Walmart's India Challenge

All day, the Burrabazar area in Kolkata, India is crowded with customers browsing street-side shops selling everything from clothing to household goods to hardware.

Biplab Das’ store, Prosshiddho Bhandar, is part of this colorful commercial tapestry, selling food, drink, household goods and other items from a single room. Das competes fiercely with other area shops not much bigger than his, curbing his profit to provide “good quality products at cheap rates.”

Someday, he may have a much, much bigger competitor peddling the same “price-matching” practice.

Walmart, the world’s largest retailer, is vying for a bigger presence in India and access to its potential consumer base of more than 1.2 billion.

The company, based in the U.S. state of Arkansas, and its American competitors are aided by a tide of change in the Asian nation. As the middle class grows, Westernized lifestyles are replacing long-held habits such as shopping almost daily for fresh, local food.

“There’s a huge growth in divorce rates and education levels,” explained University of Kentucky Professor Devanathan Sudharshan who is part of the Gatton Business College’s Department of Marketing and Supply Chain. “The amount of time an Indian consumer had to go into a market and negotiate is coming down.”
But Das and other Indian business owners have never heard of Walmart. They have no idea of the controversy surrounding the American company’s business practices – a controversy now playing out in the poorest section of Louisville, the largest city in the U.S. state of Kentucky.

They don’t know how many Americans depend on the company – for employment and for cheap goods in a struggling economy. They have no idea how much their lives will be affected if a Walmart comes to their region.
And that’s just what the American corporate giant has been trying to do.

Global reach

Walmart – which has more than 10,000 stores in every U.S. state and 27 countries - has been attempting to break into the Indian market since 2007, according to Forbes magazine. That means the company needs to comply with India’s strict rules for out-of-country investors, called Foreign Direct Investment laws.

FDI laws dictate that any foreign company interested in entering India’s market must buy a company in the country or partner with an existing Indian business in order to expand its operations.

Initially, Walmart combined with Bharti Enterprises and established about 20 wholesale stores throughout India by the name of Best Price Modern Wholesale. These stores sell directly only to retailers and are located in Punjab's Amritsar, Bathinda, Jalandar, Ludhiana, and Zirakpur.

But recently that partnership has fallen through, although the stores remain. According to an NDTV.com article, there has been speculation that it was due in part to the scandal that Walmart faced in 2013 when the New York Times broke a story claiming Walmart had been bribing Mexican officials in order to speed up their building plans.

The investigation into these allegations in Mexico is still ongoing, but if Walmart is found guilty, it will be in direct violation of the U.S. Foreign Corrupt Practices Act, which bans companies from paying foreign governments in order to further the company’s agenda.

After the Times’ story broke, Walmart and the Indian government turned their attention to Walmart’s presence in India, where there were also rumors of bribery and lobbying. Unlike in the United States, corporate lobbying is illegal in India.

The investigation into the Indian market allegations proved inconclusive, as there was no evidence to support the claims.

Money scandals are one thing, but Walmart is facing a bigger problem in Brazil and China: lack of customers.

Walmart’s emphasis on bulk buying goes against the traditional buying habits of those outside the United States.

Poor economic growth has also hindered Walmart’s growth in China and Brazil. About 25 stores closed in Brazil this past year alone.

Meanwhile in the United States, Walmart is struggling to maintain the company’s vast market, which has been growing steadily since Sam Walton, at the age of 44, founded the first Walmart store in Rogers, Alabama in 1962 and went public in 1970.

Sales have been down for the company this past year, resulting in store closures and layoffs. Sam’s Club cut about 2 percent of its workforce this past January alone.

The break-up with Bharti Enterprise means that Walmart is in search of a new business partner in India.

The company has started looking into e-commerce as its new approach to the Indian market however they will still be limited to selling to retailers and not directly to consumers. This refers to the buying and selling of items online.

“Our experience worldwide supports the fact that e-commerce is an important and growing area,” said Kevin Gardner, Walmart’s senior director of international affairs. “We encourage the Government of India to consider opening e-commerce for FDI.”

But for small businesses in India – as for many in America – the retail giant poses a big threat. For example, the citizens of Louisville and Versailles, Ky., have begun resisting the company’s efforts to add more stores to their cities. Both already have Walmarts, and critics feel more stores will overwhelm the communities.

In many ways, however, the competitive threat in India is more basic and personal, affecting not only shoppers and communities but workers as well.

Currently, Walmart employs 2.2 million associates. Biplab Das employs three.

“Saving people money”

Kentucky is one of the poorest states in America. Outside of its big cities like Lexington and Louisville, many towns are rural and poor and filled with run-down houses and buildings.

A few miles from the chaos in many of these counties, a Walmart can often be found.

In Kentucky alone, there are 28,454 employees working in over 100 Walmarts, including Supercenters and Sam’s Clubs. Walton was the one who first came up with the idea for the Supercenters, which include a market section, home goods, media, and a pharmacy, sometimes even a liquor store and an eye doctor.

Sam’s Clubs focus more on buying items in bulk, and look more like warehouses on the inside.

