Wal-Mart (NYSE:WMT) is finding itself at the wrong end of quasi-political inquiries in India. Wal-Mart like any large global corporation has identified the Indian sub-continent with some 1 billion inhabitants as a prime expansion market. Think of it this way. India’s middle class is larger than the US population. So much for board room analysis lets expand ASAP.
Wal-Mart has failed miserably in Japan and Germany. They retreated with tail between legs and closed down after serious red ink. Therefore if the US military can defeat these powers it does not follow that the vanquished civilian population several generations hence will buy from Wal-Mart.
To date Wal-Mart has taken its cookie cutter business model and applied it everywhere. Sometimes it works. Sometimes it doesn’t.
Retail is a cultural experience. Wal-Mart has a reputation for destroying other retailers. India while on one hand wanting to modernize has perhaps millions of shop keepers who fear for their economic life. Politically you want to capture and control this vote. The incumbent politicians have not calculated the risks. Opposition parties are clearly on the anti Wal-Mart band wagon.
The issues are all political, social and cultural. The lowest price is not yet a factor. Wal-mart has always achieved their aims by ramming zoning through local city councils and playing off small town interests against each other. This skill set will not be of value in the Indian expansion.
Wal-Mart can spend several million on lobbying in India without the shareholder noticing. But what will it take to establish and sustain a viable beachhead. If Wal-Mart starts to realistically look down the road and see heart-break for five years or more before India is viable and relevant for Wal-Mart their ardour for the market may understandably cool.
Wal-Mart will be embarrassed with a presence in such a large market that produces such miniscule returns.
India is not yet a disaster for Wal-Mart. But it may be another major market that Wal-Mart has failed to engage with. Perhaps the board should have a few meetings in New Delhi and Mumbai to get some local flavour. I mean your global right.
George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti