Wal-Mart Stores, Inc. (NYSE:WMT) and Bharti Enterprises have announced to discontinue their joint venture in India. Wal-Mart has been struggling to gain greater traction in the country, has now decided to operate independently.
JV failed to gain market
Wal-Mart, biggest retailer in the world, will acquire 50 percent stake, of its Indian partner, in Bharti Wal-Mart Pvt ltd. At present, the joint venture operates 20 wholesale stores under the Best Price modern wholesale brand.
As per foreign investment rules, to operate its stores in India, Wal-Mart will need to tie up with another domestic retailers to own the 49 percent of the business. Wal Mart entered into a joint venture with Bharti, in the year 2007, and has since given full-fledged support to relax country’s restrictive retail market to foreign supermarket operators.
However, the joint venture has not seen much success over the years due to still under consideration rules on foreign investment, an internal bribery investigation and strained partnership with New Delhi based Bharti, according to Reuters.
The loss will Bharti also as it lost the support of one of the strongest partner in the retail segment. Bharti operates Easy Day retail store chains, and there are around 212 Easy day stores around India.
Opportunities and challenges ahead
Wal-Mart previously decided to open eight cash and carry or wholesale stores in India, but has not taken any action in this direction till now.
Devangshu Dutta, who heads Bangalore-based retail consultancy, Third Eyesight, said that Wal Mart can takeover wholesale business and operate it according to its plans with the amount of investment it sees apt to get aggressive in the market.
Under internal bribery probe, which started last year, some officials of the joint venture company were suspended including chief financial officers of the company. A team of lawyers from the United States was called to probe the matter.
Though India allowed the supermarket companies to enter the market by owning 51 percent of their local operations, no foreign player has yet shown the interest. The reasons are multiple like weak infrastructures, underdeveloped supply chain, and expensive real estate, price war, less margins and so on.
