Walmart’s International Strategy to Move into India: Implications for the Host Country

This paper evaluates Walmart’s international strategy to move into India and its implications for the host country. It analyses the FDI trends, comparative advantage, and globalisation policies that have contributed to India’s retail industry growth. The paper also discusses Walmart’s acquisition of Flipkart and the concerns related to FDI rules and unhealthy competition.

STRATEGIC MANAGEMENT
ASSIGNMENT- 1
Critically evaluate Walmart’s international strategy to move into India
and the implications of this to the host country.
Module code:
Module Tutor: Victoria Jackson
University of Central Lancashire
Number: 20786191
Word Count: 2480
Assignment type: Essay

The paper is prepared with the motive to determine and critically assesses the major features related to the Global
economy, Triad economies, and FDI trends. Along with this, it employs comparative advantage with the related
trade models that are essential for analysing the role of the country in the world economy. This has been found
that rapid GDP growth of India is possible by record levels of FDI that is flowing into the country. The major
example of the flow of FDI has been witnessed with the example that Walmart acquired Indian e-commerce
company Flipkart for more than $16 billion and a 77% stake (Dhillon, 2018). This paper majorly includes critical
evaluation of Walmart’s international strategy with the motive to move into India and its implication to the host
country.
India is one of the most attractive retail marketplaces across the world as it has emerged as one of the dynamic
and fast-paced industries that are possible with the entry of new players. The total consumption expenditure of
the customers for retail products has been reached nearly US$ 3,600 billion by the year 2020 from US$ 1,824
billion in the year 2017 (Economic Times, 2018). Thus, this is the reason due to which the country is considered as
the world’s 5th largest worldwide destination for the multinational companies in the retail space. It has been found
that India's retail market is predicted to reach 60% and to reach US$1.1 trillion by the year 2020 (IBEF, 2018).
Further, this rise and attractiveness of the retail industry are largely because of the initiatives and policy formed by
the government related to the FDI. In the initial of 2018, the administration of India has permitted 100% of the FDI
(Foreign Direct Investment) in the single-brand retail. This has brought the rise in the FDI by the companies across
the world economy. The world economy is considered as the international exchange of goods and services that are
majorly expressed in terms of monetary units. This has been found that India’s retail stocks like V-Mart, Shopper’s
stop, Future lifestyle and many others have given returns in between 80% and 250% in past one year comparing it
with Nifty’s 30% returns. Indian retail industry effective plays a vital role in the world economy as the demand for
the products are predicted to upsurge with the degree of 81% to 7.8 million sq. ft. in the year 2018. Along with
this, the rise in demand is not the only factor as opportunities for effective employees with a high customer base
that attracts FDI and contributes to the world economy (Molle, 2017).
This is witnessed that the reforms of 2018 are based on the previous 1991 regulatory changes that are related to
the globalisation, privatisation, and other liberalization policy. Globalisation is the process through which the
business and many other organisation develop international factors that influence the operations on international
scale (Krugman, 2017).
FDI is one of the most critical factors in the economic health of the developing as well as emerging markets like
India. This has been found that the government of Indian had undertaken the major reforms in the country’s FDI
policies in the year 1991. The major polices that are allowed for enhancing the FDI limit. The regulatory changes for
globalisation, privatisation, and liberalisation of 1991 reforms formed by the government have contributed
effectively in enhancing the India economy. The government has reduced the restriction on the operations of
business. From 2019 to 2004, the FDI India inflow increased manifold. Further, after the year 2005, India witnessed
different measures with the motive to enhance the FDI inflow. For instance, in 2014 the limit in insurance sector
which was 26% and increased to 48% (Basu, Choudhary and Chetty, 2016).
Comparative advantage is economic trade theory that major occur when a country is not able to produce a product
in effective manner than the other country (Van den Berg and Lewer, 2015). This has been found that the
advantage majorly focuses on the relative different in productivity. This theory is applied to India, as the country is
able to maintain the comparative advantage then other countries. The county has foreign direct investment in
retail sectors and analyse worldwide retail market opportunities (Pawar and Veer, 2013). Moreover, the market is

