Wal-Mart enters India's retail market amid new rules
Wal-Mart plans to open retail outlets in India in the next 12 to 18 months, the company said Friday, making it the first multinational to jump on the government's decision to open the country's huge retail market to foreign players.
Raj Jain, the managing director of Bharti Wal-Mart, a joint venture that operates 17 outlets that cater to small businesses in India, confirmed by email that Wal-Mart plans to open stores that serve consumers over the next 18 months, but declined to say how many.
India announced last week that it would allow foreign firms to take a majority stake in multi-brand stores for the first time. The surprise decision cheered investors but cost the ruling Congress Party an important coalition ally.
New Delhi first tried to enact the measure last year, but backed down in the face of resistance from coalition partners, badly damaging its credibility with global investors. Prior to the reversal, foreign retailers like Wal-Mart could only operate wholesale outlets.
Threat to Indian shops, jobs
Opponents say the move will cost Indians jobs and decimate millions of mom-and-pop shops. Advocates say welcoming players like Wal-Mart is necessary to attract the investment needed for India to modernize its food supply chains, reduce waste and bring down spiraling food prices.
While India's retail infrastructure, such as cold storage areas and warehouses, is "desperately lacking," Wal-Mart can bring its own systems, said Michael Moriarty, a partner in the retail practice of management consulting firm A.T. Kearney.
The new rules mandate that foreign retailers spend half their investment on building supply chain infrastructure and source 30 per cent of manufactured goods from local small- and medium-sized companies. Foreign retailers are also restricted to India's 53 cities with populations exceeding 1 million.
Individual states will have the right to decide whether to let the retailers operate from their territory. Only 10 of India's 35 states and territories which are controlled by the ruling Congress Party are likely to welcome foreign retailers initially, according to Eurasia Group analyst David Sloan.
India's rules are more restrictive than those of China, Thailand, Russia, Brazil and Indonesia, all of which allow foreign investors 100 per cent ownership in retail, according to Goldman Sachs.
Wal-Mart opened its first wholesale outlet in its partnership with Bharti in May 2009 in Amritsar in Punjab state. British-based Tesco PLC and French retailer Carrefour have also expressed interest in expanding in India.
"There is enormous opportunity in India," Moriarty said, adding that the country is "underserved" by retailers and that consumers there increasingly have more spending money.