Case study Bharti & Walmart Essay

EXECUTIVE SUMMARYThe case study is conducted to analyze the sustain readiness of the union peril of Wal-Mart and Bharti in hack of the fact that the two companies have split apart in late 2013. Therefore, the paper will be conducted by using the information given in the case material and course materials, with extra information related to statistics and government policies before the split up of the union jeopardy. Through the SWOT abridgment and pros & cons analysis of the adjunction venture, it is crystallized that the joint venture was facing obstacles coming from intrinsic factors such as the challenge to maintain pocket-size cost drawing cardship and the powerfulness to adapt local commercialize for Wal-Mart and adscititious factors such as government policy, consumer behavior and poor foundation. The challenges Wal-Mart was facing couldnt all be bringd with the partnership. For instance, the commercialise share and boilersuit profitability were low collectible t o the unsolved problems with Wal-Marts strategical orientation and the localization to the market, leaving uncertainty to the joint venture. Hence, among three alternatives of 1) pitch strategic Orientation and re-positioning 2) Improve collective image and social responsibility and 3) Call off joint venture, its recommended for Wal-Mart and Bharti to maintain their partnership but to re-position the joint venture and localize themselves to the market. The recommendation would be further explained in the last section of this paper.PROBLEM STATEMENTGiven the circumstance, the joint venture was facing challenges on the sustainability for incompatible reasons. Wal-Mart has planned ambitiously for the joint venture, however it failed to achieve the goals of opening sufficient amount of stores in order to gain the market share and pull out best the margins due to the competence or willingness in localization, the government policies etc. Measures are needed for the two entities t o take inorder to achieve profit offshoot whether to change the positioning/strategic orientation, ameliorate the corporate image to achieve long condition benefits or even to call off the joint venture since its no longer mandate for Wal-Mart to access the market through a partnership.ANALYSISIn order to tackle the most fundamental issues in Wal-Mart business journey in India, Id like to first conduct a SWOT analysis of Wal-Marts retail business in India as following. Strength1. Scale of operations. Wal-Mart is the bouffantst retailer in the world that no other retailer can match. Due to such large scale of operations, the corporate could exercise strong bargaining power on suppliers to reduce the prices. 2. Competence in information systems. The success of Wal-Mart in 21st century is largely due to its competence in information systems and supply chain oversight. However Wal-Marts advantage in supply chain management was shattered when it entered India. 3. Varity of products. Wal-Mart could ply wider roll up of products than local competitors. It has in like manner been proven that Indian consumer would embrace affordable products with an upper standard of quality. 4. Low-cost leadership strategy. This strategy has helped Wal-Mart to become the low cost leader in the retail market.Weakness1. Inexperience in localization. Even though Wal-Mart was expanding its global appearance, it lacked experience in adapting its products and services to the specific demand of local market due to the house servant strategy. 2. Different shopping mentality. The Indian consumer mentality of save and buy was totally different from the Americans and Indian businesses were focusing much on B2B model, therefore the success of Wal-Marts B2C model was questionable. 3. Dependency of logistic system. Wal-Mart and its low cost leadership strategy are largely depended on an trenchant and efficient warehouse system which was not in full developed in India. 4. Lack of skilled employees. Wal-Mart would have to face the issues with unskilled employees while doing business in India and would potentially increase the training cost of employees.Opportunities1. Emerging retail market. Indian retail market grew by 5% in 2006, opening huge opportunities for Wal-Marts revenue growth, and the market was opened to Wal-Mart through joint venture. There was also existed an emerging demand of organized retailer. 2. Rising bridal of foreign products. The increasing acceptance of high quality and low price foreign products opened the opportunities for Wal-Mart as well. In addition, the consumer disposable income and purchasing power was increasing.Threats1. Increasing resistance from local communities and retailers. Wal-Mart had a negative impact on local retailers therefore it go about considerably the political pressures from local communities due to the protection of local retailers. On the other hand, Wal-Mart faced the direct challenges from organized local retai lers such as Pantaloon, RPG group etc. 2. Challenges from other MNCs. Other transnational corporations, such as Spencers retail were also threatening Wal-Marts business in India. Given that some traditional advantages such as the efficient warehouse system were weakened in India, Wal-Marts domination in India would be shaken. Wal-Marts Challenges in IndiaThe opening of an emerging market with a rapidly growing middle class should create a promising hereafter for Wal-Mart. However along with the opportunity are also challenges. After analyzing the SWOT of Wal-Mart, its very clear that Wal-Mart was facing challenge from extrinsic environment and intrinsic core competitiveness. Traditionally, foreign investors fail mainly because of the incompetence of maintaining their core