On May 9th American retail giant Walmart acquired 77% stake in Indian e-retailer Flipkart in a whopping $16 billion deal. The acquisition news was doing the round from last six months and various other players were also in the race to get the maximum pie of Flipkart. The deal saw the exit of one of the company’s co-founders Sachin Bansal after selling his share for one billion dollars.
Promising a robust growth for the Indian economy, Doug McMillon, CEO Walmart said, “Our investment will benefit India by providing quality, affordable goods for customers, while creating new skilled jobs and fresh opportunities for small suppliers, farmers and women entrepreneurs.”
Talking to People Matters, Rajneesh Kumar, SVP and Chief Corporate Affairs Officer, Walmart India, said, “Walmart is committed to the country for the long term. We have been running Cash & Carry business in India for almost a decade now and enabling growth, success and modernization of small Kiranas.”
When asked about sourcing from India, he replied, “We are sourcing locally with more than 95% merchandise coming from within the country. We have been creating skilled local jobs for the youths in the country. Through our global sourcing office in India, we are sourcing several billion dollars of products made in India which is not only making ‘Make in India’ successful but also creating thousands of local jobs.”
The scenario seems pretty clear with the global company coming to India with a massive amount of Foreign Direct Investment (FDI) and evolving the supply chain and commercial opportunities which will give the job market the much-needed boost.
Unfair competition and job endangered
According to the American retailer, this deal will create wonders for the Indian economy and it will maintain the equilibrium of local sourcing and create jobs. But various trader unions are opposing the Walmart- Flipkart deal citing reasons such as Job loses and impact on their business. These bodies feel that it’s unfair competition and the jobs and the small business are endangered.
The associations, including Centre of Indian Trade Unions (CITU) and All India Kisan Sabha (AIKS), released an open statement highlighting the deal's "multifaceted dangers" to the economy and called for its nullification. The bodies are worried that this deal is likely to create an American duopoly and it may lead to control of consumer data of Indian retail industry by these multinational companies.
Mohan Gurnani of Chamber of Associations of Maharashtra Industry and Trade (CAMIT) feels that this deal will hurt the local manufacturers and suppliers which will lead in job losses. According to him, the American retailer is famous for its global supply chain and cheap goods from China which will hurt the manufacturers and suppliers.
Rajneesh Kumar countered the allegations of job losses and said that the company is continuously creating skilled jobs in India. We are confident in the business environment the government of India and other State Governments are working to create, and we are willing to make important commitments to this market. We will work within the appropriate policy and regulatory frameworks of India to comply with all the applicable laws/rules,” he said.
Walmart is betting big one building relationships with the small kirana shops which will boost the economic condition of the country and create jobs in various sectors. Rajneesh Said, “We have been working with the Kiranas in India for close to a decade now and have a strong base of one million members. Our business with them continues to grow at a double-digit rate. The numbers of transactions are growing and we continue to sign up new members. We believe that the sentiment among the Kiranas in India is positive as well as encouraging for us and we look forward to working with them more closely in the near future.”
The Confederation of All India Traders or CAIT is against the merger as it claims that the entry of US retail giant in India will create unfair competition and hit small traders on the offline platform. CAIT Secretary General Praveen Khandelwal recently claimed that at a time when there is no policy for e-commerce, it would be a cake walk for Walmart to circumvent the country's FDI policy.
In the latest development, CAIT has challenged the deal in the Competition Commission of India - an authority which is yet to approve the Walmart-Flipkart merger. Before approaching CCI, the traders' body wrote two letters to Commerce Minister Suresh Prabhu to express the business community's concerns.
The Walmart CEO has termed this deal good for customers and he sees an opportunity of creating ten million direct and indirect jobs and help society. He didn’t put any specific timeline to these jobs but said he has analysis to show that.
According to him, Walmart buys more than ninety percent of goods locally in every country they operate because it makes the lead time shorter and also helps create more jobs.
Policy think tank of the Government of India, Niti Aayog backs this deal and suggests that it’ll give a bounce to the Indian e-commerce business and not lead to job losses. Rajiv Kumar, Vice Chairman of Niti Aayog, feels this deal will promote the business module in India and small and medium traders will get the fair prices of their goods.
Return of Job Seekers
Industry experts highlighted that the current deal is likely to persuade employees to join back the e-commerce and start-up sector which had recently started rebounding
Apart from the positivity generated by the acquisition, the wealth created through employee stock option plans (Esops) for Flipkart professionals will likely goad others who left e-commerce to consider a return to the sector.
“We are seeing a lot of traction, including at leadership levels, to get back to this sector. This includes professionals from FMCG and other traditional sectors, those who had gone back when times were tough,” said Kris Lakshmikanth, Managing Director, The Head Hunters India to a business daily over the Flipkart- Walmart deal.
Flipkart in Numbers
In the fiscal year ended March 31, Flipkart recorded Gross Merchandise Volume (GMV) of $7.5 billion and net sales of $4.6 billion representing more than 50 percent year-over-year growth in both cases. With the investment, Flipkart will leverage Walmart’s omnichannel retail expertise, grocery and general merchandise supply-chain knowledge and financial strength, while Flipkart’s talent, technology, customer insights and agile and innovative culture will benefit Walmart in India and across the globe.
While Walmart and Flipkart will leverage the combined strengths of both companies, they will maintain distinct brands and operating structures.
Currently, Walmart India operates 21 Best Price cash-and-carry stores and one fulfillment center in 19 cities across nine states in India, with more than 95 percent of sourcing coming from India, aiding suppliers, creating skilled jobs and contributing to local economies across the country. Krish Iyer, President and Chief Executive Officer of Walmart India, will continue to lead that part of the business.
FDI, the game changer
Undoubtedly, Foreign Direct Investment ( FDI) is the primary monetary source for economic development in India and recently the Indian government has cleared the proposal of 100 percent FDI in single brand retail which played a significant role for this merger.
In a recent announcement, Ramesh Abhishek, Secretary, Department of Industrial Policy and Promotion (DIPP) said that FDI in India has increased to $61.96 billion in the fiscal year 2017-18. In the previous fiscal ended March 31st the FDI inflows stood at $60 billion.
The secretary also mentioned that in the last four years of Modi government the FDI inflows have jumped to $222.75 billion from $152 billion in the previous four years period.
Over the years FDI in India has created more than a billion jobs directly and indirectly, with this deal the industry is expecting to see more jobs knocking the door in the coming future. 'India is in dire need of jobs, to maintain its employment rate India has to create 8.1 million jobs a year', said a World Bank report.
In a recent column in one of the business daily, Nisha Biswal President of the US-India Business Council and former Assistant Secretary of State for South and Central Asia termed this deal as a game changer. She wrote that this deal should set the stage for both the countries to look past recent instances of economic friction and forge a collaborative trade framework—one that can move bilateral trade to $500 billion, create jobs, and spur domestic growth.
Biswal mentioned that this development would herald a new era of US-India commercial ties, defined by partnerships in supply chain development, a skill-based retail sector, and the interplay between online and offline retail. More importantly, it sets a precedent for both governments and the business community, suggesting that more can be done to take our partnership to greater heights.
Image Credit- Jammu Link News