The Bharti Group<br />History<br />The Bharti Group was built by the Mittal brothers – Sunil, Rakesh and Rajan. Bharti Enterprises was established in 1986 when Sunil Bharti Mittal incorporated Bharti Telecom Limited (BTL). The companies included in Bharti Enterprises are Bharti Airtel, Bharti Teletech Ltd, Telecom Seychelles Ltd, Bharti Telesoft Ltd, TeleTech Teleservices (India) Ltd, FieldFresh Foods Pvt Ltd, Bharti Retail Pvt. Ltd, Bharti AXA General Insurance Company etc.Bharti Enterprises is one of India’s leading business groups with interests in telecom, agri business, insurance and retail.<br />. Bharti has recently forayed into retail business under a company called Bharti Retail Pvt. Ltd. It also has an MoU with Wal-Mart for the cash & carry business.<br />Working Model <br /> Bharti Retail Pvt. Ltd is a wholly owned subsidiary Of Bharti Enterprises. Bharti Retail operates a chain of multiple format stores that offer consumers affordable prices, great quality and wider choice. The company’s neighborhood format stores operate under the "Easyday" brand and the compact hypermarket format under the “Easyday market” brand. <br />Wal-Mart<br />History<br />The history of Wal-Mart can be traced back to the 1940s when Sam Walton began his career in retailing. After being interviewed by recruiters from both Sears Roebuck and J. C. Penney just before graduating from the University of Missouri in Columbia, Sam accepted a job offer from J. C. Penney. In September 1944, Walton acquired, from George Scharlott, the franchise and lease on a Ben Franklin in Newport, Arkansas. The variety store was part of a chain operated by the Butler Brothers, a regional retailer. After three years, Walton increased annual sales from $80,000 to $225,000 by 1948.<br />Working Model<br />Wal-Mart's business model is based on selling a wide variety of general merchandise at "always low prices."The company refers to its employees as "associates". All Wal-Mart stores in the US and Canada also have designated "greeters", who welcome shoppers at the store entrance. In June 2007, Wal-Mart announced it was retiring the blue vest its 1.5 million associates wear, and replacing it with khakis and polos. The replacement was to help Wal-Mart increase sales.Unlike many other retailers, Wal-Mart does not charge a slotting fee to suppliers for their products to appear in the store.Instead, it focuses on selling more popular products and often pressures store managers to drop unpopular products, as well as asking manufacturers to supply more popular products. <br /> http://www.iloveindia.com/economy-of-india/top-50-companies/bharti-enterprises.html<br /> http://www.bharti.com/129.html?&tx_ttnews[tt_news]=203&tx_ttnews[backPid]=128&cHash=61a6210dc5<br /> http://www.bharti.com/ourcom Retail Scene in India<br />
The Indian retail industry accounts for 10% of the GDP and 8% of employment.
India is being touted as the next big retail destination with an average CAGR of 40% to 45%
The sheer size of the population demands attention from retailers worldwide and the potential for growth in this nascent industry is tremendous.
As per AT Kearney’s GRDI for 2008, India ranks second to Vietnam. It topped the list in 2007.
India is the world’s 4th largest economy in terms of Purchasing Power Parity, after USA, China and Japan; it is expected to move to the third position by 2010.
India is rated ahead of China on the Foreign Direct Investment Confidence Index (FDICI) making it an attractive retail market among other emerging economies in the world.
According to a study conducted by the Associated Chambers of Commerce and Industry (ASSOCHAM), the annual retail sale that was close to US$ 6 billion in 2007, is expected to reach USD 17 billion by 2010.
The ICRIER study found that total Indian retail business would grow at 13%, from US$ 322 billion in 2006-07 to US$ 590 billion in 2011-12. The unorganized retail will grow 10% from US$ 309 billion 2006-07 to US$ 496 billion in 2011-12.
India is rated in the highest category of the Aspirational Index in Asia as per the AC Nielsen Online Omnibus Survey 2005
According to NCAER, only 14% Indian households will have annual household incomes less than US$ 921.66 by 2012.
