India: Walmart is officially legal, but making money could be a long haul
An Indian labourer sleeps in front of closed shops during a nationwide strike in Bangalore on September 20, 2012. Opposition parties and trade unions called for shopkeepers, traders and labourers in India to block railway lines and close markets to protest against reforms, designed by Prime Minister Manmohan Singh, to revive India’s slowing economy allowing in foreign retail giants such as Walmart and Tesco.
With Prime Minister Manmohan Singh officially notifying a measure to allow "multi-brand" retailers like Walmart into the market, the company that killed Main Street is officially legal in India. But can it actually make money?
"Turning a profit in India for global supermarkets is widely expected to prove even tougher than in China, where Wal-Mart Stores loses money after a dozen years and restrictions are fewer than those imposed by India," India's Hindustan Times newspaper reported earlier this week.
A full page ad taken out by the government in all the major papers today outlines some of those restrictions, reading:
– At least 50 percent of total foreign investment will be in villages, for infrastructure creation
– FDI-backed retailers will source 30 percent of their products from small scale Indian businesses
– Foreign investment will be limited to 51 percent
– Retail stores can only be set up in cities with a population of more than 1 million people
– States can vote no on FDI, regardless of the federal policy
– In addition, foreign retailers will be required to invest at least $100 million to get in the door, the HT story points out.
Local sourcing from small-scale companies, which also caused IKEA some second thoughts about the Indian market, will probably be the hardest part for Walmart and others–whose business success depends on ultra-efficient management of a global supply chain to drive down prices.
“In the short term it’s a requirement which probably can be met but as the business starts expanding, the issue will be how … you continue to comply with it as you would have many more suppliers than you will desire to have,” the paper quoted Walmart honcho Raj Jain as saying. He expects it take 12-18 months to open the first India store, the paper said.