walmart: from china to india · mcmillon thought it was important that, in addition to seeking...

THE CIBER CASE SERIES

Walmart: From China to India BY RAJEEV KOHLI* AND ALONSO MARTINEZ†

Introduction On September 21, 2012, the Government of India made it official policy to allow foreign direct investment (FDI) into multi-brand retailing. The new regulations permitted multinational retailers to open retail stores and own up to 51% of their retail operations in India. On the same day, Walmart Stores became the first multinational company to announce that it would open retail stores in India, in the next 12 to 18 months.

Doug McMillon, CEO, Walmart International, believed it was the right time for his company to enter India. The country was home to nearly one-fifth of the world’s population and had witnessed substantial economic growth in recent years, yet still had among the lowest per-capita consumption rates in Asia. Retail sales in India had risen from $330 billion in 2005 to $470 billion in 2009 and by one estimate would increase to $650 billion by 2015.

McMillon thought it was important that, in addition to seeking profits, Walmart become part of India’s broader growth story. He had spent time traveling and learning about the people and culture of India. He had also spoken about the importance of including women in Walmart’s workforce in emerging markets, and of providing education and training to the company’s employees. Over the years, Walmart had worked with Indian farmers to help them improve farming practices. McMillon believed that working with farmers was about giving them “more direct access to markets so they can get a better return…about producing more food with less waste and providing customers with affordable and locally grown produce.”

Although formal retailing in India had grown in recent years, it was still dominated by small kirana (mom-and-pop) stores. The country had poor logistics and infrastructure, which on

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PUBLISHED ON JANUARY 18, 2013

Author affiliation *Ira Leon Rennert Professor of Business and Chair of the MarketingDivision, Columbia Business School †Adjunct Professor, Columbia Business School

Acknowledgements This case was sponsored by the Chazen Institute and the Columbia University Center for International Business Education and Research (CIBER).

Kate Permut ’83 provided research and writing support for this case.

Copyright information © 2012-2013 by The Trustees of Columbia University in the City of New York. This case includes minor editorial changes made to the version originally published on October 23, 2012.

This case is for teaching purposes only and does not represent an endorsement or judgment of the material included.

This case cannot be used or reproduced without explicit permission from Columbia CaseWorks. To obtain permission, please visit www.gsb.columbia.edu/caseworks, or e-mail [email protected]

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This document is authorized for educator review use only by Ana Pap, HE OTHER until March 2018. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

one hand was a challenge, but on the other hand was an opportunity to create an efficient retailing business.

McMillon remembered how Walmart had entered China in the mid-1990s with the view that it could replicate its US business model and achieve success by “saving people money, so they can live a little better.” Yet the company had struggled for a decade to make a profit.

Walmart’s management believed the company was better prepared for its entry into India than it had been for its entry into China. In 2007 Walmart partnered with Bharti Enterprises, a large business group in India. The two firms established a joint venture, Bharti Walmart Private Limited, for wholesale cash-and-carry and back-end supply chain management operations. In 2010 Walmart invested about $100 million in Cedar Support Services Ltd., a holding company that owned Bharti Retail. Cedar was originally set up in 2007 as Bharti Retail (Holding) Private Ltd.; its name was changed in 2009 and its articles of association were amended to create a real estate and design consultancy service company, an entity in which foreign direct investment was allowed. Walmart’s investment in Cedar was in the form of debt securities that paid no interest but could be converted into a 49% ownership stake.

By 2012, the Bharti Walmart joint venture had opened 17 Best Price Modern Wholesale cash-and-carry stores. A typical store occupied 50,000-100,000 square feet and sold a wide range of fruits and vegetables, groceries and staples, stationery, footwear, clothing, consumer durables, and other general merchandise items. The stores also offered education programs to their members and shared best practices with small and medium-sized retailers. Raj Jain, president and CEO of Walmart’s Indian operations, oversaw the joint venture. Jain had previously worked in Shanghai as the Asia-Pacific regional head of marketing at the Whirlpool Corporation,

Still, there were concerns and uncertainties. Multinational firms could set up shop only in those Indian states that allowed foreign direct investment in retailing—and they had to invest no less than $100 million, at least half of which would be earmarked for back-end infrastructure. The political climate was also uncertain. The Indian Government had proposed allowing FDI in multi-brand retailing in December 2011. However, faced with stiff political opposition, it had put the initiative in abeyance. Now, nine months later, the government had approved retail FDI in a bold effort to spur investments into the country. Opposition parties and some members of the coalition government itself continued to voice strong disapproval, claiming that stores like Walmart would deal a fatal blow to the neighborhood kiranas and rob millions of uneducated and unskilled retail workers of their livelihoods. They were also concerned that multinational retailers would harm domestic manufacturing by flooding the market with cheap imports. The Communist Party of India (Marxist) alleged that Walmart had violated regulations by previously investing $100 million in Cedar Support Services. Walmart denied any wrongdoing and issued a statement saying that it had followed all procedures and processes and had filed supporting documents with

Walmart: From China to India |

BY RAJEEV KOHLI* AND ALONSO MARTINEZ†

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the relevant Indian government authorities. In response, Indian regulators stated that there would be an “informal inquiry” into the allegation.

In the midst of these developments, McMillon had to decide how much to invest, how quickly to invest, and what strategy to employ for Walmart to succeed in India.

Walmart’s Global Footprint in 2012 Sam Walton opened the first Walmart store in Arkansas in 1962 with the express mission of bringing a broad assortment of merchandise at greatly discounted prices to underserved rural consumers. The strategy was well summarized by the firm’s “Every Day Low Prices” (EDLP) slogan. Thus 2012 marked an important anniversary for Walmart as the company celebrated 50 years of helping customers “save money and live better.” (See Appendix 1 for more on the foundations of Walmart’s business strategy.)

By 2012 Walmart operated more than 10,000 retail units under 69 different banners in 27 countries.1 The International group was a major source of revenue and its strategy of meeting local needs and leveraging global resources was delivering on a key corporate goal: driving aggressive growth. The division contributed 28.4% of net sales in 2012. Walmart International’s year-over-year growth rate outperformed that of the United States by a factor of 10: Where US sales increased 1.5% year over year, international sales were up 15.2%. (See Exhibits 1A and 1B.)

Walmart stores outside of the United States were predominantly consumer retail locations, but included wholesale and other formats as well. Walmart’s largest international presence was in Mexico with over 2,000 locations in operation. There, as in several other markets including Canada, the UK, and Brazil, the company’s first foothold had been through a joint venture with a local retailer, which subsequently was fully acquired. Brazil was a notable success story for Walmart International—within 15 years of launch the company had 532 locations and had become the nation’s third largest retailer. But Walmart had also exited several key markets, including Germany and South Korea—both in 2006—where expansion had failed to pay out.

Walmart was also scaling up its plans for expansion in Africa, where it partnered with the government and NGOs (nongovernmental organizations) to invest in infrastructure and helped to support improved living conditions for the continent’s residents. In June 2011, Walmart acquired a majority stake in Massmart Holdings Limited, the top African general merchandise retailer with 352 locations, headquartered in South Africa. The newly developing sub-Saharan consumer markets also offered Walmart an opportunity to quickly grab share where large format stores were just starting to penetrate the marketplace. (See Exhibit 2.)

