In this paper we examined factors affecting the strategic decision on market entry facing Wal-Mart, one of the largest United States retailers, and topping the US fortune 500 list in 2002 (Wal-Mart 2012) and introducing a dedicated operational segment named Wal-Mart international, in its effort to expand its international presence outside it home market.
The International division of Wal-Mart is focused on achieving aggressive growth with the maximum return on investment, the Wal-Mart annual report for the year 2012 shows international net sales growth of 15.2% to US$ 125.9 Billion this represents almost 28% of its US$ 443.9 billion overall sales while the remaining 72% is still focused in north America it home market and with 10% year over year growth of this segment it represents the main driver for Wal-Mart's expansion.
As part of Wal-Mart aggressive expansion strategy India represents an essential target of expansion into Asia.
India One of the BRICs developing India (O�Neill 2001) and With 1.25 Billion citizens (https://www.cia.gov/library/publications/the-world-factbook/geos/in.html), More than 8 common languages and dialects and multiple religious and many different ethnicities and sub-cultures.
This paper will reflect on Firm Specific Advantages (FSA) of Wal-Mart and Country Specific Advantages of India in light of the wider economic environment in an effort to provide a strategic outlook on the most suitable internationalization approach by Wal-Mart into the Indian subcontent.
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THE INDIAN MARKET
POLITICAL ENVIRONMENT
With around a billion populations and a voting public of over 700 million � India is the largest democracy in the world. It operates a federal republic system of government. Its head of state is a President, which is just a ceremonial role because it appoints a Prime Minister to head the government and in turn the PM recommends Ministers to the President to be appointed to comprise the Council of Ministers.
India continuously develops Acts to support and promote foreign investments and improve the business environment. However, in spite of well-developed laws covering every aspect of the nation�s sovereignty, corruption has been rampant to evade them.
http://www.rogerdarlington.me.uk/Indianpoliticalsystem.html
ECONOMICAL
India is now considered an important player in terms of its role in the global economy. It is ranked 132nd in the World Bank/ IFC Doing Business Index. In the categories where India�s ranking is the poorest, dealing with construction permits and enforcing contracts, India has a rank of 181 and 182, respectively, out of 183 countries ranked.
India's GDP ranks as the world's third after the US and China in terms of purchasing power parity (PPP) .
Policy on Foreign capital was liberalized, the share of foreign equity participation was increased, and Foreign Direct Investment (FDI) was permitted, giving multinational companies an excellent opportunity to invest in the country. Indian economy is strong and stable which makes the Indian Consumers positioned higher in buying activities.
(http://www.tradingeconomics.com/charts/india-gdp-based-on-purchasing-power-parity-ppp-valuation-of-country-gdp-imf-data.png?s=%2Findia%2Fgdp-based-on-purchasing-power-parity-ppp-valuation-of-country-gdp-imf-data.html)
TABLE 1: INDI GDP (PPP) 2002 TO 2012 MILLION US$
http://www2.lse.ac.uk/IDEAS/publications/reports/pdf/SR010/sibal.pdf
http://www.scribd.com/doc/29980456/
SOCIAL FACTORS
(http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm)
Ranking second only to china on the world's most populated countries list, diversity in cultural and etymological mosaic of India is known through the world.
It is important for MNE seeking to expand into the Indian market, and especially in the retail sector, to notice the direction the society is moving in order to assure the ability to coupe with current situation and future trends in an ever changing social environment.
More and more the Indian society is being urbanized, cities have much faster than the rural villages and small towns and approximately half of the expansion is due to rural migration to the now booming cities, in hope of better life.
India has become one of the 20 most dangerous countries of the world to live in, thus, making multinational companies to invest more on their security system.
http://www.competitionmaster.com/ArticleDetail.aspx?ID=fdf6c84e-f1e8-4fb6-8082-ec399b3a8228
TECHNOLOGY:
India has been open in advancing in technology. Today in India 3G technology starts. India have many Technological Projects, infrastructure for band width, BSNL and Reliance to cover more city by optical fiber, good service provider in IT sector like TCS, Infosys just to name a few. The success that mobile technology has seen the huge market that new technological advances may see in India.in addition and as a result of these advances, doing business in India has tremendously improved with better communication and logistics infrastructure to support the extended retail supply chain requirements.
