In fall of 2012, India announced a relaxation in its foreign investment rules.  Global retail giant, Walmart, set out immediately to capitalize on this growth opportunity.  India is the home of a prized $490 billion retail sector and one of the fastest growing economies in the world.  India has 1.2 billion consumers and an expanding middle class. However Walmart, like many other retailers trying to capitalize on growth opportunities in India, faces some serious challenges.

One of the biggest problems facing Walmart is how to move goods into stores in a country with very little advancement in modern day logistics.  The infrastructure in India is dilapidated, antiquated, and somewhat corrupt.  The food sector makes up more than half of the revenues for Walmart.  India does not have enough storage facilities, refrigerated trucks, or even decent highways to drive on.  The world’s second largest fruit and vegetable producer loses roughly $10 billion dollars annually to spoilage. India also has a bureaucratic system of government-imposed middlemen.  These middlemen are described as an “army of traders and agents” whose fees add up quickly, increasing the farm-to-store costs almost sixfold.  Food goes through multiple government markets and middlemen before reaching consumers.  These trips are often taken on dirt roads or highways that are so poor, trucks can only manage 186 miles per day (trucks in the U.S. travel around 500 miles per day). Besides huge pot holes, lack of shoulders, and overall treacherous conditions, drivers also face road thugs who demand a bribe in order to “ensure” safe passage for the food.

Inefficiencies in India’s logistics network cause an estimated $45 billion in economic losses annually.  Although the government has called for $1 trillion in investments in public and private infrastructure, the fruits of that labor will not be seen for quite some time.

Typically when retailers expand abroad, the primary concern is usually whether or not they have the right product assortment.  When expanding into India, the challenges begin before product even makes it to the store.  Walmart’s dominance is largely due to its competitive advantages in distribution and logistics.  However, many are skeptical about Walmart’s ability to overcome some of India’s huge infrastructure challenges.

Discussion Questions:

1. Why is India an important market for Walmart to penetrate?

2. What supply chain obstacles will make Walmart’s entry into the Indian market difficult?

3. Can Walmart overcome these supply chain obstacles?

 

SOURCE: Amol Sharma and Biman Mukherji, Wall Street Journal, January 12, 2013