Wal-Mart Still Faces Challenges in India

While Wal-Mart Stores Inc. seems to have cleared one hurdle that was slowing the American retail giant’s attempts to tap India’s rapidly expanding $400 billion retail industry; others still remain.

The Finance Ministry’s Enforcement Directorate has cleared Wal-Mart of violating investment rules when it bought an indirect stake in the Bharti Enterprises Ltd. unit, which controls its Easyday chain of supermarkets, according to two sources familiar with the investigation.

However the company still faces a public interest litigation suit in the high court in the southern city of Chennai on the same issue. The suit claims Wal-Mart broke India’s ban on foreign investment in supermarkets and other stores that sell multiple brands of products when it in 2010 bought convertible debentures from Bharti’s Cedar Support Services which owns Easyday.

Officials familiar with the finance ministry’s findings on the debenture purchase said that the central bank and finance ministry would present the results of their investigation to the court in Chennai at the next hearing, which has not yet been set.

While a Wal-Mart spokeswoman did not immediately respond to a request for comment Friday, the retailer has said its purchase of the debentures had been discussed with authorities and did not break any rules.

The lawyer of T. Vellayan–the former president of the Federation of Tamil Nadu Traders’ Association who filed the public interest litigation last October –could not be reached for comment Friday.

Wal-Mart is also waiting for restrictions on foreign retailers to be further eased before it can make bigger expansion plans in the country. The company says that a requirement that foreign retailers source at least 30% of its products from small- to medium-sized local businesses is untenable.

“One only has to walk the stores of a domestic player in India and know that rules such as the 30% sourcing from medium and small enterprises is simply not possible,” said Scott Price, the head of Wal-Mart’s Asia business in an interview earlier this month. “I’ve explained to the government I’m more than happy to launch a Wal-Mart cola, but the problem is that I can’t make anyone buy it.”

Indian officials, including Finance Minister Palaniappan Chidambaram have so far indicated India plans to keep that restriction in place.

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Rajan & Sunil Mittal's trusted strategist Raj Jain makes a comeback as Bharti Retail adviser

On Wednesday when Rajan Mittal, vice-chairman at Bharti Enterprises, announced at a town hall meeting that former Wal-Mart India CEO Raj Jain will join Bharti Retail as an adviser, the crowd erupted in applause. Wal-Mart Asia head Scott Price, who barely four months ago had ousted Jain amidst an internal probe into possible violation of US anti-bribery laws, was at the town hall in Bharti Walmart's Gurgaon office.

"They had to struggle to keep the applause down and Price was visibly embarrassed," said a person who attended Wednesday's meeting where Walmart and Bharti also announced their break-up.

Why is Jain so popular among his subordinates as well as the Mittals? Because he is a good strategist, calm in nature and, most importantly, has excellent people-management skills, say Bharti officials. And he had no red mark in his record till that fateful summer day.

At around 7.30 in the morning on June 26, when Jain was busy at home preparing a presentation about Bharti Walmart's future plans to his boss Price, KPMG consultants and lawyers from US law firm Greenberg Traurig were sealing his cabin in the Gurgaon office.

Then Jain was summoned to Vivanta by Taj Hotel in Gurgaon where he met Price, Donny Rumsby, vice-president of asset protection for Walmart Asia, executives from KPMG and lawyers from the Greenberg Traurig.

Price asked Jain to resign. He refused.

Later the seven people drove to Bharti Walmart office, packed in a Toyota Innova. Bharti Walmart officials were quickly summoned to fourth floor for a town hall. And Price announced that Jain is no longer with the company.

"Raj deserved much better than the way Walmart handled his case," a former senior Bharti Walmart executive who worked under Jain said.

Officials say Rajan Mittal expressed his displeasure when Ramnik Narsey, who replaced Jain as the chief executive of Bharti Walmart, called on him. "This is not our culture to deal with employees," he had told Narsey, they say.

Rajan and Sunil Mittal had so much faith in Jain that two Bharti veterans who were transferred to the retail venture a few years ago were removed because they couldn't work with Jain.

Many Bharti Walmart officials ET spoke with said Jain, 54, is good in spotting talent and nurturing people. "The traditional leaders will think ten times, but Raj won't hesitate to give someone a role ahead of time if he believes," said the former official quoted earlier.

"He is crafty too, in the sense he knows how to manage his bosses," said another.

