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Walmart lobbying in India 2014


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Walmart lobbying in India 2014

  1. 1. Lobbying in India?
  2. 2. Executive Summary  With the Indian retail sector estimated to be worth $500 billion as of 2012 and projected to cross $1 trillion by 2020, the country is a top destination for global retailers.  Wal-Mart has aspirations of becoming India’s top retailer by 2015.  In late 2012, Wal-Mart revealed it had spent $25 million since 2008 on lobbying activities to “enhance market access for investment in India.”  Disclosure came weeks after Indian governments’ controversial decision to permit foreign direct investment (FDI) in the multi-brand retail sector  Uproar in India – Political parties demanded investigation  Wal-Mart believed it had been unfairly targeted. Wal-Mart maintained it had used the funds for legal lobbying activities.
  3. 3. Executive Summary  Growing resentment towards the company among some groups in India.  “Lobbying” in India was considered a “dirty” word.  Groups protesting against FDI in multi-brand retail, particularly smaller domestic retail stores, used Wal-Mart’s disclosure to advocate their case.  Opposition parties highlighted the disclosure as another example of foreign interference in domestic policy-making. Derided the government as corrupt.  Independent committee set up by the Indian government to probe WalMart’s lobbying activities.  Along with investigation in India, Walmart also had to consider the possibility that the actions of its agents might have violated the U.S. Foreign Corrupt Practices Act (FCPA).
  4. 4. The Indian Retail Sector  The retail sector accounted for 23.6% of India’s GDP and employed 9.8% of its workforce  A.T. Kearney, ranked India as the fifth most attractive nation for retail investment among 30 emerging markets in 2012.  The country had the second highest shop density in the world, with 11 retail outlets for every 1,000 persons.  The sector comprised organized and unorganized retail. Organized retail represented a small (5%), but growing component (15% to 20% CAGR) of the total retail sector.  A report by PricewaterhouseCoopers (PwC) identified high rentals, rising land costs, value conscious consumers, complex tax and regulatory structures and a fragmented supply base as risks faced by Indian retail companies.  A.T. Kearney believed both formats would continue to co-exist and unorganized retailers would reinvent themselves to stay competitive.
  5. 5. FDI in the Retail Sector  After liberalization of economy in early 1990’s, India opened up select sectors to FDI to access capital, technology and management skills.  Finally in 2000 government permitted FDI in most sectors, barring a few.  Retail was one of the sectors where FDI was not permissible.  The sector was politically sensitive and strategically important to the country.  It was widely believed that “the diversity of the sector, and the livelihoods that were at risk, necessitated the government’s protectionist stance”.  However, amidst the emergence of a large number of domestic organized retailers, growing middle class consumerism expectations that foreign retailers will source products from India, the Indian government began to revisit its FDI policy for the sector and introduced modifications.
  6. 6. FDI Limits for Select Sectors in India
  7. 7. Wal-Mart  Wal-Mart is a publicly listed American corporation, founded in 1962 by Sam Walton, Wal-Mart’s retail units sold a wide range of products including apparel, electronics, groceries, home furnishing, hardware, pharmaceuticals, etc.  In 2013, it was the largest retailer in the world with 10,000 retail stores in 27 countries, serving 200 million customers weekly.  Largest private employer in the world, employing nearly 2.2 million individuals.  One of America’s most profitable companies with net profit of $16.9 billion in 2012.  It operated stores in diverse formats ranging from cash and carry stores, membership warehouse clubs, soft discount stores, supercenters to general merchandise stores.  Wal-Mart had set up operations in Canada, China, United Kingdom, Japan and other countries through JVs and acquisitions.  Its international sales in 2012 accounted for 28% of overall consolidated net sales
  8. 8. Wal-Mart in India  Wal-Mart, in partnership with Bharti Enterprises launched wholesale operations in India, in 2007  Through a 50:50 JV, they created Bharti Wal-Mart Private Limited and opened their first store ‘Best Price Modern Wholesale’ in Amritsar, Punjab in northern India.  The JV’s operations were restricted to wholesale, since regulations did not permit FDI in multi-brand retail.  Wal-Mart “chose to partner with Bharti rather than staging a solo entry into India” because Bharti Enterprises knew “how to get things fastest in a country that is very complex in nature.  The JV sourced 90% of its goods locally. It expanded its presence across India and by 2012, operated 20 stores across eight states  Wal-Mart intended to operate retail units in the country if FDI rules were relaxed.