LEGAL AND LEGISLATIVE ENVIRONMENT
Many legal factors affect the MNE behavior in the Indian market , recently the Indian government introduced laws against discrimination and disability discrimination, The government intervention policy in the labor market yielded a minimum wage and stricter environmental and waste management responsibilities on companies operating in India
These legal changes can directly interfere with company's plans on expanding into the Indian market as they introduce more costs and responsibilities on the MNE.
The Indian parliament and state legislatures passed multiple legislations directed specifically at business operating in the country, these include the Essential Commodities Act which was passed in the year 1955 and the Trade mark Act in addition to the Standards of Weights and Measures Act 1969 and Consumer Protection Act 196.
ENVIRONMENTAL ISSUES AND CONCERNS
Weather and climate change are Environmental factors that may have direct effect on the success of operations in the retail sector of India.
Farming and cultivation industry and the transportation logistics network is specially vulnerable to extreme weather in the sub-content, on the other hand, increased environmental awareness and desire to minimize the impact of business onto the environmental sphere it operates within will have significant impact on different industries as they are pushed by both the public pressure and legislation towards being more environmentally friendly and aware of environmental sensitivities of the region.
http://www.scribd.com/doc/29980456/IndiaAnalysis
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PRODUCT OFFERING IN AN INDIAN CONTENT
In order to perform well in the Indian price sensitive market, Wal-Mart must capitalize on all the competitive advantages both its global presence and logistics offer to the Indian market
Further Wal-Mart may also be required to help consumers change the consumption behavior; redirect the retail destination from small family owned and operated shops the super store style through leveraging the economy of scale, appealing to the price savvy consumer and at the same time cater for local communities dependence on the local industries and commercial activities for a livelihood (http://www.businessweek.com/articles/2012-11-21/why-cant-india-feed-its-people)
Striking this balance between offering the best price compared to industry competitors but at the same reflect the Image of supporting small and medium entities of the sub-content may prove vital in Wal-Marts effort to aggressively expand into this 1.2 Million consumer's market.
(http://timesofindia.indiatimes.com/business/international-business/Indias-FDI-retail-saga-From-Wal-Mart-to-Agarwal-Mart/articleshow/16604326.cms)
Other MNEs were able to leverage this, for instance fast food chains such as the American KFC and Pizza hut were able to cater for high demand on their type of menu without damaging the local fast-food shops that many adopted the American way and mimicked the styling of these Multi National chain food stores but serving the Indian distinct taste and setting an example of coexistence between huge multi nationals and small local shops.
TABLE 2: WAL-MART EXPANSIONS HISTORY
(Wal-Mart, Save Money, live better by Gabrielle Abinion on 04 October 2012)
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THE MARKET ENTRY STRATEGY
There are multiple challenges facing Wal-Mart entry to the Indian retail market as a result of the sub-contents varied, ethnic and faith, culture, and language.
Given the fact that access to nearly 20% of world's inhabitant was granted to Multi-National companies in November of 2011, and an economy that shows a stable growth for the recent years as illustrated by the Gross Domestic Product figures, India is considered one of the most attractive markets in ASIA however until recently India's tight foreign investment rules, no foreign MNE were permitted more than 49% FDI ownership in retail stores, and only hole sale stores were allowed at 100% foreign ownership.
TABLE 3: WORLD POPULATION TOP 12 (FACT BOOK 2012)
Lifting the pan on the FDI ownership of retail outlets presented the opportunity to tap into its unused potential, though multiple government economic protection policies against Foreign Direct Investment are in the sector in an attempt to protect retail sector SMEs mainly family owned and operated cash and carry shops.
