WALL-MART AND BHARATI:

TRANSFORMING RETAIL IN INDIA

Retail Marketing

Submitted to
Prof. Ranjan Chaudhari

Submitted By:

ePGP-02-095 Anubhav Mishra

ePGP-02-097 Biswajit deva sharma

ePGP-02-115 Prabhat Raman

ePGP-02-118 Raghav S

ePGP-02-122 Ramprasad S

ePGP-02-129 Satyesh Singh Rajput

ePGP-02-140 Vimal Mohan Jain

Indian Institute of Management, Kozhikode Retail Marketing

Table of Contents
Indian Retail Market ...................................................................................................................................... 3
Question 1: Wal-Mart’s efficiency in supply chain management has made it a leader in the retail field. Is
it possible for Wal-Mart to maintain supply chain as a competitive advantage?......................................... 3
Procurement and Distribution .................................................................................................................. 4
Logistics Management .............................................................................................................................. 4
Inventory Management ............................................................................................................................ 5
Is it possible for Wal-Mart to maintain supply chain as a competitive advantage? ................................. 5
Question 2: Explain Wal-Mart’s use of innovative IT tools and IT – enabled processes to benefit its supply
chain. ............................................................................................................................................................. 5
Question 3: Analyze the Indian Retail Industry through Porter’s Five Forces. ............................................. 7
Competitive Rivalry within industry: ......................................................................................................... 7
Bargaining Power of Customers: ............................................................................................................... 8
Threat of Substitutes: ................................................................................................................................ 8
Threat of New Entrants: ............................................................................................................................ 8
Bargaining Power of Suppliers: ................................................................................................................. 8
Question 4: Why is it lucrative for Wal-Mart and Bharti to engage in a partnership to offer cash and carry
services? ........................................................................................................................................................ 8
Question 5: What are the challenges faced by Bharti and Wal-Mart in their partnership? Use SWOT
Analysis to explain this further....................................................................................................................10
SWOT Analysis Bharti: .............................................................................................................................11
Strength: .............................................................................................................................................. 11
Weakness: ...........................................................................................................................................11
Opportunities: .....................................................................................................................................11
Threats:................................................................................................................................................ 12
SWOT Analysis Wall-Mart: ......................................................................................................................12
Strength: .............................................................................................................................................. 12
Weakness: ...........................................................................................................................................13
Opportunities: .....................................................................................................................................13
Threats:................................................................................................................................................ 13
References ...................................................................................................................................................14

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Indian Retail Market

India has become epicenter of economic activities in today’s global world. Indian retail is
the most promising sector in the world and it has caught the attention of players across globe.
India’s retail market is valued around $590 billion dollars and is expect to become $637 billion
by the year 2015. The immense growth opportunities coupled with lack of organized retail
makes it attractive further more.

While India presents a large market opportunity given the number and increasing
purchasing power of consumers, there are significant challenges as well given that over 90% of
trade is conducted through independent local stores. Indian retail market is highly complex in
terms of a geographic spread and consumer preferences which varies by each region requiring
strong need for localization across the length and breadth of India.

In order to capture Indian market Wall-Mart entered in 50:50 venture with Bharti for cash-
and-carry retail business. Wal-Mart and Bharti need to tackle huge challenges to be successful.
It ranges from huge cultural diversity, lack of infrastructure, political resistance, social
resistance, lack of use of technology, to supply chain management. The analysis that follows in
the document identifies various challenges faced by the joint venture along with answers to
questions asked in the assignment.

Question 1: Wal-Mart’s efficiency in supply chain management has

made it a leader in the retail field. Is it possible for Wal-Mart to
maintain supply chain as a competitive advantage?

Answer 1:

The Supply chain management forms the heart of Wal-Mart’s business. Its reliability and
efficiency is unmatched in the word of retail. Wal-Mart always seeks to improve and explore
possible ways to give customers superb quality service without an additional expense. All
aspect of supply chain from the purchasing to transporting and then finally to selling are well-
coordinated and systematic which ensures the success of the entire supply chain, which in turn
benefits and satisfies Wal-Mart’s customers.