Of late, there has been a lot of innovation seen in the retail format in India. One of the latest retail formats making a grand entry in this game of guts and guile is ‘Wedding Malls’. An unheard of entity in the advanced global retail markets like the United States and Europe; it has become a big hit in India. These malls stock the whole list of items and products that are required in a typical Indian wedding, ranging from jewelry to apparels. <br />The Bharti WalMart Joint Venture<br />Though India is the world's second-fastest growing major economy, organized retail accounts for just 6 percent of industry sales. Although the trend is slowly changing, Indian consumers have an inclination to make most of the retail purchases from small roadside shops popularly known as ‘Kirana’ stores. This discourages global retail giants from setting shop here. <br />Indian laws at that point of time of the joint venture (Nov 2006) did not allow 100 per cent foreign direct investment (FDI) in retail. Foreign direct investment regulations did not permit global multi-brand retailers to enter India directly. Thus in November 2006, Wal-Mart announced a 50:50 joint venture with HYPERLINK "http://en.wikipedia.org/wiki/Bharti_Enterprises" o "Bharti Enterprises"Bharti Enterprises to open retail stores in India. As foreign corporations are not allowed to directly enter the retail sector in India, Wal-Mart decided to operate through franchises and handle the wholesale end. Bharti handles the front end involving opening of retail outlets, while Wal-Mart takes care of factors as, such as cold chains and logistics. The joint venture planned to source 90 per cent of the goods from India, while the rest was to be imported. In May 2009, the first Bharti Walmart store, called Best Price Modern Wholesale was opened in Amritsar.<br /> The joint venture of both the firms could be described as a horizontal alliance. It can also be said to be a Synergistic Strategic Alliance. It is characterized by the following features:<br />Both the partners might combine resources and skills to create value in the same stage of the value chain: Bharti may be looking at increasing its portfolio of products, WalMart may be looking to establish enough credibility to procure a supply chain and a distribution system. Such an alliance allows risk sharing by reducing financial investment due to sharing between both the partners <br />International alliances can be difficult to manage due to differences in management styles, cultures or regulatory constraints. The solution could be equal sharing of costs and profits by both the companies. Otherwise a battle of one-upmanship will be inevitable in the long run<br />Benefit to Wal Mart: Wal-Mart went ahead with its plans for India at a time when its competitors Tesco and Carrefour decided to wait for FDI norms to be relaxed .Its decision to enter India through the franchise route reflected its eagerness to capture a share of the market when it is at a nascent stage. One of its major motives was to get its logistics and supply chain in order before the industry opens up to foreign investment. Thus through an alliance with Bharti WalMart wanted to gain the benefit of being the first mover (one of the first foreign players) in the Indian retail market.<br />Benefit to Bharti : At the time of the joint venture, Indian corporate houses as Reliance had already ventured in the attractive organized retail market. The Aditya Birla group had also made clear of its intentions of becoming a major player in this sector. In order to counter these two major competetitors Bharti needed a partner with strong financial strength. This, along with its relative inexperience could have been a reason why it chose to enter the industry through a tie-up with a foreign retailer, rather than go alone. <br />In the short term, the Bharti-Wal-Mart joint venture was confronted with problems due to the opposition by the Left parties as they insisted that the government should look into the matter to stop the "backdoor entry"of Wal-Mart into India. These parties opposed the joint venture stating that foreign direct investment in retail trade was not allowed under the existing policy and that it would impact the vast number of unorganized retailers, domestic manufacturers, and farmers in India. <br />Competitor Analysis<br />RELIANCE<br />Reliance Retail Limited (RRL), a subsidiary of Reliance Industries Limited (RIL), was set up to lead Reliance Group’s foray into organized retail. Since its inception in 2006, Reliance Retail Limited (RRL) has grown rapidly and has catered to millions of customers, thousands of farmers and vendors. Based on its core growth strategy of backward integration, Backed by the Reliance group, one of the most successful corporate groups in India, RRL has made rapid progress towards building an entire value chain starting from the farmers to the end consumers.