In April 2012 Walmart had been shaken by US Justice Department charges against its senior Mexico executives for violations of the Foreign Corrupt Practices Act (FCPA). The charges, that Walmart executives had bribed local officials to fast-track new store permits, could cost the company millions of dollars in fines if proved true. As a result, Walmart was conducting

| Walmart: From China to India BY RAJEEV KOHLI* AND ALONSO MARTINEZ†

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a detailed global review of its anti-corruption and FCPA compliance procedures. Any new investments overseas would undergo intense scrutiny, above and beyond the usual ROI calculations.

It was with this array of opportunities and risks in mind that McMillon reflected on the firm’s expansion into India, carefully considering the lessons his team had learned from their previous experiences in emerging markets…most notably in China.

The Retail Experience in China Walmart launched its retail business in China in 1996 with a SuperCenter and a Sam’s Club retail warehouse club in Shenzhen, the first commercial zone opened to FDI by the Communist government.2 But the firm took over a decade to turn a profit there and met with an assortment of unique challenges…

A COMPLEX RETAIL ENVIRONMENT Like India, China had a population equal to almost one-fifth of the world’s inhabitants.3 The Chinese economy had experienced explosive growth since 1990. While much of China’s expansion through 2000 had been attributed to burgeoning exports, growth throughout the next decade was attributed to urbanization, the growth of the middle class, and the accompanying escalation of private consumption.

Rapid urbanization meant that China’s consumer retail sales in cities outpaced those of rural markets. The types of cities that made up urban China were quite varied and classified into “tiers,” based on population size, economic output, growth, geography, transportation infrastructure, and historical significance. The Chinese government had made huge investments in education during the 1990s, doubling the number of college graduates in one decade. The vast majority of urban dwellers earned their income in the form of regular salaries and wages paid by public or private employers.

The retail habits of China’s urban consumers differed from those of their rural counterparts. Rural shoppers were highly likely to know and as a result patronize their neighborhood vendors, while recent migrants to cities had not yet formed such loyalties. Recent urban arrivals were also more open to shopping at chain stores, hypermarkets, or other new store formats—as long as the price was right. As typical Chinese consumers, urban shoppers were extremely pragmatic. While quality was a critical consideration, value was most important—23% of Chinese shoppers would go out of their way to buy from stores that offered a better price, compared to 18% of shoppers in the United States.4 But other practical concerns dictated shopping habits as well. With smaller size dwellings and limited storage, the average Chinese consumer shopped five times more a week than their US counterparts, buying only one-quarter of the basket size. And, although automobile ownership was on the rise, even in 2010 only 5% of the Chinese owned a car, so retail purchases had to be transported home on foot, by taxi, bicycle, bus, or other means. 5 Among the Chinese, shopping was frequently regarded as a form of entertainment and an activity to be shared



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with friends and family. Seventy three percent of consumers cited shopping as a leisure activity.6

Brand awareness was of growing importance. As Internet access spread, the impact of online research on shopping was of increasing consequence. In 2010, 450 million Chinese had access to the Internet and, if a big-ticket item was being considered, more than 45% of this group said they would do online research before making a purchase.7 This level of attention was spreading to grocery purchases as well; the Chinese buyers’ level of sophistication in examining ingredients was considered to be on par with that of consumers in the developed world.

By the time Walmart had established its roots in China, the retail sector had evolved to serve the new consumer-oriented, urbanized population. Retailers could be segmented into three general formats: traditional, modern, and online stores.

• Traditional stores included “wet markets” (specializing in fresh vegetables and meat, poultry and seafood—often sold alive), variety stores (known as xiaomaibu), and fruit stands. These stores were small, independent, family-owned, under-regulated, and sometimes unhygienic—but very convenient and often considered part of the local community. They offered customers a limited number of items, but could tailor their products to the micro-market served. Proximity and ubiquity made them convenient for small, daily purchases, plus traditional stores could offer informal services, such as home delivery or on-the-spot informal credit, which corporate retailers could not.

• Modern store formats included hypermarkets, supermarkets, and discount, convenience, home improvement, specialty, and department stores. Modern retailers could be owned by public governments; private Chinese local, regional, or national firms; or by multinational, internationally based corporations. The largest Chinese retail firms included Suning Appliance Group, Gome Electrical Appliances, Shanghai Bailian Group, and Dashang Group. International retailers had been investing in China since the 1990s, testing and fine-tuning various store formats. They included firms such as Walmart from the United States, Carrefour from France, Metro from Germany, and Tesco from the UK.

• Online sales in China were growing and had the potential to increase significantly. Among the Chinese middle-class, 88% used the Internet. With an estimated 193 million online shoppers, online sales reached $121 billion in China in 2011, a 66% increase over 2010.8

Underlying this growing selection of retailers was one central authority that controlled the shape of the marketplace for the Chinese consumer—China’s Communist national government.

GOVERNMENT REGULATION AND FDI Prior to the 1990s, China’s citizens could only spend at local, small traditional retailers or in government-run stores. When FDI was allowed in 1992, multinational retailers were required to work with a local partner in a joint venture to open any retail outlet. This policy ended in 2005, when foreign investors were allowed to own 100% of the retail businesses they


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operated in China. Yet despite the lifting of these restrictions, government regulations continued to govern many retail decisions. Labor laws, supply chain relationships, sourcing, and pricing were regulated at various government levels. Provincial laws sometimes prohibited procurement across regional lines, ensuring that produce and other goods were locally sourced. Stores might stock items produced outside a region, but only after paying a large surtax on “imports” across regional lines. City governments had to issue permits for any new store construction.

Since China’s tax regulations on retail receipts dictated that those monies flow to local governments rather than to a national fund, regional authorities were quite active in seeking to lure retailers to their areas. Local officials allowed greater “flexibility” in enforcing national regulations within their districts, if by being lax they could attract investment. China’s lack of transparency in government decision making led to a relatively high corruption index, but this became just “a risk of doing business” for foreign retailers. Officials in second- and third-tier cities were particularly prone to corruption, as the enforcement of regulations tended to “fluctuate depending on government views at any given time.”9

INFRASTRUCTURE AND OPERATIONAL CHALLENGES Retailers in China faced significant operational challenges given the country’s rapid urbanization. While the sophistication of the country’s infrastructure varied widely between regions, the central government had been successful in accelerating the development of one crucial resource: electricity. China’s power-plant construction boom during the 2000s accounted for 80% of the world’s new electric generating capacity. This development had supported China’s manufacturing boom, but it also aided the successful expansion of retail as well.

In terms of logistics, poor roads across long distances made transportation and inventory resupply difficult, particularly for retailers in second- and third-tier cities. The nation’s railroads, airports, online and mobile communications systems required major investments and upgrades, too.

Procurement and distribution were not easy for other reasons as well. Regulations dictated that a percentage of products be locally sourced; this prevented retailers from bringing in many low cost goods from outside a region, or outside China. Price controls existed under oversight from Beijing, to ensure that neither dumping of goods nor price gouging occurred. Storage facilities were lacking and many firms had to construct their own warehouses and refrigerated facilities. Information technology and data on sales and inventory could be unreliable, especially where pilferage was a problem. Finding enough skilled local employees was also an issue. Retailers in China had to manage all of these challenges simultaneously if they were to generate profits from the slim margins of the consumer retail and grocery trade.



