Walmart is in advanced discussions to invest as much as $1 billion into Flipkart, India’s largest e-commerce company. The world’s second most populous country offers huge potential for retailers.
The leading retailers have been reluctant to enter the Indian market because of restrictions on how they supply stores, but this move from the American multinational suggests this may be about to change.
Walmart previously shelved plans to invest in the Indian market in 2012, saying the rules to do so were too tough. It currently runs 21 wholesale stores in the country that don’t directly sell to consumers.
Flipkart, India’s largest online retailer, has been coming under increasing pressure from e-commerce giant Amazon. Amazon has been busy making major investments in infrastructure and partnerships with companies in India. The company has reportedly invested a total of $5 billion into the Indian market.
If the deal with Walmart goes through, it would provide the Flipkart with the additional capital and expertise needed to compete with the Seattle-based Amazon. For Walmart, it presents an opportunity to enter India’s expanding e-commerce market.
A Walmart-Flipkart tie-up may prompt moves from other rivals in the Indian market. This seems even more likely after the Indian Food Processing Minister announced that the country would relax its food store rules.
Indian Retail Industry
Food Processing Minister Harsimrat Kaur Badal said that she expects foreign companies to enter the retail market through outlets that sell local fresh produce and processed food only. “Retailers want to come to India as our markets and opportunities are too good,” she said in an interview.
India first said it would loosen rules in the food-processing sector back in February as part of an initiative to attract more foreign investment. A spokesman for Walmart in India said the retailer was “evaluating” the government’s food-processing policy. It appears they have now made their move.
The latest incremental opening of the sector was implemented in June, permitting foreign companies to own 100% stakes in food retailing ventures in India. However, it does stipulate that goods should be either grown or processed domestically as foreign retailers can’t sell imported food products or any other merchandise in such stores.
The Minister is hoping that relaxing the rules will encourage other international firms like Walmart to invest in India’s food processing and logistics networks. If food retailers and processors produced more in India they would also start exporting more from India, she said.
This deal between Flipkart and Walmart is interesting for a number of reasons. Foreign companies have historically been unable to distribute products to business owners or sell directly to consumers. But the alliance with Flipkart could eventually give Walmart greater flexibility to market products to Indian consumers.
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