Re: Foreign Direct Investment in the retail sector. Good or bad? I guess it is time to give this thread a quiet burial now given that Walmart has officially ended their pursuit of going it alone in the multi-brand retail segment. I remember quite a few claims and matter of fact statements being made out here and in the press about how this will transform India. So much so that it became the poster child reform statement by UPA. While how it would have transformed India is up for debate a lot of folks missed the ground realities of how a company like Walmart cannot operate in India with its fragmented geography and cultures.
Scott Price, the head of Walmart Asia, was being coy when asked about the reasons citing investment climate. The reality is right after they thought about a new market as in India, the scandal in Mexico spilled out where major bribery had been going on. While semi banana republics like us and Mexico (personal opinion) have learnt to live with corruption as a way of our lives, the US government still officially prosecutes their entities if they indulge in corruption even if committed in foreign shores. This news caused the Indian government to also act and start some investigation of sorts or at least make some claims like that. I am sure it was pure hogwash on the part of our government as nobody has even heard about it after the initial hoopla.
The ground realities hit Walmart hard when they realized India as a country is not conducive and ready to give enough business for a big box retailer like Walmart. With a pretty awful state of infrastructure and utilities it is pretty challenging for an incumbent player. But the more telling fact which was sparsely reported by our paid mainstream media is Walmart started finding issues with their suppliers where they had started to demand more compensation. The reason being the suppliers have had to routinely bribe the cops on the roads and highways through which merchandise is transported. Walmart had had enough to do with bribes and didn't want the US government breathing down its neck again where they would be accused of bribing pot belied Indian cops. Of course the other main requirement that was a hindrance was the 30% local sourcing clause which they deemed will make their venture unprofitable. This is the same clause even Ikea is seeking exception for. The other countries where Walmart has completely failed are Germany and South Korea. Among the official reason cited for failure in Germany is German males took umbrage at the female check out clerks smiling at them. This was pure uninvited flirting . The real reasons of course are that the unions in Germany are so strong and with stringent laws around minimum pay and social safety, operational costs in a country like Germany would have made Walmart unprofitable (Walmart exited Germany in 2006). Moral of the story is we should take at least a few lessons from history and be more realistic about our expectations. |