walmart entry strategy for India


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walmart entry strategy for India

  1. 1. In November of 1962 Mr. Sam Walton was opened Wal-Mart. It is largest retail store chain inAmerica. Wal-Mart itself has a big brand and the market leader of Retail sector in US. Wal-Martemploys 1.6 million associates worldwide in more than 3,700 stores in the US and more than1,500 throughout the rest of the world. Strategy of Wal-Mart is the low price. Wal-Mart outlets isspread throughout the world and doing well.Vision Statement:-“Our vision is to provide good quality and services to our customers,while remaining the marketleader and striving daily to be the most admired company”.Mission Statement:-“To provide quality products at an everyday low price and with extended Customerservice…always.”Wal-Mart Slogan: - “Save money, live better”The culture consists of Wal-Mart:- • Quality product at low prices “everyday” • Respect for the individual. • Service to our customers. • Strive for excellence. 1
  2. 2. Divisions of Wal-Mart- • Neighborhood Markets (groceries) • Sam’s Club (membership) • Discount stores (FMCG& apparels) • Wal-Mart super centers (groceries) • McLane (Acquired just now) Discount Sam’s Neighbour- Divisions stores supercenters club hood marketsInternational 942 238 71 37Totals 2
  3. 3. SWOT of Wal-Mart:- STRENGHT WEAKNESS • Cost Advantage • Wal-Mart sell products across • Low Price and Customer oriented many sectors it may not have the • Strong Supply Chain flexibility of some of its more • Brand Image focused competitors • Use IT for to support international • The company is global but has logistics presence in relatively few • Expansion Strategies countries worldwide OPPORTUNITY THREAT • To take over or joint venture to • Being number one means that you enter in global market are the target of local and global • Put efforts on social welfare  competitors better image • Being global brand means can • Expansion of stores in Asian face political problem operating market like Indian, China. business in • New location and stores types for • Price competition market development 3
  4. 4. Competitive Advantage of Wal-Mart- 1. Supply Chain Management: - This is one of the best competitive advantages. Wal-Mart has two main supplier P&G and HUL. The supply chains add the value to the company. 2. Price Leadership: - Wal-Mart always sells product on low price and they forward this benefits to their customers. 3. Exchange benefit: - The Wal-Mart customer can exchange their purchased product through any Wal-Mart outlets. 4. Brand Image:- The strongest competencies of Wal-Mart are there brand image in the minds of consumer. It is the leader of the world retail industry. 4
  5. 5. RETAIL INDUSTRY IN INDIARetail industry is one of the largest growing industries in India. In India it has economy of 13%GDP. India has uppermost number of outlets per person and it is 7 per thousand. Retail sectorhas over 14 million outlets operates in India. Indian retail space per capita at 2 sq. ft. / person islowest in the world and Indian retail thickness of 6 percent is highest in the world. India has anannual income of over 45 lakh from 1.8 million households.The retail industry is divided into two sectors; the first is organized and second unorganizedsectors.a)Organized sector:-It mostly target market is urban area and their target customeris high income and middle Hypermarkets, Retail chains, supermarket and Retail outlets etc.,b)Unorganized Sector:-It refers to the conventional formats of low-cost vending. It is mostly run by localities in theirrespective regions. Its target market is rural areas and semi-urban regions and their Targetedcustomer is middle and lower middle Local Kirana shops, general stores, street vendors etc., 5
  6. 6. India Retail Facts Total Retail: Rs.2,000,000 crore (Rs.20,000 billion) Modern retail size: Rs.1,64,000 crore (Rs.1,640 billion): 8.2 per cent of total retail Employment in modern retail: 10 direct employment in retail and 100 indirect employment per Rs.1 crore (Rs.10 million) sales Total employment in modern retail: 1.65 million Estimated indirect employment in modern retail: 1.65crore Dependence on modern retail: Over 1.8 Crore peopleThe retail industry in India is anticipated to twice in worth from US$ 330 billion in 2007 to $640billion by 2015. Actually, India has topped AT Kearneys annual Global Retail DevelopmentIndex (GRDI) for the third year in a row as the most attractive market for retail investment.(AT Kearney GRDI ranks the top 30 emerging countries for retail development and identifieswindows of opportunity for global retailers to invest in developing markets)There are many mergers and takeovers going on in recent time Wal-Mart acquired McLane. It istrying to expand business in Asian continent mostly in India. Indian competitors in Retailindustry are Kirana stores, Pantaloon, K Raheja corp. group, Trent, Landmark, A V Birla group,etc.Analysts believe the sector is likely to show significant growth of over 9 % p.a over the next 10years and also see rapid development in organized retail formats, with the proportion likely toreach a more respectable 25% by 2018. 6
