Is Flipkart, or for that matter PayTM, Ola, Snapdeal, truly an Indian company? In the backdrop of vociferous protests that have broken out after American giant Walmart announced a deal to acquire a controlling stake in Flipkart, this question assumes importance.
Walmart is picking up a near 77 percent stake for about $16 billion, which means Flipkart is being valued at a whopping $21 billion. As chants of ‘swadeshi’ and ‘Make-in-India’ get louder from those opposed to this deal, it is worthwhile to examine whether Walmart is indeed taking control of something truly Indian. Remember, the deal is unlikely to run afoul of Indian regulations since 100 percent FDI is allowed in the marketplace model of e-commerce.
Flipkart is indeed an Indian success story, after the fact that it was built from scratch by two Indian-origin techies who started out in rented premises and went on to scale unimaginable heights by pursuing commerce in its purest form. But make no mistake: much of Flipkart was anyway owned by foreign investors and the company never turned in a profit. The same logic applies to the other so-called 'Indian' success stories -- PayTM, Ola, Snapdeal, among others, which are also founded in India but run largely on foreign money.
When foreign money is all right, why gripe about actual foreign ownership?
The argument needs to be turned on its head and the questions that should be asked are: Why has Walmart been so desperate as to want an Indian company, whose valuation almost doubled within one year? And what does this acquisition say about Walmart’s failure as a brick-and-mortar retailer in other markets? In India too, Walmart has been present in the wholesale business-to-business (B2B) space but its scale is nothing compared to its might in other markets.
Will the arrival of Walmart, as the largest investor in Flipkart, lead to a negative fallout for various industry stakeholders? Could Walmart add cutting edge technology and deep backward linkages with farmers, alongside a widening of the retail footprint for Indian businesses?
It could, theoretically at least, lead to some job creation and help Flipkart’s sellers access a wider global platform. Besides, the government stands to reap a tax windfall too because of the deal. Won’t arch rival Amazon keep Walmart and any underhand practices in check?
So instead of harping on the swadeshi vs videshi binary, what the naysayers and sceptics should instead look out for is what the deal means for other retailers in India and its impact on consumers. Will either benefit? Will the Indian e-commerce and retail space gain or lose from the arrival of Walmart, also known as the Beast of Bentonville? Will discounts get deeper, will Amazon’s intense rivalry with Walmart in other markets play out itself to any advantage to Indian consumers? Remember, Flipkart controls almost half the e-commerce market in India and now, with only Amazon left as a serious contender (Alibaba is still mulling its strategy), the e-commerce market in India essentially becomes a duopoly.
As this piece shows, Walmart has been struggling in various markets and the Flipkart deal could help breathe new life into the retail giant’s operations. Walmart’s underperforming international business contributed less than a quarter to its total revenue of $500.3 billion in fiscal 2018. "Walmart has simply been too slow to react when it comes to their overseas business. They have finally started taking corrective action and are now dedicating their resources to where they think they can grow," said Burt Flickinger, managing director, Strategic Resource Group. So Walmart’s desperation to get Flipkart is thus explained.
Walmart has been traditionally strong in physical retailing and not so strong when it comes to ecommerce. Its India business has been sub-scale and, as such, Flipkart will offer scale to Walmart’s India operations. Flipkart has 100 million registered users and over eight million monthly shipments. Analysts at brokerage Edelweiss, in a note to clients, said that “there will also be synergy in sellers on the two platforms. To scale up the business and achieve [the] next leg of growth, Walmart and Flipkart plan to support five to six million kirana stores through modernisation of retail practices as well as digital and cashless transactions for sustainable growth. Success will however hinge on how both the entities integrating their crucial business practices and policies.”
So, the fears of the swadeshi camp and the ‘mom & pop’ stores may never materialise. Now, what about consumers and future discounts? Analysts say online discounting may not necessarily increase since Walmart may want to push its own private label business instead of focusing on its gross merchandise value. In other words, consumers may not be worse off with this deal.
But having listed out all the positives of the deal, one should not forget that Walmart has been a formidable competitor in most markets it operates in --almost no other company has been able to beat it on price. It has been widely accused of arm-twisting sellers in other markets and gobbling up competition, just as it is recognised for forging deep backward linkages.
For consumers, Walmart has been a benign retailer, trying to retain them with a depth of products and deep discounts. As it arrives in India through the convoluted route of acquiring a marketplace retailer, there is little doubt that some of the abovementioned fears will manifest themselves with Indians too. Perhaps an equally aggressive Amazon, which is matching Walmart step-by-step, will help as it starts out on its brick-and-mortar journey.
In any case, consumers should have the last laugh.
Updated Date: May 10, 2018 17:52 PM