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Walmart in China When Walmart first entered China in the 1990s, the firm’s strategy was to take the business model that it had used to expand so successfully in the United States and apply it to China. In line with China’s FDI regulations at the time, Walmart worked with a local joint venture partner to launch several retail outlets, purchasing land on which to build their large stores. They replicated the typical Walmart’s retail environment, with bare-bones displays, spotlessly clean merchandise, wide-aisle layouts and “Every Day Low Prices.” Their local managers demanded stringent operational efficiency, procured inventory from the lowest-cost suppliers, and prominently featured brand name items for less.

But five years later Walmart’s venture in China had yet to earn a positive return. Management acknowledged that “the unique and developing retail environments of Asian countries throw some challenges into the mix.”10 They further concluded that:

• Chinese consumers were quite different from others. Their savings rate was much higher “because, unless they work for the state, they are unlikely to receive much of a pension… Walmart was considered fancy.”11

• China’s shoddy inter-regional roads and fragmented trucking industry undermined the firm’s ability to minimize costs through streamlined logistics.

• Walmart cultivated close relationships with high-ranking national Chinese officials, only to later learn that the power to grant licenses for foreign corporations to open more retail outlets in Tier 2 and Tier 3 cities was at the regional and city government level.

Given that the Walmart business model required massive scale in order to produce profits, the company looked for a new way to expand quickly in China in the 2000s. Rather than open its own stores, the firm turned to acquisitions as a way to quickly add locations; by purchasing existing stores, Walmart avoided the wait for permits needed for new land acquisition. In 2007 the company announced it had acquired a 35% stake in the Chinese retailer Trust-Mart and next acquired a 65% interest in retailer Haoyouduo, making an aggressive push into China’s smaller urban markets. Only three of the 30 outlets Walmart opened in China in 2007 were in Tier 1 cities such as Shanghai, Beijing, or Shenzhen. The rest were in provincial capitals or other smaller cities.12

By 2012 Walmart had 376 locations across China and employed 100,000 associates of whom 99.9% were Chinese.13 The company learned to tailor store formats and product selection to better match the tastes of each local Chinese community. For example, stores in Yunnan stocked more than 100 types of dried mushrooms, while outlets in Dalian offered a broad selection of sea cucumbers. Walmart Neighborhood Market and Smart Choice outlets were set up as convenience stores, catering to urban customers in Guangdong province, while its Discount Compact Hyper stores in Jiangxi were in residential neighborhoods aiming to serve lower-income customers.14

Walmart’s effort to cement its relationship with the Chinese consumer and the Chinese government was further evidenced by these developments: In 2006 Walmart recognized


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trade union representation of its workers by the All-China Federation of Trade Unions, a first for Walmart as a company; in 2010 Walmart and the China Beverage Industry Association signed a Memorandum of Understanding for a joint effort to promote clean production and sustainable practices in the beverage industry; Walmart led initiatives with several regional governments to train and prepare export manufacturers to produce quality items for domestic Chinese markets; in 2011 Walmart set up “direct farm” programs in more than 23 provinces, providing free training on sustainable agriculture practices, fertilizer management, recycling, and other issues to 800,000 farmers.

After more than 12 years of operations, Walmart China finally turned a profit. Although Walmart headquarters rarely provided sales data country by country, the firm released 2010 sales for its Chinese operations as $7.5 billion, ranking ninth among retailers in China. This was a noticeable success, given the company’s track record, but could also be seen as a small pittance, given the firm’s global sales volume of $405 billion.

Carrefour in China: A Faster Track? By 2012 the giant firm Carrefour had become the second largest retailer in the world behind Walmart, expanding rapidly since first opening in France in 1958. The company was the original creator of the hypermarket, combining a department store and supermarket under one roof. By 2012 Carrefour had over 3,500 locations in 18 countries. Thirty eight percent of the stores were hypermarkets and the rest were supermarket, convenience, and cash-and-carry stores.15

Carrefour opened its first hypermarket in China in 1995, at a time when FDI regulations stipulated that foreign companies operate with many caveats. Carrefour circumvented many of these regulations by setting up a joint venture subsidiary with a local partner, Zhong Chuang Business Company. Their stores opened under the Carrefour name, but operations were managed through the Chinese subsidiary, which did not need to adhere to FDI rules. This business model was duplicated in many Chinese locations as the company expanded to 29 cities.16 Some retail industry experts saw this as Carrefour’s bending government policy, but others suggested the arrangement as a classic example of how well Carrefour adapted to local conditions:

When most foreign retailers viewed China as a large market, Carrefour saw it as many small markets. It designed stores and launched private labels to suit Chinese consumers. Each store ran independently. They hired local people in key positions and kept the staffing lean.17

Having a local face for its stores also allowed Carrefour to circumvent many of the obstacles presented by China’s complex distribution systems. Where Walmart China consolidated its purchasing function in only two centers in Shenzhen and Dalian, Carrefour China pushed this function down to the city level with purchasing centers in 20 cities. This allowed for a more rapid, flexible response in delivering inventory and food to match local consumers’ tastes.18



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Carrefour was also able to expand at a brisk pace by renting rather than constructing stores. The company signed its first 20-year lease in 1995, providing a quick foothold in China’s tight real estate market. When government FDI restrictions were later lifted, Carrefour simplified its operations, expanded aggressively into new regions, and dropped many of its local partners. By working so closely with local retailers, store design and inventories had already been tailored to local tastes and continued to attract Chinese shoppers. Carrefour had three discount formats in China: (i) discount stores, which served 2,000-10,000 customers in a residential area and primarily sold food; (ii) supermarkets, which served 100,000-500,000 residents and were located along traffic lines to downtown areas; and (iii) hypermarkets, which served a million residents and were located at the intersection of major traffic lines. Jean-Luc Chereau, president of Carrefour in China, said that 28% of its customers in 2003 came by foot, 45% by bus, 15% by bicycle and 12% by taxi.19

Ultimately, Carrefour’s pattern of opening 20 to 25 new branches each year proved a challenge to sustain. The rents in central neighborhoods and business districts were going up and profitability was difficult to maintain. Carrefour closed four stores in 2010 “due to bad location choice and poor management” and announced a new strategy of moving into suburbs and mid-sized cities.20

THE COMPETITIVE ARENA IN 2010-11 By the end of 2011 an array of large Chinese-owned and operated retailers continued to dominate the retail marketplace, with such firms as Suning, Gome, and Bailian leading the way. While Germany’s largest retailer, Metro AG, had only 50 locations in China, the firm declared that it would be looking for significant growth there over the next five years. UK grocery giant Tesco planned to open 200 hypermarkets and test new Express store formats as part of its strategy for 2011.

Carrefour was ranked seventh among retailers in China based on 2010 sales; Walmart was ninth. (See Exhibit 3 for the Top 10 Retailers in China in 2010.)

India: A Retail Opportunity India was the world’s second largest country in 2010 with a population of 1.2 billion and 15 official languages. As the world’s largest democracy, the country was a federal republic comprised of 27 regions, each with its own state level government.

Over the past two decades India’s economy had been booming, as its services and manufacturing-for-exports sectors expanded. Real GDP growth had been strong through the 2000s and was over 6% in 2011.21 India’s middle class and urban populations were growing, with tens of millions of its citizens rising out of poverty since the mid-1990s.