  7. 7. Michael Porter’s Five Forces Analysis ofIndian Retail Industry:-Threats for New Entrants:-(Force is Moderate)One of the defining characteristics of competitive advantage is the industry’s barrier to entry.Retail industries with high barriers to entry are usually too expensive for new firms to enter likeinfrastructure, employees, huge capital investment. Industries with low barriers to entry arerelatively cheap for new firms to enter.The threat of new entrants rises as the barrier to entry is reduced in a marketplace. As more firmsenter a market, will see rivalry increase, and profitability will fall to the point, where there is noincentive for new firms to enter the industry. 7
  8. 8. Here are some common barriers to entry: High cost of entry – New entrants will require huge capital, infrastructure, labour to enter in Indian retail industry. Brand loyalty – When brand loyalty is strong within an industry, it can be difficult and expensive to enter the market. Government Policy- Government new retail policy constrainnew foreign retailers those policies are:  Said location must have population more than 10 lakh.  Said company has to invest more than 5 million dollar for said outlet.  Said company has to employ local unskilled labours. Distribution Channels- New entrant will get problem through existing distribution channel of market, while entering in India. Economies of scale- Logistic is strongest distinctive point of any company. When company produce more quantity it can reduce cost. It helps to provide low price product to the consumer with high in profit with low cost. It requires high economies of scale.Determinants ofBuyer Power :-(Force is High)There are two types of buyer power in retail. The first is related to the customer’s pricesensitivity. If each brand of a product is similar to all the others, then the buyer will base thepurchase decision mainly on price. This will increase the competitive rivalry, resulting in lowerprices, and lower profitability.The other type of buyer power relates to negotiating power. Large quantity buyers tend to havemore influence with the firm, and can negotiate lower prices. 8
  9. 9. Some factors affecting buyer power are:Size of buyer – Larger quantity buyers will have more power over suppliers in retail industry.Number of buyers –When there are a small number of buyers, they will tend to have more power over suppliers. TheDepartment of Defense is an example of a single buyer with a lot of power over suppliers.Purchase quantity and quality –Indian consumer can buy high quantity of product, if there will low price of product, because ofthe low price factors consumer will neglect quality factor.Indian consumer’s mentality-Mostly Rural Indian consumers buy products form local suppliers (Kirana stores) and urbanconsumers prefer both sources of supplier.Discount factor-It makes the consumer to buy product through internet from different companies with differenttypes of discount like gift, cash discount etc.Threats of Substitute Industry and products-(Force is Moderate)This is probably the most overlooked, and therefore most damaging, element of strategicdecision making. It’s vital that business owners not only look at what the company’s directcompetitors are doing, but what other types of products people could buy instead.When switching costs (the costs a customer incurs to switch to a new product) are low the threatof substitutes is high. As is the case when dealing with new entrants in retail, companies mayaggressively price their products to keep people from switching. When the threat of substitutes ishigh in retail, profit margins will tend to be low. Indian consumers have plenty of choices ofproducts to buy, so industry get benefits through variety of products.The quality of substitute products makes influence on consumer buying decision and alsolocation, culture, social, philological influence. 9
  10. 10. Determinants of supplier power-(Force is Moderate)When multiple suppliers are producing a commoditized product in retail industry, the companywill make its purchase decision based mainly on price, which tends to lower costs. On the otherhand, if a single supplier is producing something the company has to have, the company willhave little leverage to negotiate a better price.Size plays a factor here as well. If the retail company is much larger than its suppliers, andpurchases in large quantities, then the supplier will have very little power to negotiate.A few factors that determine supplier power include:Supplier concentration –The fewer the number of suppliers for a products in retail, the more power they will have overthe retailers. This is a real life situation.Switching costs –Suppliers of retail stores become more powerful as the cost to change to another supplierincreases.Uniqueness of product –Suppliers that produce products specifically for a retailers and retailers will have more powerthan product suppliers.Competitors-(Force is Moderate but Increasing)Competitors are competitors within an industry. Competition in the industry can be weak, withfew competitors that don’t compete very aggressively. Or it can be intense, with manycompetitors fighting in a cut-throat environment.Key Players in Indian Retail Sector- Kirana Stores- This is the oldest and recognized format of unorganized retail, which has 97% of market coverage. It is the main competitor for every retailer and other retail sector players in India. Till now people of India prefer Kirana stores to buy daily goods. It has somehow brand loyalty of consumer and it is located at very convenient places. 10
