BusinessE-Commerce

The new FDI policy might just flush Walmart out of India and Flipkart

Walmart’s history in India goes back to the year 2007. It was the year when Walmart was trying to get a strong hold all over the world. It had huge plans for India, it was going to repeat its heroics in India and all was set. The money was there to burn, the plan was drawn on the paper and the research, well it was not that deep. The Indian government then was rigid, it did not allow any American or foreign giant to enter India on its own.

There was an Indian policy that did not allow foreign giants to open cash-front stores that would kill the small businessmen in India completely. It wanted the foreigners to use Indian capital to raise its stores here and so Walmart tried to enter through Bharti Enterprises. 2007, they shook hands with the giant in India and Bharti Walmart was born. Now, the plan was plain and it was simple; Walmart was going to supply and sell through Bharti Enterprises, the duo was also going to help small businesses as well. Walmart was using Bharti Retail to grow its reach and wait until India allows foreign investment in the country.

Eight years flashed by and Walmart slowly and steadily grew with 20 stores in that time span. The 20 stores, however, weren’t doing that well as the company had to look twice. It was now looking at e-commerce opportunities in India as the government allowed foreign investment in that platform. So it stealthily set up a research center which would do research on the e-commerce market in India. However, the plan was shelved two years into its existence.

The reason for shelving the research plans and the downfall of the Bharti Walmart was its scandals in Mexico. The huge bribery scandal, which Walmart had to fight off in Mexico, tarnished its image all over the world. India and China suddenly became wary of the Walmart ‘threat’ and this sidelined everything. Walmart executives in India were suspended and all of its plans came to a standstill.

Come 2014, the ‘secret’ e-commerce plan was being penned down by Walmart and all this time it was waiting for an opportunity to break into India. The opportunity finally came in the face of Flipkart. It had the capital to pull off a deal and it did. Walmart bought 77% stake in the Indian company for $16 billion which was one of the largest in Indian history of acquisitions.

According to Morgan Stanley, Walmart’s Flipkart was going to account for 12% of the total e-commerce market in India by the year 2026. The market share which was at 2% in 2016 was going to increase by six-fold in a decade. However, every research Morgan Stanley did and every survey it carried out was according to the old FDI policy. When the Indian government came out with the new FDI policy everything went under the bus.

Just after a year into the acquisition of Flipkart, Walmart’s share dropped by 2% and a loss of almost $5 billion was noted down. This happened because of the new FDI policy kicked in on 1st of February this year. Amazon was also struck by this as it incurred losses up to $45 billion.

Morgan Stanley has now reported that Walmart is looking elsewhere and might pull out of Flipkart and India. The news is fresh and there is a huge ‘may’ attached to their statement. Morgan Stanley says that if the American giant does not see growth and profits in the future, then Flipkart is a plan which goes nowhere for them. Then this might turn out to be another failure for them in the subcontinent.

If and only if Walmart decides to pull out of India and Flipkart, what would happen to the topmost e-commerce website in India?

Reliance, the Mukesh Ambani led company is going to enter the e-commerce business with its own company in April. They are about to launch their platform in April in the state of Gujarat. If they want a ready-made treasure in Flipkart, Reliance might just pounce on the opportunity. This, however, remains on the possibility of Walmart’s decision.

This is huge and might just stir the pot of e-commerce once again. If Walmart pulls out of Flipkart and no one decides to chip in, then it is a downtown journey for them and the only winner in this huge mess will be Amazon.

-Unmesh Phule

Comment here