By the time of Walton’s death in 1992, he had been awarded the Presidential Medal of Freedom by President George H.W. Bush. And Walmart continues to be a family-run business.

It’s a big corporation with a small business image, built on the idea of community and often advertising as the local neighborhood Walmart. The company’s motto is “saving people money so they can live better”.

Walmart officials also stress that they give to their communities. For years, Walmart has run scholarships and internships for college students and made many charitable donations to nonprofit organizations across the world.

The company is deeply ingrained in communities around Kentucky, which is in the southern part of the country. Walmart is one of the sponsors for the annual East Kentucky Leadership Conference, which focuses on issues important to the Appalachian region of the state. The company also currently provides grants for students of the Red Cross Kentucky Nurse Aide Training program.

Walmart recently began developing a “Buy American” Campaign as a plan to help boost the U.S. economy. Buying American has been a hot topic for years in the business world, as many companies find it cheaper to outsource business to other countries such as China, despite protests that they are taking job opportunities from American citizens.

The company’s campaign will be a ten-year process, according to Walmart’s website, which will involve job creation for not only average citizens but also veterans.

Walmart’s involvement in America does not stop there.

Walmart has close ties with the U.S. government and a government relations department to regulate interactions with officials.

Walmart worries

Several financial experts and politicians are expressing concerns about Walmart’s entry into India.

Currently, the Indian government allows 51 percent FDI in the Indian retail sector. But there has been an uproar from domestic and foreign economic groups demanding that it be raised to 100 percent. But if that’s allowed, some worry there will be wide repercussions.

The largest contributors to the Indian economy are the small-scale department stores. Indian politicians fear that the entry of the multi-brand retailer would have a devastating effect on small shopkeepers, workers, farmers and consumers of India.

They fear ‘free trade’ for Walmart would mean the end of freedom for farmers, hawkers and vendors, who comprise about 62 percent of the India’s total population. Some of them even think that India might be facing a situation like one that arose in Thailand, where 60,000 small traders were forced to shutter their shops due to tremendous easing of foreign direct investment norms.

In the general marketplace, Indian retailers can choose to buy from hundreds of traders. With Walmart, farmers would have only one buyer, and consumers would have only one seller. That’s why some critics fear Walmart and similar large stores could destroy India’s small, independent retail system.

Walmart claims that Indian farmers will earn more if the store is allowed to take hold of the Indian market. But many economists and politicians believe that big retail goes hand-in-hand with big agriculture, leaving no place for small farmers in a Walmart world.
“Apples come from the Philippines and oranges from Mexico in the US,” said anti-Walmart activist Wade Rathke, founder of the Association of Community Organizations for Reform Now and Service Employees International Union Local 100. “So what is the guarantee that they will not import tea from Sri Lanka or Bangladesh, instead of sourcing it from India?”

Activists also say Walmart’s involvement in Indian agriculture could create more economic poverty and leave India poorer as a culture and civilization because real free trade takes place face-to-face on the streets and in the haats and bazaars. Box stores and Western retail giants will rob India of its diversity and decentralized economy, which is the source of India’s resilience and real wealth of the people, they say.

In an article published in the Financial Express about Walmart’s vision in India, Raj Jain, president of emerging markets for Walmart said, “One key reason for Walmart’s success is localization. We carry local products from local suppliers that appeal to local tastes, needs and fashions.”

But a detailed look into the Walmart system of trade suggests the opposite. Dipankar Dasgupta, professor of economics at the Indian Statistical Institute, is of the opinion that the Walmart model is based on globalization and not localization. He further adds, “If Walmart was to carry only locally- produced goods, then it would be different in every country.”

Renowned author Charles Fishman, in his book The Wal-Mart Effect, wrote, “Walmart’s globalization strategies are clever and something that has provide manifolds of dividends for them.”

A typical Walmart store sells 60,000 different items; a Supercenter sells 120,000 items. Eighty percent of those items are sourced from China.

“Walmart is one of the best beneficiaries of corporate-led globalization, and has made communities dependent on supplies from thousands of miles away for everyday from the food we eat and the clothes we wear,” said Abhirup Sarkar, a colleague of Dasgupta,.

“Such globalization has a large negative impact on the local supply-chain intermediaries, which constitutes about 800 million of the population of India.”

To a certain extent, their fears are borne out by what’s happening in Kentucky.

Walmart has been known to buy up buildings so that other businesses cannot come in. Opponents of the stores argue they detract from their communities’ overall well-being as customers become more and more dependent on Walmart and soon forget the small businesses in the area.

An uncertain future

Should India open up its gigantic retail sector to the largest multi-brand retailer in the world?

Opponents in the business and political worlds emphatically say ‘no.’ But these same politicians and economists also say India’s preservation facilities and food supply is very backdated and neglected and in need of updating.

So what should be done? Should India stop fearing Walmart and let the company in with 100 percent investment freedom, or should the present stance be upheld and severe checks be kept in Walmart’s investments?

