Walmart in India

Very positive thoughts on this topic have been all over the press, in recent days. As a retailing investor or an affluent consumer I would love this change. I am a great supporter of free markets and reduced regulations and would not mind buying Bharti stocks, at least for a short run. But there is a different perspective we need to consider before coming to a conclusion so that we have well rounded and holistic decision process.

Walmart is an operations Mecca. The company that taught the world the bascis of Supply Chain. But some things are more efficient being non-centralized. I am not saying that the current mom and pop stores are good, but they can be reorganized to make them more efficient. Walmart will create a new consumer society in India. I am not sure if India is ready for this switching from financial conservativism to becoming consumption driven. Given long term sustainability, walmartization in its current form would not help India, which has a good amount of work pending in reducing the huge variance in the current Indian social structure. One more questions to answer is, what happens to the mom and pops who run those million stores? Where can Indian economy absorb them? Well, Walmart must have worked great in a society where abundance is prevailing everywhere except in case of population, but in India there is a reverse situation. In theory consumption is great to keep the economy hot. But I believe it is true for economies that are large and very strong in their fundamentals. US has always been strong and knows the rules of the game. China on the other hand has progressed in a very structured way where Chinese consumers today, buy what they produce in china. Now let us see what happened to India. We started as an agro economy. We missed the boat for an industrial economy due to our delay in opening India for world and now we directly leap into the information based economy. India has successfully wrapped itself along with its poor infrastructure in this information age boom. The information layer is very thin though. Less than 5% of Indians depend on IT as a livelihood. Why aren’t we thinking about the remaining 95% and what is more sustainable to them. For this model to succeed long term, India, either has to be the only source of IT specialist (which is aggressively picking up in China and the Indo-Chinese regions, not to forget Eastern Europe) or increase its industrial capabilities (Tough as well to compete against the Chinese producers). My point is that it is not an easy choice in today’s competitive global dynamics, but this does not mean we can just avoid this long term view and take a short cut to success.

It is not a make or break situation yet. Let’s welcome Walmart and also create a basic framework where the mom and pop stores can compete against the giant (I can elaborate this point to further details on how to achieve this, in case anyone interested) and have a real free market to see who will sustain long term. Instead we are just creating an imbalance that will be very tough to reconcile in later stages.

Game of retail and financial global consolidation is a very risky game. Countries cannot avoid being part of it anymore but can plan it in a conservative way. Countries cannot expose themselves in a way that they become the shock absorbers for other economies. Think about what happened during the Asian financial crisis of late nineties (Ask Mahathir Md. about his feelings for George Soros). Also, it should not be a situation where India tries to reduce the inefficiency of the mom and pop stores just by having all that gain go in the pockets of a select few, rather than the intended mass of people.

Talking about efficiencies, let’s analyze this case further. High growth and inventories can hide any inefficiency in the system. The two extreme examples of this are US and China. US can afford to hide its inefficiencies by having more goods absorbed in the economy. US can afford to absorb more due to the strength of US economic model. In this case I am using the goods absorbed by the US economy as inventory of that country. China on the other hand has tremendous growth rate. No other bank in the world except Chinese banks can sustain a NPA (Non Performing Assets) of 20%+. This shows that high inventory and high growth can hide the inefficiencies. Which of these two elements are the fortes of Indian economy? If both are not why are we just creating something that worked for others and not tailoring our solution to our needs.

Changing India is a daunting task. One cannot turn a ship as easy as a boat and if one tries doing so there is a high risk of failure or a disaster. India is a gigantic ship to turn in all the measurable parameters. India needs an immediate change but my emphasis is on sustainable change that takes into considerations the entire system dynamics than the ones that just satisfy the economic needs of a minority segment (The booming IT class). To conclude, I am all for Walmart coming to India, but I would like to see that our leaders create a retail landscape that is flat and balanced.