Will market like the Walmart-Flipkart merger?

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Walmart will own around 77 per cent of the Bengaluru-based company in what is also being seen as the largest buyout for the US firm

When India relaxed Foreign Direct Investment norms in 1991 as part of the Liberalisation, Privatisation and Globalisation policy, it opened the arms to attract world’s capital inflow.

World’s largest American based retail giant Walmart acquired India’s largest e-commerce company Flipkart by taking 77% stake in a deal pegged at $16 billion, considered to be the world’s biggest purchase of an e-commerce company and second largest merger of an Indian company. Only the Vodafone-Idea merger was valued higher at $23 billion. Flipkart co-founder Sachin Bansal exits while the other co-founder Binny Bansal remains invested.

Walmart has been present in India for about 20 years now, as a B2B (wholesale) player. The Foreign Direct Investment (FDI) regulations restrict Walmart from doing B2C business in India.

Do look for the core facts of the deal to know why this merger is important for the Indian market | Image source: Spotin

Walmart-Flipkart merger will culminate into numerous advantages to Indian market which one may be ignorant about. Let’s see the benefits that will accrue to the economy:

  • Earlier there was a fear of being taken over by Amazon or Alibaba, which no longer exists now. Walmart’s entry has brought in a level-playing field and start-ups working in the space that are related to e-commerce will get a chance to work with all three.
  • American e-retail major will bring in a drastic change in the way Indian people buy grocery. Walmart – already strong in the grocery in the US – will push for that in India too.
    There has been unprecedented growth in the retail industry between 2013 to 2018 but E-commerce retail industry still lags miles behind | Image source: Dazeinfo
  • Forget logistic growth, India still lacks in providing basic services to the end consumer but with the advent of the American retail giant, omnichannel growth is sure to come. Omni-channel growth is an approach to sales that seeks to provide the customer with a seamless shopping experience whether the customer is shopping online from a desktop or mobile device, by telephone or in a brick and mortar store. Walmart in the US is so careful about its transport and logistics network that it hires only drivers with three years’ and 250,000 miles of driving experience for its fleet of trucks Logistics and supply chain will become an example for other e-commerce houses to look and learn.

    It is estimated that consideration received by India’s largest e-commerce company Flipkart has been settled much higher than the net worth of the company | Image source: Economic Times
  • Walmart’s entry into Indian market shall extinguish monopoly of two e-commerce giants already established in the market, that is, Flipkart and Alibaba. With more competition, a level playing ground will be pitched. Besides, small startups can be merged easily with this behemoth to obtain the benefit of synergy.
  • Needless to mention, consumers will enjoy the best quality product and services at rock bottom prices due to the more cut-throat rivalry. The market players will come out with new offers, discounts and product delivery proposals to woo customer.
  • Walmart aims to serve customers, support job creation, small businesses, farmers, and women entrepreneurs.
  • Walmart plans to support small businesses and ‘Make in India’, through direct procurement as well as increased opportunities for exports through global sourcing and e-commerce.
  • Walmart will partner with Kirana store owners and members to help modernise their retail practices and adopt digital payment technologies.

    Global key players are looking to take advantage of the emerging high consumer demand and cheap labour market of India | Image source: CB Insight

Let’s not simply assume that this American behemoth will kill tiny-tiny little physical shops at the mohalla ends to ease congestion on streets. This deal is a win-win situation for the consumer as well as retailer, with the arch rivals like Amazon being compelled to invest more in order to provide better services to the Indian market.

Instead of starving for tax from the deal and litigation, frankly, Government need to look at supporting the SMEs as they will be wiped up to a certain extent.

Walmart is already the world’s largest retailer operating more than 11,700 stores under 65 brands in 28 countries. If Walmart was a country, its sheer size would make it the world’s 28th largest by GDP – ahead of countries like Pakistan, Bangladesh or Sri Lanka.

Author| Kshitij Chitransh