  11. 11. AV Birla Group - It has a strong presence in apparel retail and owns renowned brands like Allen Solly, Louis Phillipe, Trouser Town, Van Heusen and Peter England. The company has investment plans to the tune of 8000 – 9000 crores till 2010. It has started to expand aggressively to compete with other players. Trent - Itis a subsidiary of the Tata groupit operates lifestyle retail chain, book and music retail chain, consumer electronics chain etc. Westside, the lifestyle retail chain registered a turnover of 3.58 mn in 2006. Trent become famous in short span of time. Landmark Group - It invested 300 crores to expand Max chain, and 100 crores on Citymax 3 star hotel chain. Lifestyle International is their international brand business. K Raheja Corp Group - It has a turnover of 6.75 billion which is cross US$100 million mark by 2010. Segments include books, music and gifts, apparel, entertainment etc. Reliance– It has more than 300 Reliance Fresh stores; they have multiple formats and their sale is expected to be 90,000 crores by 2009-10. Pantaloon- Retail has 450 stores across the country and revenue of over 20 billion and is touched 30 million by 2010. Segments include Food & grocery, e-tailing, home solutions, consumer electronics, entertainment, shoes, books, music & gifts, health & beauty care services. This is the biggest competitor for new retailer coming to India.It’s important to analyze these five forces and their effect on companies who want to invest in.The Porter Five Forces Analysis will give a good explanation for the profitability of an industry,and the firms within it. Porter’s five forces make a big difference in company’s success andfailure.This give the clear idea about India present retail industry, it will be easier to plan strategyto make impact in Indian retail industry. 11
  12. 12. P.E.S.T.L.E Analysis of Indian Retail Industry:-Political Analysis:- Strong opposition to FDI in India’s retail sector. Taxation policy – VAT. Low access to banking facilities.Economic Analysis:- GDP Growth. Foreign Investments. Money Supply. Inflation.Social Analysis:- Corporate Social Responsibility. Environmental Safety. Ease of shopping.Technological Analysis:- Online Shopping. Retail media networks(RMN). ERP System. CRM System.Legal Analysis:- Wages act. Weights and measure, octroi etc. Shop and establishment act.Environmental Analysis:- Seasonal products. Product life cycle. 12
  13. 13. Retail Industry Attractiveness study:-a) These are the several characteristic to determine market attractiveness: 1. Market growth:- The business monitor international India retail report for the fourth-quarter for 2011 that total sales will grow from US $ 411.28 billion in 2011 to US$ billion by 2015. 2. Market Size:- Indian retail sector is divided in to two groups one is organised group and other one is unorganised .In that only 3% retail market is organised and remaining 97%is unorganised so there is huge scope for growth and expansion in Indian retail sector. 3. Market profitability:- Probability in Indian market is moderate. Competitions from both unorganised and organised sector have effect on probability. Higher the competition lowers the profits. 4. Segmentation:- As a part of organised sector Wal-Mart targeted an urban area, middle class or higher middle class consumer with high income level. Mostly youngster and Indian housewife will prefer shops like Wal-Mart. 5. Distribution Channels:- Distribution channels are direct, wholesale. Wal-Mart will have to apply both distribution channels for consumers. It has also world best supply chain management and IT facilities. It will become convenient for Indian consumer and will be easily available.b) Opprtunity in Indian Retail Market:- Overall Indian retail market is about 206 billion dollar and has 5% annual growth. Scope for a growth in Indian retail market is 97%. India has emergence of middle class and consumer. About 60% of Indian population is in age group of 20-30 and youth are more declined towards the modern shopping. Mostly Indian consumers are price conscious, so wall mart strategy “Everyday Low Price” and wide range of products will attract Indian consumers. 13
  14. 14. Recommendation:-India is one of the largest growing retail industries and there is so much scope for new entrants inthis market. The increase number of buying power of Indian middle class opens doors for newplayers to make the market attractive and profitable. If Wal-Mart use this planned strategy tomake entry in Indian market, it will help them to establish and make sustainable business.Indian retail law does not allow multi-brand foreign retailers to sell directly to consumers SoWal-Mart will have to make 51:49 joint ventures with any Indian company to enter in Indianmarket.According to me Wal-Mart must enter in Indian retail industry, there is so much scope for suchcompanies.Wal-Mart competitive advantages matches to the Indian consumer, which is apositive reason to enter in India. It will become milestone for Wal-Mart in South Asia. 14
  15. 15. Bibliography and References: › Topics › Wal-Mart 15