THE CONSUMER PROFILE Urbanization trends were expected to accelerate as the population of India’s cities rose from 340 million in 2008 to a projected 590 million by 2030.22 In 2011, more than 50% of the Indian population was below the age of 25, which would translate into a larger workforce and demand for jobs in the decades ahead.23 Education levels had been rising steadily and 63% of


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adults and 81% of youth were literate as of 2010.24 Where 45% of the population had been below the poverty line in 1994, that number had decreased to 30% by 2010.25

Consumer spending was on the rise and expected to skyrocket. Consumer expenditures reached $991 billion in 2011 and would almost quadruple to $3.6 trillion by 2020, spurred by both economic growth and rising incomes.26 While the savings rate of Indian households was near to that of the Chinese, 35% and 38% of household income respectively, consumers exhibited different intentions when their incomes rose;27 Indians who saw their incomes rise were more likely to increase discretionary spending.

SHOPPING HABITS Indian consumers exhibited a wide variety of shopping habits, depending on their location, access to transportation, means of payment, and storage options. As of 2011 fewer than 20% of households had refrigerators.28 Only 4% owned a car.29 Only 35% of households had banking accounts in 2006. And, with nearly three-quarters of the population living on less than $2 per day, most Indian shoppers made small, but frequent purchases of essential items.30

Among rural households, factors surrounding transportation and storage were very important in determining shopping habits. Purchases had to be carried home by hand. Storage for perishable food was limited, so small quantities were bought for immediate consumption so that food-borne illness or contamination would not be a concern. Seasonal incomes were tied to the farming harvest, which had an impact on cash flow. Being able to buy on informal credit was important. Whether a household’s income was below or above the poverty line, rural shoppers had to contend with longer distances and transportation infrastructure issues (e.g., patchy roads, coping with weather conditions, uneven electricity) in order to make their purchases.

For urban shoppers in India’s densely populated cities, some concerns were the same. Small apartments had limited storage space, so people made frequent shopping trips for smaller purchases. Wage earners might have a more reliable cash flow if they had a job paying an annual income. But day laborers, shift employees or seasonal workers needed to rely on informal credit. Traffic congestion and over-crowded buses, trains, and subways meant that it was not easy to carry purchases home by hand, even if transport was available. Issues surrounding food safety, spoilage, and counterfeit consumer products, such as medicines, concerned these Indian consumers just as much as their rural counterparts.

Of importance to note was the cultural routine built around shopping for both the rural and urban Indians. Haggling over prices at the weekly street bazaar, the daily call of a local vegetable seller, or sharing family news with the local shopkeeper—these habits were ingrained into the fabric of the lives of many Indians and such habits would be difficult to change.31



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RETAIL FORMATS The Indian economy offered shoppers a wide array of stores from which to choose. These included informal and formal sellers from both the unorganized and organized sectors of the economy. (See Exhibit 4.)

Unorganized/informal stores were small retailers that included fruit stalls, street vendors, pushcarts, pavement hawkers, mom-and-pop stores or kiranas, and paan shops that sold tobacco and betel nut. These informal stores were unincorporated, usually run by an individual owner working with family members, and operated without formal contracts. General merchants and specialty stores were also a part of the unorganized sector, but were considered to be formal retailers. Together these accounted for over 95% of India’s retail sales in 2009. (See Exhibit 5.)

Organized/formal sector stores were large, incorporated businesses that included chain stores, department stores, supermarkets, hypermarkets, and store-in-store locations. These organizations could be privately owned or publicly held, conducted business using legal contracts, issued budgets and company reports that adhered to accounting rules, and could be either Indian or foreign owned (with government policies dictating FDI percentages). They might sell food and groceries, non-food products, durable goods, or all of the above. Products might be sold under a single brand name or the store could offer multiple brands.32

India’s consumers gained different advantages when shopping at any of these store types. Informal, unorganized small retailers were located in rural towns or within urban residential neighborhoods. They were nearby and convenient, in terms of the shopper’s time and transportation outlay. Produce selection was limited in variety, but was fresh each day. Shoppers were personally acquainted with their local storeowner, creating a close sense of community. A store could cater to the specific customs and personal needs of its locality, offering only the brands and small, fragmented package sizes preferred. Many local merchants accepted returns, offered credit to longstanding customers, took phone orders, stayed open seven days a week, and made home deliveries. Bargaining was normal and a shopkeeper might adjust prices due to changes in a customer’s personal circumstances. Shelf prices might be a bit higher, but physical proximity lowered the customer’s total purchase costs.33

Organized retailers offered Indian shoppers different benefits. Corporate quality standards and procedures were used to make sure products were safe, less likely to be counterfeit or contaminated. These stores maintained a wider assortment of products, offering a one-stop-shopping advantage to consumers. Organized stores charged lower prices on a more consistent basis, seeking out the lowest cost producers from around the country, if not the world. Food quality was high and many firms had their own cold storage, warehouse, and processing facilities. New types of customer services were offered, including loyalty programs and e-commerce. They could accept a wide variety of payments, including cash, debit cards, and credit cards. Large multinationals also could offer support to their Indian suppliers and partners, such as knowledge of how to operate lean distribution systems. The


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efficiencies and savings from better inventory management allowed these organized retailers to pass on savings to their customers.34

Although India’s organized stores had a smaller portion of 2009 retail sales nationwide than the unorganized sector, their growth rate was accelerating.

ORGANIZED RETAILERS: THE COMPETITIVE LANDSCAPE India’s domestic firms were adapting quickly to serve the growing demands of middle-class consumers. In 1996 India had 137 shopping malls. By 2010 the number was near 600. Indian-owned retailers were testing a variety of store formats. The largest domestic retailer, Future Group, operated stores under several different banners—Big Bazaar hypermarkets, Food Bazaar supermarkets, Central department stores, Pantaloons fashion stores, and Aadhaar rural retail stores. Other leading Indian retailers pursued this diversified brand strategy as well. Many firms also adhered to Walmart’s strategy of profitability through rapid growth, adding scores of new store locations each year in the race to grab market share. For example, Reliance Industries launched its first retail store in 2006. By 2008 it had 590 outlets and reached 1,000 locations operating under 17 different banners by the end of 2009. (See Exhibits 7A and 7B.)

Leading multi-brand companies from around the globe entered India working within the constraints of India’s FDI policies. Tesco had focused on a franchise agreement with Tata-run Trent, solely providing inventory, supply chain management, and IT solutions rather than running any customer-facing stores. Metro AG had eight cash-and-carry locations in India by 2010. The German firm was also testing a new, smaller concept store in Hyderabad and planned to open 50 more locations in the next five years. Carrefour opened its first cash-and-carry in New Delhi in December 2010, added another in 2011, and planned to open a dozen more in short order. The French firm was also building an IT platform to enable its Indian customers to shop online. Walmart was in India too and operated its cash-and-carry business with Bharti as its partner.

For all of these global multi-brand firms, their cash-and-carry ventures were seen as footholds into promising markets and experiences that offered preparation for the future. A key goal was to get to know the Indian consumer better, and thus be fully prepared to launch their own retail stores once regulations were lifted.

INFRASTRUCTURE AND OPERATIONAL CHALLENGES The cash-and-carry experience also provided foreign multinationals with insights into the operational challenges of selling goods in India. Better logistics would be needed, in terms of transportation, warehousing, packing, and handling, to keep down costs and maintain margins. Road transportation was used to move 77% of retail goods, but this was a highly fragmented system as operators with 20 or more trucks handled only 6% of business traffic.35 New, more efficient “chill chain” facilities would be needed to keep food fresh as it moved from farmers’ fields to shoppers’ baskets. This was necessary to decrease the loss of 25%-30% of produce which spoiled in transit in India each year—a loss valued at $12 billion to the Indian economy.36



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The scarcity of talented retail professionals was a continuing concern too, especially for the middle management levels that would need to be filled in future expansion. This shortage would put increased pressures on wage costs.