<br />RRL has increased its footprint to more than 900 stores in 80 cities across 14 states in India. Keeping in sync with its multi-format store strategy, RRL added new formats to its spectrum. RRL operates in formats such as Reliance Fresh (neighbourhood store), Reliance Mart (all under one roof supermarket) & Reliance Super (mini-mart), which offer a range of products for daily household usage. They also have specialty formats, such as Reliance Digital (consumer durables & information technology), Reliance Trends (apparel & accessories), Reliance Wellness (health, wellness & beauty), iStore (Apple products), Reliance Footprint (footwear), Reliance Jewels (jewellery), Reliance TimeOut (books, music & entertainment), Reliance AutoZone (automotive products & services) and Reliance Living (homeware, furniture, modular kitchens, furnishings).<br />ADITYA BIRLA GROUP<br />The Aditya Birla group bought regional supermarket chain Trinetra..In june 2007 the Aditya Birla group launched its first retail store under the brand name More in Pune . The stores offer a wide range of product categories including fruits and vegetables, staples, personal care, home care, household general merchandise, poultry, dairy products, a pharmacy and a well-stocked bakery.<br />METRO<br />With a global turnover of 33.1 billion euro, Metro is present in 30 countries with over 650 stores. Metro which is headquartered in Germany and has entered India in 2003, has so far opened five outlets across Bangalore, Mumbai, Hyderabad and Kolkata. Looking for expansion opportunities, Metro has recently signed a Memorandum of Understanding (MoU) of Rs 900 crore with the Punjab Government to open six more centers in Punjab.<br />TESCO<br />Tesco Plc from UK has 814 stores in other Asian countries (China, Japan, Malaysia, South Korea and Thailand). Tesco has announced plans to set up a wholesale cash & carry business in India. Tesco is also planning a deal with Tata Group’s retailing subsidiary Trent. For the development of the cash & carry business, Tesco is planning to invest around £60 million (Rs 480 crore) in the first two years. The first cash & carry outlet would be set up in Mumbai, at the end of 2011. The deal with Tata, Tesco will provide retail expertise and technical capability to support the development of Trent’s hypermarket ‘Star Bazaar’. Tesco wants to set up a 100% subsidiary, and to get access to the retail business through Trent.<br />panies.html<br />ANALYSIS USING PORTER’S FIVE FORCES<br />THREAT OF NEW ENTRANTS<br />BARGAINING POWER OF SUPPLIERSINTENSITY OF RIVALRYBARGAINING POWER OF BUYERS<br />THREAT OF PRODUCT SUBSTITUTES<br />THREAT OF NEW ENTRANTS :<br /> Although the organized retail sector of India is very small, the growth potential of this market has made it attractive for foreign players. As already mentioned players like Carrefour and Tesco are planning to enter into this market by getting into alliances with already established Indian corporate.<br />Product differentiation: These new players own a large number of firm brands most of which are successfully sold throughout its stores. The product differentiation they bring to the table is enormous<br />Capital requirements: Although entering an alliance with a major Indian corporate and establishing new stores through the country may require sufficient capital investments, these players have deep pockets and have previously also established their presence in a number of countries.<br />Access to distribution channels: A joint venture or a partnership with retail giants as the Future Group in case of Carrefour or a reputed corporate house as the Tata Group will give these companies a very strong supply chain capacity. Carrefour understands the distribution business better than most, and Future Group is a leader in India <br />Government policy: A policy released recently states that, “companies cannot sell more than 25% of their cash and carry business to ‘Group’ Companies and that too the use should be internal. This will prove a major discouragement to the foreign entrants as they will have to reduce their 100% stakes in Indian companies. This will reduce their control over the retail model followed<br />BARGAINING POWER OF SUPPLIERS<br />Historically, suppliers enjoy a strong position of control in the retail industry. However with the growth of organized retail, many large retail players are going for vertical integration and manufacturing products under the firm brand. Since these products also give them more margin they are more inclined to promote these firm brands. This recent trend has somewhat decreased the bargaining power of suppliers in the recent past.