WalMart in India

Retailing, like politics, is said to be “local”.  WalMart clearly knows the U.S. market, but to expand it needs to learn other markets as well. For two years now it has been pushing into India (see NY Times 4/12/10) and WalMart isn’t in Kansas anymore.

First, India has a quant law that prevents foreign companies from selling directly to consumers – a potentially big problem for a retailer. So WalMart has a 50/50 joint venture with an Indian company to get around that problem.

Next, to WalMart’s credit (and retailing smarts), they are not trying to replicate their hyper-efficient big-box model in India. It simply won’t work. Instead, they are learning how to compete in a new market. In particular, transportation in India is slow and costly, so sourcing has to be done locally. In addition, there are no large suppliers, like P&G. Finally, it has to sell food because consumer durables cannot be the main product category (the Indian consumer has to allocate a large fraction of their budget to food). 

The one “habit” that WalMart is transporting to India is their propensity for proactive supplier management. They are not content to sit back and buy what is presented to them. They see inefficiencies in food production and distribution, so they are directly addressing those inefficiencies. They are giving farmers productivity advice and providing logistical support to ensure timely deliveries of quality produce. In short, they are using their scale to invest in their supply base. To make these investments profitable, it is important to make sure that their competitors cannot take advantage of their suppliers’ efficiency gains – the last thing WalMart wants is to improve a farmer’s yield only to have the farmer start selling his produce to another retailer. I suspect this doesn’t happen because (i) WalMart is willing to pay a good price, (ii) WalMart can buy up all of the farmer’s good produce and most importantly (iii) farmers develop a sense of loyalty to WalMart for helping them out. Economists have a real hard time with loyalty, but in the real world it is a powerful force. WalMart seems to understand this.

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