Walmart gets green signal to acquire Flipkart (India)

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| The European | 14th August 2018
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Reuters reported on 8 August, 2018 that Walmart’s plan of acquisition of Flipkart (an Indian online marketplace) has been approved by Competition Commission of India (CCI) in a deal worth approximately US $ 16 billion (77% share).

To understand how this acquisition will impact the overall growth strategy of Walmart and the challenges that Walmart will face in Indian online market place we need to understand the dynamics of Indian population and Flipkart’s evolution.

India has a burgeoning population of 1.35 billion people and ranks number ‘2’ in the global population list. Thirty three percent (450 million) of this population lives in urban areas.

The present middle-class population and its projected growth rate are the reasons for all consumer oriented businesses (B2C) of the world rushing to get a share of this business opportunity.

Indian economy has been self-reliant for decades. Even before foreign businesses arrived in India, the young Indian entrepreneurs were busy in duplicating western business companies and their business models in B2C industry. One such company is Flipkart Pvt Ltd.  It is an Indian electronic commerce company based in Bengaluru, India. Founded by Sachin Bansal and Binny Bansal  in 2007, the company initially focused on book sales, before expanding into other product categories such as consumer electronics, fashion, and lifestyle products.

 

The journey of Flipkart from 2007 to 2018 is full of twists and turns. Positive developments shaped the future of the company but at the same time certain wrong decisions and unethical business practices resulted in lawsuits as well as business losses. However, the overall trajectory remained progressive.

Notable events (both, positive as well as adverse) that took place in the business lifecycle of Flipkart are listed below:

 

 

  • On 6 October 2014, in honor of the company’s anniversary and the Diwaliseason, Flipkart held a major sale that it promoted as “Big Billion Day”. The event generated a surge of traffic, selling US$100 million worth of goods in 10 hours. However, the event also received criticism via social media over technical issues the site experienced during the event, as well as stock shortages. (source: www.thehindu.com)

 

  • In March 2015, Flipkart blocked access to its website on mobile devices, and began requiring that users download the site’s mobile app Sales got affected. To remedy this problem, in November 2015, Flipkart launched a new mobile website branded as “Flipkart Lite”, which provides an experience inspired by Flipkart’s app that runs within smartphone web browsers. (source: www.ayruz.com)

 

  • In October 2015, Flipkart reprised its Big Billion Day event, except as a multi-day event that would be exclusive to the Flipkart mobile app. Flipkart also stated that it had bolstered its supply chain and introduced more fulfillment centers in order to meet customer demand. Goods worth US Dollar 300 Million were sold in the five day sale. (source: www.businesstoday.in)

 

  • In April 2017, Flipkart raised $1.4 billion from Tencent Holdings Ltd, Microsoft Corp and eBay Inc. Expected valuation of Flipkart was reported at USD 11.6 billion. (source: Reuters)

 

  • In July 2017, Flipkart made an offer to acquire its main domestic competitor, Snapdeal, for around US$900-US$950 million. It was rejected by the company. (source: www.techcrunch.com)

 

  • Flipkart held a 51% share of all Indian smartphone shipments in 2017, overtaking Amazon India (33%). (Source: The Economic Times – India)

Timeline of Walmart’s acquisition

Walmart announced in May 2018 that it was acquiring about 77 percent of Flipkart for roughly $16 billion in the biggest deal for India’s e-commerce sector subject to regulatory approval. Indian traders protested against the deal, considering the deal a threat to local store owners.

Following the announcement of Walmart’s deal, eBay announced that it would sell its stake in Flipkart back to the company for approximately US$1 billion, and re-launch its own Indian operations. The company said, “We believe there is huge growth potential for e-commerce in India and significant opportunity for multiple players to succeed in India’s diverse domestic market”. (source: www.recode.net)

SoftBank, which had earlier invested $ 2.5 billion in Flipkart through its Vision Fund, also confirmed that it has decided to sell its entire 21% stake in Flipkart to Walmart (deal worth estimated at $ 4 billion). (source: The Economic Times – India)

Challenges that lie ahead for Walmart

Presently, Walmart has a significant retail presence in Indian market and knows the dynamics of operating in India. However, this will not be a smooth takeover for Walmart. Flipkart, in past has its share of low times.

In 2015, around 400 delivery executives working with eKart, the logistics arm of Flipkart, went on strike to protest poor working conditions. Complaints included seven-day workweeks, extended hours, lack of clean toilets and medical assistance for bike riders involved in accidents. (source: Indian Express)

In December 2016, delivery executive Nanjunda Swamy was murdered by a customer who did not have money to pay for a product. (source: Huffington Post, India). In response, Flipkart launched (in January, 2017) a safety initiative named ‘Project Nanjunda’, after the deceased executive. This included an SOS button in the mobile app (called the Nanjunda button) that could be used by field executives in cases of emergencies.

Additionally, sellers on Flipkart have been facing several challenges while doing their business on its marketplace portal, to the extent that some of them had to quit the portal. Some of these challenges include its unfair policies for sellers, lack of a competent logistics service and customer returns that are purely as a result of consumer fraud.

All India Online Vendors Association (AIOVA) is a trade body that represents E-Sellers. It has urged the government to set up a “regulatory body” to monitor various e-commerce marketplaces and their policies towards merchants on these platforms. It has re-iterated its demand after Walmart’s acquisition of 77 percent stake in Flipkart.

Indian local trade body, Confederation of All India Traders (CAIT), had opposed the Walmart-Flipkart deal, saying “the combination would create unfair competition and drive local convenience stores out of business”. It also said that it was disappointed by the CCI’s approval. “We will certainly move the court against the CCI’s decision,” Praveen Khandelwal, CAIT’s secretary general told Reuters. CAIT has called an emergency meeting of its governing council on August 19 at Nagpur, where it will finalise strategy for a nationwide movement.

To sooth the concerns of local traders, Walmart released a statement after CCI approval, saying “We believe that the combination of Walmart’s global expertise and Flipkart will position us for long-term success and enable us to contribute to the economic growth (of India)”. Earlier, Walmart had also voiced its intention to support local manufacturing in India by sourcing from small and medium suppliers, farmers and businesses run by women.

What the future holds

Morgan Stanley estimates that Indian e-commerce sector will grow close to an annual $200 billion in a decade. Walmart is well-positioned to capture this segment. How it deals with human resource practices, adopts fraud prevention measures, supports local trade ecosystem will be seen in the coming times. Walmart will have to partner with local trade bodies to run smoothly and grow within the Indian market.

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