Not that everybody in Bharti Walmart is a Jain fan. Some people who have worked with him say that if Jain did not like any employee he would ensure that the person left the company, adding that he has done it with some people. They also say Jain is known to bring his own set of people, creating a coterie of sort in the office. "Bharti Walmart was sometime also called a 'mini Whirlpool'," said a company executive, referring to a host of people Jain poached from Whirlpool India that he headed between 1995 and 2005.

However, Jain, who heralded the joint venture since its inception in 2007, has been widely credited with building a cash-and-carry business in a complex market like India.

Jain started his career as a management trainee at Hindustan Unilever (then Hindustan Lever) where he was one of the key people handling the southern operations.

Raju Aneja, who worked with Jain in those days, remembers him as a great people manager. "I was his boss at Levers and he was the branch manager at Madras. He is one of the best branch managers I ever worked with in India, Brazil and East Africa. He is excellent in managing people and had great human relations skills," said Aneja, who is currently a management consultant for companies in Latin America and Middle East. Even today Jain tries to mingle with even till the bottom-level employees, Bharti executives say.

After joining Whirlpool, Jain was instrumental in setting up the US appliance maker's first greenfield plant in India at Pune. Eventually he became Whirlpool India MD in 2000.

A senior industry executive with a rival firm said that under Jain Whirlpool was giving tough competition to the Korean duo LG and Samsung. "Whirlpool used to have a lot of outstanding and credit in the trade, which Jain reduced considerably by bringing stricter trade terms," he said.

The person said Jain by nature sought discipline and methodology in business practices. "Jain is a tough task-master," he said, adding that he introduced six-day working culture in Whirlpool corporate office to ensure time spent on work was similar both at the plant and in the office. In 2004, Jain moved to Whirlpool Shanghai office as the head for new product planning for the Asia-Pacific region. In 2006, he joined the Shanghai office of Walmart.

More: http://timesofindia.indiatimes.com/business/india-business/Rajan-Sunil-Mittals-trusted-strategist-Raj-Jain-makes-a-comeback-as-Bharti-Retail-adviser/articleshow/23952489.cms

After Bharti, Walmart in no hurry to get into retailing; cash-and-carry stores remain winning formula

Wal-Mart Stores, after its break-up with Bharti Enterprises, does not have any immediate plan to get into retailing in the country, making India the only market where the world's largest retailer will limit itself to the wholesale space. Why?

Walmart officials in India say the company has found a winning formula in the Best Price Modern Wholesale chain. They even say that the Bentonville, Arkansas-based giant is so bullish on the format that it plans to export the formula to other emerging countries in Africaand Asia.

Analysts say focusing on the 20 Best Price cash-and-carry stores is the best option for the US giant as the business has proved lucrative and finding partners for retail entry will take time.

"The current regulations mean Walmart would need an Indian partner to set up retail operations and, keeping in mind their discussions with other major Indian players, that would take a while. So, going ahead with the 20 stores they have for the cash-and-carry model seems to be the most logical thing to do," Devangshu Dutta, chief executive at retail consultancy firm Third Eyesight, said.

"This will help them attain a critical mass in India in setting up a retail business, if they wish to, in future. It will also help them achieve a comfort level in working in the Indian environment," he said.

Walmart got into wholesale business in India by default, because that was the only space foreign retailers were allowed to operate in when it entered the country. India allowed FDI in multi-brand retail space only last year.

But, thanks to several tough riders, big supermarket chains such as Walmart and Carrefour have yet to enter the space despite the government making the norms easier since.

The cash-and-carry business, in comparison, comes without any restriction on foreign investment, and offers huge growth potential. Industry officials estimate it will be a $22-billion (about Rs 1,36,000 crore) business in India by 2017 and the market leader can eye revenues of about $5 billion (about Rs 31,000 crore) then.

Sam Walton, the founder of Walmart, launched Sam's Club wholesale chain 30 yeas ago. Today, there are 700 membership-based Sam's Club. In the US, they can sell to all bulk customers, including consumers.

However, regulations in India do not permit cash-and-carry to sell products directly to consumers and such venture must restrict business to retailers and businesses.

Yet, the business has proved highly lucrative with thousands of mom-and-pop storeowners in the country finding cashand-carry outlets more convenient than local wholesale markets.

Reliance Retail is also bullish in this space and plans to roll out dozens of wholesale outlets. Also, by going solo, Walmart can ensure it complies with anti-bribery norms of the US government.