Fraud was also a concern where pilferage, shoplifting, and vendor inaccuracies cut into the bottom line. It was estimated that fraud costs constituted 2% of the organized retail sector’s revenues, again endangering slim margins.37

And it had to be acknowledged that India’s energy resources and infrastructures were very thinly stretched. In July 2012, when the world’s largest blackout left 670 million Indian consumers (roughly 10% of the world’s population) without power for three days, the need for this infrastructure investment was demonstrated in a dramatic fashion.

Many domestic retailers in India were already partnering with government and NGOs to tackle these issues, working to improve roads, streamline distribution systems, upgrade management education programs, and more. For example, in 2011 Reliance Rural Development Trust worked with the regional government of Gujarat and local villages to construct more than 250 facilities, including 41 cement concrete roads, water lines, drains, and a dam. The initiative was just one of multiple joint efforts to improve India’s infrastructure.38 This benefited local Indians, but helped Reliance too, as it enhanced its ability to benefit from economies of scale. It was the prospect of launching more of these types of efforts that led many organized domestic retail chains to support reform of FDI retail policies. They believed that the market was large enough to support both domestic and international retailers. Large multinationals would be able to address infrastructure issues more quickly and with greater resources than India’s government alone.

GOVERNMENT REGULATION AND FDI Since the 1990s the Indian government had been pursuing fiscal reforms, moving from a socialist, centrally planned economy to a more open, market-based system. The Department of Industrial Policy and Promotion had gradually eased regulations and taxes. Foreign direct investment was allowed in many industries, but to protect the tens of millions employed in unorganized retail, the government maintained strict regulations on FDI in the retail sector. “Single-brand” retail merchants such as Armani, Reebok, Cartier, and Marks & Spencer were initially allowed to own up to 51% of their Indian consumer operations; this limit was lifted in 2011. But, for many years, “multi-brand” retailers like Walmart, Carrefour, Tesco, and Metro were only allowed to operate cash-and-carry wholesale stores, serving institutional customers such as hotels, restaurants, co-ops, and small shop owners. Multi-brand multinationals worked with Indian joint venture partners, even when they were able to own 100% equity of wholesale operations.

Regulations were also quite strict in the grocery sector. Wholesale agriculture in India was a monopsony, where for each district there was only one food wholesaler that bought produce from local farmers. The regional government licensed this district wholesaler. Any consumer grocery company that wanted to buy produce had to buy through locally licensed wholesalers, rather than deal with farmers directly. In addition, many municipalities taxed produce if the sales crossed regional lines. This limited the retail grocer’s ability to


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comparison shop and find the best produce, whether it was across the state line, across the country or across the globe. These regulations put local farmers at the mercy of the regional wholesaler and contributed to other inefficiencies in India’s retail food supply chain.

For years various initiatives had been launched to roll back the prohibition on FDI in consumer retail. In November 2011 the Indian government proposed a gradual opening of FDI, allowing multinational retailers to open stores in cities with populations of over one million. Some analysts felt that this loosening of rules would actually be beneficial to unorganized merchants as well (see Exhibit 6), “expanding the pie” for everyone in retail, as articulated in an op-ed piece published in The Times of India:

[W]e also have to see the major multi-brand retailers, not just from the viewpoint of imports, but also from the perspective of our exports. The evidence is extremely strong that the productivity in agriculture, and attendant prosperity in the countryside, follows the entry of such retailers who can introduce refrigeration, storage and other productivity-enhancing changes that small retailers cannot manage.39

However, the opposition party and middlemen traders unleashed such a barrage of criticism that in December 2011 the government put the measure on hold.

2012 BRINGS A CHANGE IN FDI RETAIL POLICY On September 14, 2012 the Cabinet headed by Prime Minister Manmohan Singh amended India’s regulations to permit 51% FDI in multi-brand retail. While this move would finally allow firms such as Walmart, Carrefour, Metro, and Tesco to open consumer retail stores in India, it laid out very specific conditions under which they could do so, including:

• Retail stores could only open in states that agreed with the new policy • Stores could only open in cities of over one million in population and had to provide

transport connectivity and parking for each new site • Multi-brand companies had to make at least a $100 million investment in India, with

half of that occurring in rural areas • At least 50% of a firm’s monies had to be put into back-end investments, such as

processing, distribution, quality control, logistics, storage, warehouse, and agricultural produce infrastructures

• At least 30% of each store’s goods sold had to come from small or mid-sized local firms, or the company had to set up its own local manufacturing sites 40

The decision was extremely controversial and caused an immediate uproar. The political heads of several regions vowed that multi-brand FDI would never be allowed in their states. Within days a key party in the coalition government, the Trinamool Congress, withdrew from the alliance. But the measure had support in other quarters and on September 27 the Congress Working Committee and UPA political party endorsed the change.

Still, the public debate continued on at a furious pace both in the press and in the streets.



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Walmart in India Walmart had been doing business in India for many decades but for a different purpose. Since the 1990s, Indian firms had been key suppliers to Walmart’s Bentonville, AR headquarters, providing textiles, clothes, jewelry, and other goods to purchasers. As of 2007 Walmart was sourcing $600 million of its inventory from India each year.41

When restrictions on FDI in wholesale loosened, Walmart built on its established relationships with Indian manufacturers to form a partnership. In 2007 the firm formed a joint venture with Bharti Enterprises and called the effort “Bharti Walmart Private Limited.” The two partners announced plans to open cash-and-carry wholesale stores under the banner Best Price Modern Wholesale. Walmart described the cash-and-carry store as “between 50,000 and 100,000 square feet, selling a wide range of fruits and vegetables, groceries and staples, stationery, footwear, clothing, consumer durables and other general merchandise items.”42 The Indian cash-and-carry stores were similar in format to the Sam’s Clubs membership-only retail warehouse clubs, but served only business customers and did not allow retail memberships.

At the time of its launch, the Walmart International team determined that, with razor thin margins and extremely price sensitive clientele, the cash-and-carry model could not support an immediate investment in the local supply chain. McMillon readily pointed this out when asked about Walmart’s investment intentions by India’s business media, saying “the back-end investment that’s necessary to support all of this front-end growth over time is not an area where we make profit margins, so the amount of back-end investment is predicated upon whether FDI opens.”43

However, Walmart was able to improve the profitability of these stores in other ways: by sourcing food from small farmers’ markets (known as mandis) overlooked by competitors; by restocking shelves twice a day to maintain high fill rates and capture late-day sales; by routing deliveries directly to the stores rather than use expensive middlemen; by adding skylights to reduce lighting costs; even by asking customers to pay for their plastic bags.44 The aim was to keep Best Price Modern Wholesale’s prices at 5%-10% below local competitors.