competitiveness. But in India, Wal-Mart might be facing more of the foreign environment challenges. To begin with, retail industry was unitary of the few sectors where FDI was not allowed due to the protection o f small and medium sized local retailers before 2012, forcing multinational corporations to seek a joint venture with a local partner rather than wholly-owned model as in other countries. Local communities worried that Wal-Mart would pass off small retailers and intermediates who played important roles in supporting local economy. In addition, Wal-Mart couldnt cover the job loss since the main strategy of the company was inexpensive leadership which suggested that Wal-Mart would hire just-enough employees to maintain its operations and would cut themiddle-man in the process of procurement in its supply chain. The Indian government requires foreign retailer to radical 30 per cent of its goods from small supplier with objectives to discourage imports by foreign retailers from their few large dedicated suppliers and to weaken Wal-Marts bargaining power and make economic growth becomes sustainable1. Moreover, with an aggregate score of 2.5, India ranks 64th in market openness and is largely due to the fast real import growth, according to International bedroom of Commerce (2013). India has its weakest score in trade policy (2.0) which is also the second to last score among G20 nations (see table1). From a cultural aspect, the Indian consumers have a different mentality of save and buy thus traditionally Indian businesses were focusing more on B2B model. Dealing with foreign authorities requires finesse and charm, and given that lobbying was prohibit in India, Wal-Mart might not be able to influence the government policies in an official way and Wal-Mart should avoid seeking inappropriate channel to fade the local authority such as bride. As for intrinsic competitiveness, Wal-Mart was facing problem with losing its traditional advantages. To begin with, the national differences would continually question Wal-Marts ability to adapt itself to the market since Wal-Mart had less experience in foreign market. Given that the road infrastructure and the modern suppl y chain system were not fully developed in India (see table 2), Wal-Mart would face the inefficient transportation in its supply chain. In addition, Wal-Mart would need to associate with local partners in order to solve the warehouse shortage and poor infrastructure. As a result of the lack of skilled labor, labor productivity in Indian retail market should be lower and Wal-Mart would have to increase its spending on employees training and therefore it would be challenging for Wal-Mart to maintain its advantages in low-cost leadership in India. Finally, Wal-Mart stores were competing with secure local general merchandise and food merchants, potentially leading to unprofitable for the company.Joint venture with BhartiGiven the circumstances, its logically for Wal-Mart and Bharti to form a joint venture. In the rapidly growing organized retail market in India, Wal-Mart and Bharti were able to leverage the needs and assets of each others (see table 3). For Bharti, one advantage of thi s joint venture isthat since the management of Wal-Mart promised to lead the liberation of retail market, it would be beneficial for both two parties and India as well. From the same perspective, Wal-Mart was a especially attractive partner to Bharti for the strength of Wal-Mart in information technology and supply chain management association that could turn around the infrastructure, supply-chain and IT through a strategic alliance (Bose, 2012). As for Wal-Mart, through the 50/50 venture for backend supply chain management and wholesale cash-and-carry operations, (Bose , 2012) Wal-Mart was able to utilize Bhartis domestic facilities as a jump board to the emerging market and it was able to bypass some restrictions that were harmful to its business. With Bhartis deep knowledge of Indias strong-growing market and its prior foreign experience of cooperate with other foreign firms (Bose, 2012), Wal-Mart would have a smooth start in the early stages of the joint venture (Luo, 1998). By increasing its purchase from local suppliers and associating with prestige local firm, Wal-Mart could also possibly change confirmingly the consumer perception on itself. However, there were also galore(postnominal) disadvantages brought by the joint venture. First, it took time and efforts for both parties to form the joint venture, meaning Wal-Mart might take longer time to expand compared with using wholly-own model. In this joint venture, Wal-Mart and Bharti would deliver a mixture of brand image which might confuse the consumers, and the local partner might take advantage from this mixed message and knowledge transfer as mentioned before. As a result, this joint venture had the possibility of creating a new competitor for Wal-Mart. As mentioned before, one of the biggest problems Wal-Mart had was from the government regulation which all of the two parties could lobby the government. In addition, the financial situation of Bharti Enterprises was not a positive factor in th eir joint venture, for its debt was at a high train and affected negatively the cash flows of the joint venture. Both companies had complementary strengths they were able to utilize to expand in India in a long term. By supplement each others expertise, both entities were able to use and build upon best practices that had proven successful for both companies in their individual ventures, performing better than either company could do alone in the growing Indian retail market. However, since many disadvantages remained for Wal-Mart and Bharti and the fact that they havent acquired