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Wal-Mart has been very successful in finding means to capitalize on every cost
saving opportunities and the adoption of efficient logistics system enable Wal-Mart to earn
unrivaled intangible competitive advantage and edge to the rest of the business world which is
made possible also in the use innovative technology. Supply chain management at Wal-Mart
can be described in 3 sections:

Procurement and Distribution

Wal-Mart’s process of procurement involves reducing its purchasing costs as far as

possible so that it can offer best price to its customers. The company procures goods directly
from the manufacturers, bypassing all intermediaries.

Wal-Mart has distribution centers in different geographical places in US. Wal-Mart’s

own warehouses supplies about 80% of the inventory. Each distribution centre is divided in
different groups depending on the quantity of goods received. The inventory turnover rate is
very high, about once every week for most of the items. The goods to be used internally in US
arrive in pallets & imported goods arrive in re-usable boxes.

The distribution centers ensured steady flow & consistent flow of products. Managing
the center is economical with the large-scale use of sophisticated technology such as Bar code,
hand held computer systems and RFID. The computers also enabled the packaging department
to get accurate information such as storage, packaging & shipping, thus saving time in
unnecessary paperwork.

Logistics Management
Wall-Mart has its own in-house fleet, which helps in reducing cost of transportation for
delivery of goods to the different stores and distribution centers. Given the benefits of having
owned a transportation system, Wal-Mart capabilities of replenishing the shelves, is four times
faster than the other competitors. Not only that, it enables Wal-Mart to save 3% compare with
the 5% of the competitors. More than 7000 company owned trucks services the distribution
centers. These dedicated truck fleets enables shipping of goods from distribution centers to the
stores within 2 days and replenish the store shelves twice a week.

Wal-Mart also uses logistics technique of “Cross Docking”. In this system, finished goods
are directly picked up from the manufacturing site of supplier, sorted out and directly supplied
to the customers. This system reduces handling & storage of finished goods, virtually
eliminating role of distribution centers & stores. Because of “cross-docking” the supply chain
system is more of “demand chain” which meant, instead of retailers ‘pushing’ the products into
the system, the customers could ‘pull’ the products, when & where they required.

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Inventory Management

Wal-Mart ensures that unproductive inventory is as less as possible, by allowing the

stores to manage their own stocks, thereby reducing pack sizes across many categories and
timely price markdowns. Wal-Mart makes full use of its IT infrastructure to make more
inventories available in case of items that customers wanted most, while reducing overall
inventory. By making use of Bar-coding & RFID technologies, different processes like efficient
picking, receiving & proper inventory control of the products along with easy packing and
counting of the inventories was ensured.

Employees use “Magic Wand”, which is linked to in-store terminals through a Radio
frequency network, to keep track of the inventory in stores, deliveries and backup merchandise
in stock at the distribution centers. The order management and store replenishment of goods is
entirely executed with the help of computers through Point of Sale (POS) system. It also shows
the location of the product like distribution center or transit on the truck. When the goods are
unloaded at the store, the inventory system is immediately updated.

Is it possible for Wal-Mart to maintain supply chain as a competitive

advantage?

Wall-Mart and Bharti may face some issue in implementing a robust supply chain
management due to lack of infrastructure, socio-cultural diversity, socio-political resistant and
various other challenge. However given the extensive use of technology and robust knowledge
of supply chain management which Wall-Mart has there is no reason why Wall-Mart and Bharti
will not be able to maintain supply chain as competitive advantage.

Question 2: Explain Wal-Mart’s use of innovative IT tools and IT –

enabled processes to benefit its supply chain.

Answer 2:

Wal-Mart leverages technology to help support their supply chain and business strategy of
EDLP. Wall mart’s operational excellence has helps Wall-mart to reduce its cost and bargain
better with supplier to offer EDLP to it s customers.