<br />BARGAINING POWER OF BUYERS<br />In retail, consumer loyalty is the most important ingredient for success. But the industry is so characterized that there are very few switching costs. Also, documented transactions in retail are very less, and hence even proper data is not available. Thus repurchase is not predictable<br />Price of competitor products can be lowered all too easily in this industry, leading to a price war. Since both the companies being analyzed specialize in discount and bargain selling, a price war is inevitable. Unless the discount selling is utilized to lock customers in loyalty programs etc, the customers would just buy from where it is cheaper<br />THREAT OF PRODUCT SUBSTITUTES<br />Since the retail industry is considered over here the threat of product substitutes does not essentially come into the picture.<br />INTENSITY OF RIVALRY AMONG COMPETITION<br />This may be a lesser deterrent for new entrants as the industry of organized retail itself is growing, even though actual existing figures are very low<br />The number of firms competing for a share of the pie is also low. Apart from Indian firms, there are very few foreign players large enough to maintain sustainability over some years, that have chosen India’s dense and fast growing Retail industry<br />However with more number of foreign as well as domestic players trying to venture into the sector this scenario might change very quickly and the industry may become very competitive.<br />ENTRY OF FOREIGN COMPETITORS AS CARREFOUR<br />The entry of major foreign players as Carrefour will have substantial impact on Bharti-WalMart joint venture.<br />DRIVERS OF COMPETITIVE ABILITY<br />176847555245 <br /> <br />Shaded Area = Market commonality between firms. <br />The rectangle = Resource endowment A. <br />The triangle = Resource endowment B.<br />Walmart and Carrefour both specialize in cost saving shopping for daily needs. Both are cost leaders in their respective geographies. They both are strong distribution system leaders. In India, both the firms will be facing the same fast growing middle class with increasing disposable incomes. The supplier market and procurement channels may overlap to a large extent. <br />AWARENESS<br />The information available in the industry is symmetric to both the firms. The government impositions are the same, the native retail players are themselves competing for the same resources. The question to be asked is this: Will demand drive the growth story of such joint ventures by foreign conglomerates with Indian Business houses.<br />MOTIVATION<br />Carrefour, when the joint venture with Indian firm Future Group becomes a reality, is going to compete on the same national level almost on the same geographical, cultural and ethnic demographics as Walmart. There is more than enough motivation for Walmart to predict and prevent future bad performance brought about by a competitor as strong as Carrefour.<br />ABILITY<br />Carrefour has the sourcing for whatever resources it requires. It already has a very good relationship with suppliers in the countries it is present in. if it decides to source materials from India as well, it needs to establish its credibility and build relations with suppliers from scratch. Instead, if it sells its existing portfolio of products after determining suitability to Indian markets, it will have to utilize Future Group’s existing logistics network which itself is very strong. Although WalMart has been present in the Indian market, It has not been able to develop a huge first movers advantage which would keep it far ahead of the competition.<br />MARKET COMMONALITY<br />Since Carrefour and Walmart will be competing for the same resources and courting the same customers, Carrefour may be looking at newer markets where its competitor is not present yet. It may be the rural grocery format that it has successfully implemented in France and other parts where it sells dairy, meat and other products on a daily basis to its rural customers. This is one market that is potentially huge in India, whose population lives mostly in villages. However along with this Carrefour will also scavenge WalMart’s current market.