Bharti Walmart has not opened any store for a year and dismissed some officials because of an internal probe to check if the India unit has violated the US Foreign Corrupt Practices Act, which prohibits American firms from bribing government officials in foreign countries.

In a joint statement announcing the break-up on Wednesday, Walmart Asia head Scott Price said, "We will continue to make important social and environment contributions to India, seeking conditions that will boost retail FDI in India."

Credits: economictimes

US giant Walmart and India's Bharti end joint venture

Walmart and Indian firm Bharti announced Wednesday they were ending their partnership, with the US giant partly blaming India's new rules on foreign investment for the split.

The companies said they would "independently own and operate separate business formats", ending a partnership aimed at building Walmart's presence in India's potentially lucrative retail sector.

The world's biggest retailer has operated since 2007 in India as a wholesaler via its partnership with Bharti, but it is unable to sell directly to consumers.

Walmart has said it wants to operate supermarkets in India after New Delhi moved last year to open up the retail sector to foreign companies, to try to boost the sharply slowing economy.

But the group has been frustrated by the government's new conditions for foreign direct investment (FDI), an internal bribery probe and the faltering relationship with Bharti, owner of India's top mobile phone firm.

Walmart told AFP in an email the decision to split with Bharti was based on "external and internal factors, including the new FDI policy".

"Under the requirements contained in the new FDI policy Walmart could not invest in multi-brand retail through the existing Bharti Retail business," a Walmart India spokesperson added in the email, without elaborating.

Walmart must now find another local partner to own 49 percent of the business if it plans to push ahead with operating supermarkets under the government's rules.

A year ago, New Delhi allowed foreign supermarkets to establish 51 percent joint ventures in the country as part of a drive to seek outside investment, but so far none has applied.

Analysts said the split showed the government must do more to streamline FDI rules to attract overseas companies and spur economic growth, which has slackened to a decade-low.

"This could further caution international firms looking to enter India," said Saloni Nangia, president of consultancy firm Technopak of Walmart's announcement.

"From a destination perspective, foreign firms want to be in India. But from a policy and doing-business perspective, it is different. The government needs to do more to facilitate this," she said.

Opposition lawmakers in the past have expressed concern over Walmart's entry, saying it will hurt local "mom and pop" stores.

With the Bharti venture ending, Walmart is not expected to rush into making fresh India investments, said Sonam Udasi, head of research with IDBI capital.

"Walmart will study the on-the-ground situation, particularly future government policies in retail," he told AFP.

Walmart said in July it was unable to meet the government's requirements -- stipulating that 30 percent of its products must come from local small-scale industries -- for it to open retail stores.

Under the terms of the breakup Walmart will acquire Bharti's stake in the wholesale cash and carry business, giving it 100 percent ownership, the statement said.

Nangia said Walmart is likely to stay focused on its cash-and-carry business, which would help to build up its supply chain to support any future retail business.

Scott Price, president and chief executive of Walmart Asia, said the company would "continue to advocate for investment conditions that allow FDI multi-brand retail in India".

Credits: AFP

Multi-Brand Retail: Has India fallen off global players’ radar?

At the ongoing World Retail Congress in Paris, global heads of retail chains were literally mum on India. While Mexico and the Philippines were being touted as the next big markets for commencing retail ventures, India’s policies regarding sourcing and investments have put a question mark on prospective investments.

Closer home, Walmart and its joint venture partner Bharti Enterprises are toying with the idea of ending their partnership. Reports quoted Walmart Asia Head Scott Price as stating that the partnership with Bharti was “not tenable as a base” and the two firms were “looking for the best way to move forward”.

Walmart and Bharti have a 50:50 joint venture for cash-and-carry business in India. Price said Walmart was not keen to invest in India, unless the multi-brand retail policy was made clear.

Analyst say that if Walmart indeed pulls out of India, it may not have any impact on consumers as only eight per cent of the total retail is organised. But, confidence on India as a potential investment destination could be greatly marred.

Arvind Singhal, Chairman, Technopak, who was at World Retail Congress, notes that Mexico and even the Philippines are high on global retailers’ investment agenda but not India.

“This is worrisome as we have waited 8-10 years for the retail sector to open up. But the policy is highly complicated and companies don’t want to invest without getting clarity. The need of the hour is pragmatism and not dogmatism,” he said.

