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With its back to wall, Walmart firefights

Bindu D. Menon
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File photo of Best Price mega store, a Bharti Walmart India enterprise at Zirakpur in Ajitgarh district of Punjab. - Akhilesh Kumar
File photo of Best Price mega store, a Bharti Walmart India enterprise at Zirakpur in Ajitgarh district of Punjab. - Akhilesh Kumar

Christmas is the busiest time of the year for Walmart. And the world’s biggest retailer just ensured that it got even busier by putting Apple’s latest release, the iPhone 5, on sale at a steep discount. This is the first time Apple, the world’s most valuable electronics company, has ever allowed any retailer to do so with a new product.

That is the kind of clout that Walmart, the Bentonville-based giant enjoys with manufacturers and suppliers.

That clout comes from is staggering size. It serves customers and members more than 200 million times per week. Present under as many as 69 different banners in 27 countries, the company posted fiscal year 2012 sales of approximately $444 billion. To break it down, the company does more business than Target, JC Penny and many other competitors put together. It is bigger than GE or Exxon.

But is it bigger than governments?

Its giant stride into the Indian market may have crossed a major hurdle with both Houses of Parliament voting in favour of opening up multi-brand retail to foreign investment, but it still has some hurdles to cross before it walks through the gate.

The biggest may by a probe by a retired Supreme Court judge into allegations of bribery by the company in its more than half-a-decade long attempt to enter India.

Lobbying probe

The probe was announced by an under-fire government after it disclosed (under US law) that it had spent the equivalent of nearly Rs 125 crore on lobbying to enter India.

“This disclosure has nothing to do with political or governmental contacts with Indian Government officials. It shows that our business interest in India was discussed with the US government officials — along with 50 or more other topics during a three-month period,” a Walmart spokesperson said.

Stating that this was not unique to Walmart, the spokesperson said, all organisations which expend more than $11,500 annually on lobbying activities and employ at least one lobbyist must register and file the quarterly reports.

Parliamentary Affairs Minister Kamal Nath has said that the Government will appoint a retired judge to hold a time-bound inquiry into the media reports regarding Walmart.

That probe is on top of another probe by tax authorities. Commerce and Industry Minister Anand Sharma recently informed Parliament that the company is being investigated by the Enforcement Directorate for violating FDI rules.

Its company, Cedar Investment, is under investigation by the ED to see if it broke FDI rules by putting money into the retailer before the government threw open the sector to global players.

Walmart had allegedly pumped Rs 455.8 crore into a subsidiary of Bharti Ventures in 2010 via its Mauritius arm Cedar Support Services Ltd. Walmart said it was in compliance with India's FDI guidelines, and had followed all procedures.

CPI’s Rajya Sabha member M.P. Achuthan too had written a letter to the Prime Minister seeking details of the $100-million investment in the multi-brand retail sector without reporting it to the Reserve Bank of India first.

Achuthan said Walmart “masqueraded” the investment as FDI in the services sector. He said Walmart and the Bharti Group “connived together, schemed and hoodwinked the Government and the RBI”.

Amidst the welter of probes, Walmart Inc itself announced it is probing corruption allegations in emerging markets such as Brazil, China and India. Following the probe, the global parent suspended a “few associates” including its CFO Pankaj Madan in India. The retailer had started a worldwide review of its policies, practices and internal controls for FCPA compliance.

Besides stirring a hornet’s nest, all these issues, along with the political standoff the company is causing in Parliament, would show badly on investor climate, say analysts.

Nigel Singh, Analyst, India and South Asia at Control Risks, says, “The lobbying issue reflects the current fevered scrutiny of relationships between business, government and the bureaucracy which will persist across sectors.”

Model Walmart

But keeping these challenges aside, retail experts say Walmart’s way of doing business is worth studying. Nations like India which hardly have a history of organised retail can learn efficient supply chain management, lean inventory practices and also sharp customer focus.

For years, if there has been one criticism that has doing rounds about Walmart Inc. it is the pressure the retailer puts on its suppliers to survive its ‘every day low price’ model. Walmart’s leaner business model and its constant ability to track merchandise may have made it the biggest retailer but it also puts its suppliers on their toes.

Stories about it allegedly forcing its suppliers to redesign everything from their packaging to their computer systems may be legendary, but family-owned businesses in India may find it hard to part with such information if they choose to become their vendors.

The company that sells everything from shoe laces to processed foods has a clear diktat for its vendors. “Buy cheap and sell even cheaper.” While it may have taken the company to low wage countries to source its products, suppliers who invested huge amounts to be “Walmart vendors” say that the company has sharp guidelines on supply.

Vendors say it is difficult to compete with the retailer on pricing and the same product sold under their own brands would be highly unviable and would not even recover the cost price.

Traders’ fears

While US consumers may have benefited in times of inflation due to Walmart’s fierce pricing model, Indian traders fear that this may be the end of road for them. As per various estimates, India’s retail trade is estimated at $450 billion, marginally higher than Walmart’s sales numbers.

Walmart is in a 50-50 joint venture with Bharti for the cash-and-carry business called Best Price Modern stores and also for providing back-end support to Bharti-owned retail chain Easy Day stores. Cash and carry operations are typically open only to B2B businesses.

“The main reason behind the success of our stores is that we have been able to save local businesses, kirana stores, hotels, restaurants, caterers, offices and institutions money and help add to the efficiency of their operations. We have done this by being able to provide our members quality goods at best prices all under one roof,” Arvind Mediratta, CEO, Bharti Walmart, said, adding each store generates around 150-180 direct jobs and twice the number of indirect employment opportunities.

An MNC official of a global beauty brand rues that the company’s heavy cost cutting has resulted in eroding business. “You see families shopping at cash and carry outlets in complete disregard to rules and regulation that only small and medium businesses be given member licences.”

But S.K. Sandhu, Principal Secretary to Chief Minister of Punjab, where Walmart first opened its wholesale operation, says there have been no complaints.

“We have not received any such complaint. Walmart can open as many wholesale ventures it wants in Punjab. But we will oppose front-end retail in the state,” he said. The Punjab Government, led by Shiromani Akali Dal leader Parkash Singh Badal, is opposing 51 per cent FDI in multi-brand retail to protect the interest of the small traders and the common man. For Walmart, it’s just the beginning of its Indian odyssey.

bindu.menon@thehindu.co.in

(This article was published on December 23, 2012)
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