting out of India altogether.) Finance Minister P. Chidambaram says more relaxations are unlikely. “We have a policy,” he told business channel CNBC-TV18. “A genuine investor must work within that policy. It may not be the ideal policy from [the company’s] point of view. But this is the policy that we have today. You have to take it as it is.” Policy Pains
A contentious clause says that multi-brand foreign retailers must source at least 30% of their products from small industries. This may be possible in textiles and handicrafts, but what about electronics? The second problematicclause relates to investment. The policy states that 50% of investment must be in back-end infrastructure. The clarifications issued by the Department of Industrial Policy and Promotion state that this must be entirely for green-field assets, meaning Walmart’s investments in India thus far do not count toward meeting that mandate.