Walmart’s total turnover of $469 billion is more or less equal to India’s total retail sector’s turnover estimated at $464 billion.

“For Walmart, India is still too insignificant, both from a sourcing and consumer stand point. But, the impact of such a big retailer exiting India either totally or partially can send a wrong signal to other investors,” says an analyst.

Last year in September, the Government allowed 51 per cent investment in multi-brand retail trade. Recently, it made amendments to rules after several retailers expressed concerns on 30 per cent sourcing clause, yet-to-be-made changes in FEMA rules, among others.
SOURCING CLAUSE

Walmart also sought clarity on aspects of the policy, especially the sourcing clause. In July, it expressed an inability to meet the norm requiring it to source 30 per cent of the goods from small industries, saying it could source only about 20 per cent.

Others retailers such as Carrefour and Metro too are expanding in India rather cautiously. Big names such as IKEA, H&M are yet to announce formal store opening in India.

Arpita Mukerjee of ICRIER said, “Nobody has complicated the retail policy the way India has. Doubts over classification and brand-based foreign direct investment policy have confused investors. The root of the problem is between the operating model and what the Government seeks. Therefore, the policy needs to be streamlined.”

Credits: thehindubusinessline

UPDATE 1-Wal-Mart says retail plans with India's Bharti "not tenable"

Wal-Mart Stores Inc's retail plans with India partner Bharti Enterprises are "not tenable" and both sides are looking for the best way to move forward, an executive with the U.S. retailer told Reuters.

Wal-Mart was expected to make a decision on its Indian retail plans later this month and Bharti will accordingly decide if those plans match its overall retail ambitions.

"We created a franchise in retail with Bharti in the hopes that there could be a potential freeing up (of foreign direct investment) that would allow it to potentially be the base of the business. But frankly, the FDI has passed," said Wal-Mart Asia Chief Executive Scott Price on the sidelines of the APEC conference in Bali, Indonesia

"That means the existing franchise to Bharti is not tenable as the base. What we are talking about with Bharti is what we do with that business."

Wal-Mart has an equal joint venture with Bharti under which it runs its Best Price Modern Wholesale Stores in India and the U.S. retailer last year called Bharti its "natural partner" to open its retail stores in the country.

In July, Reuters reported Bharti was looking to exit its joint venture with Wal-Mart.

India permitted foreign retailers to own 51 percent of their Indian operations in September 2012, but ambiguity around rules governing the policy has ensured no foreign retailer has so far applied to enter the country.

"I don't see how any foreign retailer can comply and quite honestly no domestic retailer is complying either," Price said.

The biggest stumbling block for companies has been the government's requirement that 30 percent of their products be sourced locally.

Despite the uncertainty over the retail business, Price said the world's largest retailer was not planning on leaving India and was actually hoping to expand its wholesale business.

"We are committed to India and we are not thinking of leaving India anytime soon," he said.

Price also said Wal-Mart had no immediate acquisition plans in China but was keeping its eyes open for opportunities.

The U.S. retailer also had no plans for expansion into Thailand or Indonesia, two countries where supermarkets have faced tough competition from local mini-markets.

Credits: reuters

Bharti to decide on fate of JV with Wal-Mart in October - report

Wal-Mart Stores Inc's (WMT.N) India partner, Bharti Enterprises, will take a call on the future of its wholesale joint venture with the U.S. retailer this month, the Economic Times said on Thursday.

Wal-Mart should take a decision on its Indian retail plans in October and Bharti will accordingly decide if those plans match its overall retail ambitions, Sunil Bharti Mittal, chairman of Bharti Enterprises told reporters on the sidelines of the India-Africa Business Council Meeting in Johannesburg.

Wal-Mart has an equal joint venture with Bharti under which it runs its Best Price Modern Wholesale Stores in India and the U.S. retailer last year had called Bharti its "natural partner" to open its retail stores in the country.

In July, Reuters reported Bharti was looking to exit its joint venture with Wal-Mart.

India permitted foreign retailers to own 51 percent of their Indian operations in September 2012, but ambiguity around rules governing the policy has ensured no foreign retailer has so far applied to enter the country.

A spokesman for Bharti Enterprises, which also runs top Indian telecommunications carrier Bharti Airtel (BRTI.NS), declined to comment beyond Mittal's comment published in the newspaper. (Reporting by Nandita Bose and Devidutta Tripathy; Editing by Anand Basu)

Credits: reuters