<br />RESOURCE DISSIMILARITY<br />Walmart may face certain issues with the suppliers in the Indian context as relationships should be built with them. Bharti is strong with its logistics, so that will not be a major concern. Carrefour enjoys the advantage of having a partner who is respected both for its supplier relations and its distribution channel. So it is difficult to say which firm will be the weaker when it comes to obtaining resources as of now, though there are indications that it could be Walmart. <br />FUTURE OF RETAIL<br />It is one of the fastest growing industries in India. The change in preference and habits of customers is leading to an evolved organized retail format. Industry is expected to grow at a pace of 25-30% annually as per several growth predictions. It has been ranked second in a Global Retail Development Index of 30 developing countries drawn up by AT Kearney. According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India retail industry is the most promising emerging market for investment. In 2009, the retail trade in India had a share of 8-12% in the GDP (Gross Domestic Product) of the country. The retail industry in India is currently growing at a great pace and is expected to go up to US$ 833 billion by the year 2013. It is further expected to reach US$ 1.3 trillion by the year 2018 at a CAGR of 10%. By the year 2013, the organized sector is also expected to grow at a CAGR of 40%. The retail sector would generate employment for more than 2.5 million people by the year 2010, says an analysis by Ma Foi Management Consultants Ltd.<br />PEST framework<br />
FDI - in retail has been a topic for discussion for quite some time now. Some of the areas in retailing that will be affected by FDI are as follows: -
Creating Additional Jobs
Diminution of Kirana Shops and Retail Stores
Access to Larger Financial Resources
Benefit to Consumers
Supplier Quality Enhancements
Enhanced Supply Chain
WTOs Cross Retaliation
Verdict on FDIMarket is an important asset. It needs to be protected the way other assets are protected. However, it is clear that FDI in retail trade will lead to incremental economic benefits and not substitute on-going activities. Any strategy in the direction of FDI should ensure that domestic players are not unduly displaced and sufficient opportunities are available for the growth of domestic players. Therefore, the strategy should be controlled release of restrictions on FDI. Percentage of FDI allowed should be increased in small amounts and for specific commodities at every step. Constructive suggestions and inputs from all stakeholders should be taken in shaping the policy.<br />
Land and property Laws
There is a shortage of good quality retail space, and rents are high for what is available. Compounding these shortages are the following problems: -<br />
Only Indians can own property in India, which complimenting the restrictions placed on FDI, restrict the entry of foreign players.
Stamp duties on property deals are significant. The lease alone can cost up to 6-10 per cent of sales while it's just 3-5 per cent globally
The initial urban planning of cities was done with smaller plots in mind which along with rigid building and zoning laws make it difficult for procurement of retail space
The urban land ceiling act and rent control acts have distorted property markets in cities, leading to exceptionally high property prices
Labour Laws<br />The labour laws instituted to protect store workers are not flexible enough to support the modern formats of retailing. These rigidities in the law constrain the operations of modern retail outlets. Working hours are restricted, with shops required to close one day of the week and the hiring of part-time employees is difficult<br />Taxes<br />Effective corporate tax rate is 36.59% for a local company and 41.82% for a foreign company. Even essential basic foodstuffs are taxed.The varying sales tax rate across states makes supply chain management an even more difficult task for retailers. However, with the introduction of Value Added Tax (VAT) across all states, some of the sales tax anomalies in the supply chain could get correct over a period of time<br />The taxation system still favours small retail business, even as there is differential sales tax across the length and breadth of the country.<br />
Importance of Supply Chain in the Retail industry in the Indian context
WalMart is reputed for being the harbinger and for applying new concepts in supply change management . The application of RFID or that of cross docking have significantly contributed to the company’s success. It has also adopted concepts as vendor managed inventory. As mentioned before in the joint venture WalMart is responsible for logistics and cold chains. If WalMart can successfully adopt its best practices into the joint venture it would definitely benefit the alliance. However as the transportation infrastructure in India is insufficient, it may not be possible for Wal Mart to leverage its best practices in Logistics. Warehousing has an important part to play in the supply chain management.
