International Business: Walmart's Flipkart Acquisition Analysis Report

This report provides a comprehensive analysis of Walmart's acquisition of Flipkart, an e-commerce company based in India. It begins with an introduction to the acquisition and its context within the retail industry. The report then delves into the external environment factors influencing the acquisition, utilizing PESTEL analysis to examine political, economic, socio-cultural, technological, environmental, and legal factors in both India and the USA. Porter's Five Forces analysis is employed to assess the competitive landscape, and a SWOT analysis identifies internal strengths, weaknesses, opportunities, and threats. Further analysis includes a value chain analysis to understand how Walmart can create value. The VRIO test is used to assess core competencies. The report also addresses the risks associated with the acquisition, including financial and cultural considerations. The impact of digital disruption on the acquisition is examined, followed by a conclusion summarizing the key findings and implications of Walmart's strategic move into the e-business sector.

Name: Tennakoon Mudiyanselage Sachintha Bandara Tennakoon
Student Number: 19038286
Module Name: International Business and Innovation
Module code: SM9632
Word count: 3290
Date of submission: 24.01.2020
Contents
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Introduction.................................................................................................................................................3
External Environment Factors influence on the Acquisition........................................................................4
The PESTEL Analysis.................................................................................................................................4
Analysis through Five Forces...................................................................................................................7
Internal Benefits identification through SWOT............................................................................................9
Value Chain Analysis................................................................................................................................9
VRIO Test...............................................................................................................................................10
Risk Associated with the Acquisition.........................................................................................................12
Financial Risk Assessment......................................................................................................................12
Cultural Risk Assessment.......................................................................................................................13
Sustainability and Stakeholder Management............................................................................................14
Impact of Digital Disruption on the Acquisition.........................................................................................16
The 1st Loop of Disruption....................................................................................................................16
The 2nd Loop of Disruption.....................................................................................................................16
Disruption in the market.......................................................................................................................17
Conclusion.................................................................................................................................................18
Introduction
This report contains an examination on a US-based multinational retail corporation which has
entered the electronic business industry. Walmart a reputed organization in a chain of
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hypermarkets and discount department stores has acquired Flipkart. This is one of the largest
companies when considering revenue, it has been listed as the most profitable retailer in the
stock exchange. Walmart is a very profitable retailer, has selected to enter the E-business
sector by acquiring Flipkart an e-commerce company based in India. This report has been based
upon this acquisition in which the decision has been analyzed using various tools to identify the
factors which have driven to the acquisition and the consequences of it. Additionally, it includes
the risks behind Walmart’s shift to e-business industry and the influence of the decision to the
Indian economy. Finally, in conclusion, the decision has been analyzed to distinguish the
favorability of moving into the e-business sector by Walmart and the impact created by it to the
digital market.
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External Environment Factors influence on the Acquisition
The PESTEL Analysis.
The external environment analysis can contribute to distinguish the opportunities and threats
of a firm and develop a sustainable advantage, there are various macro-environmental analysis
tools used for this purpose (Lynch, 2009). PESTEL analysis (Political, Economic, Socio-cultural,
Technological, Environment and Legal) is such a tool that generates a general background on
the macro-environmental factors which influence the businesses (Yüksel, 2012). Given below is
an analysis using PESTEL to ascertain the decision to acquire Flipkart. There are several
definitions given for PESTEL analysis like PEST (Dale, 2000), to analyze the external environment
using the opportunities and threats.
Dimension India USA Global/Regional
Political  Instable government
(threat)
 Political support for e-
businesses (opportunity)
 Trade union influence on
government (Threat)
 Government initiative to
promote E-business
(Opportunity)
 Stable government
(Opportunity)
 High influence on
e-businesses by
the government
(Threat)
 A future market if
gained a proper
foothold.
 The political factors
influence the business
depending on the
government
viewpoint about e-
businesses.
Economical  Continuous growth in
the economy
(Opportunity)
 100% FDI allowance for
e-business (Opportunity)
 Continuous growth
in the economy.
(Opportunity)
 The
unemployment
 The growth of an
economy is a vital
factor considered for
the success of
businesses.
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rate decreased.
 Stability of
economy
(Opportunity)
 Existence of better
market economies
with the flexible
inflation rate.
Social-
Cultural
 The rapidly growing
trend of transactions
through online basis
(Opportunity)
 Cultural diversity trend
(Opportunity)
 Millennials prefer
online shopping
most (threat)
 The growing trend
for online
shopping due to
convenience
(Threat)
 A digitalized era has
been created globally
through online
shopping
 The diminishing trend
of supermarkets.
Technological  Increase in use of mobile
phones (Opportunity)
 Automation of business
processes (Opportunity)
 Real-time analytics used
(Opportunity)
 Easy access to e-
payment methods.
(Opportunity)
 The growing trend
of using smart
devices.