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Retail Link:
Wal-Mart utilizes an in-house developed supply chain visibility tool called Retail Link to
facilitate communication and collaboration with supply chain partners. The three major
functions of Retail Link are to store data, to share data with vendors, and to aid in shipment
routing assignments. Suppliers are given large amounts of raw data concerning their product
sales in Wal-Mart Stores. Retail Link provides data such as point of sale data, average price,
current inventory by store, and current on order quantity. The information can be viewed by
day, by week, by store, or in any other combination, by day, by Discount Store, and by SKU.
With this data, vendors can make their supply chain more efficient, which will in turn improve
their service to Wal-Mart while lowering Wal-Mart's costs. Retail Link makes collaborative
efforts such as vendor-managed inventory and co-managed inventory are possible.

Inforem:

Wal-Mart uses a system called Inforem to automate their replenishment process for
their retail stores. Point of sale data as well as the amount of inventory on hand along with
trends and demand and supply variability are used to automate replenishment. Inforem makes
decisions on when to order and how much inventory to order. An order quantity for each stock
keeping unit (SKU) in each Discount Store is automatically determined by Inforem.

Use of Bar Codes:

Wal-Mart's was early adopter of barcode technology and it enables Wal-Mart's flow-
through supply chain processes. Barcode technology ensures real-time, accurate data capture
and product visibility throughout Wal-Mart's supply chain as product flows from vendors
through distribution centers, center points, and onto retail stores.

Use of RFID:
Wal-Mart has moved ahead from Bar code and it is driving the adoption of RFID
technology through supplier mandates and operational process redesign. RFID promises to be
the next generation of barcode technology to provide automated data capture to further
streamline Wal-Mart's processes and vendor compliance initiatives.

Use of Technology Infrastructure:

Wal-Mart owns the “Massively Parallel Processor (MPP)”, largest & the most
sophisticated computer system in private sector, which enables it to easily track movement of
goods & stock levels across all distribution centers and stores. Wal-Mart also makes use of
sophisticated algorithm to forecast the quantities of each item to be delivered, based on

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inventories in the store. A Centralized inventory database allows the personnel at the store to
find out the level of inventories and location of each product at a given time.

Above examples illustrate Wal-Mart's use of technology to gather, process, and analyze
information to support efficient supply chain processes and vendor collaboration to help keep
supply chain costs low to support their EDLP strategy.

Question 3: Analyze the Indian Retail Industry through Porter’s Five

Forces.

Answer 2:

Competitive Rivalry within industry:

1. The retail Industry in India is still more than 90% unorganized.
2. There is a huge market potential for the growing Indian retail Industry market.

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3. Currently there are multiple foreign retailers vying for local partners to enter into the
India retail market but none of them have yet gone fully operational.
4. Local biggies like Reliance and RPG groups have setup huge network of retail outlets and
have started to expand and grow along with the Indian retail market.

Bargaining Power of Customers:

1. Customers are already buying through the unorganized small retail shops to satisfy the
needs.
2. Organized retail showrooms need to attract customers by either providing a cost
advantage or differentiating with their collection of products under one roof.
3. Customers have choice to both go for the small shops or to the retail outlets and hence
have a very good amount of bargaining power.

Threat of Substitutes:
1. Traditional Indian retail outlets are the main substitutes.
2. Unorganized small scale vendors, hawkers, vegetable markets are all substitutes for the
organized retail.
3. This threat in turn increases the bargaining power of the customers.

Threat of New Entrants:

1. New market entrants from foreign locations need a local partner to enter into the
market according to the government regulation
2. The market is growing and hence can accommodate more players very easily
3. Local competition and brand building of local companies like Spencers would also be a
threat for the new entrants.

Bargaining Power of Suppliers:

1. Competitive products vying for shelf space reduces the supplier power as the retail
outlets with their huge networks have choices with them with the private players also
coming into picture
2. Suppliers with huge warehouses and storage spaces can be more advantageous for
efficient supply chain management for the retailers

Question 4: Why is it lucrative for Wal-Mart and Bharti to engage in a

partnership to offer cash and carry services?