Bharti Wal-Mart’s CSR initiatives<br />Along with business expansion the alliance has also concentrated on social initiatives. There are two fold benefits to adopting these. On one hand while this might help to make the company improve its image among consumers, on the other hand it will help to reduce opposition from political parties as the Left who objected against the entry of foreign players in the Indian retail market and said that this would adversely affect unorganized retailers and domestic manufacturers in India.<br />In September 2009, Bharti Wal-Mart provided 10 pushcarts to the unemployed and economically disadvantaged from the rural areas located near its cash-and-carry store, Best Price Modern Wholesale. The pushcart owners, now holding legitimate businesses, have been signed up as members of Best Price Modern Wholesale. This benefitted Bharti Wal-Mart as it earned advertisement space on the pushcarts.<br /> Joint Venture Mortality<br />As illustrated by Bruce Kogut in “ A Study of the Life Cycle of Joint Ventures”, joint ventures like any other organization undergo a cycle of creation, institutionalization and often termination.<br />. Joint venture stability depends on the cooperative and competitive nature of the alliance and the incentives among partners. Ventures motivated on the basis of competition are vulnerable to changes in the bargaining power of the partners and in the competitive structure of the market. It was found that whereas ventures belonging to a growing industry had more chances of survival , those in concentrated industries and to which both partners belong are more likely to terminate.<br /> A critical analysis of Bharti Airtel merger in the above light reveals some interesting aspects. A major reason behind the alliance was the government restriction in the retail sector by the foreign players. If there is any change in these rules , then WalMart who have gained substantial experience in the market would no longer be depend on Bharti and if by that time it has developed proper distribution channels can emerge as a major player in the Indian market on its own. The Indian organized retail sector is still in the nascent stage and is growing. This is one of the major reasons for the till date success and stability of the Bharti WalMart venture. However in distant future with the entry of more foreign and domestic competitors if the market becomes more concentrated and thus less profitable, the venture may terminate.<br />Strengths<br />The company has a core competence involving its use of information technology to support its international logistics system. For example, it can see how individual products are performing country-wide, store-by-store at a glance.<br />A focused strategy is in place for human resource management and development. People are key to Wal-Mart’s business and it invests time and money in training people, and retaining a developing them.<br />Wal-Mart has grown substantially over recent years, and has experienced global expansion (for example its purchase of the United Kingdom based retailer ASDA).It has also created a joint venture with bharti in India.<br />Weakness<br />Since Wal-Mart sell products across many sectors (such as clothing, food, or stationary), it may not have the flexibility of some of its more focused competitors.<br />Like Wal-Mart is facing competition in North America with stores such as Kmart and target. Several smaller retailers, primarily dollar stores, such as Family Dollar and Dollar General, have been able to find a small niche market and compete successfully against Wal-Mart for home consumer sales.<br />Wal-Mart is the World’s largest grocery retailer and control of its empire, despite its IT advantages, could leave it weak in some areas due to the huge span of control.<br />Opportunities<br />To take over, merge with, or form strategic alliances with other global retailers, focusing on specific markets. Example – bharti-walmart in India.<br />The stores are currently only trade in a relatively small number of countries. Therefore there are tremendous opportunities for future business in expanding consumer markets.<br />Threats<br />Being number one means that you are the target of competition, locally and globally.<br />Being a global retailer means that you are exposed to political problems in the countries that you operate in.<br />Bharti-Walmart is also looking to increase its manpower by hiring around 1,100 people.<br />Bharti Wal-Mart Private Limited will make investments to set up an efficient supply chain, linking farmers, mall manufacturers and retailers.<br />Additionally, farmers and small manufacturers with limited infrastructure and distribution strength can expect support from the joint venture. The aim will also be to enable minimum wastage, particularly of fresh foods and vegetables.<br />Wal-Mart’s global expertise in supply chain and logistics will bring enhanced efficiencies across the retail ecosystem. This venture promises to bring great value to millions of farmers, artisans, small manufacturers and retailers across India. We are pleased to be a partner in developing this sector which is set to become a significant engine of India’s economic growth.�?<br />Wal-Mart Stores, Inc. has picked Bharti for the latter’s deep understanding of the local market. The first wholesale cash-and-carry facility is targeted to open by the end of next year, followed by 10 to 15 wholesale cash-and-carry facilities in the next seven years. These facilities are positioned to hire as many as 5,000 employees. A typical facility will stand between 50,000 and 100,000 square feet and sell a wide range of fruits and vegetables, groceries and staples, stationery, footwear, clothing, consumer durables and other general merchandise items.<br />Bharti Wal-Mart Private Limited will introduce modern retailing in India. With world-class processes and technologies, modern supply chain and back-end logistics expertise, the result will be better quality, and more choice at better prices. Additionally, local suppliers will be encouraged to develop and derive significant benefits for their businesses<br />