The Bharti - Wal-Mart Retail Joint Venture

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"The joint venture with equal stakes will operate in areas where the government allows foreign investment in retail like cash-and-carry and logistics. The retail shops will be owned by Bharti Enterprises under the Wal-Mart franchise. The idea is to give Indians the lowest price everyday."

Many analysts opined that both the parties in the venture had their own strengths and would complement each other. Viswanathan Vasudevan, an equity analyst at the Singapore–based Aquarius Investment Advisors Pte, said, "It's a great fit for Wal-Mart as Bharti knows the rules of the game and will save Wal-Mart a lot of time and energy to overcome the system.

For Bharti, you can't get a better partner than Wal-Mart in retail." Gajendra Nagpal, director, Unicorn Investments, said, "This joint venture is a winning combination. Wal-Mart's logistics skill and Bharti's execution capability will create a potent force in the Indian market."

This franchise strategy with Bharti was a deviation from Wal-Mart's usual way of entering countries. This was because the policy restrictions on foreign direct investment (FDI) in the Indian retail sector. As part of the agreement, Bharti was expected to pay a royalty between 2 percent and 3 percent of sales to Wal-Mart for using the latter's brand name. The Bharti-Wal-Mart joint venture was expected to open its stores in India from August 2007.

Though the parties did not disclose the financials of the deal, according to retail industry sources, the Bharti-Wal-Mart venture would make an initial investment of US$ 100 million, which could further increase to US$ 1.46 billion. Wal-Mart had reportedly brought in two veteran executives, Andy Guttery and Lance Rettig, to implement its operations in India under the joint venture. Wal-Mart had also roped in Raj Jain, Emerging markets president & CEO, Wal-Mart, to head the cash-and-carry business in India.

The retail industry in India is estimated at about US$ 300 billion and is expected to grow to US$ 427 billion in 2010 and US$ 637 billion in 2015. Moreover, only 3 percent of the Indian retail industry was in the organized sector. Foreign retailers were keen to enter India's rapidly growing retail market. However, the government had permitted retailers of single brand products to own a majority stake in a joint venture with a local partner (with prior government permission). Retailers of multi-brands were only permitted to operate through franchises and licencees, or a cash-and-carry wholesale model.

The biggest competitor for Bharti-Wal-Mart was expected to be Reliance Retail, the retail wing of Reliance, which had planned to establish 10,000 stores by 2010. It had already opened 11 pilot stores under the "Reliance Fresh" format in Hyderabad.

Even Pantaloon Retail, the retail arm of the Future Group was expected to give stiff competition as it had a first-mover advantage. Kishore Biyani, CEO, Future Group, said, "Our strength is that we understand the Indian consumer better than Wal-Mart and we also have a window of opportunity and the first-mover advantage. For instance, we will have 100 Big Bazaars across India by the time the first store (of Bharati-Wal-Mart) opens its doors here."

A few other Indian retailers felt that the entry of foreign retail giants like Wal-Mart, Carrefour SA and Tesco Plc (Tesco) would result in Indian retailers learning some of the best international practices in retailing. However, analysts noted that the success of the joint venture would depend on how successful Wal-Mart is in building a cost efficient supply chain and sourcing network so that the cost savings are passed on the end consumer through its trademark "every day low price" strategy.

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