the expected market share, the future of this jointventure was in vague. Hence, the two companies should focus on the sustainability of the joint venture. In this regard, both two parties should take measures to reassure the sustainability of their joint venture and improve its performance accordingly. According to Dr. M.N.H. Mazumder, there are three traits that MNC should consider when selecting local p artner, strategic traits, organizational traits and financial traits. Therefore, the sustainability of the joint venture would also be pendant on the fits of these traits. For instance, in terms of strategic fits, by establishing a mutually satisfied, efficient, and productive trustful partnership with Bharti, Wal-Mart would be very likely to maintain a common goal so that the joint venture could avoid the risk of being sabotaged by the dysfunctional conflicts between the two partners. In the following section, well be discussing the details of alternatives that could help in the sustainability.ALTERNATIVESAlternative 1- Change the strategic orientation and re-positioning In 2007, Wal-Mart announced with ambitious that partner with Bharti, it planned to open hundreds of stores, it has quietly shelved its elaboration plans after complex market conditions. In 2012, Wal-Mart opened just five wholesale stores in India last year while it planned to open 22 stores. In addition, while Bha rti wished to open more small traditional stores or cash and carry business due to the fragmented market and consumer behavior, Wal-Mart was pushing its large retail stores which usually take 24 months to open. Therefore, since Wal-Mart struggled to gain market share, it should be carefully examine its expansion plan and consider Bhartis perception on the market. Alternative 2- Improve corporate image and social responsibility As stated, Wal-Mart was facing obstacles brought by its corporate image and it has been criticized for eliminating local business and leading to high unemployment. By operating a public relation campaign and fulfilling its social responsibility in education, agriculture (assisting local farms) etc, Wal-Mart should be able to change the class perception of foreign investors and establish a good foundation for less challenges from the local society. However, this alternative wouldnt enable Wal-Mart and the joint venture to expand its market share in a short te rm. Therefore itll require both two parties to have coherence on campaign cost and long term revenue.Alternative 3- Call off joint ventureBharti Enterprise has been struggling under a debt of USD 12 billion of its mobile business. Bhartis liquidity would presently affect the joint ventures ability to pay off short term financial obligations. Also considering that Wal-Mart is allowed to the 100% ownership in a retail company in India, itd also be an alternative for two parties to split and do business alone. Its possible that Wal-Mart will nod off its market share in a very short future due to the losses of information and suppliers in this split up.RECOMMENDATIONSIts recommended to maintain the joint venture, but changes are needed in the strategic orientation and the positioning. For the joint venture and mostly for Wal-Mart, building convenient stores and therefore establishing a larger comportment in the Indian market are crucial to the sustainability and profitability. In ord er to solve extrinsic problems such as the consumer behavior of purchasing on a daily basis rather than buy a weekly portion, its more flexible for Wal-Mart if it could have smaller stores covering more locations and it would be positive to consumer loyalty with larger presence in different regions, though thorough research on the target consumer markets would be needed in order to offer Indian consumers the type of products they desire at the appropriate quantity and location. In addition, opening smaller stores would require two parties to work collectively and more profitably on their supply chain management due to the complexity brought by more stores.REFERENCESEdwards, Ron Adlina Ahmand and Simon Moss (2002) Subsidiary Autonomy The Case of ICC (2014) Open Markets Index 2013 (05.03.2014) URL Klaus Schwab, World scotch gathering (2013) The Global Competitiveness Report 20122013 Indranil Bose (2013) Wal-Mart and Bharti Transforming retail in India Yadong Luo (1998) Joint Venture Success in China How Should We Select a Good render?APPENDIXTable 1 Scores on the Open Markets Index 2013G20 RankCountryOverall OMI 2013 RankAggregate ScoreTrade bleaknessTrade PolicyFDI opennessTrade Enabling Infrastructure18thIndia64th2.52.92.02.52.8Source ICC 2013Table 2 Ranking of India in infrastructureIndiaQuality of overall infrastructure86thQuality of roads85thQuality of railroad infrastructure24thQuality of port infrastructure82thQuality of air transport infrastructure67rdAvailable airline seat kilometers12thQuality of electricity supply112thMobile telephone subscriptions113thFixed telephone lines117thSource World Economic Forum 2013Table 3 Needs and capabilities of both parties before and after their joint venture Before joint ventureNeedsCapabilitiesWal-Mart1. Entry to the Indian Retail Market2. Governmental lobbying Skills3. Knowledge of local market1. Largest retailer in the world with low cost leadership and a focus of Always low price 2. Known for its information m anagement and supply chain management.Bharti1. Need retailing experience2. Need information technology and supply chain management skills 1. Known for its brand and execution capabilities2. Known for its experience in collaboration with foreign companies 3. Strong Consumer Marketing and distribution capabilities due to other business 4. Bhartis Agriculture programs with local farmers