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The mega deal and arrival of a giant-Walmart

By D M Deshpande

Walmart has recently announced officially that it has acquired Flipkart, the Indian e-commerce player in a $16 billion deal.

Flipkart is a dominant player in e-commerce platform with a market share of 45%. Walmart needs no introduction globally but in India it has mostly been in the fringe with 20 cash and carry stores.

This is the biggest acquisition in the e-commerce space in the world.

Flipkart, valued at $20 billion has been amongst the fastest growing player in this segment. It also means that each one of the founder members of the Flipkart are worth more than a $1 billion!

In a deal of this size, there are bound to be a few controversies, a few eyebrows raised. And Walmart has a history that has courted criticism quite often for it’s own acts of omission and commission.

On the whole, the deal is likely to be favourable to the Indian economy. Immediately, it burnishes the image of the country in the eyes of foreign investors. The idea that it is open to business, irrespective of who the owner is, sends a powerful message across the globe.

Indian companies have gone abroad and acquired companies in the quest of new markets, growth and higher profits. Globalisation cannot be a one way traffic.

Most importantly, the deal is a vote of confidence in favour of Indian expertise, talent and start-up ventures. More money is sure to flow in this direction in coming months. The acquisition is significant as it follows the global trend where offline and online retail are converging in a way that creates synergy for optimal utilisation of resources.

Like all alliances, this too will face it’s own teething problems. But the immediate and future benefits of the merger can be seen.

One is a global giant with rich experience in organised retail and the other is a young start up which has created a niche for itself in a fast growing market in e-commerce space in India with it’s nimbleness, energy and better understanding of the Indian market.

Walmart can bring in some of the best global practices in global retail to India. It will take on it’s American rival Amazon which is likely to benefit the Indian consumer in terms of price, quality and choice.

If the alliance results in a winning combination, the chances of which seem very bright, it can lead to a better bilateral ties between the US and India.

Walmart is certain to bring in scale, technology and logistics support to the combined entity. This has the potential to radically change the supply chain logistics in the Indian retail sector in general and the food segment in particular. Augmenting cold storage, bulk haul and even sourcing for global markets would certainly go to the benefit of Indian farmers. Development of infrastructure in a big way will reduce waste and result in huge efficiency gains. It will potentially be a win-win position for all stakeholders. Even the government in Delhi would be happy for it might just lend a helping hand in it’s commitment to double farm incomes.

Whether the deal will hit the other players? There has been no dearth of scare mongers, though they have been proven wrong, time and again. This time, too, it is not likely to be any different.

Some facts; Indian retail is a strong $650 billion industry. At around $18 billion, India’s e commerce market share is just around 2.5%!  Offline organised retail has been here for quite a while; yet it’s share in the total is no more than 7%.

Average Indian customer seem to have abiding faith and loyalty to kirana or the pop and mom store! Studies show that an overwhelming majority of people still prefer to buy their groceries from these shops.

In terms of jobs, India’s retail sector accounts for 8%. There is no evidence of any disruption in this; on the contrary, of all the state governments the one in West Bengal recently conceded that e commerce retail, in fact, has created new jobs! The sheer market size of the Indian retail has managed to accommodate all players across the spectrum.

In fact, there is still a huge potential which remains untapped.

Policy changes in this regard have not kept pace with time, technology and global developments. In fact, it is reasonable to assert that it is hamstrung by influence of a few vested interest groups.

Presently, the policy does not take in to account the opportunity afforded by convergence of offline and online retail. Players are thriving on technology advances and taking advantage of policy loopholes. But this won’t do; it increases the hassles and therefore the cost of doing business in India.

Moreover, such an arrangement cannot be long term solution for a country with teeming millions and ever growing markets.

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