In addition, the company took an active role in promoting better and more sustainable agriculture practices among India’s farmers.45 By 2012 Walmart’s Direct Farm program had expanded to include 3,700 farmers across Uttar Pradesh, Delhi NCR, Haryana, Karnataka and Maharashtra states. As the company stated in its 2012 Global Responsibility Report:

We work with these small farmers to close the critical gaps in the cultivation and postharvest processes. The farmers earn a better price for their product and receive expert advice on crop planning and management, while our customers benefit from fresher, safer and lower-priced produce. As our business grows and our scale improves, we will develop a more robust system for consolidation, handling, packaging and delivery of produce to our stores.46


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When the first of the Bharti Walmart cash-and-carry stores opened in 2009 in Amritsar, a second-tier city in northern India, the clean, spare outlet offered about 6,000 stock-keeping unit or SKU items. More than 90% of the goods were sourced from the local region.47 As a one-stop wholesale shop the store served restaurant owners, hoteliers, caterers, fruit and vegetable resellers, kiranas, offices, institutions, and other store owners. The company planned to open 15-20 additional cash-and-carry stores in the next few years. This seemed a reasonable goal, given that there were 12 million mom-and-pop shops across India buying $400 billion in products annually.48

Beyond the cash-and-carry store business, Walmart was also making money by selling services such as supply chain management and technical support to Indian firms. In 2010 Walmart opened a wholesale facility exclusively dedicated to supplying merchandise to Bharti Retail locations. The technology supporting Bharti’s network of EasyDay stores was licensed from Walmart, too.

Walmart International was also exploring opportunities in e-commerce, as Indian consumers were quickly adopting Internet and mobile communications. India had achieved a 10.2% Internet penetration as of December 2011, which represented over 100 million potential e-consumers.49 Walmart opened three skills training centers in Punjab, Delhi, and Karnataka to support its e-commerce efforts.

Despite these many and varied initiatives, Walmart International’s financial performance in India was a bit worrying. The Walmart 2012 Annual Report recounted results for the division saying “each country had positive constant currency operating income in fiscal 2012, except India.” Outside business analysts estimated Walmart’s revenues in India to be about $1 billion.50 But few analysts were alarmed by the lack of profits. By their estimates, the company’s deficits in India had been decreasing each year. And with the announcement of the proposed new FDI policy, the consumer retail market appeared ripe for foreign investment.

The Way Forward Soon after the new FDI guidelines were announced, Walmart International’s CEO McMillon determined that Walmart’s investment in India would be increased—but by how much? How aggressively should the company expand here in light of the fact that domestic organized retailers would certainly move fast to protect their space—and foreign competitors such as Metro and Carrefour were poised to expand as well? And, since the policy dictated that 50% of a foreign firm’s monies be allocated to back-end investment, decisions would also have to be made on which sector to support—Warehousing? Storage? Processing?

Meanwhile, McMillon had to contend with the fallout of recent investigations into Walmart’s international operations. After being embarrassed by reports of graft in its Mexico operations, Walmart had extended its probe into bribery charges against its managers in Mexico, India, China, and Brazil. On November 23, 2012, The Economic Times newspaper



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reported that Walmart had suspended several senior employees in India, including its chief financial officer and members of its legal team.

Amidst all of these concerns, McMillon would counsel his team to weigh the challenges in India and the complexities of the new guidelines against the prospects for growth. (See Exhibit 8.) He hoped that the lessons learned from the division’s experience in China might help them to develop a plan that aligned well with Walmart’s global strategy and proven business strengths.


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Discussion Questions 1. How does retailing evolve in different countries as their economies develop? What

are the implications for China and India?

2. How are consumers in India different from those in China? What are the implications

for Walmart’s strategy in India?

3. Can Walmart compete against kirana (mom-and-pop) stores in India? How?

4. What types of stores should Walmart open in India? Where should it locate these

stores: in first-tier cities, second-tier cities, or rural areas?

5. Should Walmart continue its cash-and-carry business in India?

6. How much should Walmart invest in India in the next five years?



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Exhibits Exhibit 1A Walmart Net Sales: US vs. International, 2010-2012E

Exhibit 1B Walmart International Retail Locations Geographic Market Retail Wholesale Other(2) Total Argentina 88 — — 88 Brazil 429 83 — 512 Canada 333 — — 333 Chile 314 — 2 316 China 364 6 — 370 Costa Rica 200 — — 200 El Salvador 79 — — 79 Guatemala 198 2 — 200 Honduras 70 — — 70 India — 15 — 15 Japan 367 — 52 419 Mexico 1,600 124 364 2,088 Nicaragua 73 — — 73 South Africa 219 86 — 305 Sub-Saharan Africa(1)

30 12 — 42

United Kingdom 541 — — 541 International Total 4,905 328 418 5,651 (1) Sub-Saharan Africa includes Botswana, Ghana, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Swaziland, Tanzania, Uganda, and Zambia. (2) “Other” consists of restaurants operating under varying banners in Chile, Japan, and Mexico.

Source: Walmart 2012 Annual Report, pp. 19, 57.

Fiscal Years Ended January 31

2012 2011 2010 (Dollar amounts

in millions) Net

Sales Percent of Total

Percent Change

Net Sales

Percent of Total

Percent Change

Net Sales

Percent of Total

Walmart US $264,186 59.5% 1.5% $260,261 62.1% 0.1% $259,919 64.2% Walmart International

125,873 28.4% 15.2% 109,232 26.1% 12.1% 97,407 24.0%

Sam’s Club 53,795 12.1% 8.8% 49,459 11.8% 3.5% 47,806 11.8% Net Sales $443,854 100.0% 5.9% $418,952 100.0% 3.4% $405,132 100.0%


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Exhibit 2 Grocery Retail Sales: Large Format Penetration vs. GDP per Capita (2005)

Source: Planet Retail, World Bank, Booz Allen.



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Exhibit 3 Top 10 Retailers in China, 2010 Top 100

Rank Company Operational Format

2010 Retail Sales

(RMB 100M) Growth of Sales (%)

# of Stores

Growth of # of

Stores (%) 1 Suning Appliance

Group

Electronics Specialty 1,562.23 33.5 1,342 41.4

2 Gome Electrical Appliances Co., Ltd.

Electronics Specialty 1,549.00 45.0 1,346 15.0

3 Bailian Group Co., Ltd.

Supermarket, Department Store, Convenience Store, Home Improvement

1,036.93 5.9 5,809 -5.6

4 Dashang Group Co., Ltd.

Department Store 861.58 22.1 170 6.3

5 Vanguard Co., Ltd. Supermarket 718.00 5.6 3,155 7.8 6 RT-MART

International Co., Ltd Supermarket 502.25 24.2 143 18.2

7 Carrefour S.A. (China)

Supermarket 420.00 14.8 182 16.7

8 Anhui Huishang Group Co., Ltd.

Supermarket, Department Store, Convenience Store, Electronics Specialty

405.20 17.9 2,915 1.1

9 Wal-Mart Stores, Inc. (China)

Supermarket 400.00 17.6 219 25.1

10 Chongqing General Trading (Group) Co., Ltd.

Supermarket, Department Store, Electronics Specialty

382.16 27.2 319 1.9

Top 10 7,837 22.8 15,600 -8.3 Top 100 16,625 22.4 150,211 9.7

Top 10 Share of Total 47.1% 10.4% Source: China Powers of Retailing 2011, Deloitte Consumer Business and Transportation Group, 2011, p. 23 http://www.deloitte.com/assets/Dcom-China/Local%20Assets/Documents/Industries/Consumer %20business%20and%20transportation/cn_cbt_ChinaPowersRetailing2011_181011.pdf.


