Walmart’s Strategy behind buying Flipkart!
Hello there, this is Jay Dave a passionate learner. I have a few thoughts about walmart buying Flipkart for whooping USD 15 billion!
Read it, and let me know what you think!
“Walmart Inc announced a deal to inquire 77% stake in Indian e-commerce Flipkart for whooping USD 15 billion (Rs. 1.05 lakh crore).
Though, Binny Bansal, co-founder of Flipkart will retain 5.5% stake and will be chairman of company’s board. Wallmat’s Krish Iyer will be the CEO of the company. Also, Flipkart and walmart will remain separate brand.
Flipkart is the pioneer of E-Commerce business in India and role model for startups striving for success. Actually, the journey of transfer of Flipkart into foreign hands had become few years ago and the recent sale to Walmart is only a culmination of that process. Flipkart has not earned a ‘Single Rupee of new profit’.The company has operated from the funds obtained by Bansals from selling their stakes to Institutional Investors.
Flipkart was born to be sold.
It is actually Institutional Investors who are selling Flipkart to Walmart.
The acquisition of Flipkart fulfils many objectives of Walmart which has failed to enter the retailing business during the previous UPA government because of opposition by Indian retailers and the rigid FDI policy. This doesn’t not only provide Walmart and opportunity to enter the Indian market but also to catch up with its rival Amazon which is the largest company in country. India will be the only country where Walmart will come ‘anywhere close’ to the kind of market share Amazon has.
Well, some Marxists says that Flipkart’s acquisition as the failure of government’s “Make in India” policy. But, both Bansals have benefited immensely. The 20$ billion valuation by the MNC in May 2018 is 42% more than the valuation of the company in 2017. The sale of Indian startup for more than Rs. 1 lakh crore is in itself being as an achievement for Indian entrepreneurship. At the same time, China allowed Walmart to enter its market only after the MNC committed to source a large proportion of the products for its stores from local companies.However, no such condition apply to Walmart in India.
Walmart knows about the lucrative potential of retailing business in India where it’s e-commerce or brick and mortar stores. The MNC was desperate for a solo foray into India but the government’s FDI policies had thwarted its attempts to set up its trademark retail stores earlier, and this is their chance to expand!
MNC retailers require to source at least 30% of their products from local companies. This creates problems when suppliers of the desired quality are not available or the prices charged by them are more than what they can get from China.
India’s FDI policy is the reason world’s leading retailing giants such as Walmart, Metro and Tesco have been unable to make much headway. In this sense, the acquisition of Flipkart has rejuvenated Walmart’s amibions in India. Walmart started a joint venture with Bharti Enterprises to foray into the cash & carry business in 2007 under the name of EasyDay brand but failed miserably. Amazon hd raced ahead to a dominant market leadership position, in the large US market, Amazon has 43% share while Walmart (which is 2.5 times Amazon in terms of income) has share of just 4%.
Companies like Amazon, Flipkart, Walmart understood that the strategy of attracting customers through huge discounts is neither long-lasting nor sustainable. The challenge today is to lure the customers into making purchases again and again.”
Walmart aspired to become a market leader in a country where it has been present since 2007 but has been unable to make progress of any note. Whereas for Flipkart, the Walmart offer is an opportunity to cash out at a lucrative price from a business whose future prospects remain bright but the present outlook is bleak!
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