The chief concern of Indian administrators trying to stop Walmart’s entry into the Indian market is that the retailer might have a devastating effect on numerous stake-holders in India.

Among them are farmers, who now supply the food market that Walmart is most eager to enter.

Currently, the vast majority of the Indian population is employed in agriculture, and farmers gain a lot from whoever invests in the food supply chain to bring food from the fields to the consumer. In the present system of trade, farmers sell to traders at rates dictated by the latter in the bazaars.

Farmers in India are allowed to sell their produce only at government-approved mandis, or markets. Often, a farmer has to travel long distances and incur substantial transportation expenses, only to sell at rates dictated by the wholesale buyer. Some experts argue this system yields poor quality food for consumers and low earnings for farmers.

To lure these farmers away from this existing system, Walmart aims to help them improve their productivity and offer 20 percent more than what local traders are paying for what they grow. Walmart aims to build up a network of 35,000 farmers by 2015. It’s unclear whether the company will achieve that landmark, but the present system of trade is not paying any good dividends to the farmers- a fact that is evident from the number of farmers who are below the poverty line in India.

Regardless of whether the company meets this goal, some business experts say change in India is inevitable.

“I believe, whether it’s Walmart or other big companies, eventually they are sure to displace all the old informal markets,” said the University of Kentucky’s Sudharshan, who has lectured in India.

Even Das agreed that India’s preservation facilities are lacking and that Walmart could provide the technologies needed to improve them.

This is exactly why many economists say India needs Walmart – because it would spawn mutual profit for all three entities involved in trade: farmers, consumers and Walmart.
As far as the small traders are concerned, economist Biswajit Mondal said they “are essentially middlemen who, in effect, produce minimum service but gain a lot. They should be re-directed to a direction where their productivity could be higher.”

The new Narendra Modi government in India could decide the fate of Walmart’s presence in the country. But even if the company gets the green light, experts say, the Indian people will ultimately decide whether to shop there or at the local shops they’ve long frequented.

Back at the marketplace in Kolkata, Das ponders his future, and thinks of his workers.

When asked if a job offer from Walmart would entice Das to give up his store, he said no. “It would be tempting, but it’s not only a matter of my livelihood but that of three other people who work under me. I can’t just go away and leave them jobless.”

A FACTSHEET

•   Walmart’s headquarters are in Bentonville, Arkansas

•   In India, Walmart has Wholesale stores in Punjab, Amritsar, Bathinda, Jalandar, Ludhiana, and Zirakpur

•   Average salary for a Walmart worker is around 7.25-9.25 USD (439.63-560.91 rupees) an hour

•   Walmart offers employees some benefits like 10 percent discount on items, health care plan, retirement plan, and opportunities for promotions

For University of Louisville student Casey Evans, working for Walmart seemed like a great opportunity to make some extra cash for college.

“It is probably one of my favorite places to shop,” said Evans, who worked in a Glasgow store during the summer of 2012. “It has everything I need and the prices are the best in town.”

As a third-shift stocker, Evans averaged a nine-hour night shift four days a week. His pay was $7.95 an hour, above the average minimum wage of $7.25 (435 rupees) an hour in the U.S. state of Kentucky.

But Evans was labeled as a part time worker, and described the benefits as minuscule. He explained that the only benefit he got was a 10 percent discount that could be applied to all items at the store except food.

“I did not like working there after a few weeks because it did not seem like the pay was worth the work,” said Evans, although he overcame his objections and decided to also work there during his winter break for the money.

During his time there, Evans said he heard rumors that Walmart was not good to their employees. But he said that his managers were good to him.

He did see the change Walmart brought to his community.

Evans observed that a major impact that Walmart has had on this town of more than 14,000 is its need to be the top seller, which presents a threat for “mom and pop” businesses. Walmart is in the practice of buying up buildings and companies in these smaller areas in order to keep the competition out.

“Coming from small-town America where everybody knows everyone,” he said, “Walmart has almost monopolized our market.”

A SNAPSHOT

On the corner of South 18th Street and West Broadway in the U.S. city of Louisville, Ky., the old Phillip Morris cigarette manufacturing plant sat empty for 14 years. But a new Walmart Supercenter will soon give it new life.

But residents and business owners in this impoverished area of the city are divided about how this development could affect the community over the long term.

Many Louisville government leaders support the store. According to the press release from Mayor Greg Fischer’s office, the deal will created much needed jobs for the area from the construction work to the overall running of the store. The press release stated, “The project will create 300 jobs in the Walmart store, with $6 million in annual payroll. Additional jobs will be created with the project’s construction.”

Despite the promise of Walmart, others say it could hurt the community in some ways. The Kentucky Labor Institute, a non-profit worker’s organization, is one the groups that is against the idea of a Walmart Supercenter.

KLI drafted up its own report, which listed problems that would arise from a Walmart. The reports states that Walmart is an unreliable business because it has a history of abruptly abandoning business sites and creating a dependency on their products.

KLI member Avery Kolers explains, “Walmart undermines businesses that are already there, running them first into debt and then out of business.”

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