WalMart's ready with India script, taps local firms

THE ECONOMIC TIMES Sabarinath M & Lijee Philip MUMBAI

Wal-Mart, which grew out of a tiny variety store on the main square of the small of town Arkansas in the southern United States to become the world's largest retail chain, is preparing for an entry into the retail sector in India.

The retail giant and some leading business groups in India are understood to have started a preliminary dialogue for a joint venture, following the government's recent efforts to allow foreign direct investment in retail.

While the names of many business groups are doing the rounds, the industry buzz says that the Mahindra group may emerge as a strong contender to partner Wal-Mart in India. Industry sources say that Wal-Mart and the Mahindras had a preliminary round of meetings to formalise a partnership in the event of the government liberalising FDI norms in retail.

Senior Mahindra group officials, however, have ruled out the possibility of such an alliance and denied any kind of negotiations. There are also rumours that Anil Ambani, the vice-chairman and MD of Reliance Industries, has had exploratory talks to bring Wal-Mart into India. Sources said that business groups like Godrej could also be in the race to partner Wal-Mart.

Wal-Mart's international president John B Menzer is expected to visit India by the middle of May, fuelling speculation about preliminary negotiations with potential Indian partners. Wal-Mart may have to look for a local partner, since the government is likely to allow only 26% or 49% FDI in retail.

A deal between Wal-Mart and a large business group like the Mahindras is possible due to a variety of factors.

Wal-Mart, which began its journey outside the US market in 1991, almost a year before the dissolution of its founder Sam Walton, has generally chosen to rope in a strong local partner. Wal-Mart entered the Chinese and Korean markets through a JV in 1996.

Industry sources said that the presence of the Mahindras in the real estate business in the form of a JV called Mahindra Gesco Realty could also help it partner Wal-Mart. The retail business requires a large amount of real estate space. The buzz is that the Mahindras are also planning to enter the hypermarket (discount stores) business.

The way retailing is done in India will be transformed if overseas giants like Wal-Mart enter India. Sam Walton and Wal-Mart have transformed retailing, the way Henry Ford revolutionised transportation.

Wal-Mart operates on a fundamental credo in whichever market they operate: offer the lowest price, cut costs to the bone and keep cutting, so you can offer the lowest price. In other words, make your profits by increasing volumes rather than selling goods at higher prices.

This fundamental principle has led Wal-Mart to source goods from markets like India and China to drive down costs. Wal-Mart, which has been sourcing from India through an agency, had opened a sourcing office in Bangalore four years ago.

S Ramesh is heading the sourcing operations in India. The retail giant is now stepping up outsourcing from India. Wal-Mart is already a major importer from countries like China.

Sam Walton's way of seeing the world is the cornerstone of Wal-mart's phenomenal success story. Sam Walton came into the US retail scene in the 1960s when no-frills discount chains like K-mart built rings of stores around big US cities. He tried out the discount approach in small towns which everybody ignored. Gradually Wal-Mart became a roaring success.

Though Wal-Mart opened its first retail stores in 1962, it confined its operations to small towns for many years and later expanded its operations to big cities to outgrow players like K-Mart.

Walton motivated workers through a stock-ownership pension plan. Wal-Mart had a sales turnover of $285.2bn in the fiscal year ending January 31, '05.

The company employs 1.6m employees, or buttociates as it calls them, world-wide in over 3,600 facilities in the US and more than 1,570 units in Mexico, Puerto Rico, Canada, Argentina, Brazil, China, Korea, Germany and the United Kingdom. More than 138m customers per week visit Wal-Mart stores world-wide.