(Opportunity)
 Virtual shopping
experiences
(Threat)
 High technological-
based solutions for
shopping. (Virtual
Shopping)
 High usage of mobile
solutions for easy
shopping globally
 Creation of a global
market
Environment  Waste Management
methods (Opportunity)
 Regulations to minimize
resource depletion
(Threat)
 Trends in business
sustainability.
(Opportunity)
 Eco-friendly
product usage
 Highly concerned
about environmental
management
 The growing trend for
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 Promotion of green
environment.
(Opportunity)
(Opportunity)
 Responsible
sourcing of the
supply chain
(Opportunity)
healthy products.
Legal  High tax on E-business
due to pressure by trade
unions (Threat)
 Tax concessions on
certain processes of e-
businesses
 Regulations for the
protection of online
shoppers
 Regulations for
healthy foods
 High tax rates on
revenue and tax
reforms
 Regulations for
labour rates
(Threat)
 Aggressive taxes on
warehousing and
licensing.
 Tax Concessions for e-
businesses.
According to the above table, the political environment consists of a stable political background
in the USA, although only a few governments support international trade whereas India
consists tight rules and regulations and red tape for international business. However, they have
provided some extensions by providing 100% FDI allowance on b2b business. When the
Economical factors are considered the growing stable economies exist which could deliver
benefits and opportunities to the organization by operating in various countries.
The current trend of society is the application of online purchasing rather than the traditional
supermarket. Therefore, major players in the e-commerce sector like Amazon has created a
huge risk for the supermarket chains which is a major threat for Walmart. Therefore, the
acquisition of Flipkart is a major opportunity to establish a platform for e-business.
Furthermore, when technology factor is considered with the rapid globalization process new
alternatives and solutions have been invented instead of supermarkets. Therefore, to sustain
Flipkart can be a dominant reason in the long run. Flipkart is a local leader through the e-
business sector in India with an already established market and significant positioning for
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growth. When India is considered they are in a competitive position due to growing market for
the e-commerce sector, which consists of a high population of youngsters and trend for use in
mobile devices which are major indicators of growth potential for the E-businesses sector.
Walmart consist of an extensive financial position it can easily sustain short term losses in
creating e-business platform to thrive in the future market. Similarly, Flipkart can provide with
strong shareholding partners essential for the growth.
Analysis through Five Forces
Porter’s Five Force Analysis provides a systematic structure for determining the capability of a
company to capture the value generated (Enders, König, Hungenberg & Engelbertz, 2009). This
capacity is related to different strengths of forces. According to Porter's Five forces, it consists
of a strong competitive position in the short run. But the trade rivalry and competitiveness in
the retail sector requires preventive steps to mitigate the negative effects of opposition.
Bargaining Power of Buyer (Low)
Walmart consist of individual customers who make a small number of purchases, Due to the
convenient and competitive prices customers exert no pressure on bargaining.
Bargaining Power of Supplier (Low)
Due to the extensive size of Walmart the supplier power is less as the switching costs are nearly
nonexistent and the complying of the rules and regulations of Walmart is mandatory for the
suppliers to abide by health and safety policies.
The threat of New Entrants (Low)
Due to the strong financial position Walmart consist of the largest distribution networks and
supply chain which requires an extensive amount of capital to manage them. And due to the
variation of brands and cheap prices it has secured a strong position in the market.
The threat of Substitution (Strong)
Due to the availability of many ranges of items substitution is irrelevant as there are several
alternate brands for each product. But the whole concept of domestic shopping is diminishing
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gradually therefore, in the long run, Walmart needs to come up with a generic strategy to excel
in the market.
Rivalry among Competitors (Very High)
The rivalry among the competitors is extremely high due to multiple sized companies
competing for the market. Similarly, the online market is a major threat which is affecting the
market to split. Amazon is the main competitor Walmart competes with due to the growing
trend of online shopping.
According to the above Strategic planning for Walmart requires priority to rivalry and new entry
and threat of substitution by online firms. Continuously improvement is required to maintain its
competitive advantages and develop the business to suit the future requirements of the
customer. Due to the above acquisition of Flipkart, the strategy to minimize the above external
threats are visible which are leading to a downfall in the long run.
Internal Benefits identification through SWOT
The SWOT analysis of Flipkart identified that as India's largest e-commerce retailer who has
been designated as the highest valued acquisition in India (Saraswathy, 2019), has the potential
of initiating its private logistics division. The introduction of local brands and furnishing them
recognition is one cooperative initiative of this business which can be further developed with
the government's support for Make-in-India products.
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Furthermore, acquisition of different emerging electronic commerce platforms such as Myntra
has made Flipkart privileged to use the technology and cyberspace of the acquired businesses
as well. Having established its name in the industry, this business foresees opportunities to
expand its business by venturing into upcoming markets and thus expanding its customer base
by diverging into different product categories.
In spite of being the largest e-commerce business in the country, Flipkart still struggles due to
weaknesses in int distribution strategy. Major international businesses like Amazon have
expanded their distribution channels and has been in a tight competition with Flipkart giving
customers with many opportunities to switch between. However, Walmart's being a
stakeholder of the company gave them a novel opportunity to increase its valuation and be
financially stable.