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http://www.deloitte.com/assets/Dcom-China/Local%20Assets/Documents/Industries/Consumer

Exhibit 4 Classification of Retailers in India

- Chain stores are retail outlets that share a brand name and have central management and standardized business practices. Walmart is the world’s largest retail chain.

- Hypermarkets are combinations of supermarkets and department stores. For example, Big Bazaar and Spencer’s Retail are hypermarkets in India; Super Walmart and Super Target are hypermarkets in the United States.

- Stores-in-store are (typically branded) manufacturers who rent space within a larger store and operate independent businesses. Examples are cosmetics and perfume counters in many departmental stores.

- Cooperative stores are owned by a society or groups of individuals. Examples of cooperative stores in India are Super Bazaar and Kendriya Bhandar.

- Kirana shops are small, owner-operated, mom-and-pop stores. - Paan shops are small, roadside stalls that sell cigarettes, tobacco, and paan (betel leaf wrapped

around a mixture of chopped/ground areca nuts and other spices).

Source: Rajeev Kohli and Jagdish Bhagwati, “Organized Retailing in India: Issues and Outlook,” (working paper, Columbia University Program on Indian Economic Policies, August 2011), p. 31.

- Chain stores - Hypermarkets - Supermarkets Stores-in-store Departmental stores

- General merchants - Appliance stores - Cooperative stores - Specialty stores - Kirana shops

- Paan shops - Pushcarts - Street vendors - Street bazaars

Formal sector Informal sector

Organized

Unorganized



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Exhibit 5 Share of Sales, Dollar Sales and Average Growth Rates for Organized and Unorganized Retailers in India: 2005-2009

Share of retail sales

Year

2005 2009

Organized retailers 3.30 4.80

Unorganized retailers 96.70 95.20

Retail sales in billions of dollars (US)

Nominal sales Sales in constant (2009) prices

2005 2009 2005 2009

Organized retailing 10.97 22.62 13.56 22.62

Unorganized retailing 321.59 448.65 397.45 448.65

Total retail sales 332.56 471.27 411.01 471.27

Average annual growth rate, 2005-2009

Nominal sales Sales in constant (2009) prices

Organized retailing 19.82% 13.65%

Unorganized retailing 8.68% 3.07%

All retailing 9.10% 3.50%

Source: Rajeev Kohli and Jagdish Bhagwati, “Organized Retailing in India: Issues and Outlook,” (working paper, Columbia University Program on Indian Economic Policies, August 2011), p. 29.


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Exhibit 6 India’s Retail Market Projections by Sector (in $ billions)

Source: Samar Srivastava, “What FDI Would Do To Indian Retail,” Forbes India, October 7, 2011. Exhibit 7A Leading Domestic Conglomerate Retailers in India Company Holding company industry

sectors Retail operations

Future Group – Pantaloon Retail (India) Limited division

Retail, finance, electronics, mobile, FMCG (fast-moving consumer goods)

Privately held; 1,000 locations in 71 cities as of 2010; hypermarkets, discount stores, supermarkets, fashion outlets

K Raheja Corp. – Retail division with Shoppers Stop, HyperCity, Inorbit malls

Real estate, hospitality and retail stores catering to lifestyle segments

Over 200 stores; specialty division launching Clinique, MAC and Estée Lauder stores

Tata Group – Trent Ltd. Tata has 100 subsidiaries; retail companies include hypermarkets, fashion, bookstores, electronics and discount stores

Trent division has been in retail since 1988; store banners include Westside department store, Landmark bookstores, Star India Bazaar hypermarkets

Aditya Birla Group – Retail Division

Fashion, mobile phones, metals, insurance, cement, supermarkets

Purchased Trinethra stores in 2006; as of 2011 have 575 “More” supermarkets and 12 “More Megastore” hypermarkets; loyalty program has one million members

Reliance Retail, a unit of Reliance Industries Limited

Oil, gas, textiles, retail, infotel Reliance entered retail in 2006; operated 1,000 locations by 2011; formats include Reliance Fresh groceries; Reliance Digital electronics; Reliance Mart hypermarkets; Reliance Mini Mart supermarkets and Reliance Trendz apparel stores

Source: Leading domestic conglomerate retailers from India Retail Report Q1 2011, Business Monitor International, and various annual reports.



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Exhibit 8 Leading Retail Chains and GDP Growth Sales of leading modern retail chains that sell food, and GDP growth, over selected Asian countries, over 8 y (2001–2009), in billions of USD

Wave 2001 sales

2005 sales

2001-2005 annual compound growth (%)

2009 sales

2005-2009 annual compound growth (%)

2001-2009 annual compound sales growth rate (%)

Real GDP compound growth rate 2000-2008 (%)

No. of leading chains followed

First wave South Korea 19.1 38.5 19.2 41.7 2.0 10.3 4.5 18

Taiwan 7.1 13.9 18.3 17.6 6.1 12.0 NA 17

Second wave Indonesia 1.8 4.0 22.1 7.3 16.2 19.1 5.2 14

Malaysia 2.0 3.6 15.8 7.1 18.5 17.2 5.5 16

Philippines 1.9 3.5 16.5 6.8 18.1 17.3 5.1 13

Thailand 5.4 10.9 19.2 17.7 12.9 16.0 5.2 21

Third wave China 13.1 40.2 32.4 91.5 22.8 27.5 10.4 47

India 0.2 0.9 45.6 5.1 54.3 49.9 7.5 33

Vietnam 0.1 0.7 62.7 2.0 30.0 45.4 7.7 16

Source: Thomas Reardon, C. Peter Timmer and Bart Minten, “Supermarket revolution in Asia and emerging development strategies to include small farmers,” PNAS, October 12, 2010. www.pnas.org/cgi/doi/10.1073/pnas.1003160108.


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http://www.pnas.org/cgi/doi/10.1073/pnas.1003160108

Appendix Foundations of Walmart’s EDLP Strategy Sam Walton opened the first Walmart store in Rogers, AR in 1962 with the express mission of bringing a broad assortment of merchandise at great prices to underserved rural consumers. The strategy was summarized by the firm’s “Every Day Low Prices” (EDLP) slogan.

By the mid 1980s Walmart had over 1,000 US locations. The first supercenter opened in 1988, combining general discount merchandise with a full-scale supermarket to provide one-stop shopping convenience. Walmart had over 3,000 store locations by the mid 1990s. With the addition of other retail formats, such as Sam’s Clubs, smaller Neighborhood Markets, plus overseas retail, wholesale and joint venture sites, Walmart operated over 10,000 retail units by 2012, with 4,479 US retail and 5,561 international stores.51 Based on global annual sales revenue of $454 billion, Walmart was the number one retail sales company in the world in 2012.52

In addition to the density of its retail network, Walmart could point to other areas of expertise that contributed to the firm’s successful growth. Walmart was an innovator in point-of-sale systems and technology, replacing cash registers with computerized checkout systems and launching the use of bar codes in 1983. Walmart pioneered “cross-docking” in operational logistics, where goods moved directly from one truck to another, en route from factory to store, skipping the warehouse stage and thus saving storage costs. In the 1990s the company’s private satellite system provided quick, reliable links between far-flung stores, enabling close coordination of voice, video, and data communications for management. This allowed the firm to rapidly share information across all locations on the best prices, inventory, and merchandising layouts.