Government of India permits 100% FDI in wholesale cash-and-carry and backend logistics.
Walmart and Bharti had two different formats of the stores in their joint venture – one a

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franchised retail company and a wholesale cash-and-carry joint venture. South Africa’s Shop
Rite and Metro AG from Germany had already established cash-an-carry businesses in India
supplying for the caterers, restaurants, retailers and other businesses. Walmart’s supply
chain experience and it technology uses in the retail space combined with Bharti’s local
market knowledge and the technology expertise will be of a great mutual benefit for both
the companies especially in cash-and-carry business. It is lucrative for Bharti and Wall-Mart
due to following reasons:

o Indian agricultural sourcing is highly fragmented with mandi’s being the only
consolidated market for farmers, sourcing food products and agricultural produce from
such a fragmented market requires keen local market knowledge which is available with
Bharti with their experiencing in penetrating far flung areas for their telecom networks.
Cash and Carry business would provide access to huge market to the join venture.

o Wall-Mart’s expertise coupled with Supply chain networks, storage technology for large
wholesale warehouses and use of technology for optimizing the supply chain would be a
huge advantage for both. As retail sector is not open it Cash and carry would give the JV
a chance to see and test the business model.

o Cash and Carry business can help the JV to understand the Indian retail market and make
changes in model based on the learning and experience so that when the retail sector
finally opens the joint venture is in a position to scale up and capture the largest retail
market of world.

o This way Wal-mart will gain the market access and Bharti will gain retail experience
which will catapult both the companies to become leading retail and wholesale service
providers in the country thereby laying the foundation for a retail transformation of India

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Question 5: What are the challenges faced by Bharti and Wal-Mart in

their partnership? Use SWOT Analysis to explain this further.

Indian retail market looks very lucrative for multinational companies like Wal-Mart, METRO,
TESCO; India market has its own set of unique challenges. These challenges range from entering
the market, operating in the market, managing uncertainties and collaborating with local
partners and managing diversities. It will be Wal-Mart’s toughest challenge in
internationalization given the challenges posed by many variables. In our view Wall-Mart and
Bharti face following challenges:

1. Cultural differences in Indian retail way and the wall-mart way, while unorganized
retailer in India build a long lasting relationship with their customer, Wall-Mart’s
relationship is mainly transactional.

2. The diversity of products bought by Indian consumers varies significantly in length and
breadth of India and optimizing operation while ensuring that consumer get what they
want in Wall stores would be a daunting task.

3. Wal-Mart will have to make sure it has its logistics functions up-to-date with the diverse
demands the market will pose.

4. Wal-Mart has so far had most of its experience in countries with minimal diversity and
handling operation in one of the most diverse country would be very difficult for Bharti
Wall-Mart venture.

5. The booming infrastructure sector in India has already sent the prices for land and rental
to sky-high coupled.

6. Unlike US or Europe Indian prefer to buy from nearest retailers Wall-mart’s strategy of
having outlets in outskirts of cities will not work and the cost of land and rentals in
prime place in Indian cities have sky rocketed.

7. Wall-Mart need to understand the local environment, both corporate and consumer,
and come with a certain amount of humility or humbleness and not an attitude of "we
will show you how this is done".

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8. Infrastructure in India is still developing and managing supply chain in India would be for
more challenging due to lack of proper infrastructure, socio political activities like
bandh, strikes and resistance against organized retails etc.

SWOT Analysis Bharti:

Bharti Enterprises is one of India largest Telecom Company. It has grown over the years by
acquiring and building partnership. Bharti has managed to build global partnership very well.
As Bharti is one of the pioneers of Indian telecom revolution over the period of time it has
gained good knowledge of Indian consumers. However retail is a new business for Bharti and
SWOT analysis below illustrate the positives and negative Bharti and Wal-Mart’s joint venture.

Strength:

1. Bharti has 152.5 million customers and it is very well known and established brand
in India. Bharti can attract its existing customers to Wall-Mart Bharti outlets.
2. Bharti is present in large part of India and Bharti’s presence would help the joint
venture in scaling up the operation quickly.
3. Bharti has built a huge network of suppliers, business partner across the length and
breadth of India, this network can be very useful for Wall-Mart Bharti join venture.
4. Collective brand power of Wall-Mart and Bharti will be a formidable combination.

