Wal-Mart appears to have lost patience with its fraught ambition to enter Indian consumer retail, after deciding to buy out its local partner, Bharti Enterprises, from their six-year-old joint-venture.
The two companies say they have reached an agreement to independently own and operate separate business formats in India and discontinue their franchise agreement in the retail business.
The agreement is subject to finalisation of definitive agreements and recept of the necessary regulatory approvals.
American giant staying in cash-and-carry
Once everything is in order, Wal-Mart will acquire Bharti’s stake in Bharti-Walmart, giving the world’s biggest retailer 100% ownership of all 20 stores in its Best Price Modern Wholesale cash and carry business.
Wal-mart said it plans to continue to grow this business while working with the government and interested stakeholders to create more preferable conditions for foreign direct investment in multi-brand retail.
Reading between the lines, the American giant has pretty much put its consumer retail plans on ice in the face of its high-profile political struggles as politicians have held sway on the thorny issue of foreign direct investment in multi-brand retail.
Last year, the government opened its doors to foreign companies but as yet none have come in to the country. This prompted India to further ease its rules governing multi-brand FDI in August.
Now, foreign-owned retailers have to buy 30% of manufactured products from small- and medium-sized local firms with less than US$2m invested in factories and machinery. Earlier rules were even stricter, defining “small and medium” companies as those with investments of under US$1m.
Entry barriers set too high
Even after these changes, the entry barriers for foreign retailers “aren’t workable,” Scott Price, Walmart Asia’s chief executive, said in a recent interview with Bloomberg. The rules still don’t provide a level playing field for international retailers compared with local rivals, he said.
Wal-Mart would need to find a new partner if it decides to enter the retail industry in India, where foreign firms need partnerships with local businesses to set up supermarkets.
Bharti Retail will continue to operate its Easyday retail stores across all formats and invest in and grow the business.
Ranjan Bharti Mittal, Bharti’s managing director, said he wished Wal-Mart all the best for the future.
In return, Price said the company’s decision to operate independently would benefit both parties, adding: “We will continue to advocate for investment conditions that allow FDI multi-brand retail in India.”