Walmart is one of the major brick-and-mortar company (Bhaskaran & Bandookwala, 2019),
which owns a large chain of networks and thus gives the company unfathomable funds to
finance growth and expansion. But emerging hypermarket trend can effortlessly mimic its
business model while the brick and mortar model of businesses declining opting into electronic
businesses. Thus, possibilities are there that potential customer base might get reduced with
time and similar emerging businesses ("Strategic Management Of Walmart", 2018).
Value Chain Analysis
The value chain consists of a series of activities commencing from designing which includes
various phases like production, marketing and delivering value to the customer (Koc & Bozdag,
2017). Misallocation of alignment of the operations and resources can be easily identified
through value chain analysis (Fearne, Garcia Martinez & Dent, 2012). Value chain activities
should be conducted in a way in which it could gain competitive advantages (Ferdous & Ikeda,
2018). It can be identified that Walmart follows a cost leadership strategy. The analysis of the
value chain emphasizes how the activities are managed to provide a unique value.
The Inbound Logistics and the outbound logistics processes consist of a unique advantage as
Walmart purchase stocks on bulk for a lower price from the supplier to manage the prices.
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Additionally, they consist of a state-of-the-art supply chain management system and inventory
management system using apps and technology to reduce costs. An inventory management
technique called cross decking is used which has reduced costs related to transport and
inventory. There are over 150 distribution hubs with Walmart and these are the distinctive
factors which can be identified as key factors which can be used to develop Flipkart and provide
services around the globe and be a dominant player in India as well as other countries.
When Flipkart is considered, it consists of a very capable team and a group of long-term value
shareholders like Microsoft. And there is an added benefit as Flipkart is the local leader in India
with an existing customer base in a country in which e-commerce is growing much higher than
the retail trade. When these aspects are considered Walmart and Flipkart can create a
distinctive change with the competitive advantages as mentioned above.
VRIO Test
Resource-based view states that a firm's competitive advantage is derived through a set of
unique tangible and intangible resources (Barney, 1991). According to the resource-based
theory resources and skills that are firm-specific, rare, and difficult to imitate or substitute, and
have an organizational orientation is known as the VRIO framework (Barney, 2002). According
to the VRIO test, the Inventory Management system can be identified as a core competency
because of the efficiency and managing of costs and bottlenecks of inventory. Furthermore, the
extensive global supply chain is a major core competency which creates a sustainable
competitive advantage. The supply chain reflects the scale, cost leadership strategy and
competitive prices through an efficient supply chain. Flipkart's VRIO test indicates the delivery
network and existing customer base as the core competencies. Therefore, due to the above,
the synergy of Flipkart and Walmart can create a comprehensive transformation which would
benefit to become the prevailing opponent in the e-commerce Industry by surpassing Amazon.
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Risk Associated with the Acquisition
Risk can be defined as the ability to predict certain outcomes after calculating its possible
influences, the more precise the prediction according to calculations, the lower the level of risk.
It simply is the uncertainty of successfulness or failure that exists when a task is carried
forward, the different possible outcomes that could happen based on chance.
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Financial Risk Assessment
Financial risk when business ventures are taken into consideration can be defined as the
certainty or uncertainty of an asset to earn the expected rate of return (Fitch, T 1997).
Risk as a whole can be classified into two components, the business risk which is risk associated
to insolvency and financial risks that are risk associated to the variability of returns from those
that were calculated (Asenova and Beck, 2003).
When it comes to Walmart, it has adopted a set of strategies that elevates their core values. As
maintaining a low price is one of the main strategies of the company it can be derived that
Walmart practices Cost leadership Strategy. Operating at low costs can also be considered a
core strategy as Walmart keeps the operating costs low to achieve economies of scale. It also
used market penetration to enter new markets and capture customers in short periods.
In order to achieve results through these strategies mentioned above, certain conditions should
prevail, and especially when it comes to operating after an acquisition many factors come into
play, the state of the economy, price stability and economic stability, inflation level all together
act as one big risk carrying body to influence operations of Walmart in a foreign land, another
huge risk that will be faced is the fluctuating dollar rate levels which will have a direct impact on
the financial position and liquidity level of the business.
To mitigate the risk of price fluctuations, deals are made with the suppliers with conditions
favourable to the company, further to decrease the risk of facing huge losses dealing with
foreign currency exchange arrangements that favour the company can be made, like setting a
fixed exchange rate policy or going with a flat exchange rate policy. Further, since Indian Rupee
value is cheaper compared to Dollar value rate, Walmart has the exchange rate advantage as
more of Indian rupees can be bought through fewer dollars which will, in turn, help Walmart
purchase more resources that will ultimately help establish massive outlets that outstand and
out-compete for other prevailing businesses. The fact that Walmart uses online and digitalized
payment systems the impact it can have from short term price fluctuations are less as
transactions are done along with payment real-time. Selecting the most suitable mood of entry
in each country is a major strategic decision that is to be taken into consideration by companies
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