emerging in terms of the population and also in terms of e-commerce due to which the companies can easily attain
high profit.
In addition, India is emerging developing country and it is part of BRICS. BRICS is acronym coined for an association
of the five major emerging economies in nation. The term BRICS stands for Brazil, Russia, India, China, and South
Africa (Nordenstreng and Thussu, 2015). E-commerce is the place where the emergence of online retail is on the
big way that is clear with the forecasting of online retail that is expected to produce at the rate of 31% to reach the
US $32.70 billion in the year 2018 (IBEF, 2019). This shows the role of India as it is probable to become the world’s
third largest customer economy that is going to reach US$ 400 billion in terms of consumption by the year 2025.
Thus, this has been found that Global retailers like Walmart, GAP and Tesco are sourcing from Indian and investing
the amount in India.
Walmart got motivated to acquire Flipkart Company due to different reasons and one of the reasons is cultural
consideration. Work culture is one of the major matters of concern when it comes to deal. This has been found
that Walmart Company is eager to share its processes with Flipkart, but the company is aware that the culture of
India and other Asian markets is different. This is true that Asian countries are different from Triad economies in
many ways (Lavania and Dixit, 2017).
Considering the report of ICRIER, the younger population of developing countries like India is considered as the
prime consumers for the structured retail possible for Walmart to achieve success. The expectations of foreign
retail success continue with westernization often through western branded products like Walmart. The company
can create an impact on the culture of Indian consumerism. The customers of India belong to Upper-middle class
who make ready-made clothes with other department store products like a status symbol. The culture of people in
India is different as people visits to boutique and tailors for the trendy outfits (Padmanabhan, 2012). Thus, it
becomes essential for Walmart to understand the culture of a company that can easily be done with the help of
filpkart who is able to maintain the position in the market. It can be said that Walmart motivates to deal with
Indian company as it is an emerging country with many opportunities and along with this to earn better result
Walmart was willing to know about the culture followed by India.
In India, FDI (Foreign Direct Investment) is multi-brand physical retail is limited and there are worries that Walmart
is avoiding Indian FDI rules by taking over an online retail company (Venkatesan, 2018). Further, the
confederations of All India Traders (CAIT) is considered as the leading advocate majorly for the small business in
the market of India, who called for the intervention from the government side in the deal over the concerns nearly
the destructive pricing as well the possible for malpractice. AIOVA (All India Online Vendors association) has
determined thousand number of vendors that are in tie-up with Flipkart showed their concern that Walmart will
bring its own labels to the Indian market by making the use of Flipkart.
In addition, some of the business leaders present in India like K. Vaitheeswaran, a person who established India’s
first e-commerce company with the name of FabMart (that is later got famous with the name of IndiaPlaza) found
that the deal overvalues Flipkart Company. However, on the other hand, contradicting this, Sarbvir Singh who is VC
at WaterBridge Ventures found it as a reasonable price. Moreover, this was found that the deal is more related to
Walmart than about Flipkart as the company resolved their difficulties few years ago when SoftBank and Tencent
capitalized the amount in the company. Walmart Company requires bulking up or improving their e-commerce
business due to which they selected India as the place (Harldas, 2018). The deal is considered as one of the best
deal for Wal-Mart as this deal can offer different benefits to the company. Furthermore, this has been found that
Flipkart acquisition was a strategic move of Walmart Company as it was like killing two birds with a single stone.

Firstly, Amazon Company is key Walmart competitors in the US as well as it is a key competitor of Flipkart in the
Indian market and it was running to acquire Flipkart. Thus, this shows that Walmart Company has acquired Flipkart
that is a way to give the tough competition to Amazon as a key worldwide marketplace from the leadership
position. Secondly, India attendance also helps as Walmart bulwark in the extensive Asian market because it has
apparently missed the e-commerce prosperous in China to companies such as Alibaba. Ironically, this has been
found that Walmart USA is working closely with the Chinese suppliers that led to the fears that acquisition of
Flipkart might lead to competition for Indian suppliers of Flipkart (Economic Times, 2018). This is fear not only for
American imports but also for Chinese imports. Thus, this is very clear from the above analysis that an acquisition
of Flipkart by Walmart is a concern of unhealthy competition. Considering the practice of unfair competition
regulation, the country has formed Competition Act 2002, which is majorly implemented to prevent the activities
that lead to the adverse effect on competition in India (Competition Commission of India, 2019).
This has been found that with the acquisition of a growing home-grown player, e-commerce Company in India will
now include two major companies that will dominate the market which include Amazon and Walmart. Most of the
customers are unhappy as being the digital shoppers they have to grapple with the shift of company from Indian
Start-up to an American corporation. This has been found that the confederation of Indian dealers on Wednesday
advised that administration to pay attention on the demands by e-commerce companies as well as agencies from
US to water down or delay the implementation that is based on the present announced FDI rules related to e-
commerce (The Hindu, 2019).
India’s Foreign Direct Investment (FDI) regulations and restrictions have also provided the opportunity to Walmart
Company for acquiring Flipkart. This has been found that in January 2018, the government of India has allowed
more than 100% FDI in the single brand retail through the automatic route. This has given rise to a single brand
who likes to work in India with all their resources and capabilities (IBEF, 2019). In the year 2018, December, the
government of India revised the rules of FDI related to e-commerce with the motive to maintain more
transparency and to expand the economy of the country that is required for the development of the country. In
the month of December, the government said that as per rules 100% FDI is allowed in the models of the
marketplace that is majorly based on e-commerce. In addition to this, the sales of any vendor through the platform
of e-commerce marketplace entity or its group companies have been limited to approx 25% of the total sales of
such vendor. Moreover, the government of Indian has recently shared the update on the e-commerce policy for
the year 2019.
The government of India has released the Draft National e-commerce policy that motives FDI in the model of the
marketplace of e-commerce. In addition to this, it has been found that FDI policy for the e-commerce sector we
developed with the motive to ensure the level playing field for all the participants. This change has brought the
changes for FDI in India, as there is a tremendous rise in the numbers. This has been found that the government of
India is willing to accomplish the rise to US$ 75 billion in the next five years according to the report of UBS
(Tandon, 2018).
This has been found that FDI India rules and regulation has affected the acquisition deal of Walmart. The Wal-Mart
owned Flipkart and Amazon are scrambling to reconfigure ownership structures and re-jig major seller relationship
and contracts that took previously the instructions that come into the effect from 1st March. The major difficulty
arise related to the FDI rules is that Indian view on the two e-commerce model which are present today that is
marketplace and inventory.
This has been found that India permits for 100% FDI in the marketplace model of e-commerce only which shows as
a tech platform that brings the connections between the buyers and sellers present in the market (Joseph and