  9. 9. Wal-Mart: Controversial Image  Despite its success, Wal-Mart acquired a controversial image.  Its policies to achieve low prices faced criticism from several groups.  In the U.S., the company was accused of paying low wages, offering poor working conditions and violating state and federal laws.  A study found that Wal-Mart employees earned 12.4% less than other retail employees in the U.S. and that opening of one Wal-Mart store pushed down local retail wages by 0.9%.  Wal-Mart’s pricing practices were also suspected of driving out local competition and forcing many retailers to shut down.  Its procurement practices were disapproved as its size and high-volume procurement allowed it to set prices for agricultural products and manufactured goods, thereby ‘squeezing’ small suppliers, producers and farmers.  The company was also accused of encouraging American companies to move factories and jobs overseas, forcing lay-offs among its suppliers
  10. 10. Lobbying is the process by which individuals, special interest groups, business associations or community organizations influenced policy and positions of public officials.
  11. 11. Lobbying: Global Experience  Many countries saw lobbying as an integral part of democratic functioning that allowed individuals and groups to legitimately influence decisions that affected them.  Lobbying took various forms such as grassroots advocacy and advertising campaigns, participation in trade associations, campaign contributions, direct engagement with public officials and hiring of lobbying firms or lobbyists.  Australia, Canada, Germany, Hungary, Poland, Taiwan and the U.S. are some such countries. These countries used regulations to enhance transparency around lobbying.  In the U.S., lobbying was federally regulated under the Lobbying Disclosure Act, 1995.  This Act required lobbyists to register and report lobbying fees above a certain amount. It also required companies to report all lobbying expenditure along with the list of issues, lobbyists involved and the public officials and offices contacted.  Nevertheless, lobbying was considered ethically ambiguous. Regular scandals had led to skepticism about the role of lobbying in a democracy
  12. 12. Lobbying by Wal-Mart Annual Spending on Lobbying by Wal-Mart Stores in the U.S. from 1998–2013
  13. 13. Lobbying in India  Lobbying is a dirty word in India; one reason being that lobbying activities were repeatedly identified in the context of corruption cases.  For example, in 2010, leaked audio transcripts of conversations of an influential Indian lobbyist, Nira Radia, revealed murky dealings between the government and several Indian business groups, reinforcing public perceptions about lobbying.  While lobbying was not a new phenomenon in India, it was largely unregulated.  There were no laws that defined the scope of lobbying, who could undertake it, or the extent of disclosure necessary.  Companies were not mandated to disclose their activities.  Lobbyists were neither authorized nor encouraged to reveal the names of clients or public officials they had contacted.  The distinction between lobbying and bribery was unclear.  As the number of scams and scandals increased, there was growing debate on whether or not lobbying should be regulated.
  14. 14. Walmart Lobbying in India?  Apr 2012: The New York Times reports executives at Wal-Mart’s Arkansas headquarters suppressed an internal probe that found evidence that its Mexican subsidiary had paid bribes to open more stores in Mexico.  Sept 2012: India allows up to 51% FDI in multi-brand retail.  Nov 2012: Wal-Mart discloses it had expanded its bribery investigation initially focused on Mexico to India, China and Brazil; Bharti Wal-Mart suspends a few employees to ensure a “thorough investigation.”  Dec 2012: Wal-Mart’s US lobbying disclosure disrupts parliamentary proceedings. Opposition parties called for an investigation into Wal-Mart’s lobbying activities.  Jan 2013: A committee set up to probe Wal-Mart’s lobbying activities in India.  Jun 2013: Raj Jain, CEO, Bharti Wal-Mart, resigned from the company after heading the company for close to six years in India.
