Walmart's looming acquisition of Flipkart will be a game changer for e-commerce in India; merger to boost job creation
Going by the recent news reports, US retail giant Walmart may soon foray into the e-commerce sector by acquiring a stake in Flipkart.
In December 2016, I commented in a Knowledge@Wharton article titled -- “Walmart vs. Amazon: Is India the Next Battleground?” -- that Walmart can use the Flipkart connection to turn its current B2B stores in India into online retail business opportunities and warehouse locations for delivery. Flipkart data can be useful for Walmart to project buyer behavior and preferences. Flipkart can be the front-end with Walmart at the back-end.
Going by the recent news reports, US retail giant Walmart may soon foray into the e-commerce sector by acquiring a stake in Flipkart. Since e-commerce has grown roots in India only over the last five-six years or so, this likely merger signifies the enormous potential of the sector to the Indian economy. India’s growing economy and rising consumption has attracted a number of foreign players over the years. Of late, it is e-commerce that is probably creating the biggest waves and changing the fabric of the retail industry.
The e-commerce industry has shown us the power that comes with a strongly integrated value chain. This power not only delivers value for customers and suppliers, it also creates an entire ecosystem of ancillary industries that grow at the same rate as the emerging trend itself. It is no wonder that the packaging, logistics and warehousing industries are not only flourishing but are increasingly becoming more organized, mechanised while also retaining its ability to hire skilled and unskilled labour.
Various studies have pointed out that both firms and customers suffer due to the infrastructural and warehouse problems in Tier II & Tier III cities in India and any global supply chain giant enabling Indian e-retail can counter this challenge. A renewed focus was needed on the key demographics and location of Indian customers, their products preferences and engagement. This potential investment will benefit the consumer from the increasing competition on the dual dimensions of convenience and value.
The advent of foreign and domestic e-commerce companies has been more of an urban and semi-urban phenomenon. The government is fully focused on digitisation of the country by streamlining the penetration of Internet to rural areas. The rural citizen who is getting exposure to e-governance platforms can only stand to benefit once the e-commerce revolution is brought to his/her doorstep.
The ability of e-commerce to create integrated value chains will mean that rural and semi-urban areas will be more deeply connected with the greater common Indian market than ever before.
Any foreign company investing in India will need to take into account the vision for ‘New India’ where there is inclusivity and cater to the growing consumer needs beyond Tier II cities and also empowering entrepreneurs, small business owners by providing means of financing, technology and training that will have a favourable cascading effect.
From a strategic perspective, it makes sense for Walmart to have a position in this market and increase its play in the online retail space. Flipkart has shown the ability to compete strongly with Amazon for the Indian market. Walmart will use the Flipkart connection to turn its current B2B stores in India into online retail business opportunities and warehouse locations for delivery. If the relationship works out, Walmart may look at deepening it further and “become a major player” in the Indian online retail market.
The US company already has some of the best practices on sourcing and these strengths can be leveraged very successfully in the Indian online retail marketplace, and, drive greater access for supplier groups in B2C ecommerce.
The potential merger will be important for employment generation in the country. Retail and e-commerce contributes to job growth as it employs larger number of people in logistics, delivery, warehousing and other back office operation. Any business expansion from companies such as Walmart will also need a substantial investment in people.
Technology and analytics is an enabler for any firm to have more control to bring changes in every aspect of the online retail business. Competition will be based on how they deliver in a technologically sound, digitally easy and customer friendly manner. Innovation will play a key role in the growth of the sector and the presence of Walmart Labs in India can also play a significant role in providing global solutions by making India a knowledge hub and incubator of global retail trends.
The Indian marketplace is evolving day by day and Flipkart has provided a strong foundation for Walmart to enter in the e-retail space and to make a much deeper impact going beyond retail.
(The writer is Professor – Corporate Strategy and Policy at the Indian Institute of Management, Bangalore)
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