Wal-Mart is an American multinational retailer corporation that operates public discount stores as well as warehouse stores. The decision for Wal-Mart to extend its operations to India is a strategic move as India is regarded as the second emerging entrant with an estimated market of $ 396 billion and is expected to reach a high of $ 785 billion by 2015. India market has greatly improved since 1990s after Indian adoption of liberalization policies.
The policies have been instrumental in promoting the economy of India greatly. Economists associate the Indian booming market with liberalization, development of medical facilities, infrastructure as well as great increase in foreign investment. Over, the recent past, there has been a great growth of the Indian market which has resulted to a high rate in the growth of Indian Gross Domestic Product (GDP) with over 7%.
The improved economic development in India has necessitated growth in several sectors such as agriculture as well as services industry. As a result of increased foreign investment in Indian market, multinational companies have developed great interest in investing in Indian market. Foreign institutional investment in Indian has increased to approximately US $ 10 billion and FDI has significantly increased from US $ 25.1 billion to US $ 46.5 billion.
Wal-Mart has been able to establish itself as the market leader in the mass merchandize industry. Its achievement can be traced to it success creating competitive advantage over its rival brands. Wal-Mart has mastered the mechanism of consistently developing tactical internal assets plus establishing obstacles to entry for prospective competitors. One of the major advantages for Wal-Mart entry into India is its ability to acquire economies, acquire unique resources, strong brand.
The ability of Wal-Mart to achieve economies of scale that will enable to it offer its products in Indian market at a discounted prices which will help it in creating a competitive advantage over its rival brands. Wal-Mart success as the leading retailer industry in the world will be of great importance in its entry in the Indian market. This is because many Indians will tend to embrace the Wal-Mart brand as it has been able to brand accordingly as an international company.
Therefore, foreign multinational retailers that aspire to enter into the Indian market should be prepared to invest a lot, in order to survive the stiff competition they are likely to face from Wal-Mart. The need for huge investments limits the number of new entrants in Indian market. This is because competing entrants will need to have plenty of capital to be in a position to compete with Wal-Mart. Failure to have sufficient capital will result to the retailers suffering from plenty of sunk costs.
Wal-Mart is known of using large ad campaigns for advertisements which is likely to put a lot of pressure on competing brands as they endeavor to match those expenditures in order to appear competitive. The economies of scale realized by Wal-Mart will act as its competitive advantage and any competing brand should be ready to invest heavily in order to be in a position to minimize the role of economies of scale (Viskovish, 2008).
The success for Wal-Mart to develop an efficient distribution channel is one of its competitive advantages. The company distribution channel strategy entails restricting inventory while at the same time gives them opportunity to open more stores. Wal-Mart has been in the retailer business for long and as a result, it has been able to master the approach for developing very effective and efficient distribution channels that enable it to lower pricing, a situation that enables Wal-Mart to create another barrier for rival brands that plan to enter into the Indian market.
To supplement its performance in its new market, the company has the ability to develop unique resources that give it competitive advantages over its rivals. For example, Wal-Mart is able to develop its electronic data exchange system that it uses in its other markets in order to help it in improving communication with suppliers and distribution channel as well as improve inventory control. Thus, any new entrant will have to face these barriers in order to survive the competition for Wal-Mart (Peng, 2006).
Despite the success of Wal-Mart in establishing very efficient distribution channels, Wal-Mart will be required to purchase at least 30% of its goods from Indian local small industries. In addition, Wal-Mart will only be limited to operate only in 53 Indian cities that have over 1 million people.
The restriction for Wal-Mart to buy at least 30 per cent of its goods from local suppliers may affect its pricing strategy. Wal-Mart may be forced to sell its products at a much higher price, than it would sell them if it was not limited to buy at least thirty per cent of its stock from Indian local suppliers. Another challenge that Wal-Mart should overcome is the stiff competition from other multinational companies that have already ventured into Indian market.
Metro AG is one of the companies that are giving Wal-Mart Corporation a stiff competition. Metro AG which is a competitive retailer group with a global profile has already opened six wholesaler stores in India and anticipates opening approximately 50 wholesaler stores in India. Metro AG has enough resources to match Wal-Mart competitions in terms of economies of scale as well as in the development of efficient and effective channel of distribution (Pradhan & Sharma, 2011).
In order for Wal-Mart to survive and excel in the Indian market which is regarded as a very potential vibrant market, it requires to adopt appropriate strategies to enable it be able to increase its wholesale stores from the current 12 to over 50 within the shortest time possible. The merger strategy that Wal-Mart has already taken with Bharti Enterprise was a strategic move as it has given Wal-Mart a leading foothold in Indian market.
Wal-Mart should also consider expanding its operations in India through acquisition process. Expansion through acquisition will help Wal-Mart to quickly extend its operations across all the 53 cities that it is allowed to operate from. Alternatively, Wal-Mart can opt to form a merger with Metro AG Corporation.
The merger of the two firms will make the resultant company that will be formed to have the greatest market share in the retailer industry in India which will make it enjoy the economies of scale as well as eliminate direct competition which will help the company to have an upper edge in regulating the prices.
As Wal-Mart has a leading foothold in Indian market, it should try to sustain it by extending its operations to all the 53 cities in India where it is allowed to open its stores. A merger between with Wal-Mart is out of question, as the Indian government cannot approve it to as it is likely to lead to monopoly of trade. Similarly, an expansion through DFI is not sustainable as a result of the huge costs that are associated with this strategy.
The use of acquisition is the best option for Wal-Mart to extend its operations in India. The expansion will enable Wal-Mart to command a great market share in the Indian market. The economies of scale will help the company to take the advantage of economies of scale that will be important for Wal-Mart in enabling it offer its products at a discounted price to gain a competitive advantage over its rivals.
Peng, M.W. (2006).Global Strategy. South-Western Cengage Pradhan, B. & Sharma, M. (2011).Wal-Mart, Foreign Retailers May Own 51% of India Ventures.
Viskovish, J. (2008). How Wal-Mart really Works. International Business Journal. 4, 3, 121-134