Wal-Mart Faces Familiar Fight on Entry into Indian Market

During the recent Indian Economic Summit, Wal-Mart and Bharti Enterprises (New Dehli), India’s top private phone company, announced plans to jointly open several hundred stores across the country. Per the agreement, Bharti would control the front-end of the business, while the Bentonville, Ark.-retailer would manage the supply chain, logistics and other back-end operations.

To protect local stores India does not allow foreign direct investment in the retail sector for multi-brand stores. It does make an exception for single-brand stores, such as Nike or Sony, which can be 51% foreign-owned. In the retail sector foreign companies have to sign franchise deals with local companies. Foreign investment is permitted, however, in wholesale trade as well as logistics and back-end support.

Bharti’s CEO said the arrangement complies with existing foreign investment rules and that the stores would be owned by Bharti and run under a Wal-Mart franchise. The company said in a statement that the memorandum of understanding "allows the two companies to study and evaluate the retail market in India and identify business opportunities together within the existing guidelines."

Left-leaning politicians in India have challenged the deal, saying it unlawfully seeks to circumvent the law to gain access to a booming Indian market. The country’s Commerce Minister Kamal Nath has pledged to examine the specifics of the arrangement. Indian politicians have also urged national trade unions to fight the entry of Wal-Mart and other multi-national retailers into India.

The developments follow the retail expansion of Reliance Energy (Mumbai), the country’s leading power utility, which began opening a string of supermarkets in October. The company reportedly has plans to open 4,000 stores in 1,500 cities by 2011. Reliance’s chairman said the proposed arrangement between Wal-Mart and Bharti will make the Indian retail sector stronger.

Wal-Mart currently sources an estimated $1.5 billion in clothing and textiles from India. The two companies plan to start opening stores by August 2007.