During Walmart’s decades of growth in the United States, the typical Walmart had minimal décor, a warehouse-type layout, and a self-service model that required customers to walk wide aisles and spend time seeking out merchandise. This allowed the firm to keep labor costs down and charge lower prices. In addition, Walmart was able to sell at low prices because of its economies of scale. The firm ordered huge quantities of food, housewares, and other discount goods from its central headquarters in Bentonville, AR, where it pressured its suppliers to get the very best price. As state and local zoning laws were fairly similar across the United States, Walmart was able to build on its real estate management expertise, opening new stores in multiple communities each month. Expansion usually followed the same format—open a new store in a rural spot just outside a community; situate the huge store on a large, cheap piece of property; offer shoppers ample parking with easy access to local roads; visit local competitors frequently to scout their prices, then lower Walmart’s prices without delay so that the firm could deliver “Every Day Low Prices” to consumers.



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Endnotes

1 Walmart China Factsheet, August 2012, http://www.Walmartchina.com/english/walmart/index.htm. 2 Walmart China Factsheet. 3 Country Report: China, Economist Intelligence Unit, July 2012, www.eiu.com, 19. 4 Yuval Atsmon et al., “China’s New Pragmatic Consumers,” McKinsey Quarterly, October 2010, 9. 5 Fang Yan and Helen Massy-Beresford, “Car Makers Go Local to Tap China’s Growth,” Reuters, April 18, 2011. 6 Atsmon, et al., “China’s New Pragmatic Consumers,” 3. 7 Atsmon, et al., “China’s New Pragmatic Consumers,” 7. 8 Lauren Indvik, “Ecommerce in China: How the World’s Biggest Market Buys Online,” Mashable Business, May 20, 2012, http://mashable.com/2012/05/20/ecommerce-china. 9 The Case for China Retail: Issues and Opportunities, Prudential Real Estate Investors, March 2012, 27. 10 Walmart 2000 Annual Report, 11. 11 “Walmart v Wumart,” The Economist Online, May 18, 2011. 12 William Foreman, “Wal-Mart Seeks Growth in Small Town China,” USA Today, Oct. 18, 2008. 13 Walmart China Factsheet, May 2012, www.walmartstores.com. 14 Orville Schell, “How Walmart Is Changing China,” The Atlantic, December 2011, http://www.theatlantic.com/magazine/archive/2011/12/how-walmart-is-changing-china/308709/. 15 Carrefour: 2011 Full Year Results Highlights Presentation, March 8, 2012, http://www.carrefour.com/docroot/groupe/C4com/Pieces_jointes/resultats/2011/FY_2011_UK.pdf. 16 Peter N. Child, “Lessons from a Global Retailer: An Interview with the President of Carrefour China,” McKinsey Quarterly, June 2006. 17 Raghavendra Kamath, “Lessons from Carrefour,” Business Standard, January 28, 2010. 18 Ming-Ling Chuang et al., “Walmart and Carrefour Experiences in China: Resolving the Structural Paradox,” Cross Cultural Management: An International Journal, 18, /no. 4 (2011): 443-463. 19 Child, “Lessons From a Global Retailer.” 20 Wang Fang, “Big Changes in China Challenge French Retail Giant Carrefour,” Economic Observer, October 9, 2011. 21 Country Report: India, Economist Intelligence Unit, July 2012. 22 Shirish Sankhe et al., “India’s Urban Awakening: Building Inclusive Cities, Sustaining Economic Growth,” McKinsey Global Institute, April 2010, 16. 23 Indiaonlinepages.com, “India’s Population 2012,” http://www.indiaonlinepages.com/population/india-current-population.html. 24 UNESCO Institute for Statistics, “Education (all levels) profile – India,” http://stats.uis.unesco.org/unesco/TableViewer/document.aspx?ReportId=121&IF_Language=eng&BR_Country=3560, accessed September 29, 2012. 25 India: World Development Indicators, The World Bank, viewed on September 29, 2012 at http://data.worldbank.org/country/india. 26 Kartik Goyal, “India’s Consumer Spending Set to Soar to $3.6 Trillion, BCG Says,” Bloomberg, February 16, 2012. 27 “How Household Savings Stack Up in Asia, the West, and Latin America,” Bloomberg BusinessWeek, June 10, 2010.


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http://www.eiu.com/

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http://www.indiaonlinepages.com/population/india-current-population.html

http://stats.uis.unesco.org/unesco/TableViewer/document.aspx?ReportId=121&IF_Language=eng&BR_Country=3560

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http://data.worldbank.org/country/india

28 Euromonitor International, Consumer Appliances in India, May 2011, www.euromonitor.com/consumer-appliances-in-india/report. 29 Neil King, “Maruti Target’s India’s Rural Population,” Euromonitor International (blog), June 2, 2012, http://blog.euromonitor.com/2012/06/maruti-targets-indias-rural-population.html. 30 Rajeev Kohli and Jagdish N. Bhagwati, “Organized Retailing in India: Issues and Outlook,” (working paper, Columbia University, August 18, 2011), 11, http://www4.gsb.columbia.edu/filemgr?file_id=7220489. 31 Kohli and Bhagwati, “Organized Retailing in India,” 13. 32 Kohli and Bhagwati, “Organized Retailing in India,” 5. 33 Alonso Martinez, “From Mom-and-Pop to Global Retailing,” presentation, 2012. 34 Kohli and Bhagwati, “Organized Retailing in India,” 14. 35 Kohli and Bhagwati, “Organized Retailing in India,” 15. 36 Kohli and Bhagwati, “Organized Retailing in India,” 14. 37 “The Great Indian Retail Story,” Ernst & Young, 2006, 25, http://www.retailangle.com/documents/The_Great_Indian_Retail_Story.pdf. 38 Reliance Industries Annual Report, 2011-2012, 55. http://www.ril.com/rportal1/DownloadLibUploads/1337076407252_AR08052012R.pdf 39 Jagdish Bhagwati and Rajeev Kohli, “Selling the Wrong Idea,” Times of India, December 12, 2011. 40 Heather Timmons, “India Lets in Wal-Mart, With Conditions,” New York Times, September 14, 2012. 41 “Retail Sourcing Spurs an Indian Supply Club,” India Brand Equity Foundation, April 17, 2012, www.ibef.org. 42 Walmart India Fact Sheet, April 2012, www.walmartstores.com. 43 “Indian Business Hour,” CNBC-TV, June 3, 2011, http://www.youtube.com/watch?v=LJCkZnLZT-8. 44 Malini Goyal, Indrajit Gupta, Neelima Mahajan-Bansal, “Walmart’s Passage to India,” Forbes India, October 20, 2009. 45 Vikas Bajaj, “Wal-Mart Debate Rages in India,” The New York Times, December 16, 2011. 46 “Beyond 50 Years: Building a Sustainable Future,” Walmart 2012 Global Responsibility Report, September 2012, http://www.walmartstores.com/sites/responsibility-report/2012/supportingFarmers.aspx 47 Walmart India Fact Sheet, April 2012. 48 Goyal, Gupta, Mahajan-Bansal, “Walmart’s Passage to India.” 49 Debjoy Sengupta, “India Achieves 10.2% Internet Penetration Rate,” Economic Times, April 10, 2012. 50 Malavika Sharma, “India Panel Advises $100 Million Minimum Retail Investment,” Bloomberg, August 4, 2011. 51 Walmart 2012 Annual Report, 57. 52 David P. Schulz, “Top 100 Retailers: The Nation’s Retail Power Players 2012,” Stores, July 2012, http://www.stores.org/2012/Top-100-Retailers.



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