Viswanathan, 2016). The country has not permitted for the FDI in inventory driven model of e-commerce. The
inventory model is presently used by Walmart and Amazon in the US, in which the goods and services are majorly
owned by an e-commerce company that sells to retail customers. This is very clear from the Indian restriction on
FDI that it is aimed with the motive to protect the Indian market from unorganised retail sector that does not have
the influence to purchase at scale and with this it provides the big offers or discounts. This has been found that the
Walmart retailing major said that changes in the FDI norms have not shaken its level of confidence and excitement
majorly for the Indian market as it remains positive about the e-commerce opportunity that is present in the
country (Bhattacharya, 2019).
After the deal in the next six months, the government of Indian implemented different restrictive changes to its FDI
policy for e-commerce. The rule that was brought by Indian came into the effect from February 1 st, 2019 which
shows online marketplaces enter into the arrangements to sell the products from a solo vendor who supplies more
than 25% of their inventory (Phartiyal, 2019). Along with this, the government of Indian has also restrained online
marketplaces majorly from manipulating the prices. Thus, this clearly shows that the government of Indian did not
comprise with the Wal-Mart acquisition as they brought the changes in their FDI policy.
In the research, this has been found that host country that is India affects the international firms like Wal-Mart
who are making the deals with the country. This effect of Wal-Mart can be good and bad for the country
depending on the economy and environment. The major factor that is witnessed that can influence the
international strategy of Wal-Mart for India include a rise in poverty. The Indian government is making the policy
with the motive to bring improvement in the economy of the country. However, there is still the presence of
poverty and the rise in globalisation is one of the factors that create an impact on the operations of Wal-Mart. The
poverty will affect the spending of the people present in India that adversely create an impact on the profit or
revenue earned by the company. This impact is not only on Walmart but also on all the international firms who are
performing their business operations in the Indian market. However, the new changes in the FDI policy are
bringing the opportunity for the economy to improve and reduce the issue related to poverty (Venkatesan, 2018).
In addition to this, the changes in FDI policy will bring improvement in the unemployment opportunities. The rise
in the employment opportunity not only brings improvement in the economy but it will also reduce the issue of
poverty.
Apart from this, it has been found that that political stability present in India is considered as one of the positive
factors that lead to the impact on the operations. The international firms who are performing the operations in the
Indian market attain the benefit of stability. Political stability will not lead to changes in the rules and regulations
on a frequent basis. This will allow the companies to perform the business operations easily without any chances
of the frequent changes (Jena, Mishra and Padha, 2018). Moreover, the stability in the rules and regulations will
allow the company to expand the operations in the host country easily. It has been found that there is a possibility
of policy changes, which can be done by the company on a frequent basis that has been found with the changes in
policy related to FDI.
At the end of the paper, this can be concluded that Wal-Mart international strategy for expanding the business
operations in India e-commerce retail industry is one of the strategic decisions. Many opportunities can be
attained by the Wal-Mart in India and through this company will be able to attain its goals effectively. The retail
industry of India has always been attractive for Wal-Mart due to which the company selected this market. In
addition to this, the Wal-Mart acquisition of Flipkart is one of the strategic moves as this helps them to deal with
the emerging competitions of Wal-Mart that is Amazon. The acquisition of Flipkart Company leads to concerns
about unhealthy competition. In addition to this, the paper further focuses on India’s Foreign Direct Investment
(FDI) regulations and restrictions that have led to the complications for the company while acquiring Flipkart.

Moreover, this has also found those Indian effects the international firms both in the positive as well as in the
negative aspects that are clear with the issue of rising in poverty and benefit of stability.

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