Academic journal article Journal of the International Academy for Case Studies

Walmart in India

Academic journal article Journal of the International Academy for Case Studies

Walmart in India

Article excerpt

INTRODUCTION

In early 2013, Doug McMillon, the CEO of Walmart's International division, worked on an urgent presentation to the company's Board of Directors that was coming up in the next two weeks. McMillon realized that Walmart's commitment to India, the world's second largest country by population (Central Intelligence Agency, 2014), had to be addressed now.

India had turned out to be very different from Walmart's many other expansions in the West. A large population and growing middle class presented a potentially lucrative opportunity. However, India's business and political climates had posed challenges lately. The Indian economy's growth rate slowed from 6.2% in 2011 to 5.3% in 2012 (Times of India, 2013). India's currency, the rupee, was already very weak. In mid-2011, the exchange rate was 61.36 Indian rupees for 1 US dollar. The rupee fell another 25% in 2012 (Sahoo, 2012). This further eroded the purchasing power of India's consumers.

There was always an undercurrent of hostility towards international corporations, left over from India's colonial days (Bajaj, 2012). However, there were signs of potential change. India was poised to elect a new Prime Minister. A candidate widely perceived as particularly strong was Narendra Modi. As Chief Minister of Gujarat, Modi had implemented probusiness reforms (Hume & Udas, 2014). The more welcoming climate successfully attracted more investment, such as a Tata car factory, which significantly increased Gujarat's economic growth. Modi's rule could therefore result in new opportunities for Walmart to expand. However, Modi's Bharatiya Janata Party believed in the Hindu nationalist policy of swadeshi, self-reliance, and did not welcome foreign retailers (Punj, 2014). How Modi would balance these competing demands was uncertain.

McMillon reviewed Walmart's progress in India to date. Walmart had already made a significant investment in India, going back to 2007. Unfavorable economic and political environments had led Walmart to sever ties with its Indian partner, Bharti Airtel, and consider giving up. However, important changes seemed imminent. The political landscape had shifted. E-commerce in India was growing. Rival foreign retailers continued to assess the Indian market. McMillon wondered what he should recommend to the Board.

WALMART'S HISTORY

In 1962, Sam Walton, opened the first Walmart in Rogers, Arkansas (Walmart, 2013e). Competitors relied on periodic sales and promotions, which encouraged customers to wait for a sale before buying. Instead, Walmart used an Every Day Low Price strategy, which relied on lowering costs through economies of scale, heavy use of computer technology, and a hub-and-spoke distribution network. Walmart quickly grew to 24 stores by 1967, with a nationwide expansion and Initial Public Offering in 1970. Headquarters moved to Bentonville, Arkansas in 1971. The 1980s saw the debut of the Walmart Supercenter concept, which included supermarket operations, and the Sam's Club warehouse chain. Table 1 shows Walmart's store types in the US.

As the US economy worsened in the mid-2000s, the retail sector increasingly faced the question of how best to cope with long-term stagnation. By 2014, Walmart's annual revenues were $476.2 billion, up 1.6% from 2013 (Walmart, 2014a). US operations made up 59% of net sales, 38% of Walmart's approximately 11,000 stores, and 59% of Walmart's 2.2 million employees (Walmart, 2014b). However, US same store sales were down 0.6% (Walmart, 2014a). Walmart was also facing increasing pressure from its US competitors. Annual US revenue growth over approximately the same time period was 5% at Costco (Trefis, 2014) and 4% at Target (Target, 2013). Walmart's growth in US demand was forecasted to remain low for the foreseeable future, with steep price cuts needed to spur spending in a weak economy (Wahba & Baertlein, 2013).

INTERNATIONAL EXPANSION

The financial outlook was much better for Walmart's international division. …

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