  15. 15. Lobbying Techniques  According to Cherian, there were two types of lobbying in India: Overt Lobbying It include activities such as developing whitepapers, conducting studies, offering technical expertise, testifying in parliamentary committees and informing the public through campaigns and press conferences. Cherian summed it up as “everything that is legitimate.” Covert Lobbying Covert lobbying, in his view, was “when big money started to move in.”  Working with associations allowed companies to pool resources, avoid duplicating effort, and achieve economies of scale.  Cherian added, “When you lobby in groups, the opportunity for large-scale corruption gets reduced.”
  16. 16. MNCs Lobbying in India  Enron Corporation’s disclosure to the U.S. Congress of spending $20 million to “educate Indians” on the benefits of its proposed power project in the state of Maharashtra, India. This was considered a code word for bribes given to the then BJP-led government to overcome opposition to the project.  The MNC have attempted to lobby through business associations. Some anonymous country head elaborated: “Business associations like CII and RAI have specific committees focused on retail. These committees represented the broader interests of the sector. I was an office bearer in several of these committees. When I met the same policymakers in this capacity, the engagement was different as they saw us bearing the mantle of the entire retail fraternity. They no longer saw us as a company acting in its self-interest. This allowed us to be successful.”  A key Advocacy institution for U.S.-based multinationals in India was the USIBC, the autonomous Indian arm of the U.S. Chamber of Commerce that served as “the direct link between American and Indian business and government leaders.”
  17. 17. MNCs Lobbying in India Aerospace Industries Association of America Morgan Stanley Alcatel-Lucent, USA Inc. National Chicken Council Business Roundtable National Milk Producers Federation Cargill Inc. National Turkey Federation Corning Inc. Pfizer Inc. The Dow Chemical Company Prudential Financial Inc. Dell Inc. Rio Tinto Services Inc. Hewlett-Packard Company Software and Information Industry Association Honeywell International Technology Association of America IBM Telecommunications Industry Association International Intellectual Property Alliance Walmart Stores Mead Johnson Nutrition Whirlpool Corporation List of Companies that Lobbied on India-Related Issues in the U.S in 2012
  18. 18. Indian Companies Lobbying in the U.S.  Several Indian companies hired lobbyists to lobby in the United States.  Ranbaxy, an Indian pharmaceutical company, paid $90,000 to Patton Boggs to “preserve access to affordable generics.”  Reliance Industries was a client of lobbying firm Barbour, Griffith & Rogers and reported spending $2 million on lobbying over four years.  Tata Sons hired the Cohen Group to lobby on an issue described as “market research in the automotive, defense and energy sectors.”  Wipro, like many Indian software firms, lobbied in the U.S. for favorable visa policies.  Documents with the U.S. House of Representatives reveal that over the years, around 27 Indian companies have spent thousands of dollars doing the same in the U.S.”
  19. 19. Trouble for Wal-Mart in India  Wal-Mart’s routine disclosure to the U.S. Senate on its lobbying expenditures stirred a controversy in India.  The company was accused of engaging in illegal activities to gain market access.  Some believed the issue had been politicized.  Groups protesting against FDI wanted to make an example out of Wal-Mart.  Those frustrated by corruption scandals and lack of regulation on lobbying used Wal-Mart’s disclosure to highlight these issues.  In the course of an internal investigation, several key executives associated with Wal-Mart in India departed the company  Wal-Mart now faced the issue of how it could rebuild itself to take a leading role in India’s lucrative retail sector.
  20. 20. Thank You Group Members Abhishek Jain (02) Neha Wahi (39)