Weakness:

1. Bharti is known for building business from start however joint venture with Wall-
Mart will require lot of co-ordination and cross cultural issues.
2. Bharti does not have experience in retail business like FMCG and related retail
product. Wall-Mart’s retail expertise is a huge plus but Bharti’s lack of knowledge in
retail could be problematic for joint venture.
3. Bharti is a small company as compared to Wall-Mart and this could lead to improper
balance of power and may be detrimental to the success of joint venture.

Opportunities:

1. Bharti and Wall-Mart is a formidable combination and with Bharti expanding in rural
market, it will provide a gateway for Wall-Mart to expand in remote towns and
villages of India.
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2. Both companies will have huge opportunity to learn from each other, as both of
them have complimentary skills.
3. Opening of cash and carry stores will have the largest opportunity to profit for both
companies.
4. Cash and carry stores will establish retail outlets and create a supply chain network
in the region.
5. By using local producers and stimulating the local economies, it will create jobs
within the community it will help in strengthening Bharti Wal-Mart joint venture.

Threats:

1. Wall-Mart’s poor social image of damaging mom and pop stores in US can be serious
issue in India.
2. Established local retail companies like Big Bazar, Spencer, Reliance Fresh can give
tough competition to Bharti Wall-Mart venture
3. Foreign companies like Metro, Shop Rite are also making huge plans to get into
Indian retail market and this would certainly not make things easier for Wall-Mart
and Bharti joint venture.
4. Protests against opening of retail sector by various political parties and NGOs can
severely impact operation of Bharti Wall-Mart cash and carry stores just like what
happened to Reliance Fresh outlets in Uttar Pradesh.

SWOT Analysis Wall-Mart:

Wal-Mart has optimized the retail business and is considered as pioneer in retail. The
SWOT analysis given below will explain the strengths, weaknesses, opportunities and threats
for Wall-Mart in India.

Strength:

1. Wal-Mart is world’s largest corporation and it enjoys high status and recognition, its
status and recognition would help Wall-Mart in dealing effectively with locals in
India.
2. Its distribution centre and logistics capabilities are key strengths adding unmatched
value to its entire value chain.
3. It has immense buying power when dealing with Suppliers.
4. Wal-mart's focused strategy for human resource management will allow the
company to hire and retain the needed workers in India.

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5. Its cross-docking and effective inventory management gives cost advantage to

sustain its Every Day Low Price Strategy.
6. As majority of target customers are price conscious in India its low price & customer
focus would help Wall-Mart to establishing and building loyalty.

Weakness:

1. The supply chain models which Wall-Mart has developed is suited best for
developed economy, it may not be efficient in county like India.
2. Wall-Mart traditionally has huge span of control but such huge span of control may
not work in Indian context.
3. India is far more diverse country than any other country which Wall-Mart has
operated so far.
4. Wall-Mart has not been very successful in internationalization; it failed in Germany
and South Korea.

Opportunities:

1. Access to largest retail market worth $590 billion with only 2% of organized retail.
2. One of the fastest growing economies with growing middle class.
3. Potential for merger and acquisition of local retail chain can make Wall-Mart in a
dominant player in Indian retail market.
4. Wall-Mart can diversify from large super centers to local mall based sites.

Threats:

1. Wall-Mart is not the only global company eyeing for Indian retail market,
competitors like METRO, Shop Rite have already arrived.
2. Local companies like Big Bazar, Spencer and Reliance Fresh knows India retail market
better Wall-Mart and Bharti.
3. Diverse consumer behavior due to cultural diversity of India.

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References

1. Retailing In India http://en.wikipedia.org/wiki/Retailing_in_India

2. What are the challenges Wal-Mart will face in India and how can they overcome these
challenges? http://www.linkedin.com/answers/international/internationalization-
localization/INT_INZ/12127-7009368

3. Wal-Mart's supply chain management

http://ivythesis.typepad.com/term_paper_topics/2009/06/walmarts-supply-chain-
management.html

4. An Analysis of Current Supply Chain Best Practices in the Retail Industry with Case
Studies of Wal-Mart and Amazon.com by Colby Ronald Chiles and Marguarette Thi Dau,
Georgia Institute of Technology.
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