Muti National Entities (MNEs) are seeking to expand its worldwide market share India by increasing their works in countries which are able to offer sensible economic and political constancy with growth potential.
Wal-Mart is main retailers such as Carrefour, and Tesco, all this retails are trying to enlarge their businesses into the developing countries market.
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FSA/CSA MATRIX
Wal-Mart is considered one of the biggest and most successful retailers worldwide (Fortune 500), is planining to leverage its firm�s specific advntages (FSAs) to support its compitive edge in its bid to expand into the huge 1.2 Billion Consumers market (Factbook 2012)
WAL-MART FIRM SPECIFIC ADVANTAGES (FSAS):
1. Huge experience in retail industry spanning more than 50 years.
2. International presence throughout the triad region with hundreds of shops distributed throughout North America, Europe and Japan and Asia.
3. Extensive experience in foreign market entry strategies based on previous endeavors that included Joint Ventures, Export & Acquisition entry strategy.
4. Extensive experience in assuring price leadership efficient logistics and sourcing partnerships (Wal-Mart 2012)
TABLE 4: FORTUNE 500 COMPANIES (FORTUNE 2009) HTTP://MONEY.CNN.COM/MAGAZINES/FORTUNE/FORTUNE500/2009/FULL_LIST/
INDIA CSA INCLUDES:
1. Huge population with untapped potential.
2. Limited competition due to the FDI limiting legislations
3. High level of educated labor.
4. Vast array of SME's to support sourcing products and services.
5. Relatively stable economy
6. Steady GDP positive growth despite the World's recent financial crisis.
7. The customers at the Indian market currently are at a stage where they need more variety in the forms of products and retail.
8. There are only old systems of retail existing in India that includes mainly of Kiranas and Mandis which are small family owned and operated grocery shops
CONCLUSION, ISSUES LOOKING AHEAD& RECOMMENDATIONS:
CONCLUSION:
The current small retailers that serve the middle classes will not be able to meet Wal-Mart�s much lower prices. Given the fact that the Indian retail market is diverse and can be owned locally, but those small retailers use only the low-priced casual labor and invest next to nothing in their stores to keep their prices low. Prices can�t get any lower; Wal-Mart can compete only by offering better quality to attract the middle-class consumers who are capable to pay in India.
This strategy is being used previously by few of Indian big retailers and specialty stores for high-end quality. Allowing FDI in multi-brand retail will impact positively in the growth in numbers and sales for India�s modern retail outlets and these stores will compete both with formal domestic retailers and with the informal sector, including kiranas and hawkers.
ISSUES LOOKING AHEAD:
� Indian small and less capitalized retailers are less able to handle losses in low prices charged by big competitors; these small businesses will not be able to survive and may be forced to close their business.
� Supply chain intermediaries, like wholesalers and other middlemen, are also negatively influenced by Wal-Mart. Supply chain intermediaries will feel immediate effects of the entry of multinational retailers. While this may lower the cost of goods in the short term, it will lead to fast mass displacement of workers participated in the supply chain.
� Wal-Mart has a proven history of compensating women less than men. In 2001, numerous women filed a claim against the company claiming gender discrimination in pay as well as promotions. Same way it will affect Indian market.
RECOMMENDATION & FUNCTIONAL STRATEGY
Put in the Infrastructure:
Taking into consideration that India lacks the infrastructure and equipment�s like freezing and storage that most big retailers are used to, there is a need that Wal-Mart would have to build it themselves by This would lessen the wastage and reduce time and impact positively in the entire retail-supply chain in India this will lead to lessening spoilage and reducing time to market.
Leveraging Economy of Scale offered by India's Vast Consumer base
To take advantage of economies of scale, Wal-Mart should deal directly with local producers, The back-end infrastructure requirement should be more carefully maintained and increased.
Smart Location Strategy:
The number of cities in which the investment will be allocated should be reduced, and stores should be located away from inner cities to be able to reduce the influence on small retailers. The process should move forward with care and due concern for the various stakeholders, in a carefully phased manner.
